Quarterly Report


__________________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

   
 

For the Quarterly Period Ended September 30, 2007

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   
 

For the transition period from ____________ to ____________


Commission
File Number

Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.

 


Commission
File Number

Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.

1-11299

ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, LA 70113
Telephone (504) 576-4000
72-1229752

 

1-31508

ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830

         
         

1-10764

ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900

 

0-5807

ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street, Building 529
New Orleans, Louisiana 70112
Telephone (504) 670-3700
72-0273040

         
         

1-27031

ENTERGY GULF STATES, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
74-0662730

 

1-9067

SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
72-0752777

         
         

1-32718

ENTERGY LOUISIANA, LLC
(a Texas limited liability company)
446 North Boulevard
Baton Rouge, LA 70802
Telephone (225) 381-5868
75-3206126

     
         

__________________________________________________________________________________________

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

 

Large
accelerated
filer

 



Accelerated filer

 


Non-accelerated filer

Entergy Corporation

Ö

       

Entergy Arkansas, Inc.

       

Ö

Entergy Gulf States, Inc.

       

Ö

Entergy Louisiana, LLC

       

Ö

Entergy Mississippi, Inc.

       

Ö

Entergy New Orleans, Inc.

       

Ö

System Energy Resources, Inc.

       

Ö

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Common Stock Outstanding

 

Outstanding at October 31, 2007

Entergy Corporation

($0.01 par value)

194,376,164

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2006, and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007, filed by the individual registrants with the SEC, and should be read in conjunction therewith.

 

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2007

 

Page Number

   

Definitions

1

Entergy Corporation and Subsidiaries

 
 

Management's Financial Discussion and Analysis

 
   

Hurricane Katrina and Hurricane Rita

5

Results of Operations

6

   

Liquidity and Capital Resources

14

   

Significant Factors and Known Trends

19

   

Critical Accounting Estimates

24

   

New Accounting Pronouncements

24

 

Consolidated Statements of Income

27

 

Consolidated Statements of Cash Flows

28

 

Consolidated Balance Sheets

30

 

Consolidated Statements of Retained Earnings, Comprehensive Income, and
  Paid-In Capital

32

 

Selected Operating Results

34

Notes to Financial Statements

35

Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk

59

Part I. Item 4. Controls and Procedures

59

Entergy Arkansas, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

60

   

Liquidity and Capital Resources

63

   

Significant Factors and Known Trends

64

   

Critical Accounting Estimates

65

   

New Accounting Pronouncements

66

 

Income Statements

67

 

Statements of Cash Flows

69

 

Balance Sheets

70

 

Selected Operating Results

72

Entergy Gulf States, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Hurricane Rita and Hurricane Katrina

73

   

Results of Operations

74

   

Liquidity and Capital Resources

78

   

Significant Factors and Known Trends

80

   

Critical Accounting Estimates

82

   

New Accounting Pronouncements

82

 

Consolidated Income Statements

83

 

Consolidated Statements of Cash Flows

85

 

Consolidated Balance Sheets

86

 

Consolidated Statements of Retained Earnings and Comprehensive Income

88

 

Selected Operating Results

89

Entergy Louisiana, LLC

 
 

Management's Financial Discussion and Analysis

 
   

Hurricane Rita and Hurricane Katrina

90

   

Results of Operations

90

   

Liquidity and Capital Resources

94

   

Significant Factors and Known Trends

96

   

Critical Accounting Estimates

97

   

New Accounting Pronouncements

97

 

Income Statements

98

 

Statements of Cash Flows

99

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2007

 

Page Number

   
 

Balance Sheets

100

 

Statements of Members' Equity and Comprehensive Income

102

 

Selected Operating Results

103

Entergy Mississippi, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

104

   

Hurricane Katrina Storm Cost Recovery

106

 

 

Liquidity and Capital Resources

107

   

Significant Factors and Known Trends

108

Critical Accounting Estimates

109

   

New Accounting Pronouncements

109

 

Income Statements

110

 

Statements of Cash Flows

111

 

Balance Sheets

112

 

Selected Operating Results

114

Entergy New Orleans, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Hurricane Katrina

115

   

Bankruptcy Proceedings

115

   

Results of Operations

116

   

Liquidity and Capital Resources

119

   

Significant Factors and Known Trends

120

   

Critical Accounting Estimates

121

   

New Accounting Pronouncements

121

 

Income Statements

122

 

Statements of Cash Flows

123

 

Balance Sheets

124

 

Selected Operating Results

126

System Energy Resources, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

127

   

Liquidity and Capital Resources

127

   

Significant Factors and Known Trends

129

   

Critical Accounting Estimates

129

   

New Accounting Pronouncements

129

 

Income Statements

130

 

Statements of Cash Flows

130

 

Balance Sheets

132

Part II. Other Information

 
 

Item 1. Legal Proceedings

134

 

Item 1A. Risk Factors

134

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

134

 

Item 5. Other Information

135

 

Item 6. Exhibits

138

Signature

140

 

 

FORWARD-LOOKING INFORMATION

In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "intends," "plans," "predicts," "estimates," and similar expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, these registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements involve a number of risks and uncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management's Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):

  • resolution of pending and future rate cases and negotiations, including various performance-based rate discussions and implementation of Texas restructuring legislation, and other regulatory proceedings, including those related to Entergy's System Agreement, Entergy's utility supply plan, recovery of storm costs, and recovery of fuel and purchased power costs
  • Entergy's and its subsidiaries' ability to manage their operation and maintenance costs
  • changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, the operations of the independent coordinator of transmission that includes Entergy's utility service territory, and the application of market power criteria by the FERC
  • the economic climate, and particularly growth in Entergy's service territory
  • variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of Hurricanes Katrina and Rita and recovery of costs associated with restoration including Entergy's ability to obtain financial assistance from governmental authorities in connection with these storms
  • the performance of Entergy's generating plants, and particularly the capacity factors at its nuclear generating facilities
  • changes in the financial markets, particularly those affecting the availability of capital and Entergy's ability to refinance existing debt, execute its share repurchase program, and fund investments and acquisitions
  • actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies' ratings criteria
  • changes in inflation and interest rates
  • Entergy's ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities
  • Entergy's ability to purchase and sell assets at attractive prices and on other attractive terms
  • prices for power generated by Entergy's unregulated generating facilities, the ability to hedge, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Non-Utility Nuclear plants, and the prices and availability of fuel and power Entergy must purchase for its utility customers, and Entergy's ability to meet credit support requirements for fuel and power supply contracts
  • volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities
  • changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown of nuclear generating facilities, particularly those in the Non-Utility Nuclear business
  • uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel storage and disposal

FORWARD-LOOKING INFORMATION (Concluded)

  • resolution of pending or future applications for license extensions or modifications of nuclear generating facilities
  • changes in law resulting from federal energy legislation, including the effects of PUHCA repeal and the adoption of the FERC reliability requirements
  • changes in environmental, tax, and other laws, including requirements for reduced emissions of sulfur, nitrogen, carbon, mercury, and other substances
  • advances in technology
  • the potential effects of threatened or actual terrorism and war
  • the effects of Entergy's strategies to reduce tax payments
  • the effects of litigation and government investigations
  • changes in accounting standards and corporate governance
  • Entergy's ability to attract and retain talented management and directors
  • And the following transactional factors (in addition to others described elsewhere in this and in subsequent securities filings): (i) risks inherent in the contemplated Non-Utility Nuclear spin-off, joint venture and related transactions (including the level of debt incurred by SpinCo and the terms and costs related thereto); (ii) legislative and regulatory actions; and (iii) conditions of the capital markets during the periods covered by the forward-looking statements.  Entergy Corporation cannot provide any assurances that the spin-off or any of the proposed transactions related thereto will be completed, nor can it give assurances as to the terms on which such transactions will be consummated. The transaction is subject to certain conditions precedent, including regulatory approvals and the final approval by the Board.

DEFINITIONS

Certain abbreviations or acronyms used in the text are defined below:

Abbreviation or Acronym

Term

   

AEEC

Arkansas Electric Energy Consumers

AFUDC

Allowance for Funds Used During Construction

ALJ

Administrative Law Judge

ANO 1 and 2

Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear), owned by Entergy Arkansas

APSC

Arkansas Public Service Commission

Average contract price per MWh

Price at which generation output or capacity is expected to be sold to third parties, given existing contract or option exercise prices based on expected dispatch or capacity, excluding revenue associated with amortization of the below-market PPA for Palisades

Average contract revenue per MWh

Price at which the combination of generation output and capacity are expected to be sold to third parties, given existing contract or option exercise prices based on expected dispatch

Average realized price per MWh

Revenue per MWh billed

Board

Board of Directors of Entergy Corporation

Cajun

Cajun Electric Power Cooperative, Inc.

capacity factor

Actual plant output divided by maximum potential plant output for the period

City Council or Council

Council of the City of New Orleans, Louisiana

CPI-U

Consumer Price Index - Urban

DOE

United States Department of Energy

EITF

FASB's Emerging Issues Task Force

Entergy

Entergy Corporation and its direct and indirect subsidiaries

Entergy Corporation

Entergy Corporation, a Delaware corporation

Entergy-Koch

Entergy-Koch, LP, a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.

Entergy Louisiana

Entergy Louisiana, LLC

EPA

United States Environmental Protection Agency

ERCOT

Electric Reliability Council of Texas

FASB

Financial Accounting Standards Board

FEMA

Federal Emergency Management Agency

FERC

Federal Energy Regulatory Commission

firm liquidated damages

Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset); if a party fails to deliver or receive energy, the defaulting party must compensate the other party as specified in the contract

Form 10-K

Annual Report on Form 10-K for the calendar year ended December 31, 2006 filed by Entergy Corporation and its Registrant Subsidiaries with the SEC

FSP

FASB Staff Position

Grand Gulf

Unit No. 1 of Grand Gulf Steam Electric Generating Station (nuclear), 90% owned or leased by System Energy

GWh

Gigawatt-hour(s), which equals one million kilowatt-hours

GWh billed

Total number of GWh billed to all customers

1

 

DEFINITIONS (Continued)

Abbreviation or Acronym

Term

   

Independence

Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power

IRS

Internal Revenue Service

ISO

Independent System Operator

kV

Kilovolt

kW

Kilowatt

kWh

Kilowatt-hour(s)

LDEQ

Louisiana Department of Environmental Quality

LPSC

Louisiana Public Service Commission

Mcf

One thousand cubic feet of gas

MMBtu

One million British Thermal Units

MPSC

Mississippi Public Service Commission

MW

Megawatt(s), which equals one thousand kilowatt(s)

MWh

Megawatt-hour(s)

Nelson Unit 6

Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States

Net debt ratio

Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents

Net MW in operation

Installed capacity owned and operated

Net revenue

Operating revenue net of fuel, fuel-related, and purchased power expenses; and other regulatory credits

Non-Utility Nuclear

Entergy's business segment that owns and operates six nuclear power plants and sells electric power produced by those plants primarily to wholesale customers

NRC

Nuclear Regulatory Commission

NYPA

New York Power Authority

OASIS

Open Access Same Time Information Systems

PPA

Purchased power agreement

production cost

Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas

PRP

Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination)

PUCT

Public Utility Commission of Texas

PUHCA 1935

Public Utility Holding Company Act of 1935, as amended

PUHCA 2005

Public Utility Holding Company Act of 2005, which repealed PUHCA 1935, among other things

PURPA

Public Utility Regulatory Policies Act of 1978

Registrant Subsidiaries

Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc.

Ritchie Unit 2

Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil)

River Bend

River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards as promulgated by the FASB

SMEPA

South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf

2

DEFINITIONS (Concluded)

Abbreviation or Acronym

Term

   

System Agreement

Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources

System Energy

System Energy Resources, Inc.

System Fuels

System Fuels, Inc.

TWh

Terawatt-hour(s), which equals one billion kilowatt-hours

unit-contingent

Transaction under which power is supplied from a specific generation asset; if the asset is unavailable, the seller is not liable to the buyer for any damages

Unit Power Sales Agreement

Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf

UK

The United Kingdom of Great Britain and Northern Ireland

Utility

Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution

Utility operating companies

Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans

Waterford 3

Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana

weather-adjusted usage

Electric usage excluding the estimated effects of deviations from normal weather

White Bluff

White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas

3

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

 

Entergy operates primarily through two business segments: Utility and Non-Utility Nuclear.

  • Utility generates, transmits, distributes, and sells electric power in a four-state service territory that includes portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operates a small natural gas distribution business.
  • Non-Utility Nuclear owns and operates six nuclear power plants located in the northern United States and sells the electric power produced by those plants primarily to wholesale customers. This business also provides services to other nuclear power plant owners.

In addition to its two primary, reportable, operating segments, Entergy also operates the non-nuclear wholesale assets business. The non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving performance and exploring sales or restructuring opportunities for its power plants.

Plan to Pursue Separation of Non-Utility Nuclear

In November 2007, the Board approved a plan to pursue a separation of the Non-Utility Nuclear business from Entergy through a tax-free spin-off of Non-Utility Nuclear to Entergy shareholders. SpinCo, the term used to identify the new company that is yet to be named, will be a new, independent company with publicly-traded common equity. In addition, under the plan, SpinCo and Entergy are expected to enter into a nuclear services joint venture, with 50% ownership by SpinCo and 50% ownership by Entergy. The joint venture board of directors will be comprised of equal membership from both Entergy and SpinCo.

At the time that the transaction is consummated under the current plan, Entergy Corporation's shareholders will own 100 percent of the common equity in both SpinCo and Entergy. Entergy expects that SpinCo's business will be comprised of Non-Utility Nuclear's assets, including its six nuclear power plants, and Non-Utility Nuclear's power marketing operation. Entergy Corporation's remaining business will primarily be comprised of the Utility business. Entergy expects to treat the results of Non-Utility Nuclear as discontinued operations after the spin-off is consummated. The nuclear services joint venture is expected to operate the nuclear assets owned by SpinCo. The joint venture is also expected to offer nuclear services to third parties, including decommissioning, plant relicensing, and plant operation administrative support services, including the services currently provided for the Cooper Nuclear Station in Nebraska.

Entergy Nuclear Operations, Inc. will supplement its application filed in July 2007 with the NRC, which seeks indirect transfer of control of the operating licenses for the six Non-Utility Nuclear power plants, to incorporate the planned business separation. Entergy Nuclear Operations, the current NRC-licensed operator of the Non-Utility Nuclear plants, will remain the operator of those plants after the separation.  Entergy Operations, Inc., the current NRC-licensed operator of Entergy's five Utility nuclear plants, will remain a wholly-owned subsidiary of Entergy and will continue to be the operator of the Utility nuclear plants.

Subject to market terms and conditions, pursuant to the plan it is expected that approximately $4.5 billion of debt financing would be incurred by SpinCo in connection with the separation. Potential uses of the proceeds could include repayment of Entergy Corporation indebtedness, share repurchases, additional investments, or other corporate purposes.

Entergy is targeting third quarter 2008 as the effective date for the spin-off and joint venture transactions to be completed. Entergy expects the transactions to qualify for tax-free treatment for U.S. federal income tax purposes for both Entergy and its shareholders. The transactions are subject to various approvals.  Final terms of the transactions and spin-off completion will be subject to the subsequent approval of the Board. As

 

4

 

Entergy pursues completion of the separation and establishment of the joint venture, Entergy will continue to consider possible modifications to and variations upon the transaction structure, including a sponsored spin-off, a partial initial public offering preceding the spin-off, or the addition of a third-party joint venture partner.

Hurricane Katrina and Hurricane Rita

See the Form 10-K for a discussion of the effects of Hurricanes Katrina and Rita, which in August and September 2005 caused catastrophic damage to portions of the Utility's service territory in Louisiana, Mississippi, and Texas, including the effect of extensive flooding that resulted from levee breaks in and around the greater New Orleans area. See Note 2 to the financial statements herein for a discussion of updates in Entergy Gulf States', Entergy Louisiana's, and Entergy Mississippi's storm cost recovery proceedings.

Entergy has received a total of $134.5 million as of September 30, 2007 on its Hurricane Katrina and Hurricane Rita insurance claims, including $69.5 million that Entergy received in the second quarter 2007 in settlement of its Hurricane Katrina claim with one of its excess insurers. Of the $134.5 million received, $70.7 million was allocated to Entergy New Orleans, $33.2 million to Entergy Gulf States, and $24.8 million to Entergy Louisiana. In the third quarter 2007, Entergy filed a lawsuit in the U.S. District Court for the Eastern District of Louisiana against its other excess insurer on the Hurricane Katrina claim. At issue in the lawsuit is whether any policy exclusions limit the extent of coverage provided by that insurer. Refer to Note 8 to the financial statements in the Form 10-K for a further description of Entergy's Hurricane Katrina and Hurricane Rita insurance claims and the non-nuclear property insurance coverage in place at the time the claims occurred.

Community Development Block Grant (CDBG)

See the Form 10-K for a discussion of the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities.

In March 2007, the City Council certified that Entergy New Orleans has incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding under the state action plan, and certified Entergy New Orleans' estimated costs of $465 million for its gas system rebuild. In April 2007, Entergy New Orleans executed an agreement with the Louisiana Office of Community Development under which $200 million of CDBG funds are being made available to Entergy New Orleans. Entergy New Orleans submitted the agreement to the bankruptcy court, which approved it on April 25, 2007. Entergy New Orleans has received $180.8 million of the funds as of September 30, 2007, and the remainder will be paid to Entergy New Orleans as it incurs and submits additional eligible costs.

Entergy New Orleans Bankruptcy

See the Form 10-K for a discussion of the Entergy New Orleans bankruptcy proceeding. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With the receipt of CDBG funds, and the agreement on insurance recovery with one of its excess insurers, Entergy New Orleans waived the conditions precedent in its plan of reorganization, and the plan became effective on May 8, 2007. See Note 9 to the financial statements for a description of the significant terms in Entergy New Orleans' plan of reorganization.

With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007. Because Entergy owns all of the common stock of Entergy New Orleans, reconsolidation does not affect the amount of net income that Entergy recorded from Entergy New Orleans' operations for the current or prior period, but does result in Entergy New Orleans' financial results being included in each individual income statement line item in 2007, rather than only its net income being presented as "Equity in earnings (loss) of unconsolidated equity affiliates," as will remain the case for 2005 and 2006.

5

Results of Operations

Third Quarter 2007 Compared to Third Quarter 2006

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the third quarter 2007 to the third quarter 2006 showing how much the line item increased or (decreased) in comparison to the prior period:

 


Utility

 

Non-Utility
Nuclear

 

Parent & Other (1)


Entergy

(In Thousands)

 

 

 

 

 

 

 

3rd Quarter 2006 Consolidated Net Income

 

$290,033 

 

$106,898 

 

($8,048)

$388,883 

Net revenue (operating revenue less fuel
  expense, purchased power, and other
  regulatory charges/credits)

 



116,058 



141,117 



(4,243)



252,932 

Other operation and maintenance expenses

 

37,714 

34,915 

3,755 

76,384 

Taxes other than income taxes

 

(11,582)

7,353 

(175)

(4,404)

Depreciation and amortization

 

(2,143)

8,616 

549 

7,022 

Other income

 

19,273 

(26,783)

(15,217)

(22,727)

Interest charges

 

20,754 

(3,039)

25,853 

43,568 

Other (including discontinued operations)

 

530 

(8,105)

619 

(6,956)

Income taxes

 

48,053 

4,369 

(24,019)

28,403 

3rd Quarter 2007 Consolidated Net Income

 

$333,098 

 

$160,913 

 

($32,852)

$461,159 

(1)

Parent & Other includes eliminations, which are primarily intersegment activity.

Refer to " ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS " for further information with respect to operating statistics.

6

As discussed above, Entergy New Orleans has been reconsolidated retroactive to January 1, 2007 and its results are included in each individual income statement line item for 2007. The variance explanations for the Utility for the third quarter 2007 compared to the third quarter 2006 in " Results of Operations " below reflect the 2006 results of operations of Entergy New Orleans as if it were reconsolidated in 2006, consistent with the 2007 presentation including the results in each individual income statement line item. Entergy's as-reported results for the three months ended September 30, 2006, which had Entergy New Orleans deconsolidated, and the amounts needed to reconsolidate Entergy New Orleans, which include inter-company items, are set forth in the table below.

 

Three Months Ended September 30, 2006

  

Entergy Corporation
and Subsidiaries
(as reported)

 


Entergy
New Orleans adjustment*

 

(In Thousands)

Operating Revenues

$3,254,719 

 

$94,330 

Operating Expenses:

     

  Fuel, fuel-related, and gas purchased for resale and purchased power

1,595,335 

 

37,571 

  Other operation and maintenance

590,992 

 

24,763 

  Taxes other than income taxes

133,527 

 

9,165 

  Depreciation and amortization

232,042 

 

8,733 

  Other regulatory credits - net

(21,563)

 

1,040 

  Other operating expenses

79,978 

 

43 

Total Operating Expenses

$2,610,311 

 

$81,315 

Other Income

$91,177 

 

($7,462)

Interest and Other Charges

$143,215 

 

$410 

Income From Continuing Operations Before Income Taxes

$592,370 

 

$5,143 

Income Taxes

$202,437 

 

$5,143 

Income From Continuing Operations

$389,933 

 

$ - 

Loss From Discontinued Operations

($1,050)

 

$ - 

Consolidated Net Income

$388,883 

 

$ - 

*

Reflects the adjustment needed to reconsolidate Entergy New Orleans for 2006. The adjustment includes intercompany eliminations.

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the third quarter 2007 to the third quarter 2006.

  

 

Amount

  

 

(In Millions)

2006 net revenue (includes $55.8
   million for Entergy New Orleans)

 

$1,355.1 

Fuel recovery

 

32.6 

Volume/weather

 

17.4 

Base revenues

 

15.7 

Net wholesale revenue

 

15.5 

Pass-through rider revenue

 

(12.4)

Purchased power capacity

 

(18.5)

Other

 

10.0 

2007 net revenue

 

$1,415.4 

7

The fuel recovery variance is due to increased recovery in the third quarter 2007 of fuel costs from retail and special rate customers in addition to purchased power costs deferred at Entergy Louisiana and Entergy New Orleans as a result of the re-pricing, retroactive to 2003, of purchased power agreements among Entergy system companies as directed by the FERC.

The volume/weather variance resulted primarily from increased usage primarily during the unbilled sales period. See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.

The base revenues variance resulted from rate increases primarily at Entergy Louisiana effective September 2006 for the 2005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing purchased power capacity costs. The formula rate plan filing is discussed in Note 2 to the financial statements in the Form 10-K.

The net wholesale revenue variance is primarily a result of lower wholesale revenues in the third quarter 2006 due to an October 2006 FERC order requiring Entergy Arkansas to make a refund to a coal plant co-owner resulting from a contract dispute.

The pass-through rider revenue variance is primarily due to a change effective in the third quarter 2006 in the accounting for city franchise tax revenues in Arkansas as directed by the APSC. The change resulted in an increase in rider revenue in 2006 with a corresponding increase in taxes other than income taxes, resulting in no effect on net income.

The purchased power capacity variance is due to higher capacity charges. A portion of the variance is due to the amortization of deferred capacity costs and is offset in base revenues due to base rate increases implemented to recover incremental deferred and ongoing purchased power capacity charges at Entergy Louisiana, as discussed above.

Non-Utility Nuclear

Net revenue increased for Non-Utility Nuclear from $364 million for the third quarter 2006 to $506 million for the third quarter 2007 primarily due to higher pricing in its contracts to sell power and additional production available resulting from the acquisition of the Palisades plant in April 2007. Amortization of the Palisades purchased power agreement liability, which is discussed in Note 5 to the financial statements, also contributed to the increase. The increase was partially offset by the effect on revenues of a scheduled refueling outage and an unplanned outage during the third quarter 2007. Following are key performance measures for Non-Utility Nuclear for the third quarters of 2007 and 2006:

 

 

2007

 

2006

 

 

 

 

 

Net MW in operation at September 30

 

4,998

 

4,200

Average realized price per MWh

 

$53.11

 

$44.90

GWh billed

 

10,105

 

9,119

Capacity factor

 

93%

 

99%

Other Income Statement Items

Utility

Taxes other than income taxes decreased for the Utility from $127 million for the third quarter 2006 to $107 million for the third quarter 2007 primarily due to an increase in city franchise taxes in Arkansas in 2006 as a result of a change effective in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change resulted in an increase in taxes other than income taxes in 2006 with a corresponding increase in rider revenue, resulting in no effect on net income.

 

8

 

Other income increased for Utility from $19 million for the third quarter 2006 to $46 million for the third quarter 2007 primarily due to carrying charges on storm restoration costs.

Interest and other charges increased for Utility from $100 million for the third quarter 2006 to $121 million for the third quarter 2007 primarily due to the following:

  • interest on first mortgage bonds primarily at Entergy New Orleans. On September 23, 2006, when the one-year interest moratorium agreed to by the bondholders expired, Entergy New Orleans resumed interest accruals on its outstanding first mortgage bonds;
  • interest on securitization bonds issued during the second quarter 2007 at Entergy Gulf States;
  • interest on Entergy New Orleans' third-party accounts payable pursuant to its plan of reorganization, as discussed above under " Hurricane Katrina and Hurricane Rita - Entergy New Orleans Bankruptcy "; and
  • interest recorded on advances from independent power producers.

Non-Utility Nuclear

Other operation and maintenance expenses increased for Non-Utility Nuclear from $163 million for the third quarter 2006 to $198 million for the third quarter 2007 primarily due to the acquisition of the Palisades plant in April 2007.

Other income decreased for Non-Utility Nuclear from $46 million for the third quarter 2006 to $19 million for the third quarter 2007 primarily due to miscellaneous income of $27 million ($16.6 million net-of-tax) recorded in the third quarter 2006 resulting from a reduction in the decommissioning liability for a plant as a result of revised decommissioning costs and changes in assumptions regarding the timing of when decommissioning of the plant will begin.

Parent & Other

Interest charges increased for Parent & Other from $32 million for the third quarter 2006 to $58 million for the third quarter 2007 primarily due to additional borrowings on Entergy Corporation's revolving credit facilities.

Income Taxes

The effective income tax rate for the third quarter 2007 was 33.1%. The reduction in the effective income tax rate versus the federal statutory rate of 35% is primarily due to:

  • an adjustment to state income taxes for Non-Utility Nuclear to reflect the effect of a change in the methodology of computing New York state income taxes as required by that state's taxing authority;
  • book and tax differences related to the allowance for equity funds used during construction; and
  • the amortization of investment tax credits.

These factors were partially offset by book and tax differences for utility plant items and state income taxes at the Utility operating companies.

The effective income tax rate for the third quarter 2006 was 33.8%. The reduction in the effective income tax rate for the third quarter 2006 versus the federal statutory rate of 35.0% is primarily due to the flow-through of a pension item and the favorable resolution of a tax audit issue, partially offset by state income taxes.

9

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the nine months ended September 30, 2007 to the nine months ended September 30, 2006 showing how much the line item increased or (decreased) in comparison to the prior period:

 


Utility

 

Non-Utility
Nuclear

 

Parent & Other (1)


Entergy

(In Thousands)

 

 

 

 

 

 

 

2006 Consolidated Net Income

 

$609,407 

 

$251,806 

 

$3,101 

$864,314 

Net revenue (operating revenue less fuel
  expense, purchased power, and other
  regulatory charges/credits)

 



252,850 



304,658 



(65,215)



492,293 

Other operation and maintenance expenses

 

146,713 

51,263 

(20,209)

177,767 

Taxes other than income taxes

 

25,618 

10,212 

4,328 

40,158 

Depreciation and amortization

 

37,365 

16,045 

1,343 

54,753 

Other income

 

23,195 

(16,756)

(4,305)

2,134 

Interest charges

 

35,666 

(11,787)

53,098 

76,977 

Other (including discontinued operations)

 

2,106 

(17,382)

(13,667)

(28,943)

Income taxes

 

56,455 

58,785 

(76,053)

39,187 

2007 Consolidated Net Income

 

$585,741 

 

$397,808 

 

($42,593)

$940,956 

(1)

Parent & Other includes eliminations, which are primarily intersegment activity.

Refer to " ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS " for further information with respect to operating statistics.

10

The variance explanations for the Utility for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 in " Results of Operations " below reflect the 2006 results of operations of Entergy New Orleans as if it were reconsolidated in 2006, consistent with the 2007 presentation including the results in each individual income statement line item. Entergy's as-reported results for the nine months ended September 30, 2006, which had Entergy New Orleans deconsolidated, and the amounts needed to reconsolidate Entergy New Orleans, which include inter-company items, are set forth in the table below.

 

Nine Months Ended Sept. 30, 2006

  

Entergy Corporation
and Subsidiaries
(as reported)

 


Entergy
New Orleans adjustment*

 

(In Thousands)

Operating Revenues

$8,451,254

 

$227,484 

Operating Expenses:

     

   Fuel, fuel-related, and gas purchased for resale and purchased power

4,135,902 

 

78,827 

   Other operation and maintenance

1,693,657 

 

56,877 

   Taxes other than income taxes

327,995 

 

25,853 

   Depreciation and amortization

655,374 

 

24,621 

   Other regulatory credits - net

(124,509)

 

3,120 

   Other operating expenses

236,371 

 

126 

Total Operating Expenses

$6,924,790 

 

$189,424 

Other Income

$192,413 

 

($22,475)

Interest and Other Charges

$420,223 

 

$273 

Income From Continuing Operations Before Income Taxes

$1,298,654 

 

$15,312 

Income Taxes

$444,170 

 

$15,312 

Income From Continuing Operations

$854,484 

 

$ - 

Income From Discontinued Operations

$9,830 

 

$ - 

Consolidated Net Income

$864,314 

 

$ - 

*

Reflects the adjustment needed to reconsolidate Entergy New Orleans for 2006. The adjustment includes intercompany eliminations.

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2007 to the nine months ended September 30, 2006.

  

 

Amount

  

 

(In Millions)

2006 net revenue (includes $145.6
  million for Entergy New Orleans)

 

$3,444.9 

Base revenues

 

80.8 

Volume/weather

 

74.8 

Fuel recovery

 

40.1 

Transmission revenue

 

28.3 

Purchased power capacity

 

(86.5)

Net wholesale revenue

 

(49.8)

Other

 

19.6 

2007 net revenue

 

$3,552.2 

11

The base revenues variance resulted from rate increases primarily at Entergy Louisiana effective September 2006 for the 2005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing purchased power capacity costs. The formula rate plan filing is discussed in Note 2 to the financial statements in the Form 10-K.

The volume/weather variance resulted primarily from increased electricity usage, including increased usage during the unbilled sales period. Billed usage increased by a total of 1,110 GWh, an increase of 1.5%. See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.

The fuel recovery variance is due to the inclusion of Grand Gulf costs in Entergy New Orleans' fuel recoveries effective July 1, 2006. In June 2006, the City Council approved the recovery of Grand Gulf costs through the fuel adjustment clause, without a corresponding change in base rates (a significant portion of Grand Gulf costs was previously recovered through base rates). The increase is also due to purchased power costs deferred at Entergy Louisiana and Entergy New Orleans as a result of the re-pricing, retroactive to 2003, of purchased power agreements among Entergy system companies as directed by the FERC.

The transmission revenue variance is due to higher rates and the addition of new transmission customers in late-2006.

The purchased power capacity variance is due to higher capacity charges and new purchased power contracts that began in mid-2006. A portion of the variance is due to the amortization of deferred capacity costs and is offset in base revenues due to base rate increases implemented to recover incremental deferred and ongoing purchased power capacity charges at Entergy Louisiana, as discussed above.

The net wholesale revenue variance is due primarily to 1) more energy available for resale at Entergy New Orleans in 2006 due to the decrease in retail usage caused by customer losses following Hurricane Katrina and 2) the inclusion in 2006 revenue of sales into the wholesale market of Entergy New Orleans' share of the output of Grand Gulf, pursuant to City Council approval of measures proposed by Entergy New Orleans to address the reduction in Entergy New Orleans' retail customer usage caused by Hurricane Katrina and to provide revenue support for the costs of Entergy New Orleans' share of Grand Gulf. The net wholesale revenue variance is partially offset by the effect of lower wholesale revenues in the third quarter 2006 due to an October 2006 FERC order requiring Entergy Arkansas to make a refund to a coal plant co-owner resulting from a contract dispute.

Non-Utility Nuclear

Net revenue increased for Non-Utility Nuclear from $1,041 million for the nine months ended September 30, 2006 to $1,346 million for the nine months ended September 30, 2007 primarily due to higher pricing in its contracts to sell power and additional production available resulting from the acquisition of the Palisades plant in April 2007. Amortization of the Palisades purchased power agreement liability, which is discussed in Note 5 to the financial statements, also contributed to the increase. The increase was partially offset by the effect on revenues of more refueling outages in 2007 as compared to the same period in 2006. Following are key performance measures for Non-Utility Nuclear for the nine months ended September 30, 2007 and 2006:

 

 

2007

 

2006

 

 

 

 

 

Net MW in operation at Sept 30

 

4,998

 

4,200

Average realized price per MWh

 

$53.12

 

$44.33

GWh billed

 

27,315

 

26,163

Capacity factor

 

88%

 

95%

12

Parent & Other

Net revenue decreased for Parent & Other from $99 million for the nine months ended September 30, 2006 to $34 million for the nine months ended September 30, 2007 primarily due to the $14.1 million gain ($8.6 million net-of-tax) realized on the sale of the non-nuclear wholesale asset business' remaining interest in a power development project in the second quarter 2006. Also contributing to the decrease were higher natural gas prices in 2007 compared to the same period in 2006 as well as lower production as a result of an additional plant outage in 2007 compared to the same period in 2006. A substantial portion of the effect on net income of this decline is offset by a related decrease in other operation and maintenance expenses.

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $1,238 million for the nine months ended September 30, 2006 to $1,328 million for the nine months ended September 30, 2007 primarily due to:

  • an increase of $31 million in distribution expenses, including higher contract labor costs, increases in vegetation maintenance costs, and the return to normal operations work in 2007 versus storm restoration activities in 2006 as a result of Hurricane Katrina and Hurricane Rita;
  • an increase of $21 million in transmission expenses, including transmission line and substation maintenance and independent coordinator of transmission expenses;
  • an increase of $21 million in nuclear expenses primarily due to non-refueling outages, increased nuclear labor and contract costs, and higher NRC fees;
  • an increase of $11 million as a result of higher insurance premiums due to amending coverage in mid-2006 in addition to the timing of premium payments compared to 2006;
  • an increase of $11 million due to a provision for storm-related bad debts;
  • an increase of $9 million in customer service costs primarily as a result of the write-off of uncollectible customer accounts; and
  • an increase of $6 million in fossil plant expenses due to the return to normal operations work in 2007 versus storm restoration activities in 2006 as a result of Hurricane Katrina and differing outage schedules and scopes from 2006 to 2007.

The increase is partially offset by a decrease of $33 million in payroll, payroll-related, and benefits costs.

Depreciation and amortization expenses increased from $618 million for the nine months ended September 30, 2006 to $630 million for the nine months ended September 30, 2007 primarily due to an increase in plant in service and a revision made in the first quarter 2006 to estimated depreciable lives involving certain intangible assets. The increase was partially offset by a revision in the third quarter 2007 related to depreciation previously recorded on storm-related assets. Recovery of the cost of those assets will now be through the securitization of storm costs approved by the LPSC in the third quarter 2007. The securitization approval is discussed in Note 2 to the financial statements.

Other income increased from $84 million for the nine months ended September 30, 2006 to $129 million for the nine months ended September 30, 2007 primarily due to carrying charges on storm restoration costs.

Interest and other charges increased from $289 million for the nine months ended September 30, 2006 to $324 million for the nine months ended September 30, 2007 primarily due to the following:

  • interest on first mortgage bonds primarily at Entergy New Orleans. On September 23, 2006, when the one-year interest moratorium agreed to by the bondholders expired, Entergy New Orleans resumed interest accruals on its outstanding first mortgage bonds;
  • interest on securitization bonds issued during the second quarter 2007 at Entergy Gulf States;

 

13

 

  • interest on Entergy New Orleans' third-party accounts payable pursuant to its plan of reorganization, as discussed above under " Hurricane Katrina and Hurricane Rita - Entergy New Orleans Bankruptcy "; and
  • interest recorded on advances from independent power producers.

Non-Utility Nuclear

Other operation and maintenance expenses increased from $469 million for the nine months ended September 30, 2006 to $520 million for the nine months ended September 30, 2007 primarily due to the acquisition of the Palisades plant in April 2007.

Parent & Other

Interest charges increased from $95 million for the nine months ended September 30, 2006 to $148 million for the nine months ended September 30, 2007 primarily due to additional borrowings under Entergy Corporation's revolving credit facilities.

Income Taxes

The effective income tax rate for the nine months ended September 30, 2007 was 33.5%. The reduction in the effective income tax rate versus the federal statutory rate of 35% for the nine months ended September 30, 2007 is primarily due to:

These factors were partially offset by book and tax differences for utility plant items and state income taxes at the Utility operating companies.

The effective income tax rate for the nine months ended September 30, 2006 was 33.6%. The reduction in the effective income tax rate for the nine months ended September 30, 2006 versus the federal statutory rate of 35.0% is primarily due to:

  • the flow-through of a pension item;
  • the recognition of an income tax benefit related to ANO 1 steam generator removal cost; and
  • the favorable resolution of a tax audit issue.

These factors were partially offset by state income taxes.

Liquidity and Capital Resources

See " MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources " in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to that discussion.

14

Capital Structure

Entergy's capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentage from 2006 to 2007 is primarily the result of additional borrowings under Entergy Corporation's revolving credit facilities, along with a decrease in shareholders' equity primarily due to repurchases of common stock.

 

 

September 30,
2007

 

December 31,
2006

 

 

 

 

 

Net debt to net capital

 

53.9%

 

49.4%

Effect of subtracting cash from debt

 

3.4%

 

2.9%

Debt to capital

 

57.3%

 

52.3%

Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders' equity, and preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy's financial condition.

As discussed in the Form 10-K, Entergy Corporation had in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility was due to expire in May 2010 and the three-year facility was due to expire in December 2008.

In August 2007, Entergy Corporation entered into a new, $3.5 billion, five-year credit facility, and terminated the two previously existing facilities. Entergy Corporation has the ability to issue letters of credit against the total borrowing capacity of the facility. The weighted average interest rate as of September 30, 2007 was 5.88% on the drawn portion of the facility. The facility fee is currently 0.09% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation.

As of September 30, 2007, amounts outstanding under the $3.5 billion credit facility are:


Capacity

 


Borrowings

 

Letters
of Credit

 

Capacity
Available

(In Millions)

             

$3,500 

 

$2,116 

 

$71 

 

$1,313

See Note 4 to the financial statements for additional discussion of Entergy's credit facilities.

Capital Expenditure Plans and Other Uses of Capital

See the table in the Form 10-K under " MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital ," which sets forth the amounts of planned construction and other capital investments by operating segment for 2007 through 2009.

Entergy is developing its capital plan for 2008 through 2010 and currently anticipates making $5.9 billion in capital investments during that period, including approximately $2.7 billion for maintenance of Entergy's existing assets ($2.5 billion for Utility and $0.2 billion for Non-Utility Nuclear). The remaining $3.2 billion ($2.5 billion for Utility and $0.7 billion for Non-Utility Nuclear) is associated with specific investments such as the pending Ouachita and Calcasieu acquisitions, the Little Gypsy repowering, replacement of the Waterford 3 steam generators, environmental compliance spending, transmission upgrades, business function relocation, dry cask storage and nuclear license renewal projects, NYPA value sharing costs and other investments, such as potential opportunities through the Utility's supply plan initiatives that support its ability

 

15

 

to meet load growth. The planned capital investment estimate does not include the costs associated with the potential interconnection between Entergy Gulf States and ERCOT that is discussed in Note 2 to the financial statements. These potential costs are currently estimated to be approximately $1 billion.

 

In April 2007, Entergy's Non-Utility Nuclear business purchased the 798 MW Palisades nuclear energy plant located near South Haven, Michigan from Consumers Energy Company for a net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, was also transferred to Entergy's Non-Utility Nuclear business. Entergy's Non-Utility Nuclear business executed a unit-contingent, 15-year purchased power agreement (PPA) with Consumers Energy for 100% of the plant's output, excluding any future uprates. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. In the first quarter 2007, the NRC renewed Palisades' operating license until 2031. Also as part of the transaction, Entergy's Non-Utility Nuclear business assumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan.  Palisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment. See Note 5 to the financial statements herein for a discussion of the purchase price allocation and the amortization to revenue of the below-market PPA.

In April 2007, Entergy Louisiana announced that it plans to pursue the self-build solid fuel repowering of a 538 MW unit at its Little Gypsy plant.  Petroleum coke and coal will be the unit's primary fuel sources.  In July 2007, Entergy Louisiana filed with the LPSC for approval of the repowering project, and stated that it expects to spend $1.55 billion on the project. In addition to seeking a finding that the project is in the public interest, the filing with the LPSC asks that Entergy Louisiana be allowed to recover a portion of the project's financing costs during the construction period. Hearings were held in October 2007 and an LPSC decision could come in the fourth quarter 2007. Entergy Louisiana expects the project to be completed in 2011-2012. The planned capital investment estimate in the Form 10-K included capital required for a project of this type, although Entergy Louisiana now expects to spend approximately $100 million more through 2009 than the amounts included in the Form 10-K for the project.

In July 2007, Entergy Arkansas signed an agreement to purchase for $210 million the Ouachita Power Facility, a 789 MW natural gas-fired, combined-cycle, load-following generating facility located in north Louisiana and owned by Quachita Power, LLC.  Entergy Arkansas also plans to invest approximately $43 million in plant upgrades and transaction costs.  Upgrades to the Utility operating companies' transmission system also are expected to be required to obtain long-term transmission service for this resource.  The identity and cost of the transmission upgrades have not yet been determined definitively; additional transmission studies are currently underway.  The initial results of those additional studies are expected by the end of November 2007.  The Ouachita plant will be 100 percent owned by Entergy Arkansas, and the acquisition is expected to close in 2008.  Entergy Arkansas expects to sell to Entergy Gulf States-Louisiana, under a separate agreement, approximately one-third of the output of the Ouachita plant on a long-term basis.  The purchase of the plant is contingent upon obtaining necessary approvals, including full cost recovery, from various federal and state regulatory and permitting agencies.  Entergy Arkansas filed with the APSC in September 2007 for its approval of the acquisition, including full cost recovery, and the APSC approved a bifurcated procedural schedule whereby a hearing will be conducted first on an interim tolling agreement connected with the acquisition in December 2007, with a later hearing on the acquisition being conducted by April 2008.  APSC staff and Arkansas attorney general witnesses have filed testimony that generally oppose cost recovery by a separate rider, but argue that the cost recovery should be by the annual earnings review process currently being developed. An APSC staff witness also opposes allocating one-third of the output for sale to Entergy Gulf States-Louisiana. In November 2007, Entergy Gulf States filed a request with the LPSC for authorization for Entergy Gulf States-Louisiana to purchase one-third of the capacity and energy of the Ouachita plant during the term of the interim tolling agreement and for authorization for Entergy Gulf States-Louisiana to purchase one-third of the plant's capacity and energy on a life-of-unit basis after the plant's acquisition. The planned capital investments estimate in the Form 10-K included $190 million in 2008 for the estimated cost of an acquisition of this type.

Entergy Louisiana plans to replace the Waterford 3 steam generators, along with the reactor vessel closure head and control element drive mechanisms, in 2011.  Replacement of these components is common to pressurized water reactors throughout the nuclear industry.  The nuclear

 

16

 

 

industry continues to address susceptibility to stress corrosion cracking of certain materials associated with these components within the reactor coolant system.  The issue is applicable to Waterford 3 and is managed in accordance with standard industry practices and guidelines.  Routine inspections of the steam generators during Waterford 3's Fall 2006 refueling outage identified additional degradation of certain tube spacer supports in the steam generators that required repair beyond that anticipated prior to the outage.  Corrective measures were successfully implemented to permit continued operation of the steam generators. While potential future replacement of these components had been contemplated, the discovery of the additional steam generator degradation necessitates replacement of the steam generators as soon as reasonably achievable.  2011 is the earliest that new steam generators can be manufactured and delivered for installation. The reactor vessel head and control element drive mechanisms will be replaced at the same time, utilizing the same reactor building construction opening that is necessary for the steam generator replacement.  Entergy Louisiana estimates that it will spend approximately $485 million on this project.

Entergy now expects to spend $73 million more through 2008 than the amount included in the Form 10-K planned capital investment estimate for initial development costs for potential new nuclear development at the Grand Gulf and River Bend sites, including licensing and design activities.

Dividends

On July 30, 2007, the Board declared a quarterly dividend per Entergy Corporation common share of $0.75, which is an increase from the prior quarterly dividend per share of $0.54. On October 26, 2007, the Board also declared a quarterly dividend per Entergy Corporation common share of $0.75. Declarations of dividends on Entergy's common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy's common stock dividends based upon Entergy's earnings, financial strength, and future investment opportunities.

Debtor-in-Possession Credit Agreement

See the Form 10-K for a discussion of the Entergy New Orleans debtor-in-possession (DIP) credit facility between Entergy New Orleans as borrower and Entergy Corporation as lender. Pursuant to the terms of its plan of reorganization, which became effective in May 2007, Entergy New Orleans fully repaid its DIP credit facility borrowings.

Cash Flow Activity

As shown in Entergy's Statements of Cash Flows, cash flows for the nine months ended September 30, 2007 and 2006 were as follows:

 

 

2007

 

2006

 

 

(In Millions)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$1,016 

 

$583 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

1,626 

 

2,257 

 

Investing activities

 

(1,451)

 

(1,395)

 

Financing activities

 

258 

 

(699)

Effect of exchange rates on cash and cash equivalents

(1)

Net increase in cash and cash equivalents

 

433 

 

162 

 

 

 

 

 

Effect of reconsolidating Entergy New Orleans in 2007

17 

Cash and cash equivalents at end of period

 

$1,466 

 

$745 

17

Operating Activities

Entergy's cash flow provided by operating activities decreased by $631 million for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Following are cash flows from operating activities by segment:

  • Utility provided $1,212 million in cash from operating activities in 2007 compared to providing $1,683 million in 2006, primarily due to decreased collection of fuel costs, the catch-up in receivable collections in 2006 due to delays caused by the hurricanes in 2005, and the receipt of an income tax refund in 2006 compared to income tax payments being made in 2007, partially offset by the receipt of $181 million of Community Development Block Grant funds by Entergy New Orleans in 2007, significant storm restoration spending in 2006, and a decrease in the amount of pension funding payments in 2007. A $344 million income tax refund was received by Entergy Corporation in 2006 (including $71 million attributable to Entergy New Orleans) as a result of net operating loss carry back provisions contained in the Gulf Opportunity Zone Act of 2005. In accordance with Entergy's intercompany tax allocation agreement, $273 million of the refund was distributed to the Utility business in April 2006, with most of the remainder distributed to Non-Utility Nuclear.
  • Non-Utility Nuclear provided $535 million in cash from operating activities in 2007 compared to providing $648 million in 2006. The decrease is due to the receipt of income tax refunds in 2006 compared to income tax payments being made in 2007, along with spending associated with four refueling outages in 2007 compared to one in 2006. The decrease was offset partially by the cash flows attributable to higher net revenue.
  • Parent & Other used $120 million in cash in operating activities in 2007 compared to $75 million in 2006, primarily due to an increase in interest payments by Entergy Corporation.

Investing Activities

Net cash used in investing activities increased by $56 million for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. The following activity is notable in comparing the nine months ended September 30, 2007 to the nine months ended September 30, 2006:

  • Construction expenditures were $169 million lower in 2007 than in 2006, primarily due to storm restoration expenditures by the Utility in 2006.
  • Non-Utility Nuclear purchased the Palisades power plant in April 2007.
  • Entergy Mississippi purchased the Attala power plant in January 2006.
  • Insurance proceeds received increased by $64 million in 2007 because of payments received on Hurricane Katrina and Hurricane Rita claims.
  • In 2006, Entergy received proceeds from the sale of the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas and the sale of the non-nuclear wholesale asset business' remaining interest in a power development project.

Financing Activities

Financing activities provided $258 million of cash for the nine months ended September 30, 2007 compared to using $699 million of cash for the nine months ended September 30, 2006. The following activity is notable in comparing the nine months ended September 30, 2007 to the nine months ended September 30, 2006:

  • Entergy Corporation increased the net borrowings under its credit facilities by $1,296 million in 2007, compared to decreasing the net borrowings under its credit facilities by $290 million in 2006. See Note 4 to the financial statements for a description of the Entergy Corporation credit facilities.
  • A subsidiary of Entergy Gulf States issued $329.5 million of securitization bonds in June 2007. See Note 4 to the financial statements for additional information regarding the securitization bonds.
  • Entergy Mississippi redeemed $100 million of first mortgage bonds in 2007 and issued $100 million of first mortgage bonds in 2006.

 

18

 

  • Entergy Corporation repurchased $1,024 million of its common stock in 2007, and did not repurchase any shares of its common stock in 2006.
  • Entergy Louisiana Holdings, Inc. redeemed all $100.5 million of its outstanding preferred stock in June 2006.
  • Entergy Arkansas borrowed $60 million against its credit facility in 2007 and Entergy Louisiana repaid $40 million in borrowings against its credit facility in 2006.

Significant Factors and Known Trends

See " MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends " in the Form 10-K for discussions of rate regulation, federal regulation, and market and credit risk sensitive instruments. Following are updates to the information provided in the Form 10-K.

State and Local Rate Regulation

See the Form 10-K for a chart summarizing material rate proceedings. See Note 2 to the financial statements herein for updates to the proceedings discussed in that chart.

Federal Regulation

See the Form 10-K for a discussion of federal regulatory proceedings. Following are updates to that discussion.

System Agreement Proceedings

Rough Production Cost Equalization proceeding

In May 2007 Entergy filed with the FERC the rates to implement the FERC's orders in the System Agreement proceeding that are discussed in the Form 10-K. The filing shows the following payments/receipts among the Utility operating companies for 2007, based on calendar year 2006 production costs, commencing for service in June 2007, are necessary to achieve rough production cost equalization as defined by the FERC's orders:

 

Payments or
(Receipts)

 

(In Millions)

Entergy Arkansas

$252

Entergy Gulf States

($120)

Entergy Louisiana

($91)

Entergy Mississippi

($41)

Entergy New Orleans

$0

Several parties intervened in the rate proceeding at the FERC, including the APSC, the MPSC, the Council, and the LPSC, which have also filed protests. Certain Entergy Arkansas wholesale customers also intervened, raising issues regarding whether the bandwidth payments are properly reflected in the wholesale rate that Entergy Arkansas charges. The APSC, the MPSC, and the Council ask the FERC to confirm that the FERC did not intend to preempt a retail regulator from undertaking an independent prudence review of the production costs in setting retail rates, or ask the FERC to set the rough production cost equalization payments/receipts for hearing to allow the retail regulators the opportunity to evaluate the prudence of the underlying production costs. In July 2007, the FERC accepted the proposed rates for filing, allowed them to go into effect as of June 1, 2007, subject to refund, and set the filing, including the calculation and underlying production costs, for hearing and settlement procedures. Settlement procedures have been terminated, and the proceeding is set for hearing in May 2008.

Entergy Arkansas will pay $36 million per month for seven months, and began making the payments to Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi in June 2007. As discussed in Note 2 to the financial statements, the APSC has approved through December 31, 2008 a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas.

19

Additionally, the Utility operating companies had filed with the FERC proposing certain modifications to the rough production cost equalization calculation. The FERC rejected certain of the proposed modifications, accepted certain of the proposed modifications without further proceedings, and set two of the proposed modifications for hearing and settlement procedures. A settlement in principle was reached in one of the proceedings, which settlement has been filed with the FERC. Settlement procedures were terminated in the second proceeding that involves changes to the functionalization of costs to the production function and a hearing in that proceeding is currently scheduled for March 2008.

On April 27, 2007, the FERC denied the requests for rehearing filed regarding the Utility operating companies' compliance filing to implement the System Agreement decision, with one exception regarding the issue of retrospective refunds. That issue will be addressed subsequent to the remanded proceeding involving the interruptible load decision discussed in the paragraph further below in this section. The LPSC appealed the decision to the D.C. Circuit Court of Appeals, and the Utility operating companies and the APSC intervened in that appeal.

Based on the FERC's April 27, 2007 order on rehearing, Entergy Arkansas recorded accounts payable and Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi recorded accounts receivable to reflect the rough production cost equalization payments and receipts required to implement the FERC's remedy based on calendar year 2006 production costs that FERC accepted for filing and allowed to go into effect in June 2007. Entergy Arkansas recorded a corresponding regulatory asset for its right to collect the payments from its customers, and Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi recorded corresponding regulatory liabilities for their obligations to pass the receipts on to their customers. The regulatory asset and liabilities are shown as "System Agreement cost equalization" on the respective balance sheets. The liabilities and assets for the estimated payments and receipts that may be required to implement the FERC's remedy based on calendar year 2007 production costs will be recorded at the end of 2007 when all production costs for 2007 have been incurred.  The level of any payments and receipts is significantly affected by a number of factors, including, among others, weather, the price of alternative fuels, the operating characteristics of the Entergy System generating fleet, and multiple factors affecting the calculation of the non-fuel related revenue requirement components of the total production costs, such as plant investment.

As discussed in the Form 10-K, various parties, including the LPSC and the APSC, appealed to the D.C. Circuit the FERC's June 1 and December 19, 2005 orders establishing the rough production cost equalization bandwidth. The D.C. Circuit held oral argument on the appeals on November 2, 2007.

On April 3, 2007, the LPSC filed a complaint with the FERC in which it sought to have the FERC order the following modifications to Entergy's rough production costs equalization calculation: (1) elimination of interruptible loads from the methodology used to allocate demand-related capacity costs; and (2) change of the method used to re-price energy from the Vidalia hydroelectric project for purposes of calculating production cost disparities. Entergy filed an intervention and protest in this proceeding. In May 2007 the FERC denied the LPSC's complaint. The LPSC has requested rehearing.

Other System Agreement-related Proceedings and Activity

As discussed in the Form 10-K, in June 2006 the APSC filed a complaint at the FERC that states, "the purpose of the complaint is to institute an investigation into the prudence of Entergy's practices affecting the wholesale rates that flow through its System Agreement." In June 2007 the FERC denied the APSC's complaint on the basis that it was premature. The FERC found that the annual rough production cost equalization filing is the appropriate proceeding for the retail regulators to raise prudence issues. Regarding transmission, the FERC found that the FERC has recently implemented reforms related to transmission. If those reforms are inadequate to address the APSC's concerns, then it can renew its complaint. The APSC, the MPSC, and the Council have asked for rehearing or clarification of this order to confirm that the FERC did not intend to preempt a retail regulator from undertaking an independent prudence review of the production costs in setting retail rates.

20

As discussed in the Form 10-K, on December 18, 2006, the LPSC filed a complaint requesting the FERC "immediately institute a proceeding to determine whether, and on what terms, [Entergy Arkansas] may withdraw" from the System Agreement. In June 2007 the FERC denied the LPSC's complaint on the basis that it was premature. The FERC's order indicates that the FERC will evaluate at the time of Entergy Arkansas' departure whether "the System Agreement will remain just and reasonable for the remaining members . . . and likewise that any new Entergy Arkansas jurisdictional wholesale arrangements will be just and reasonable." The FERC Order goes on to state that "in light of the history and nature of the existing members' planning and operation of their facilities under the System Agreement, it is possible it may ultimately be appropriate to require transition measures or other conditions to ensure just and reasonable wholesale rates and services" upon the termination of Entergy Arkansas' participation in the current System Agreement.

On April 3, 2007, the U.S. Court of Appeals for the D.C. Circuit issued its opinion in the LPSC's appeal of the FERC's March 2004 and April 2005 orders related to the treatment under the System Agreement of the Utility operating companies' interruptible loads.  In its opinion, the D.C. Circuit concluded that the FERC (1) acted arbitrarily and capriciously by allowing the Utility operating companies to phase-in the effects of the elimination of the interruptible load over a 12-month period of time; (2) failed to adequately explain why refunds could not be ordered under Section 206(c) of the Federal Power Act; and (3) exercised appropriately its discretion to defer addressing the cost of sulfur dioxide allowances until a later time.  The D.C. Circuit remanded the matter to the FERC for a more considered determination on the issue of refunds. The FERC issued its order on remand in September 2007, in which it directs Entergy to make a compliance filing removing all interruptible load from the computation of peak load responsibility commencing April 1, 2004 and to issue any necessary refunds to reflect this change. In addition, the order directs the Utility operating companies to make refunds for the period May 1995 through July 1996. Entergy, the APSC, the MPSC, and the City Council have requested rehearing of the FERC's order on remand. The FERC granted the Utility operating companies' request to delay the payment of refunds for the period May 1995 through July 1996 until 30 days following a FERC order on rehearing.

In October 2007 the MPSC issued a letter confirming its belief that Entergy Mississippi should exit the System Agreement in light of recent developments involving the System Agreement. The MPSC letter also requests that Entergy Mississippi advise the MPSC regarding the status of the Utility operating companies' effort to develop successor arrangements to the System Agreement and advise the MPSC regarding Entergy Mississippi's position with respect to withdrawal from the System Agreement. In November 2007, pursuant to the provisions of the System Agreement, Entergy Mississippi provided its written notice to terminate its participation in the System Agreement effective ninety-six (96) months from the date of the notice or such earlier date as authorized by the FERC.

In conjunction with the application of Entergy Gulf States and Calcasieu Power, LLC seeking FERC approval of Entergy Gulf States' acquisition of the Calcasieu Generating Facility, the Utility operating companies filed a Petition for Declaratory Order requesting that the FERC find either (1) that in those circumstances where a resource to be acquired or constructed has been determined by Entergy's Operating Committee to be a resource devoted to serving Entergy System load and has been approved by the applicable retail regulator, the cost of such resource shall be reflected in the rough production cost equalization calculation; or (2) that Entergy Gulf States' acquisition of the Calcasieu facility is prudent and the costs are properly reflected in the rough production cost equalization calculation.  The APSC, LPSC, MPSC, City Council, and several other parties intervened in the proceeding, with the APSC, LPSC, and City Council filing protests.  In July 2007 the FERC denied the application for a declaratory order. The FERC concluded that (1) the circumstances surrounding resource acquisition on the Entergy System were not of sufficient "local interest" to warrant the FERC deferring to the findings of the applicable regulator; and (2) with respect to the alternative request for relief, consistent with its prior precedent, the FERC would not "entertain the issue of the prudence of a purchase until such time as the purchaser passes on the cost of the purchase to its customers." Entergy Gulf States and Calcasieu Power's application before the FERC seeking approval of the acquisition is still pending.

21

Independent Coordinator of Transmission (ICT)

In May 2007 the FERC denied the requests for rehearing of its October 2006 order. In June 2007, the Utility operating companies made their compliance filing pursuant to the FERC's order denying rehearing.

As discussed in the Form 10-K, in the FERC's April 2006 order approving Entergy's ICT proposal, the FERC stated that the weekly procurement process (WPP) must be operational within approximately 14 months of the FERC order, or June 24, 2007, or the FERC may reevaluate all approvals to proceed with the ICT.  The Utility operating companies have been working with the ICT and a software vendor to develop the software and systems necessary to implement the WPP. The Utility operating companies also filed with the FERC in April 2007 a request to make certain corrections and limited modifications to the current WPP tariff provisions. The Utility operating companies have filed status reports with the FERC notifying the FERC that, due to unexpected issues with the development of the WPP software and testing, the WPP is still not operational. The Utility operating companies have notified the FERC that Entergy will continue to pursue the implementation of the WPP as soon as possible and will notify the FERC upon the successful completion of the software testing.

In October 2006 the Utility operating companies filed revisions to their Open Access Transmission Tariff ("OATT") with the FERC to establish a mechanism to recover from their wholesale transmission customers the (1) costs incurred to develop or join an RTO and to develop the ICT; and (2) the on-going costs that will be incurred under the ICT agreement. Several parties intervened opposing the proposed tariff revisions. In December 2006 the FERC accepted for filing Entergy's proposed tariff revisions, and set them for hearing and settlement procedures. In its Order, the FERC concluded that each of the Utility operating companies "should be allowed the opportunity to recover its start up costs associated with its formation of the ICT and its participation in prior failed attempts to form an RTO," but also that the proposed tariffs raised issues of fact that are more properly addressed through hearing and settlement procedures. In June 2007 the Utility operating companies reached a settlement-in-principle with the parties to the proceeding and the settlement has been filed with the FERC.

Available Flowgate Capacity (AFC) Proceeding

In April 2007 the FERC issued an order terminating the AFC hearing involving Entergy because Entergy's ICT has been installed. In accordance with the provisions of the FERC order approving the ICT, during the first three quarters of 2007 the Utility operating companies notified the FERC, the ICT, and the stakeholders that certain instances had been identified in which software errors related to the AFC process had resulted in the reporting of inaccurate data.  Following the reporting of these errors, certain market participants continue to urge the FERC to move forward with an AFC hearing in light of the identified errors.

Market-based Rate Authority

As discussed in the Form 10-K, in May 2005, the FERC instituted a proceeding under Section 206 of the FPA to investigate whether Entergy satisfies the FERC's transmission market power and affiliate abuse/reciprocal dealing standards for the granting of market-based rate authority, and established a refund effective date pursuant to the provisions of Section 206 for purposes of the additional issues set for hearing.  The FERC decided to hold that investigation in abeyance, however, pending the outcomes of the ICT proceedings and Entergy's affiliate purchased power agreements proceeding. In June 2005, Entergy sought rehearing of the May order instituting the proceeding. The FERC terminated the Section 206 proceeding in May 2007 and dismissed Entergy's request for rehearing as moot. The FERC found that there was no further need for the proceeding.

22

Market and Credit Risk Sensitive Instruments

Commodity Price Risk

Power Generation

As discussed more fully in the Form 10-K, the sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business, unless otherwise contracted, is subject to the variability of market power prices. Following is an updated summary of the amount of Non-Utility Nuclear's output that is sold forward under physical or financial contracts (2007 represents the remaining quarter of the year):

   

2007

 

2008

 

2009

 

2010

 

2011

 

2012

Non-Utility Nuclear (including Palisades acquisition) :

                       

Percent of planned generation sold forward:

                       

  Unit-contingent

 

48%

 

50%

 

42%

 

30%

 

29%

 

16%

  Unit-contingent with availability guarantees (1)

 

40%

 

36%

 

35%

 

28%

 

14%

 

7%

  Firm liquidated damages

 

7%

 

5%

 

0%

 

0%

 

0%

 

0%

     Total

 

95%

 

91%

 

77%

 

58%

 

43%

 

23%

Planned generation (TWh)

 

11

 

41

 

41

 

40

 

41

 

41

Average contract price per MWh

 

$47

 

$54

 

$60

 

$59

 

$55

 

$51

(1)

A sale of power on a unit-contingent basis coupled with a guarantee of availability provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding guarantees of availability provide for dollar limits on Entergy's maximum liability under such guarantees.

The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant through the expiration in 2012 of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly if power market prices drop below PPA prices, which has not happened thus far and is not expected in the foreseeable future.

See the Form 10-K for a discussion of Non-Utility Nuclear's value sharing agreements with NYPA for energy sales from the FitzPatrick and Indian Point 3 power plants. In October 2007 Non-Utility Nuclear and NYPA amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements Non-Utility Nuclear will make annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Non-Utility Nuclear will pay NYPA $6.59 per MWh for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh for power sold from FitzPatrick, up to an annual cap of $24 million. The annual payment for each year is due by January 15 of the following year, with the payment for year 2007 output due on January 15, 2008. If Entergy or an Entergy affiliate ceases to own the plants, then, after January 2009, the annual payment obligation terminates for generation after the date that Entergy ownership ceases.

Non-Utility Nuclear had previously calculated that $0 was owed to NYPA under the value sharing agreements for generation output in 2005 and 2006. In November 2006 NYPA filed a demand for arbitration claiming that $90.5 million was due to NYPA for 2005 under these agreements, and NYPA filed in April 2007 an amended demand for arbitration claiming that an additional $54 million was due to NYPA for 2006 under the value sharing agreements. As part of their agreement to amend the value sharing agreements, Non-Utility Nuclear and NYPA waived all present and future claims under the previous value sharing terms, including the claims for 2005 and 2006 pending before the arbitrator.

Non-Utility Nuclear will record its liability for payments to NYPA as power is generated and sold by Indian Point 3 and FitzPatrick. Non-Utility Nuclear recorded a $57 million liability for generation through September 30, 2007. An amount equal to the liability will be recorded to the plant

 

23

 

 

asset account as contingent purchase price consideration for the plants. This amount will be depreciated over the expected remaining useful life of the plants.

Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary is required to provide collateral based upon the difference between the current market and contracted power prices in the regions where Non-Utility Nuclear sells power. The primary form of collateral to satisfy these requirements is an Entergy Corporation guaranty.  Cash and letters of credit are also acceptable forms of collateral.  At September 30, 2007, based on power prices at that time, Entergy had in place as collateral $747 million of Entergy Corporation guarantees for wholesale transactions, including $65 million of guarantees that support letters of credit. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount of up to $325 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corporation's credit rating to below investment grade, Entergy will be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.

In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of the amount of the Non-Utility Nuclear business' installed capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward (2007 represents the remaining quarter of the year):

   

2007

 

2008

 

2009

 

2010

 

2011

 

2012

Non-Utility Nuclear (including Palisades acquisition) :

                       

Percent of capacity sold forward:

                       

  Bundled capacity and energy contracts

 

27%

 

27%

 

26%

 

26%

 

26%

 

19%

  Capacity contracts

 

61%

 

59%

 

34%

 

16%

 

9%

 

2%

     Total

 

88%

 

86%

 

60%

 

42%

 

35%

 

21%

Planned net MW in operation

 

4,998

 

4,998

 

4,998

 

4,998

 

4,998

 

4.998

Average capacity contract price per kW per month

 

$1.7

 

$1.8

 

$1.7

 

$2.5

 

$3.1

 

$3.5

Blended Capacity and Energy (based on revenues)

                       

% of planned generation and capacity sold forward

 

93%

 

88%

 

73%

 

52%

 

36%

 

18%

Average contract revenue per MWh

 

$49

 

$56

 

$61

 

$60

 

$56

 

$52

As of September 30, 2007, approximately 99% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit ratings.

Critical Accounting Estimates

See " MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates " in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy's accounting for nuclear decommissioning costs, unbilled revenue, impairment of long-lived assets, qualified pension and other postretirement benefits, and other contingencies.

New Accounting Pronouncements

In September 2006 the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 generally does not require any new fair value measurements. However, in some cases, the application of SFAS 157 in the future may change Entergy's practice for measuring and disclosing fair values under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for Entergy in the first quarter 2008 and will be applied prospectively. Entergy is currently evaluating SFAS 157 and its potential future effects on its financial position, results of operations, and cash flows.

24

The FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159) during the first quarter 2007. SFAS 159 provides an option for companies to select certain financial assets and liabilities to be accounted for at fair value with changes in the fair value of those assets or liabilities being reported through earnings. The intent of the standard is to mitigate volatility in reported earnings caused by the application of the more complicated fair value hedging accounting rules. Under SFAS 159, companies can select existing assets or liabilities for this fair value option concurrent with the effective date of January 1, 2008 for companies with fiscal years ending December 31 or can select future assets or liabilities as they are acquired or entered into. Entergy is in the process of evaluating the potential effect of making this accounting election, but does not expect the provisions of this standard to have a material effect on its financial position, results of operations, or cash flows.

In June 2006, the EITF reached a consensus on EITF Issue 06-3 "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)" (EITF 06-3). The scope of this issue includes any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. Under EITF 06-3, the presentation of taxes within the scope of this issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. For any such taxes reported on a gross basis, the amounts of those taxes in interim and annual financial statements, for each period for which an income statement is presented, should be disclosed if those amounts are significant. Entergy's policy is to present such taxes on a net basis, unless required to report differently by a regulatory authority. EITF 06-3 did not affect Entergy's financial statements.

 

 

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26

 

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
                 
    Three Months Ended   Nine Months Ended
    2007   2006   2007   2006
   

  (In Thousands, Except Share Data)

                 
OPERATING REVENUES                
Electric   $2,646,546    $2,761,124    $6,952,648    $7,031,771 
Natural gas   30,154    12,495    158,014    63,522 
Competitive businesses   612,387    481,100    1,641,836    1,355,961 
TOTAL   3,289,087    3,254,719    8,752,498    8,451,254 
                 
OPERATING EXPENSES                
Operating and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   809,283    987,558    2,192,296    2,489,347 
  Purchased power   520,622    607,777    1,565,861    1,646,555 
  Nuclear refueling outage expenses   44,387    43,045    131,977    127,584 
  Other operation and maintenance   667,376    590,992    1,871,424    1,693,657 
Decommissioning   43,597    36,933    123,507    108,787 
Taxes other than income taxes   129,123    133,527    368,153    327,995 
Depreciation and amortization   239,064    232,042    710,127    655,374 
Other regulatory charges (credits) - net   25,303    (21,563)   62,187    (124,509)
TOTAL   2,478,755    2,610,311    7,025,532    6,924,790 
                 
OPERATING INCOME   810,332    644,408    1,726,966    1,526,464 
                 
OTHER INCOME                  
Allowance for equity funds used during construction   9,367    7,721    34,084    32,088 
Interest and dividend income   63,754    37,720    174,811    116,689 
Equity in earnings of unconsolidated equity affiliates   1,432    14,772    3,533    26,843 
Miscellaneous - net   (6,103)   30,964    (17,881)   16,793 
TOTAL   68,450    91,177    194,547    192,413 
                 
INTEREST AND OTHER CHARGES                
Interest on long-term debt   133,165    125,907    380,321    369,058 
Other interest - net   52,503    15,035    118,270    47,532 
Allowance for borrowed funds used during construction   (5,260)   (4,538)   (20,175)   (18,989)
Preferred dividend requirements and other   6,375    6,811    18,784    22,622 
TOTAL   186,783    143,215    497,200    420,223 
                  
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   691,999    592,370    1,424,313    1,298,654 
                 
Income taxes   230,840    202,437    483,357    444,170 
                 
INCOME FROM CONTINUING OPERATIONS   461,159    389,933    940,956    854,484 
                 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of income                
tax expense (benefit) of ($563) and $5,423, respectively)     (1,050)     9,830 
                 
CONSOLIDATED NET INCOME   $461,159    $388,883    $940,956    $864,314 
                 
                 
Basic earnings per average common share:                
  Continuing operations   $2.37    $1.87    $4.77    $4.11 
  Discontinued operations         0.05 
  Basic earnings per average common share   $2.37    $1.87    $4.77    $4.16 
Diluted earnings per average common share:                
  Continuing operations   $2.30    $1.83    $4.63    $4.03 
  Discontinued operations         0.05 
  Diluted earnings per average common share   $2.30    $1.83    $4.63    $4.08 
Dividends declared per common share   $0.75    $0.54    $1.83    $1.62 
                 
Basic average number of common shares outstanding   194,864,359    208,382,863    197,443,652    208,034,946 
Diluted average number of common shares outstanding   200,532,942    212,404,770    203,362,110    211,782,858 
                 
See Notes to Financial Statements.                

27

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
    2007   2006
    (In Thousands)
   
OPERATING ACTIVITIES        
Consolidated net income   $940,956    $864,314 
Adjustments to reconcile consolidated net income to net cash flow        
provided by operating activities:        
  Reserve for regulatory adjustments   (18,337)   43,960 
  Other regulatory charges (credits) - net   62,187    (124,509)
  Depreciation, amortization, and decommissioning   833,634    765,627 
  Deferred income taxes, investment tax credits, and non-current taxes accrued   510,435    611,766 
  Equity in earnings of unconsolidated equity affiliates - net of dividends   (3,533)   (24,669)
  Changes in working capital:        
    Receivables   (317,454)   210,311 
    Fuel inventory   390    3,652 
    Accounts payable   (155,736)   (390,804)
    Taxes accrued   (176,790)   66,046 
    Interest accrued   8,180    3,190 
    Deferred fuel   (89,558)   436,663 
    Other working capital accounts   (53,977)   111,491 
  Provision for estimated losses and reserves   24,753    27,595 
  Changes in other regulatory assets   124,102    (193,323)
  Other   (62,500)   (153,953)
Net cash flow provided by operating activities   1,626,752    2,257,357 
         
INVESTING ACTIVITIES        
Construction/capital expenditures   (1,083,090)   (1,251,732)
Allowance for equity funds used during construction   34,084    32,088 
Nuclear fuel purchases   (272,137)   (260,759)
Proceeds from sale/leaseback of nuclear fuel   128,292    135,079 
Proceeds from sale of assets and businesses   13,063    77,159 
Payment for purchase of plant   (336,211)   (88,199)
Insurance proceeds received for property damages   82,648    18,227 
Decrease in other investments   71,770    56,501 
Proceeds from nuclear decommissioning trust fund sales   1,299,685    580,745 
Investment in nuclear decommissioning trust funds   (1,388,806)   (655,788)
Other regulatory investments     (38,506)
Net cash flow used in investing activities   (1,450,702)   (1,395,185)
         
See Notes to Financial Statements.        
         
         

28  

         
         
         
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
    2007   2006
    (In Thousands)
     
FINANCING ACTIVITIES        
Proceeds from the issuance of:        
  Long-term debt   2,437,163    1,377,701 
  Preferred stock     73,354 
  Common stock and treasury stock   59,175    32,072 
Retirement of long-term debt   (889,813)   (1,598,425)
Repurchase of common stock   (1,024,185)  
Redemption of preferred stock   (3,450)   (183,881)
Changes in credit line borrowings - net   60,000    (40,000)
Dividends paid:        
  Common stock   (361,574)   (337,104)
  Preferred stock   (19,532)   (22,861)
Net cash flow provided by (used in) financing activities   257,784    (699,144)
         
Effect of exchange rates on cash and cash equivalents   (394)   (820)
         
Net increase in cash and cash equivalents   433,440    162,208 
         
Cash and cash equivalents at beginning of period   1,016,152    582,820 
         
Effect of the reconsolidation of Entergy New Orleans on cash and cash equivalents   17,093   
         
Cash and cash equivalents at end of period   $1,466,685    $745,028 
         
         
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $449,038    $390,059 
  Income taxes   $349,058    ($197,560)
         
See Notes to Financial Statements.        
 
 
29

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2007 and December 31, 2006
(Unaudited)
    2007   2006
    (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $127,307   $117,379
  Temporary cash investments - at cost,        
   which approximates market   1,339,378   898,773
     Total cash and cash equivalents   1,466,685   1,016,152
Note receivable - Entergy New Orleans DIP loan   -   51,934
Notes receivable   421   699
Accounts receivable:        
  Customer   638,059   410,512
  Allowance for doubtful accounts   (27,537)   (19,348)
  Other   475,037   487,264
  Accrued unbilled revenues   345,321   249,165
     Total accounts receivable   1,430,880   1,127,593
Deferred fuel costs   35,522   -
Accumulated deferred income taxes   -   11,680
Fuel inventory - at average cost   197,749   193,098
Materials and supplies - at average cost   683,000   604,998
Deferred nuclear refueling outage costs   209,473   147,521
System agreement cost equalization   107,886   -
Prepayments and other   106,449   171,759
TOTAL   4,238,065   3,325,434
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   79,262   229,089
Decommissioning trust funds   3,303,701   2,858,523
Non-utility property - at cost (less accumulated depreciation)   212,110   212,726
Other   69,711   47,115
TOTAL   3,664,784   3,347,453
         
PROPERTY, PLANT AND EQUIPMENT        
Electric   32,568,142   30,713,284
Property under capital lease   737,459   730,182
Natural gas   297,355   92,787
Construction work in progress   973,798   786,147
Nuclear fuel under capital lease   317,653   336,017
Nuclear fuel   573,489   494,759
TOTAL PROPERTY, PLANT AND EQUIPMENT   35,467,896   33,153,176
Less - accumulated depreciation and amortization   14,891,183   13,715,099
PROPERTY, PLANT AND EQUIPMENT - NET   20,576,713   19,438,077
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   677,166   740,110
  Other regulatory assets   3,103,377   2,768,352
  Deferred fuel costs   168,122   168,122
Long-term receivables   16,257   19,349
Goodwill   377,172   377,172
Other   936,861   898,662
TOTAL   5,278,955   4,971,767
         
TOTAL ASSETS   $33,758,517   $31,082,731
         
See Notes to Financial Statements.        
 
30
 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 2007 and December 31, 2006
(Unaudited)
    2007   2006
    (In Thousands)
         
CURRENT LIABILITIES        
Currently maturing long-term debt   $626,942   $181,576 
Notes payable   83,037   25,039 
Accounts payable   978,614   1,122,596 
Customer deposits   283,526   248,031 
Taxes accrued   10,534   187,324 
Accumulated deferred income taxes   20,494   -  
Interest accrued   187,015   160,831 
Deferred fuel costs   -   73,031 
Obligations under capital leases   153,559   153,246 
Pension and other postretirement liabilities   32,693   41,912 
System agreement cost equalization   107,886   -  
Other   239,208   271,544 
TOTAL   2,723,508   2,465,130 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   6,328,049   5,820,700 
Accumulated deferred investment tax credits   348,099   358,550 
Obligations under capital leases   176,648   188,033 
Other regulatory liabilities   531,311   449,237 
Decommissioning and asset retirement cost liabilities   2,355,912   2,023,846 
Transition to competition   79,098   79,098 
Accumulated provisions   129,906   88,902 
Pension and other postretirement liabilities   1,409,540   1,410,433 
Long-term debt   10,147,126   8,798,087 
Preferred stock with sinking fund   7,050   10,500 
Other   1,187,878   847,415 
TOTAL   22,700,617   20,074,801 
         
Commitments and Contingencies        
         
Preferred stock without sinking fund   364,479   344,913 
         
SHAREHOLDERS' EQUITY        
Common stock, $.01 par value, authorized 500,000,000        
 shares; issued 248,174,087 shares in 2007 and in 2006   2,482   2,482 
Paid-in capital   4,846,834   4,827,265 
Retained earnings   6,687,955   6,113,042 
Accumulated other comprehensive income (loss)   8,194   (100,512)
Less - treasury stock, at cost (53,911,876 shares in 2007 and        
 45,506,311 shares in 2006)   3,575,552   2,644,390 
TOTAL   7,969,913   8,197,887 
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $33,758,517   $31,082,731 
         
See Notes to Financial Statements.        
         
31

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
                     
        2007   2006
        (In Thousands)
                     
RETAINED EARNINGS                    
                     
Retained Earnings - Beginning of period       $6,372,687        $5,681,618     
                     
  Add: Consolidated net income       461,159    $461,159    388,883    $388,883 
                     
  Deduct:                    
    Dividends declared on common stock       145,891        112,570     
    Capital stock and other expenses             1,621     
     Total       145,891        114,191     
                     
Retained Earnings - End of period       $6,687,955        $5,956,310     
                     
                     
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       ($59,562)       ($194,629)    
                     
  Pension and other postretirement liabilities       (105,770)          
                     
  Net unrealized investment gains       116,897        59,376     
                     
  Foreign currency translation       6,666        3,773      
                     
  Minimum pension liability       -         (22,345)    
     Total       (41,769)       (153,825)    
                     
                     
Net derivative instrument fair value changes                    
 arising during the period (net of tax expense of $24,296 and $17,470)       42,201    42,201    27,295    27,295 
                     
Pension and other postretirement liabilities (net of tax expense of $682)       69    69     
                     
Net unrealized investment gains (net of tax expense of $24,586 and $18,788)       7,541    7,541    23,840    23,840 
                     
Foreign currency translation (net of tax expense of $82 and $143)       152    152    265    265 
                     
Minimum pension liability (net of tax expense of $386)           617    617 
                     
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       (17,361)       (167,334)    
                     
  Pension and other postretirement liabilities       (105,701)          
                     
  Net unrealized investment gains       124,438        83,216     
                     
  Foreign currency translation       6,818        4,038     
                     
  Minimum pension liability             (21,728)    
     Total       $8,194        ($101,808)    
Comprehensive Income           $511,122        $440,900 
                     
                     
PAID-IN CAPITAL                    
                     
Paid-in Capital - Beginning of period       $4,841,059        $4,817,628     
                     
  Add:                    
    Common stock issuances related to stock plans       5,775        1,264     
                     
                     
Paid-in Capital - End of period       $4,846,834        $4,818,892     
                     
                     
                     
See Notes to Financial Statements.                    
32                    

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
                     
        2007   2006
        (In Thousands)
                     
RETAINED EARNINGS                    
                     
Retained Earnings - Beginning of period       $6,113,042        $5,433,931     
                     
  Add:                    
    Consolidated net income       940,956    $940,956    864,314    $864,314 
    Adjustment related to FIN 48 implementation       (4,600)          
     Total       936,356        864,314     
                     
  Deduct:                    
    Dividends declared on common stock       361,443        337,004     
    Capital stock and other expenses             4,931     
     Total       361,443        341,935     
                     
Retained Earnings - End of period       $6,687,955        $5,956,310     
                     
                     
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       ($105,578)       ($392,614)    
                     
  Pension and other postretirement liabilities       (105,909)          
                     
  Net unrealized investment gains       104,551        67,923     
                     
  Foreign currency translation       6,424        3,217      
                     
  Minimum pension liability       -         (22,345)    
     Total       (100,512)       (343,819)    
                     
                     
Net derivative instrument fair value changes                    
 arising during the period (net of tax expense of $54,472 and $149,013)       88,217    88,217    225,280    225,280 
                     
Pension and other postretirement liabilities (net of tax expense of $2,048)       208    208     
                     
Net unrealized investment gains (net of tax expense of $31,693 and $10,986)       19,887    19,887    15,293    15,293 
                     
Foreign currency translation (net of tax expense of $212 and $442)       394    394    821    821 
                     
Minimum pension liability (net of tax expense of $386)           617    617 
                     
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       (17,361)       (167,334)    
                     
  Pension and other postretirement liabilities       (105,701)          
                     
  Net unrealized investment gains       124,438        83,216     
                     
  Foreign currency translation       6,818        4,038     
                     
  Minimum pension liability             (21,728)    
     Total       $8,194        ($101,808)    
Comprehensive Income           $1,049,662        $1,106,325 
                     
                     
PAID-IN CAPITAL                    
                     
Paid-in Capital - Beginning of period       $4,827,265        $4,817,637     
                     
  Add (Deduct):                    
    Common stock issuances related to stock plans       19,569        1,255     
                     
                     
Paid-in Capital - End of period       $4,846,834        $4,818,892     
                     
                     
                     
See Notes to Financial Statements.                    
                     
33                    

 

ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2007   2006   (Decrease)   %
    (Dollars In Millions)    
Utility Electric Operating Revenues:                
  Residential   $1,076   $1,115   ($39)   (3)
  Commercial   684   687   (3)  
  Industrial   646   704   (58)   (8)
  Governmental   60   42   18    43 
     Total retail   2,466   2,548   (82)   (3)
Sales for resale   106   147   (41)   (28)
Other   75   66     14 
     Total   $2,647   $2,761   ($114)   (4)
                 
Utility Billed Electric Energy                
 Sales (GWh):                
  Residential   11,128   10,772   356   
  Commercial   8,111   7,484   627   
  Industrial   10,120   10,154   (34)  
  Governmental   637   436   201    46 
     Total retail   29,996   28,846   1,150   
  Sales for resale   1,413   2,894   (1,481)   (51)
     Total   31,409   31,740   (331)   (1)
                 
                 
    Nine Months Ended   Increase/    
Description   2007   2006   (Decrease)   %
    (Dollars In Millions)    
Utility Electric Operating Revenues:                
  Residential   $2,512   $2,509   $3   
  Commercial   1,816   1,773    43   
  Industrial   1,920   1,990   (70)   (4)
  Governmental   163   118   45    38 
     Total retail   6,411   6,390   21   
  Sales for resale   295   488   (193)   (40)
  Other   247   154   93    60 
     Total   $6,953   $7,032   ($79)   (1)
                 
Utility Billed Electric Energy                
 Sales (GWh):                
  Residential   25,905   24,768   1,137   
  Commercial   20,708   19,078   1,630   
  Industrial   29,256   28,768   488   
  Governmental   1,749   1,196   553    46 
     Total retail   77,618   73,810   3,808   
  Sales for resale   4,479   8,471   (3,992)   (47)
     Total   82,097   82,281   (184)  
                 
                 
34

 

 

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. COMMITMENTS AND CONTINGENCIES

Entergy New Orleans Bankruptcy

See Note 9 to the financial statements herein for information on the Entergy New Orleans bankruptcy proceeding.

Nuclear Insurance

See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy's nuclear power plants. Following is an update to that information.

Property Insurance

In April 2007, the excess layer coverage for the Utility nuclear plants was increased to $750 million per occurrence per plant and the blanket layer coverage (shared among the plants) for the Utility nuclear plants was decreased to $350 million per occurrence.

Conventional Property Insurance

See Note 8 to the financial statements in the Form 10-K for information on Entergy's conventional property insurance program. Following are updates to that information.

Hurricane Katrina and Hurricane Rita Claims

Entergy has received a total of $134.5 million as of September 30, 2007 on its Hurricane Katrina and Hurricane Rita insurance claims, including $69.5 million that Entergy received in the second quarter 2007 in settlement of its Hurricane Katrina claim with one of its excess insurers. Of the $134.5 million received, $70.7 million was allocated to Entergy New Orleans, $33.2 million to Entergy Gulf States, and $24.8 million to Entergy Louisiana. In the third quarter 2007, Entergy filed a lawsuit in the U.S. District Court for the Eastern District of Louisiana against its other excess insurer on the Hurricane Katrina claim. At issue in the lawsuit is whether any policy exclusions limit the extent of coverage provided by that insurer.

To the extent that Entergy New Orleans receives insurance proceeds for future construction expenditures associated with rebuilding its gas system, the October 2006 City Council resolution approving the settlement of Entergy New Orleans' rate and storm-cost recovery filings requires Entergy New Orleans to record those proceeds in a designated sub-account of other deferred credits. This other deferred credit is shown as "Gas system rebuild insurance proceeds" on Entergy New Orleans' balance sheet.

Conventional Property Insurance Coverage Update

Entergy's conventional property insurance program provides coverage up to $400 million on an Entergy system-wide basis for all operational perils including direct physical loss or damage due to machinery breakdown, electrical failure, fire, lightning, hail, and explosion on an "each and every loss" basis. In addition to this coverage, the program provides coverage up to $350 million on an Entergy system-wide basis for all natural perils including named windstorm, earthquake and flood on an annual aggregate basis. The coverage is subject to a $20 million self-insured retention per occurrence for operational perils or a 2% of the insured loss retention per occurrence for natural perils (up to a $35 million maximum self-insured retention). Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary

 

35

 

 

property program consists of a $150 million layer in excess of the self-insured retention and is placed through various insurers. The excess program consists of a $250 million layer in excess of the $150 million primary program for operational perils and a $150million layer in excess of the $150 million primary program for natural perils and is placed on a quota share basis through two insurers. The natural perils additional layer program consists of a $50 million layer in excess the $150 million excess program and is also placed on a quota share basis through two insurers. Coverage is in place for Entergy Corporation, the Registrant Subsidiaries, and certain other Entergy subsidiaries, including the owners of the Non-Utility Nuclear power plants.

In addition to the conventional property insurance program, Entergy has purchased additional coverage ($20 million per occurrence) for some of its non-regulated, non-generation assets. This policy serves to buy-down the $20 million deductible and is placed on a scheduled location basis. The applicable deductibles are $100,000 to $250,000.

NYPA Value Sharing Agreements

See Note 8 to the financial statements in the Form 10-K for a discussion of Non-Utility Nuclear's value sharing agreements with NYPA for energy sales from the FitzPatrick and Indian Point 3 power plants. In October 2007 Non-Utility Nuclear and NYPA amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements Non-Utility Nuclear will make annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Non-Utility Nuclear will pay NYPA $6.59 per MWh for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh for power sold from FitzPatrick, up to an annual cap of $24 million. The annual payment for each year is due by January 15 of the following year, with the payment for year 2007 output due on January 15, 2008. If Entergy or an Entergy affiliate ceases to own the plants, then, after January 2009, the annual payment obligation terminates for generation after the date that Entergy ownership ceases.

Non-Utility Nuclear had previously calculated that $0 was owed to NYPA under the value sharing agreements for generation output in 2005 and 2006. In November 2006 NYPA filed a demand for arbitration claiming that $90.5 million was due to NYPA for 2005 under these agreements, and NYPA filed in April 2007 an amended demand for arbitration claiming that an additional $54 million was due to NYPA for 2006 under the value sharing agreements. As part of their agreement to amend the value sharing agreements, Non-Utility Nuclear and NYPA waived all present and future claims under the previous value sharing terms, including the claims for 2005 and 2006 pending before the arbitrator.

Non-Utility Nuclear will record its liability for payments to NYPA as power is generated and sold by Indian Point 3 and FitzPatrick. Non-Utility Nuclear recorded a $57 million liability for generation through September 30, 2007. An amount equal to the liability will be recorded to the plant asset account as contingent purchase price consideration for the plants. This amount will be depreciated over the expected remaining useful life of the plants.

CashPoint Bankruptcy (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)

See Note 8 to the financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the Utility operating companies.

Employment and Labor-related Proceedings

The Registrant Subsidiaries and other Entergy subsidiaries are responding to various lawsuits and other labor-related proceedings filed by current and former employees. These actions include, but are not limited to, allegations of wrongful employment actions; wage disputes and other claims under the Fair Labor Standards Act or its state counterparts; claims of race, gender and disability discrimination; disputes arising under collective bargaining agreements; unfair labor practice proceedings and other administrative proceedings before the National Labor Relations Board; claims of retaliation; and claims for or regarding benefits under various Entergy Corporation sponsored plans. Entergy and the Registrant Subsidiaries are responding to these suits and proceedings and deny liability to the claimants.

36

Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)

See Note 8 to the financial statements in the Form 10-K for information regarding asbestos and hazardous material litigation at Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.

 

NOTE 2. RATE AND REGULATORY MATTERS

Regulatory Assets

Other Regulatory Assets

See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets in the Utility business reflected on the balance sheets of Entergy and the Registrant Subsidiaries.

Deferred Fuel Costs

See Note 2 to the financial statements in the Form 10-K for information regarding fuel proceedings involving the Utility operating companies. The following are updates to the Form 10-K.

Entergy Arkansas

In March 2007, in order to allow further consideration by the APSC, the APSC granted Entergy Arkansas' petition for rehearing and for stay of the APSC's January 2007 order in the proceeding investigating Entergy Arkansas' interim energy cost rate. The APSC has taken no action in this proceeding since its March 2007 order.

Also in March 2007, Entergy Arkansas filed with the APSC its annual energy cost rate for the period April 2007 through March 2008. The filed energy cost rate decreased from $0.02827/kWh to $0.01179/kWh effective the first billing cycle in April 2007.

In its June 2007 order regarding Entergy Arkansas' rate case, discussed below, the APSC approved the continuation of Entergy Arkansas' energy cost recovery rider through December 31, 2008.

Entergy Gulf States (Texas)

The Entergy Gulf States rate filing made with the PUCT in September 2007, which is discussed below, includes a request to reconcile $858 million in fuel and purchased power costs on a Texas retail basis incurred over the period January 2006 through March 2007.

In March 2007, Entergy Gulf States filed a request with the PUCT to refund $78.5 million, including interest, of fuel cost recovery over-collections through January 2007. In June 2007 the PUCT approved a unanimous stipulation and settlement agreement that updated the over-collection balance through April 2007 and established a refund amount, including interest, of $109.4 million. The refund was made over a two-month period beginning with the first billing cycle in July 2007. Amounts refunded through the interim fuel refund are subject to final reconciliation in a future fuel reconciliation proceeding.

In May 2006, Entergy Gulf States filed with the PUCT a fuel and purchased power reconciliation case covering the period September 2003 through December 2005 for costs recoverable through the Texas fixed fuel factor rate and the incremental purchased capacity recovery rider. Entergy Gulf States reconciled $1.6 billion of fuel and purchased power costs on a Texas retail basis. A hearing was conducted before ALJs in April 2007. In July 2007, the ALJs issued a proposal for decision recommending that Entergy Gulf States be authorized to reconcile all of its requested Texas fixed fuel factor expenses and recommending a minor adjustment to the incremental purchased capacity recovery calculation. The ALJs also recommend granting an exception to PUCT rules to allow for recovery of an additional $11.4 million in Texas-jurisdictional

 

37

 

purchased power capacity costs. In September 2007, the PUCT issued a final order, which affirmed the ultimate result of the ALJ's proposal for decision. Upon motions for rehearing, the PUCT added additional language in its order on rehearing.  In order to preserve any appeals, the parties will have to file a subsequent motion for rehearing to the PUCT's order on rehearing.

Storm Cost Recovery Filings

See Note 2 to the financial statements in the Form 10-K for information regarding storm cost recovery filings involving the Utility operating companies. The following are updates to the Form 10-K.

Entergy Gulf States - Texas

In April 2007, the PUCT issued its financing order authorizing the issuance of securitization bonds to recover $353 million of hurricane reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC (Entergy Gulf States Reconstruction Funding), a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds). With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers through a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States will use the proceeds to refinance or retire debt and to reduce equity. Entergy Gulf States began cost recovery through the transition charge in July 2007, and the transition charge is expected to remain in place over a 15-year period. See Note 4 to the financial statements for additional information regarding the securitization bonds.

Entergy Gulf States - Louisiana and Entergy Louisiana

In February 2007, Entergy Louisiana and Entergy Gulf States filed rebuttal testimony and filed a second supplemental and amending application by which they seek authority from the LPSC to securitize their storm cost recovery and storm reserve amounts, together with certain debt retirement costs and upfront and ongoing costs of the securitized debt issued. Securitization is authorized by a law signed by the Governor of Louisiana in May 2006. Hearings on the quantification of the amounts eligible for securitization began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf States, Entergy Louisiana, the LPSC staff, and most other parties in the proceeding was read into the record. The stipulation quantifies the balance of storm restoration costs for recovery as $545 million for Entergy Louisiana and $187 million for Entergy Gulf States, and sets the storm reserve amounts at $152 million for Entergy Louisiana and $87 million for Entergy Gulf States. The stipulation also calls for securitization of the storm restoration costs and storm reserves in those same amounts. Hearings on authorization of securitization of the storm costs and reserves were held in June 2007. In August 2007, the LPSC issued orders approving recovery of the stipulated storm cost recovery and storm reserve amounts plus certain debt retirement and upfront and ongoing costs through securitization financing.

Entergy Mississippi

In October 2006 the MPSC issued a financing order authorizing the issuance of state bonds to finance $8 million of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for an increase in Entergy Mississippi's storm damage reserve. $30 million of the storm damage reserve will be set aside in a restricted account. A Mississippi state entity issued the bonds in May 2007, and Entergy Mississippi received proceeds of $48 million. Entergy Mississippi will not report the bonds on its balance sheet because the bonds are the obligation of the state entity, and there is no recourse against Entergy Mississippi in the event of a bond default. To service the bonds, Entergy Mississippi will collect a system restoration charge on behalf of the state, and will remit the collections to the state. By analogy to and in accordance with Entergy's accounting policy for collection of sales taxes, Entergy Mississippi will not report the collections as revenue because it is merely acting as the billing and collection agent for the state.

38

Entergy New Orleans

In March 2007, the City Council certified that Entergy New Orleans has incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding under the state action plan, and certified Entergy New Orleans' estimated costs of $465 million for its gas system rebuild. In April 2007, Entergy New Orleans executed an agreement with the Louisiana Office of Community Development under which $200 million of CDBG funds will be made available to Entergy New Orleans. Entergy New Orleans submitted the agreement to the bankruptcy court, which approved it on April 25, 2007. Entergy New Orleans has received $180.8 million of the funds as of September 30, 2007, and the remainder will be paid to Entergy New Orleans as it incurs and submits additional eligible costs.

Retail Rate Proceedings

See Note 2 to the financial statements in the Form 10-K for information regarding retail rate proceedings involving the Utility operating companies. The following are updates to the Form 10-K.

Filings with the APSC (Entergy Arkansas)

In June 2007, after hearings on Entergy Arkansas' August 2006 base rate filing requesting an adjusted annual increase of $106.5 million, the APSC ordered Entergy Arkansas to reduce its annual rates by $5 million, and set a return on common equity of 9.9% with a hypothetical common equity level lower than Entergy Arkansas' actual capital structure. For the purpose of setting rates, the APSC disallowed a portion of costs associated with incentive compensation based on financial measures and   all costs associated with Entergy's stock-based compensation plans. In addition, under the terms of the APSC's decision, recovery of storm restoration costs in the future will be limited to a fixed annual amount of $14.4 million, regardless of the actual annual amount of future restoration costs. The APSC's decision also threatens Entergy Arkansas' ability to recover $52 million of costs previously accumulated in Entergy Arkansas' storm reserve and $18 million of removal costs associated with the termination of a lease. Management believes, however, that Entergy Arkansas is entitled to recover these prudently incurred costs and will vigorously pursue its right to recover them. The APSC rejected Entergy Arkansas' request for a capacity management rider to recover incremental capacity costs, but directed Entergy Arkansas and the other parties in the case to develop an annual earnings review process that may address this issue.

The APSC denied Entergy Arkansas' request for rehearing of the APSC's June 2007 decision. In September 2007, Entergy Arkansas appealed the decision to the Arkansas Court of Appeals. In its Notice of Appeal, Entergy Arkansas states that the APSC's decision represents arbitrary decision-making, and enumerates seventeen reasons why the APSC's decision is unlawful. A briefing schedule that concludes in the first quarter 2008 has been established by the appeals court.

See Entergy Corporation and Subsidiaries' " MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - Federal Regulation - System Agreement Litigation " for a discussion of Entergy's compliance filing in that proceeding. In its June 2007 decision on Entergy Arkansas' rate filing, the APSC approved through December 31, 2008 a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement litigation.

Filings with the PUCT (Entergy Gulf States)

Entergy Gulf States made a rate filing in September 2007 with the PUCT requesting an annual rate increase totaling $107.5 million, including a base rate increase of $64.3 million and special riders totaling $43.2 million. The base rate increase includes $12.2 million for the storm damage reserve. Entergy Gulf States is requesting an 11% return on common equity.

 

39

In September 2007, Entergy Gulf States filed with the PUCT a request to increase its incremental purchased capacity recovery rider to collect approximately $25 million on an annual basis. This filing also includes a request to implement an interim surcharge to collect approximately $10 million in under-recovered incremental purchased capacity costs incurred through July 2007. A decision is expected in the first quarter 2008. Amounts collected through the rider and interim surcharge are subject to final reconciliation.

Filings with the LPSC

(Entergy Gulf States)

In May 2007, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2006 test year. The filing reflected a 10.0% return on common equity, which is within the allowed earnings bandwidth, and an anticipated formula rate plan decrease of $23 million annually attributable to adjustments outside of the formula rate plan sharing mechanism related to capacity costs and the anticipated securitization of storm costs related to Hurricane Katrina and Hurricane Rita and the securitization of a storm reserve. In September 2007, Entergy Gulf States modified the formula rate plan filing to reflect a 10.07% return on common equity, which is still within the allowed bandwidth. The modified filing also reflected implementation of a $4.1 million rate increase attributable to recovery of additional LPSC approved incremental deferred and ongoing capacity costs. The rate decrease anticipated in the original filing did not occur because of the additional capacity costs approved by the LPSC, and because securitization of storm costs associated with Hurricane Katrina and Hurricane Rita and the establishment of a storm reserve have not yet occurred. Entergy Gulf States is currently exploring its securitization options.

In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. Entergy Gulf States modified the filing in August 2006 to reflect an 11.1% return on common equity which is within the allowed bandwidth. The modified filing includes a formula rate plan increase of $17.2 million annually that provides for 1) interim recovery of $10.5 million of storm costs from Hurricane Katrina and Hurricane Rita and 2) recovery of $6.7 million of LPSC-approved incremental deferred and ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. In May 2007 the LPSC approved a settlement between Entergy Gulf States and the LPSC staff, affirming the rates that were implemented in September 2006.

(Entergy Louisiana)

In May 2007, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2006 test year, indicating a 7.6% return on common equity and an anticipated formula rate plan decrease of $6.9 million. The filing also included Entergy Louisiana's request to recover $39.8 million in unrecovered fixed costs associated with the loss of customers that resulted from Hurricane Katrina and Hurricane Rita, which if approved by the LPSC would increase the return on common equity under the original filing to 9.4%, which is within the band of no change adjacent to the lower end of the sharing bandwidth. In September 2007, Entergy Louisiana modified its formula rate plan filing to reflect its implementation of certain adjustments proposed by the LPSC staff in its review of Entergy Louisiana's original filing with which Entergy Louisiana agreed, and to reflect its implementation of an $18.4 million annual formula rate plan rate increase comprised of (1) a $23.8 million increase representing 60% of Entergy Louisiana's revenue deficiency, and (2) a $5.4 million decrease for reduced incremental and deferred capacity costs. The return on common equity in the modified filing is 7.63%. The LPSC authorized Entergy Louisiana to defer for accounting purposes the difference between its $39.8 million claim for unrecovered fixed costs and 60% of the revenue deficiency to preserve Entergy Louisiana's right to pursue that claim in full during the formula rate plan proceeding. The rate decrease anticipated in the original filing did not occur because securitization of storm costs associated with Hurricane Katrina and Hurricane Rita and the establishment of a storm reserve have not yet occurred. Entergy Louisiana is currently exploring its securitization options.

40

Retail Rates- Gas (Entergy Gulf States)

In January 2007, Entergy Gulf States filed with the LPSC its gas rate stabilization plan for the test year ending September 30, 2006.  The filing showed a revenue deficiency of $3.5 million based on a return on common equity mid-point of 10.5%.  In March 2007, Entergy Gulf States filed a set of rate and rider schedules that reflected all proposed LPSC staff adjustments and implemented a $2.4 million base rate increase effective with the first billing cycle of April 2007 pursuant to the rate stabilization plan. 

Filings with the MPSC (Entergy Mississippi)

In March 2007, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2006 test year with the MPSC.  The filing showed that an increase of $12.9 million in annual electric revenues is warranted.  In June 2007 the MPSC approved a joint stipulation between Entergy Mississippi and the Mississippi Public Utilities staff that provides for a $10.5 million rate increase, which was effective beginning with July 2007 billings.

Electric Industry Restructuring

Texas (Entergy Gulf States)

Refer to Note 2 to the financial statements in the Form 10-K for the current Texas legislation and Entergy Gulf States' proposed transition to competition plan.

As required by the June 2005 legislation, Entergy Gulf States filed its proposed transition to competition plan in December 2006. The plan provides that to achieve full customer choice, Entergy Gulf States should join ERCOT because ERCOT already has all of the prerequisites for retail choice. Pursuant to PUCT order, on June 4, 2007 Entergy Gulf States filed a restatement of the plan, in which Entergy Gulf States requested that the PUCT approve a "Financial Stability Provision" that is designed to ensure that Entergy Gulf States' proposed integration with ERCOT will not, during the necessary construction period, cause deterioration of its credit quality and financial strength. The June 4, 2007 filing also proposes a rule making process to implement the Financial Stability Provision and to consider the construction and ownership of necessary ERCOT integration facilities by third parties. The filing also eliminated from the plan certain provisions whereby Entergy Gulf States had the ability in its sole discretion to cease pursuit of the plan. Under Entergy Gulf States' plan, retail open access could commence as early as 2013, although that is unlikely given the PUCT's decision described below. Entergy Gulf States' plan includes an estimate that direct construction costs for facilities to interconnect Entergy Gulf States' Texas operations with ERCOT could be approximately $1 billion. The Texas Legislature did not pass legislation addressing Entergy Gulf States' transition plan before adjourning its 2007 session. PUCT hearings on Entergy Gulf States' plan were completed in July 2007. In October 2007, the PUCT abated the proceeding to allow the Southwest Power Pool (SPP) to develop additional information about the costs and benefits of Entergy Gulf States joining the SPP similar to information presented regarding Entergy Gulf States joining ERCOT. The SPP has stated that it would take a minimum of six to nine months to develop this type of information. Entergy Gulf States filed a motion for reconsideration, in which it asks the PUCT to also allow for an update to the ERCOT cost study.

In December 2006, the PUCT asked for parties to brief the effects of the 2005 legislation on the competition dockets of Entergy Gulf States, most notably, the settlement that the parties entered with respect to the unbundling of Entergy Gulf States for retail open access. Finding that the 2005 legislation now provides the mechanism by which Entergy Gulf States will transition to competition, the PUCT, on February 1, 2007, dismissed Entergy Gulf States' unbundled cost of service proceeding. After analyzing the PUCT's decision, Entergy Gulf States recorded a provision for its estimated exposure related to certain past fuel cost recoveries that may be credited to customers.

41

Co-Owner-Initiated Proceeding at the FERC

(Entergy Arkansas)

In October 2004, Arkansas Electric Cooperative (AECC) filed a complaint at the FERC against Entergy Arkansas relating to a contract dispute over the pricing of substitute energy at the co-owned Independence and White Bluff coal plants. The main issue in the case related to the consequences under the governing contracts when the dispatch of the coal units is constrained due to system operating conditions.  A hearing was held on the AECC complaint and an ALJ Initial Decision was issued in January 2006 in which the ALJ found AECC's claims to be without merit. On October 25, 2006, the FERC issued its order in the proceeding. In the order, the FERC reversed the ALJ's findings. Specifically, the FERC found that the governing contracts do not recognize the effects of dispatch constraints on the co-owned units. The FERC explained that for over twenty-three years the course of conduct of the parties was such that AECC received its full entitlement to the two coal units, regardless of any reduced output caused by system operating constraints. Based on the order, Entergy Arkansas is required to refund to AECC all excess amounts billed to AECC as a result of the system operating constraints. The FERC denied Entergy Arkansas' request for rehearing and Entergy Arkansas refunded $22.1 million (including interest) to AECC in September 2007. Entergy Arkansas had previously recorded a provision for the estimated effect of this refund. AECC has filed a protest at the FERC claiming that Entergy Arkansas owes an additional $2.5 million plus interest. Entergy Arkansas has appealed the FERC's decision to the D.C. Circuit.

 

NOTE 3. COMMON EQUITY

Common Stock

Earnings per Share

The following tables present Entergy's basic and diluted earnings per share calculations included on the consolidated income statement:

 

 

For the Three Months Ended September 30,

 

 

2007

 

2006

 

 

(In Millions, Except Per Share Data)

 

 

 

 

$/share

 

 

 

$/share

Consolidated net income

 

$461.2

 

 

 

$388.9

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares
  outstanding - basic

 


194.9

 


$2.37 

 


208.4

 


$1.87 

Average dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock Options

 

4.6

 

(0.055)

 

3.8

 

(0.034)

 

Equity Units

 

0.9

 

(0.011)

 

-

 

 

Deferred Units

 

0.1

 

(0.001)

 

0.2

 

(0.002)

Average number of common shares
  outstanding - diluted

 


200.5

 


$2.30 

 


212.4

 


$1.83 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42

 

 

For the Nine Months Ended September 30,

 

 

2007

 

2006

 

 

(In Millions, Except Per Share Data)

 

 

 

 

$/share

 

 

 

$/share

Consolidated net income

 

$941.0

 

 

 

$864.3

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares
  outstanding - basic

 


197.4

 


$4.77 

 


208.0

 


$4.16 

Average dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock Options

 

4.9

 

(0.115)

 

3.6

 

(0.070)

 

Equity Units

 

1.0

 

(0.023)

 

-

 

 

Deferred Units

 

0.1

 

(0.003)

 

0.2

 

(0.004)

Average number of common shares
  outstanding - diluted

 


203.4

 


$4.63 

 


211.8

 


$4.08 

 

 

 

 

 

 

 

 

 

Entergy's stock option and other equity compensation plans are discussed in Note 12 to the consolidated financial statements in the Form 10-K.

Treasury Stock

During the nine months ended September 30, 2007, Entergy Corporation issued 1,556,977 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. Also during the nine months ended September 30, 2007, Entergy Corporation purchased 9,962,542 shares of its common stock for a total purchase price of $1.0 billion.

Retained Earnings

On October 26, 2007, Entergy Corporation's Board of Directors declared a common stock dividend of $0.75 per share, payable on December 1, 2007 to holders of record as of November 9, 2007.

Accumulated Other Comprehensive Income

Cash flow hedges with net unrealized losses of approximately $8.7 million net-of-tax at September 30, 2007 are expected to be reclassified into earnings during the next twelve months.

 

NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT

Entergy Corporation had in place as of September 30, 2007, a five-year credit facility, which expires in August 2012 and has a borrowing capacity of $3.5 billion. Entergy Corporation also has the ability to issue letters of credit against the total borrowing capacity of the credit facility. The facility fee is currently 0.09% of the commitment amount. Facility fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate as of September 30, 2007 was 5.88% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of September 30, 2007.

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Capacity

 


Borrowings

 

Letters
of Credit

 

Capacity
Available

(In Millions)

             

$3,500 

 

$2,116 

 

$71

 

$1,313

Entergy Corporation's facility requires it to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy fails to meet this ratio, or if Entergy or one of the Registrant Subsidiaries (except Entergy New Orleans) default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.

Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi each had credit facilities available as of September 30, 2007 as follows:


Company

 


Expiration Date

 

Amount of
Facility

 

Amount Drawn as of
September 30, 2007

 

 

 

 

 

 

 

Entergy Arkansas

 

April 2008

 

$100 million (a)

 

$60 million

Entergy Gulf States

 

February 2011

 

$2 million (b)

 

-

Entergy Gulf States

 

August 2012

 

$200 million (c)

 

-

Entergy Louisiana

 

August 2012

 

$200 million (d)

 

-

Entergy Mississippi

 

May 2008

 

$30 million (e)

 

-

Entergy Mississippi

 

May 2008

 

$20 million (e)

 

-

(a)

The credit facility requires Entergy Arkansas to maintain a total shareholders' equity of at least 25% of its total assets. The interest rate on the outstanding borrowings is 7.25% as of September 30, 2007.

(b)

The credit facility allows Entergy Gulf States to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2007, $1.4 million in letters of credit were outstanding. Entergy Gulf States downsized this facility from a $50 million facility in August 2007.

(c)

The credit facility allows Entergy Gulf States to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2007, no letters of credit were outstanding.

(d)

The credit facility allows Entergy Louisiana to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2007, no letters of credit were outstanding.

(e)

Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable.

On August 2, 2007, Entergy Gulf States entered into a $200 million, 5-year bank credit facility. Entergy Gulf States has the ability to issue letters of credit against the facility. The credit agreement requires Entergy Gulf States to maintain a consolidated debt ratio of 65% or less of its total capitalization. The facility has a variable interest rate that would currently be approximately 5.54% on borrowings under the facility, and has a facility fee that is currently 0.125% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy Gulf States. As of September 30, 2007, there were no borrowings or letters of credit outstanding under the Entergy Gulf States $200 million facility.

On August 2, 2007, Entergy Louisiana entered into a $200 million, 5-year bank credit facility. Entergy Louisiana has the ability to issue letters of credit against the facility. The credit agreement requires Entergy Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization. The facility has a variable interest rate that would currently be approximately 5.48% on borrowings under the facility, and has a facility fee that is currently 0.09% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy Louisiana. As of September 30, 2007, there were no borrowings or letters of credit outstanding under the Entergy Louisiana $200 million facility.

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The short-term borrowings of the Registrant Subsidiaries and certain other Entergy subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008 (except for Entergy New Orleans, which is effective through May 4, 2009). In addition to borrowings from commercial banks, these companies are authorized under a FERC order to borrow from the Entergy System money pool. The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the FERC-authorized limits. As of September 30, 2007, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outstanding borrowing from the money pool was $311.1 million, and Entergy's subsidiaries had $60 million in outstanding borrowings from external sources.

The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings from the money pool and external sources for the Registrant Subsidiaries as of September 30, 2007:

 

 

Authorized

 

Borrowings

 

 

(In Millions)

 

 

 

 

 

Entergy Arkansas

 

$250

 

$90

Entergy Gulf States

 

$350

 

-

Entergy Louisiana

 

$250

 

$63

Entergy Mississippi

 

$175

 

-

Entergy New Orleans

 

$100

 

-

System Energy

 

$200

 

-

Debt Issuances

(Entergy Gulf States)

In April 2007, the PUCT issued a financing order authorizing the issuance of securitization bonds to recover $353 million of Entergy Gulf States' Hurricane Rita reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds), as follows:

 

Amount

 

(In Thousands)

Senior Secured Transition Bonds, Series A:

 

Tranche A-1 (5.51%) due October 2013

$93,500

Tranche A-2 (5.79%) due October 2018

121,600

Tranche A-3 (5.93%) due June 2022

114,400

Total senior secured transition bonds

$329,500

Although the principal amount of each tranche is not due until the dates given above, Entergy Gulf States Reconstruction Funding expects to make principal payments on the bonds over the next five years in the amounts of $19.1 million for 2008, $17.7 million for 2009, $18.6 million for 2010, $19.7 million for 2011, and $20.8 million for 2012. All of the scheduled principal payments for 2008-2012 are for Tranche A-1, except for $2.3 million for Tranche A-2 in 2012.

With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers through a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 2007. The creditors of Entergy Gulf States do not have recourse to the assets or revenues of Entergy Gulf States Reconstruction Funding, including the transition property, and the creditors of Entergy Gulf States Reconstruction Funding

 

45

 

do not have recourse to the assets or revenues of Entergy Gulf States. Entergy Gulf States has no payment obligations to Entergy Gulf States Reconstruction Funding except to remit transition charge collections.

(Entergy Mississippi)

In January 2007, Entergy Mississippi redeemed, prior to maturity, its $100 million, 4.35% Series First Mortgage Bonds due April 2008.

(Entergy New Orleans)

Pursuant to its plan of reorganization, in May 2007 Entergy New Orleans issued notes due in three years in satisfaction of its affiliate prepetition accounts payable (approximately $74 million, including interest), including its indebtedness to the Entergy System money pool. Entergy New Orleans included in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005 (6%) and 2006 (8%), and at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans will pay interest on the notes from their date of issuance at the Louisiana judicial rate of interest plus 1%.

(System Energy)

In September 2007, System Energy issued $70 million of 6.20% Series First Mortgage Bonds due October 2012. System Energy used the proceeds to redeem, at maturity, $70 million of 4.875% Series First Mortgage Bonds in October 2007.

Entergy New Orleans Debtor-in-Possession Credit Facility

See Note 4 in the Form 10-K for a discussion of the Entergy New Orleans $200 million debtor-in-possession (DIP) credit facility. Pursuant to the terms of its plan of reorganization, which became effective in May 2007, Entergy New Orleans fully repaid its DIP credit facility borrowings.

 

NOTE 5. ACQUISITIONS

In April 2007, Entergy's Non-Utility Nuclear business purchased the 798 MW Palisades nuclear energy plant located near South Haven, Michigan from Consumers Energy Company for a net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, was also transferred to Entergy's Non-Utility Nuclear business. Entergy's Non-Utility Nuclear business executed a unit-contingent, 15-year purchased power agreement (PPA) with Consumers Energy for 100% of the plant's output, excluding any future uprates. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. In the first quarter 2007, the NRC renewed Palisades' operating license until 2031. As part of the transaction, Entergy's Non-Utility Nuclear business assumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan.  Palisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment.  The following table summarizes the assets acquired and liabilities assumed at the date of acquisition.

46

 

 

Amount

 

 

(In Millions)

 

 

 

Plant (including nuclear fuel)

 

$727  

Decommissioning trust funds

 

252 

Other assets

 

41 

Total assets acquired

 

 1,020 

     

Purchased power agreement (below market)

 

420 

Decommissioning liability

 

220 

Other liabilities

 

44 

Total liabilities assumed

 

684 

     

Net assets acquired

 

$336 

Subsequent to the closing, Entergy received approximately $6 million from Consumers Energy Company as part of the Post-Closing Adjustment defined in the Asset Sale Agreement. The Post-Closing Adjustment amount resulted in an approximately $6 million reduction in plant and a corresponding reduction in other liabilities.

Non-Utility Nuclear will amortize the PPA liability to revenue over the life of the agreement. The amount that will be amortized each period is based upon the difference between the present value calculated at the date of acquisition of each year's difference between revenue under the agreement and revenue based on estimated market prices. The amounts to be amortized to revenue for the next five years will be $50 million for 2007 (including $33 million through September 30, 2007), $76 million for 2008, $53 million for 2009, $46 million for 2010, and $43 million for 2011.

 

NOTE 6. STOCK-BASED COMPENSATION

Entergy grants equity-based awards including, but not limited to, stock option awards, which are described more fully in Note 12 to the consolidated financial statements in the Form 10-K. Entergy adopted SFAS 123R, "Share-Based Payment" on January 1, 2006. The adoption of the standard did not materially affect Entergy's financial position, results of operations, or cash flows because Entergy adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation" on January 1, 2003. Prior to 2003, Entergy applied the recognition and measurement principles of APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. Awards under Entergy's plans generally vest over three years.

The following table includes financial information for stock options for each of the years presented:

 

2007

 

2006

 

(In Millions)

Compensation expense included in Entergy's Net Income for the third quarter

$3.9

 

$3.2

Tax benefit recognized in Entergy's Net Income for the third quarter

$1.5

 

$1.2

       

Compensation expense included in Entergy's Net Income for the nine months ended
  September 30,


$11.0

 


$9.2

Tax benefit recognized in Entergy's Net Income for the nine months ended
  September 30,

$4.2

 

$3.5

Compensation cost capitalized as part of fixed assets and inventory as of September 30,

$1.8

 

$1.6

Entergy granted 1,854,900 stock options during the first quarter 2007 with a weighted-average fair value of $14.15. At September 30, 2007, there were 11,043,483 stock options outstanding with a weighted-average exercise price of $57.96. The aggregate intrinsic value of the stock options outstanding was $556 million.

 

47

NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's qualified pension cost, including amounts capitalized, for the third quarters of 2007 and 2006, included the following components:

 

 

2007

 

2006

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$24,263 

 

$23,176 

Interest cost on projected benefit obligation

 

46,508 

 

41,814 

Expected return on assets

 

(51,008)

 

(44,482)

Amortization of prior service cost

 

1,383 

 

1,365 

Amortization of loss

 

11,444 

 

10,931 

Net pension costs

 

$32,590 

 

$32,804 

Entergy's qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2007 and 2006, included the following components:

 

 

2007

 

2006

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$72,301 

 

$69,529 

Interest cost on projected benefit obligation

 

138,662 

 

125,443 

Expected return on assets

 

(152,514)

 

(133,447)

Amortization of prior service cost

 

4,149 

 

4,096 

Amortization of loss

 

34,332 

 

32,790 

Net pension costs

 

$96,930 

 

$98,411 

The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the third quarters of 2007 and 2006, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2007

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$3,638 

 

$3,011 

 

$2,231 

 

$1,089 

 

$470 

 

$1,021 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

  benefit obligation

 

10,498 

 

8,139 

 

6,251 

 

3,371 

 

1,260 

 

1,710 

Expected return on assets

 

(11,009)

 

(10,750)

 

(7,808)

 

(3,837)

 

(1,446)

 

(2,136)

Amortization of prior service cost

 

412 

 

304 

 

160 

 

114 

 

44 

 

12 

Amortization of loss

 

2,721 

 

623 

 

1,433 

 

749 

 

368 

 

151 

Net pension cost

 

$6,260 

 

$1,327 

 

$2,267 

 

$1,486 

 

$696 

 

$758 

48

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2006

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$3,626 

 

$2,993 

 

$2,182 

 

$1,077 

 

$501 

 

$1,031 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

  benefit obligation

 

9,915 

 

7,914 

 

6,052 

 

3,252 

 

1,282 

 

1,604 

Expected return on assets

 

(9,834)

 

(10,176)

 

(7,114)

 

(3,683)

 

(884)

 

(1,775)

Amortization of prior service cost

 

415 

 

309 

 

141 

 

128 

 

56 

 

12 

Amortization of loss

 

2,438 

 

640 

 

1,509 

 

725 

 

509 

 

167 

Net pension cost

 

$6,560 

 

$1,680 

 

$2,770 

 

$1,499 

 

$1,464 

 

$1,039 

The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2007 and 2006, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2007

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$10,914 

 

$9,033 

 

$6,693 

 

$3,267 

 

$1,410 

 

$3,063 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

  benefit obligation

 

31,494 

 

24,417 

 

18,753 

 

10,113 

 

3,780 

 

5,130 

Expected return on assets

 

(33,027)

 

(32,250)

 

(23,424)

 

(11,511)

 

(4,338)

 

(6,408)

Amortization of prior service cost

 

1,236 

 

912 

 

480 

 

342 

 

132 

 

36 

Amortization of loss

 

8,163 

 

1,869 

 

4,299 

 

2,247 

 

1,104 

 

453 

Net pension cost

 

$18,780 

 

$3,981 

 

$6,801 

 

$4,458 

 

$2,088 

 

$2,274 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2006

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$10,878 

 

$8,979 

 

$6,547 

 

$3,231 

 

$1,503 

 

$3,093 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

  benefit obligation

 

29,745 

 

23,743 

 

18,155 

 

9,756 

 

3,845 

 

4,813 

Expected return on assets

 

(29,501)

 

(30,527)

 

(21,341)

 

(11,050)

 

(2,651)

 

(5,326)

Amortization of prior service cost

 

1,246 

 

926 

 

422 

 

385 

 

169 

 

37 

Amortization of loss

 

7,313 

 

1,919 

 

4,527 

 

2,175 

 

1,527 

 

500 

Net pension cost

 

$19,681 

 

$5,040 

 

$8,310 

 

$4,497 

 

$4,393 

 

$3,117 

Entergy recognized $4.0 million and $5.2 million in pension cost for its non-qualified pension plans in the third quarters of 2007 and 2006, respectively. Entergy recognized $12.0 million and $13.1 million in pension cost for its non-qualified pension plans for the nine months ended September 30, 2007 and 2006, respectively.

 

49

 

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the third quarters of 2007 and 2006:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

 

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

 

 

(In Thousands)

Non-Qualified Pension Cost
  Third Quarter 2007

 

$123 

 

$317 

 

$6 

 

$44 

 

$57 

 

Non-Qualified Pension Cost
  Third Quarter 2006

 

$125 

 

$319 

 

$6 

 

$43 

 

$55 

 

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the nine months ended September 30, 2007 and 2006:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

 

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

 

 

(In Thousands)

Non-Qualified Pension Cost Nine
  Months Ended September 30,2007

 

$369 

 

$951 

 

$18 

 

$131 

 

$171 

 

Non-Qualified Pension Cost Nine
  Months Ended September 30, 2006

 

$350 

 

$758 

 

$17 

 

$116 

 

$163 

 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the third quarters of 2007 and 2006, included the following components:

 

 

2007

 

2006

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$11,105 

 

$10,370 

Interest cost on APBO

 

15,869 

 

14,316 

Expected return on assets

 

(6,358)

 

(4,756)

Amortization of transition obligation

 

958 

 

542 

Amortization of prior service cost

 

(3,959)

 

(3,688)

Amortization of loss

 

4,743 

 

5,698 

Net other postretirement benefit cost

 

$22,358 

 

$22,482 

Entergy's other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2007 and 2006, included the following components:

 

 

2007

 

2006

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$33,032 

 

$31,110 

Interest cost on APBO

 

47,363 

 

42,947 

Expected return on assets

 

(18,943)

 

(14,268)

Amortization of transition obligation

 

2,874 

 

1,627 

Amortization of prior service cost

 

(11,877)

 

(11,063)

Amortization of loss

 

14,230 

 

17,092 

Net other postretirement benefit cost

 

$66,679 

 

$67,445 

50

The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the third quarters of 2007 and 2006, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2007

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$1,525 

 

$1,547 

 

$973 

 

$476 

 

$255 

 

$451 

Interest cost on APBO

 

3,037 

 

2,876 

 

1,941 

 

1,049 

 

870 

 

433 

Expected return on assets

 

(2,231)

 

(1,697)

 

 

(819)

 

(682)

 

(470)

Amortization of transition obligation

 

205 

 

151 

 

96 

 

88 

 

416 

 

Amortization of prior service cost

 

(197)

 

218 

 

117 

 

(62)

 

90 

 

(283)

Amortization of loss

 

1,500 

 

793 

 

764 

 

613 

 

282 

 

149 

Net other postretirement benefit cost

 

$3,839 

 

$3,888 

 

$3,891 

 

$1,345 

 

$1,231 

 

$282 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2006

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

  during the period

 

$1,337 

 

$1,254 

 

$854 

 

$419 

 

$232 

 

$414 

Interest cost on APBO

 

2,844 

 

2,747 

 

1,856 

 

944 

 

856 

 

407 

Expected return on assets

 

(1,797)

 

(1,489)

 

 

(709)

 

(611)

 

(421)

Amortization of transition obligation

 

205 

 

151 

 

96 

 

88 

 

416 

 

Amortization of prior service cost

 

(408)

 

 

(24)

 

(137)

 

10 

 

(301)

Amortization of loss

 

1,671 

 

1,002 

 

893 

 

644 

 

343 

 

207 

Net other postretirement benefit cost

 

$3,852 

 

$3,665 

 

$3,675 

 

$1,249 

 

$1,246 

 

$308 

The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2007 and 2006, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2007

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned