__________________________________________________________________________________________

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, 2008

 

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, Address of
Principal Executive Offices, Telephone Number, and
IRS Employer Identification No.

 


Commission
File Number

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

1-11299

ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 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 505
New Orleans, Louisiana 70112
Telephone (504) 670-3700
72-0273040

         
         

333-148557

ENTERGY GULF STATES LOUISIANA, L.L.C.
(a Louisiana limited liability company)
446 North Boulevard
Baton Rouge, Louisiana 70802
Telephone (800) 368-3749
74-0662730

 

000-53134

ENTERGY TEXAS, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
61-1435798

         
         

1-32718

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

 

1-9067

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

         

__________________________________________________________________________________________

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, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large
accelerated
filer

 


Accelerated filer

 

Non-accelerated filer

 

Smaller
reporting
company

Entergy Corporation

Ö

           

Entergy Arkansas, Inc.

       

Ö

   

Entergy Gulf States Louisiana, L.L.C.

       

Ö

   

Entergy Louisiana, LLC

       

Ö

   

Entergy Mississippi, Inc.

       

Ö

   

Entergy New Orleans, Inc.

       

Ö

   

Entergy Texas, 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, 2008

Entergy Corporation

($0.01 par value)

189,330,159

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, 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 Entergy Annual Report on Form 10-K for the calendar year ended December 31, 2007, the Entergy Texas Form 10, and the Entergy and Entergy Texas Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008, 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, 2008

 

Page Number

   
Definitions

1

Entergy Corporation and Subsidiaries  
  Management's Financial Discussion and Analysis  
    Plan to Pursue Separation of Non-Utility Nuclear

3

    Hurricane Gustav and Hurricane Ike

6

    Results of Operations

7

    Liquidity and Capital Resources

14

    Significant Factors, Known Trends, and Uncertainties

21

    Critical Accounting Estimates

26

    New Accounting Pronouncements

26

  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 4. Controls and Procedures

62

Entergy Arkansas, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

63

    Liquidity and Capital Resources

66

    Significant Factors, Known Trends, and Uncertainties

67

    Critical Accounting Estimates

70

    New Accounting Pronouncements

70

  Income Statements

71

  Statements of Cash Flows

73

  Balance Sheets

74

  Selected Operating Results

76

Entergy Gulf States Louisiana, L.L.C.  
  Management's Financial Discussion and Analysis  
    Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States
  Louisiana and Entergy Texas

77

    Hurricane Gustav and Hurricane Ike

77

    Results of Operations

78

    Liquidity and Capital Resources

82

    Significant Factors, Known Trends, and Uncertainties

86

    Critical Accounting Estimates

87

    New Accounting Pronouncements

87

  Income Statements

88

  Statements of Cash Flows

89

  Balance Sheets

90

  Statements of Members' Equity and Comprehensive Income

92

  Selected Operating Results

93

Entergy Louisiana, LLC  
  Management's Financial Discussion and Analysis  
    Hurricane Gustav and Hurricane Ike

94

    Results of Operations

94

    Liquidity and Capital Resources

98

    Significant Factors, Known Trends, and Uncertainties

102

    Critical Accounting Estimates

103

    New Accounting Pronouncements

103

     
 

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008

 
   

Page Number

     
  Income Statements

104

  Statements of Cash Flows

105

  Balance Sheets

106

  Statements of Members' Equity and Comprehensive Income

108

  Selected Operating Results

109

Entergy Mississippi, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

110

    Liquidity and Capital Resources

113

    Significant Factors, Known Trends, and Uncertainties

115

    Critical Accounting Estimates

116

    New Accounting Pronouncements

116

  Income Statements

117

  Statements of Cash Flows

119

  Balance Sheets

120

  Selected Operating Results

122

Entergy New Orleans, Inc.  
  Management's Financial Discussion and Analysis  
    Hurricane Katrina

123

    Hurricane Gustav

123

    Results of Operations

124

    Liquidity and Capital Resources

127

    Significant Factors, Known Trends, and Uncertainties

128

    Critical Accounting Estimates

129

    New Accounting Pronouncements

129

  Income Statements

130

  Statements of Cash Flows

131

  Balance Sheets

132

  Selected Operating Results

134

Entergy Texas, Inc.  
  Management's Financial Discussion and Analysis  
    Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States
  Louisiana and Entergy Texas

135

    Hurricane Ike

135

    Results of Operations

135

    Liquidity and Capital Resources

139

    Significant Factors, Known Trends, and Uncertainties

141

    Critical Accounting Estimates

142

    New Accounting Pronouncements

142

  Consolidated Income Statements

143

  Consolidated Statements of Cash Flows

145

  Consolidated Balance Sheets

146

  Consolidated Statements of Retained Earnings and Paid-in-Capital

148

  Selected Operating Results

149

System Energy Resources, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

150

    Liquidity and Capital Resources

150

    Significant Factors, Known Trends, and Uncertainties

151

    Critical Accounting Estimates

152

    New Accounting Pronouncements

152

     
     
 

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2008

 
   

Page Number

     
  Income Statements

153

  Statements of Cash Flows

155

  Balance Sheets

156

Part II. Other Information  
  Item 1. Legal Proceedings

158

  Item 1A. Risk Factors

158

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

158

  Item 5. Other Information

159

  Item 6. Exhibits

165

Signature

167

     

 

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 and the Entergy Texas Form 10, (b) Management's Financial Discussion and Analysis in the Form 10-K, the Entergy Texas Form 10, and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):

FORWARD-LOOKING INFORMATION (Concluded)

 

 

 

 

 

 

(Page left blank intentionally)

 

 

 

 

DEFINITIONS

Certain abbreviations or acronyms used in the text and notes 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

Board

Board of Directors of Entergy Corporation

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

Enexus

Enexus Energy Corporation, a Delaware corporation created to hold Entergy's Non-Utility Nuclear business after its separation from Entergy

Entergy

Entergy Corporation and its direct and indirect subsidiaries

Entergy Corporation

Entergy Corporation, a Delaware corporation

Entergy Gulf States, Inc.

Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas

Entergy Gulf States Louisiana

Entergy Gulf States Louisiana, L.L.C., a company created in connection with the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes. The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires.

Entergy-Koch

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

Entergy Texas

Entergy Texas, Inc., a company created in connection with the jurisdictional separation of Entergy Gulf States, Inc. The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.

Entergy Texas Form 10

Registration Statement on Form 10 filed with the SEC by Entergy Texas, as amended August 28, 2008.

EPA

United States Environmental Protection Agency

EquaGen

EquaGen, LLC, a Delaware limited liability company that will become the successor to Entergy Nuclear, Inc. and will operate Non-Utility Nuclear's nuclear power plants as part of the plan to separate Non-Utility Nuclear from Entergy

ERCOT

Electric Reliability Council of Texas

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

firm LD

Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; 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, 2007 filed by Entergy Corporation and its Registrant Subsidiaries (other than Entergy Texas) with the SEC

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

Independence

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

1

DEFINITIONS (Continued)

 

IRS

Internal Revenue Service

ISO

Independent System Operator

kW

Kilowatt

kWh

Kilowatt-hour(s)

LPSC

Louisiana Public Service Commission

MMBtu

One million British Thermal Units

MPSC

Mississippi Public Service Commission

MW

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

MWh

Megawatt-hour(s)

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 or operated

Non-Utility Nuclear

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

NRC

Nuclear Regulatory Commission

NYPA

New York Power Authority

PPA

Purchased power agreement

production cost

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

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

Registrant Subsidiaries

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

River Bend

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

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards as promulgated by the FASB

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.

TIEC

Texas Industrial Energy Consumers

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

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 Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas

VDPS

Vermont Department of Public Service

VPSB

Vermont Public Service Board

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 effects of deviations from normal weather 

2

 

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

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

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 the Non-Utility Nuclear business to Entergy shareholders. Upon completion of the spin-off, Enexus Energy Corporation, a wholly-owned subsidiary of Entergy and formerly referred to as SpinCo, will be a new, separate, and publicly-traded company. In addition, under the plan, Enexus and Entergy are expected to enter into a nuclear services business joint venture, EquaGen LLC, with 50% ownership by Enexus and 50% ownership by Entergy. The EquaGen board of managers will be comprised of equal membership from both Entergy and Enexus.

Upon completion of the spin-off, Entergy Corporation's shareholders will own 100% of the common stock in both Enexus and Entergy. Entergy expects that Enexus' business will be substantially 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. EquaGen is expected to operate the nuclear assets owned by Enexus, and provide certain services to the Utility's nuclear operations. EquaGen is also expected to offer nuclear services to third parties, including decommissioning, plant relicensing, plant operations, and ancillary services.

Entergy Nuclear Operations, Inc., the current NRC-licensed operator of the Non-Utility Nuclear plants, filed an application in July 2007 with the NRC seeking indirect transfer of control of the operating licenses for the six Non-Utility Nuclear power plants, and supplemented that application in December 2007 to incorporate the planned business separation. Entergy Nuclear Operations, Inc., which is expected to be wholly-owned by EquaGen, will remain the operator of the 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. In the December 2007 supplement to the NRC application, Entergy Nuclear Operations, Inc. provided additional information regarding the spin-off transaction, organizational structure, technical and financial qualifications, and general corporate information. The NRC published a notice in the Federal Register establishing a period for the public to submit a request for hearing or petition to intervene in a hearing proceeding. The NRC notice period expired on February 5, 2008 and two petitions to intervene in the hearing proceeding were filed before the deadline. Each of the petitions opposes the NRC's approval of the license transfer on various grounds, including contentions that the approval request is not adequately supported regarding the basis for the proposed structure, the adequacy of decommissioning funding, and the adequacy of financial qualifications. Entergy submitted answers to the petitions on March 31 and April 8. On August 22, 2008, the NRC issued an order denying all of the petitions to intervene based upon the petitioners' failure to demonstrate the requisite standing to pursue their hearing requests. One of the petitioner groups filed a motion for reconsideration on September 4, 2008 and on September 15,

 

3

 

2008, Entergy filed a response opposing the motion for reconsideration. On September 23, 2008, the NRC issued an order denying the motion for reconsideration based upon several procedural errors.

Because resolution of any hearing requests is not a prerequisite to obtaining the required NRC approval, on July 28, 2008, the NRC staff approved the license transfers associated with the new ownership structure of EquaGen, the licensed operator, as well as the transfers to Enexus of the NRC licenses for Big Rock Point, FitzPatrick, Indian Point Units 1, 2 and 3, Palisades, Pilgrim and Vermont Yankee. The review conducted by the NRC staff included matters such as the financial and technical qualifications of the new organizations, as well as decommissioning funding assurance. In connection with the NRC approvals, Enexus agreed to enter into a financial support agreement with the entities licensed to own the nuclear power plants in the total amount of $700 million to support the operating costs for all six operating nuclear power plants.

Pursuant to Federal Power Act Section 203, on February 21, 2008, an application was filed with the FERC requesting approval for the indirect disposition and transfer of control of jurisdictional facilities of a public utility. In June 2008 the FERC issued an order authorizing the requested indirect disposition and transfer of control.

On January 28, 2008, Entergy Nuclear Vermont Yankee, LLC and Entergy Nuclear Operations, Inc. requested approval from the Vermont Public Service Board (VPSB) for the indirect transfer of control, consent to pledge assets, issue guarantees and assign material contracts, amendment to certificate of public good, and replacement of guaranty and substitution of a credit support agreement for Vermont Yankee. Two Vermont utilities that buy power from Vermont Yankee, the regional planning commission for the area served by Vermont Yankee, a municipality in which the Vermont Yankee training center is located, the union that represents certain Vermont Yankee employees, and two unions that represent certain employees at the Pilgrim plant in Massachusetts petitioned to intervene. Although the Pilgrim unions' petition to intervene was denied, the Pilgrim unions filed for reconsideration or, in the alternative, for participation as amicus curiae, and the VPSB has allowed the unions to participate as amicus curiae. Discovery is underway in this proceeding, in which parties can ask questions about or request the production of documents related to the transaction.

In addition, the Vermont Department of Public Service (VDPS), which is the public advocate in proceedings before the VPSB, prefiled its initial and rebuttal testimony in the case in which the VDPS takes the position that Entergy Nuclear Vermont Yankee and Entergy Nuclear Operations, Inc. have not demonstrated that the restructuring promotes the public good because its benefits do not outweigh the risks, raising concerns that the target rating for Enexus' debt is below investment grade and that the company may not have the financial capability to withstand adverse financial developments, such as an extended outage. The VDPS testimony also expresses concern about the EquaGen joint venture structure and Enexus' ability, under the operating agreement between Entergy Nuclear Vermont Yankee and Entergy Nuclear Operations, Inc., to ensure that Vermont Yankee is well-operated. Two distribution utilities that buy Vermont Yankee power prefiled testimony that also expresses concerns about the structure but found that there was a small net benefit to the restructuring. The VPSB conducted hearings on July 28-30, 2008, during which it considered the testimony prefiled by Entergy Nuclear Vermont Yankee, Entergy Nuclear Operations, Inc., the VDPS, and the two distribution utilities. Post-hearing briefing is complete and a decision from the VPSB is pending.

On January 28, 2008, Entergy Nuclear FitzPatrick, LLC, Entergy Nuclear Indian Point 2, LLC, Entergy Nuclear Indian Point 3, LLC, and Entergy Nuclear Operations, Inc., and corporate affiliate NewCo (now named Enexus) filed a petition with the New York Public Service Commission (NYPSC) requesting a declaratory ruling regarding corporate reorganization or in the alternative an order approving the transaction and an order approving debt financing. Petitioners also requested confirmation that the corporate reorganization will not have an effect on Entergy Nuclear FitzPatrick's, Entergy Nuclear Indian Point 2's, Entergy Nuclear Indian Point 3's, and Entergy Nuclear Operations, Inc.'s status as lightly regulated entities in New York, given that they will continue to be competitive wholesale generators. The New York State Attorney General's Office, Westchester County, and Riverkeeper, Inc. have filed objections to the business separation and to the transfer of the FitzPatrick and Indian Point Energy Center nuclear power plants, arguing that the debt associated with the spin-off could threaten access to adequate financial resources for those nuclear power plants, that Entergy could potentially be able to terminate revenue

 

4

 

 

sharing agreements with the New York Power Authority (NYPA), the entity from which Entergy purchased the FitzPatrick and Indian Point 3 nuclear power plants, and because the New York State Attorney General's Office believes Entergy must file an environmental impact statement assessing the proposed corporate restructuring. In addition to the New York State Attorney General's Office, several other parties have also requested to be added to the service list for this proceeding.

On May 23, 2008, the NYPSC issued its Order Establishing Further Procedures in this matter. In the order, the NYPSC determined that due to the nuclear power plants' unique role in supporting the reliability of electric service in New York, and their large size and unique operational concerns, a more searching inquiry of the transaction will be conducted than if other types of lightly-regulated generation were at issue. Accordingly, the NYPSC assigned an ALJ to preside over this proceeding and prescribed a sixty (60) day discovery period. The order provided that after at least sixty (60) days, the ALJ would establish when the discovery period would conclude. The NYPSC stated that the scope of discovery will be tightly bounded by the public interest inquiry relevant to this proceeding; namely, adequacy and security of support for the decommissioning of the New York nuclear facilities; financial sufficiency of the proposed capital structure in supporting continued operation of the facilities; and, arrangements for managing, operating and maintaining the facilities. The NYPSC also stated that during the discovery period, the NYPSC Staff may conduct technical conferences to assist in the development of a full record in this proceeding.

On July 23, 2008, the ALJs issued a ruling concerning discovery and seeking comments on a proposed process and schedule. In the ruling, the ALJs proposed a process for completing a limited, prescribed discovery process, to be followed three weeks later by the filing of initial comments addressing defined issues, with reply comments due two weeks after the initial comment deadline. Following receipt of all comments, a ruling will be made on whether, and to what extent, an evidentiary hearing is required. The ALJs asked the parties to address three specific topic areas: (1) the financial impacts related to the specific issues previously outlined by the NYPSC; (2) other obligations associated with the arrangement for managing, operating and maintaining the facilities; and (3) the extent that NYPA revenues from value sharing payments under the value sharing agreement between Entergy and NYPA would decrease. The ALJs have indicated that the potential financial effect of the termination of the value sharing payments on NYPA and New York electric consumers are factors the ALJs believe should be considered by the NYPSC in making its public interest determination.

In August 2008, Non-Utility Nuclear entered into a resolution of a dispute with NYPA over the applicability of the value sharing agreements to the FitzPatrick and Indian Point 3 nuclear power plants after the separation. Under the resolution, Non-Utility Nuclear agreed not to treat the separation as a "Cessation Event" that would terminate its obligation to make the payments under the value sharing agreements. As a result, after the separation, Enexus will continue to be obligated to make payments to NYPA due under the amended and restated value sharing agreements described above. For further discussion of the value sharing agreements, see Note 1 to the financial statements herein.

Entergy continues to seek regulatory approval from the NYPSC in a timely manner. On October 23, 2008, the ALJs issued notification to all parties that from their review of the submissions, all issues of fact and policy material to the relief requested by the petitioners have been thoroughly addressed by the parties, an adequate record for decision is available to the NYPSC, and no further formal proceedings are warranted. The ALJs will now submit a recommendation to the NYPSC with respect to the transaction.

In connection with, but prior to completion of, the separation, Enexus is currently expected to incur up to $4.5 billion of debt in the form of debt securities. The debt will be incurred in the following transactions:

5

 

Out of the proceeds Enexus receives from the issuance of up to approximately $1.5 billion of debt securities to third parties, it expects to retain approximately $500 million, which it intends to use for working capital and other general corporate purposes. All of the remaining proceeds are expected to be transferred to Entergy to settle Enexus' intercompany indebtedness owed to Entergy, including indebtedness that Entergy will transfer to Enexus in the separation. Enexus will not receive any proceeds from either the issuance of the approximately $3.0 billion of its debt securities or the exchange of its debt securities for Entergy debt securities. Entergy expects to use the proceeds that it receives from the issuance of its debt securities to reduce outstanding Entergy debt or repurchase Entergy shares. The amount to be paid to Entergy, the amount and term of the debt Enexus will incur, and the type of debt and entity that will incur the debt have not been finally determined, but will be determined prior to the separation. A number of factors could affect this final determination, and the amount of debt ultimately incurred could be different from the amount disclosed. Additionally, Entergy expects Enexus to enter into a proposed senior secured credit facility and certain lien-based hedging arrangements and credit support facilities in respect of hedging, and may enter into other financing arrangements meant to support Enexus' working capital and general corporate needs and credit support obligations arising from hedging and normal course of business requirements.

Entergy continues to target receiving regulatory decisions regarding the spin-off transaction in the fourth quarter 2008. Due to unprecedented turmoil in the financial markets, however, it is uncertain whether financing fundamental to the spin-off transaction can be effected in the near-term. Entergy and Enexus intend to launch the financing when market conditions are favorable for such an issuance. Entergy expects the transaction to qualify for tax-free treatment for U.S. federal income tax purposes for both Entergy and its shareholders, and Entergy has received a private letter ruling from the IRS regarding the tax free treatment. Final terms of the transactions and spin-off completion are subject to several conditions, including the final approval of the Board.

Hurricane Gustav and Hurricane Ike

In September 2008, Hurricane Gustav and Hurricane Ike caused catastrophic damage to portions of Entergy's service territories in Louisiana and Texas, and to a lesser extent in Arkansas and Mississippi. The storms resulted in widespread power outages, significant damage to distribution, transmission, and generation infrastructure, and the loss of sales during the power outages. Total restoration costs for the repair and/or replacement of Entergy's electric facilities damaged by Hurricane Gustav and Hurricane Ike are estimated to be in the range of $1.025 billion to $1.225 billion, as follows:


Company

Hurricane Gustav Restoration Costs

Hurricane Ike Restoration Costs

($ in millions)

 

Entergy Arkansas

 

10-15

 

14-20

Entergy Gulf States Louisiana

 

210-250

 

65-75

Entergy Louisiana

 

230-270

 

10-15

Entergy Mississippi

 

10-15

 

-

Entergy New Orleans

 

40-50

 

1-5

Entergy Texas

 

-

 

435-510

Total

 

500-600

 

525-625

The Utility operating companies are considering all reasonable avenues to recover storm-related costs from Hurricane Gustav and Hurricane Ike, including, but not limited to, accessing funded storm reserves; federal and local cost recovery mechanisms, including requests for Community Development Block Grant funding; securitization; and insurance, to the extent deductibles are met. In October 2008, Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans drew a total of $229 million from their funded storm reserves. Entergy Arkansas has requested a surcharge to recover $26 million of its storm restoration costs, as discussed in Note 2 to the financial statements,

 

6

 

and the other affected Utility operating companies expect to file for recovery of their storm restoration costs no later than the spring 2009. Entergy is currently evaluating the amount of the losses covered by insurance for Entergy and each of the affected Utility operating companies. Because most of the Hurricane Gustav damage was to distribution and transmission facilities that are generally not covered by property insurance, Entergy does not expect to meet its deductibles for that storm. Because Hurricane Ike caused more damage by flooding and also caused more damage to generation facilities as compared to Hurricane Gustav, it is more likely that Entergy will meet its deductibles for that storm.

Entergy has recorded accounts payable for the estimated costs incurred that were necessary to return customers to service.  Entergy recorded corresponding regulatory assets of approximately $550 million and construction work in progress of approximately $430 million. Entergy recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service territories (except for Entergy Arkansas), because management believes that recovery through some form of regulatory mechanism is probable. Because Entergy has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery.

Results of Operations

Income Statement Variances

Third Quarter 2008 Compared to Third Quarter 2007

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the third quarter 2008 to the third quarter 2007 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 2007 Consolidated Net Income

 

$333,098 

 

$160,913 

 

($32,852)

$461,159 

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

 



(117,038)



93,812 



(11,503)



(34,729)

Other operation and maintenance expenses

 

(38,108)

(13,051)

20,772 

(30,387)

Taxes other than income taxes

 

11,023 

427 

246 

11,696 

Depreciation and amortization

 

20,087 

4,263 

242 

24,592 

Other income

 

(372)

(12,828)

(7,780)

(20,980)

Interest charges

 

(4,723)

4,429 

(25,455)

(25,749)

Other expenses

 

8,787 

8,816 

17,610 

Income taxes

 

(39,190)

31,689 

(55,100)

(62,601)

3rd Quarter 2008 Consolidated Net Income

 

$257,812 

 

$205,324 

 

$7,153 

$470,289 

(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.

7

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the third quarter 2008 to the third quarter 2007.

  

 

Amount

  

 

(In Millions)

 

 

 

2007 net revenue

 

$1,415 

Volume/weather

 

(84)

Purchased power capacity

 

(16)

Fuel recovery

 

(13)

Retail electric price

 

(12)

Other

 

2008 net revenue

 

$1,298 

The volume/weather variance is primarily due to decreased electricity usage, including the effect of less favorable weather compared to the same period in 2007. Hurricane Gustav and Hurricane Ike, which hit the Utility's service territories in September 2008, also contributed an estimated $46 million to the decrease in electricity usage. Billed retail electricity usage decreased a total of 569 GWh in all sectors, a decrease of 2%.

The purchased power capacity variance is primarily due to higher purchased power capacity charges, including the Ouachita interim tolling agreement. The Ouachita acquisition is discussed in Note 2 to the financial statements in the Form 10-K and herein.

The fuel recovery variance resulted primarily from decreased recovery of higher fuel and purchased power costs from special rate customers and the timing of recovery of higher fuel and purchased power costs from retail customers.

The retail electric price variance is due to the following:

Refer to "Hurricane Rita and Hurricane Katrina" below and Note 2 to the financial statements in the Form 10-K and herein for a discussion of the interim recovery of storm costs and the Act 55 storm cost financings.

Non-Utility Nuclear

Net revenue increased for Non-Utility Nuclear from $505 million for the third quarter 2007 to $599 million for the third quarter 2008 primarily due to higher pricing in its contracts to sell power. Following are key performance measures for Non-Utility Nuclear for the third quarter 2008 and 2007:

8

 

 

2008

 

2007

 

 

 

 

 

Net MW in operation at September 30

 

4,998

 

4,998

Average realized price per MWh

 

$61.59

 

$53.11

GWh billed

 

10,316

 

10,105

Capacity factor

 

95%

 

93%

Refueling Outage Days:

   FitzPatrick

16

-

   Palisades

-

21

        Realized Price per MWh

When Non-Utility Nuclear acquired its six nuclear power plants it also entered into purchased power agreements with the sellers. For four of the plants, the 688 MW Pilgrim, 838 MW FitzPatrick, 1,028 MW Indian Point 2, and 1,041 MW Indian Point 3 plants, the original purchased power agreements with the sellers expired in 2004. The purchased power agreement with the seller of the 605 MW Vermont Yankee plant extends into 2012, and the purchased power agreement with the seller of the 798 MW Palisades plant extends into 2022. Prevailing market prices in the New York and New England power markets, where the five plants with original purchased power agreements that have expired or expire by 2012 are located, have increased since the purchase of these plants, and the contracts that Non-Utility Nuclear has entered after the original contracts expired, as well as realized day ahead and spot market sales, have generally been at higher prices. Non-Utility Nuclear's annual average realized price per MWh has increased from $39.40 for 2003 to $52.69 for 2007. In addition, as shown in the contracted sale of energy table in the Market and Credit Risk section below, Non-Utility Nuclear has sold forward 92% of its planned energy output for the remainder of 2008 for an average contracted energy price of $53 per MWh and 83% of its planned energy output for 2009 for an average contracted energy price of $61 per MWh. Power prices have increased primarily because of increases in the price of natural gas. Natural gas prices have increased primarily because of rising production costs and limited imports of liquefied natural gas, both caused by global demand and increases in the price of crude oil. In addition, increases in the price of power are secondarily because of rising heat rates, which in turn are caused primarily by load growth outpacing new unit additions. The majority of the existing long-term contracts on these five plants expire by the end of 2012. Most of these existing contracts have contract prices that are lower than currently prevailing market prices. For example, while the average contracted energy price for Non-Utility Nuclear's portfolio is $53 per MWh for the remainder of 2008, the twelve month rolling average price as of September 30, 2008 for the West and Hudson Valley regions of New York and the New England region were $61.93 per MWh, $89.75 per MWh and $83.10 per MWh, respectively.

Depreciation and Amortization

Depreciation and amortization expenses increased primarily due to a revision in the third quarter 2007 in the Utility related to depreciation on storm cost-related assets. Recoveries of the costs of those assets are now through the Act 55 financing of storm costs, as approved by the LPSC in the third quarter 2007. See "Hurricane Rita and Hurricane Katrina" below and Note 2 to the financial statements for a discussion of the Act 55 storm cost financing.

Other Operation and Maintenance Expenses

Utility

Other operation and maintenance expenses decreased from $458 million for the third quarter 2007 to $420 million for the third quarter 2008 primarily due to:

  • a decrease of $21 million in payroll-related costs;

 

9

 

  • a decrease of $11 million due to a provision for storm-related bad debts in 2007; and
  • a decrease of $7 million in customer service costs primarily as a result of the write-off of uncollectible customer accounts in 2007.

The other operation and maintenance variance includes a decrease of approximately $19 million as a result of the deferral or capitalization of storm restoration costs for Hurricane Gustav and Hurricane Ike, which hit the Utility's service territories in September 2008. This storm variance was offset, however, by approximately $19 million of higher storm damage charges at Entergy Arkansas. Entergy Arkansas discontinued regulatory storm reserve accounting beginning July 2007 as a result of the APSC order issued in Entergy Arkansas' rate case. As a result, non-capital storm expenses are charged to other operation and maintenance expenses.

Parent & Other

Other operation and maintenance expenses increased for the parent company, Entergy Corporation, primarily due to outside services costs of $23.8 million related to the planned spin-off of the Non-Utility Nuclear business.

Interest Charges

Interest charges decreased for Parent & Other primarily due to lower interest rates on borrowings under Entergy Corporation's revolving credit facility.

Income Taxes

The effective income tax rate for the third quarter 2008 was 26.1%. The difference in the effective income tax rate versus the statutory rate of 35% for the third quarter 2008 is primarily due to:

These factors were partially offset by:

The effective income tax rate for the third quarter 2007 was 33.1%. The difference in the effective income tax rate versus the federal statutory rate of 35% 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.

 

10

 

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2007 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)

 

 

 

 

 

 

 

2007 Consolidated Net Income

 

$585,741 

 

$397,808 

 

($42,593)

$940,956 

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

 



(37,418)



431,965 



(4,248)



390,299 

Other operation and maintenance expenses

 

(8,237)

47,130 

48,249 

87,142 

Taxes other than income taxes

 

2,505 

9,670 

(4,996)

7,179 

Depreciation and amortization

 

21,659 

24,333 

498 

46,490 

Other income

 

(13,943)

(34,515)

(13,708)

(62,166)

Interest charges

 

(16,645)

18,161 

(34,149)

(32,633)

Other expenses

 

16,584 

33,427 

50,020 

Income taxes

 

(16,158)

91,900 

(14,843)

60,899 

2008 Consolidated Net Income

 

$534,672 

 

$570,637 

 

($55,317)

$1,049,992 

(1)

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

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the nine months ended September 30, 2008 to the nine months ended September 30, 2007:

  

 

Amount

  

 

(In Millions)

 

 

 

2007 net revenue

 

$3,552 

Volume/weather

 

(37)

Purchased power capacity

 

(22)

Retail electric price

 

 10 

Other

 

12 

2008 net revenue

 

$3,515 

The volume/weather variance is primarily due to decreased electricity usage primarily during the unbilled sales period and the effect of less favorable weather compared to the same period in 2007. Hurricane Gustav and Hurricane Ike, which hit the Utility's service territories in September 2008, contributed an estimated $46 million to the decrease in electricity usage. This decrease in electricity usage was partially offset by an increase in electricity usage that had occurred through August 2008.

The purchased power capacity variance is primarily due to higher purchased power capacity charges, including the Ouachita interim tolling agreement. The Ouachita acquisition is discussed in Note 2 to the financial statements in the Form 10-K and herein.

 

11

 

The retail electric price variance is primarily due to:

The establishment of the storm damage rider and the Energy Efficiency rider results in an increase in rider revenue and a corresponding increase in other operation and maintenance expense with no impact on net income. The retail electric price variance was partially offset by:

Refer to "Hurricane Rita and Hurricane Katrina" below and Note 2 to the financial statements in the Form 10-K and herein for a discussion of the interim recovery of storm costs and the Act 55 storm cost financings.

Non-Utility Nuclear

Net revenue increased for Non-Utility Nuclear from $1,346 million for the nine months ended September 30, 2007 to $1,778 million for the nine months ended September 30, 2008 primarily due to higher pricing in its contracts to sell power, additional production resulting from the acquisition of the Palisades plant in April 2007, and fewer outage days. See "Realized Price per MWh" in the third quarter results discussion above for a discussion of the increase in price.  In addition to refueling outages, second quarter 2007 was affected by a 28-day unplanned plant outage. Palisades contributed $228 million of net revenue for the nine months ended September 30, 2008 compared to $150 million of net revenue for the nine months ended September 30, 2007. Included in the Palisades net revenue is $57 million and $33 million for the nine months ended September 30, 2008 and 2007, respectively, of amortization of the Palisades purchased power agreement, which is non-cash revenue and is discussed in Note 15 to the financial statements in the Form 10-K. Following are key performance measures for Non-Utility Nuclear for the nine months ended September 30, 2008 and 2007:

 

 

2008

 

2007

 

 

 

 

 

Net MW in operation at September 30

 

4,998

 

4,998

Average realized price per MWh

 

$60.46

 

$53.12

GWh billed

 

31,221

 

27,315

Capacity factor

 

95%

 

88%

Refueling Outage Days:

   FitzPatrick

16

-

   Indian Point 2

26

-

   Indian Point 3

-

24

   Palisades

-

21

   Pilgrim

-

33

   Vermont Yankee

-

24

12

Depreciation and Amortization

Utility

Depreciation and amortization expenses increased primarily due to a revision in the third quarter 2007 in the Utility related to depreciation on storm cost-related assets. Recoveries of the costs of those assets are now through the Act 55 financing of storm costs, as approved by the LPSC in the third quarter 2007. See "Hurricane Rita and Hurricane Katrina" below and Note 2 to the financial statements for a discussion of the Act 55 storm cost financing.

Non-Utility Nuclear

Depreciation and amortization expenses increased primarily due to the acquisition of the Palisades power plant in April 2007.

Other Operation and Maintenance Expenses

Utility

Other operation and maintenance expenses were $1,327 million for the nine months ended September 30, 2007 and $1,319 million for the nine months ended September 30, 2008. The variance includes:

Non-Utility Nuclear

Other operation and maintenance expenses increased from $520 million for the nine months ended September 30, 2007 to $567 million for the nine months ended September 30, 2008 primarily due to deferring costs from two refueling outages in 2008 compared to four refueling outages in 2007, in addition to the increase associated with owning the Palisades plant for the entire period. Other operation and maintenance expenses associated with the Palisades plant, which was acquired in April 2007, were $35 million higher for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.

Parent & Other

Other operation and maintenance expenses increased for the parent company, Entergy Corporation, primarily due to outside services costs of $47.5 million related to the planned spin-off of the Non-Utility Nuclear business.

 

13

 

Other Income

Other income decreased primarily due to approximately $35 million in charges to interest income in 2008 resulting from the recognition of the other than temporary impairment of certain securities held in Non-Utility Nuclear's decommissioning trust funds. Other factors contributing to the decrease were a reduction in the allowance for equity funds used during construction in the Utility due to a revision in the first quarter 2007 related to removal costs and a reduction in carrying charges on storm costs as recovery of some of those costs has been completed.

Interest Charges

Interest charges decreased for Parent & Other primarily due to lower interest rates on borrowings under Entergy Corporation's revolving credit facility.

Income Taxes

The effective income tax rate for the nine months ended September 30, 2008 was 33.8%. The difference in the effective income tax rate versus the statutory rate of 35% for the nine months ended September 30, 2008 is primarily due to:

These factors were partially offset by:

The effective income tax rate for the nine months ended September 30, 2007 was 33.5%. The difference 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.

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

Hurricane Gustav and Hurricane Ike and Other Short-term Liquidity Sources and Uses

As discussed above, Entergy is currently evaluating various avenues of recovering its Hurricane Gustav and Hurricane Ike storm restoration costs. Entergy believes its total liquidity is sufficient to meet its current obligations, including the effects associated with Hurricane Gustav and Hurricane Ike. Nevertheless, each Utility operating company is responsible for its storm restoration cost obligations and for recovering its storm-related costs. At the end of the third quarter 2008, Entergy had $2.6 billion of cash and cash equivalents on hand on a consolidated basis, and believes that it has sufficient financing authority, subject to debt covenants, to meet its anticipated obligations. The Utility's short-term financing authorizations and credit facilities are discussed in more detail in Note 4 to the financial statements. As of September 30, 2008, Entergy had undrawn revolving credit facility capacity of $224 million at Entergy Corporation, $100 million at Entergy Arkansas, and $50 million at Entergy Mississippi, subject to debt covenants. Entergy Corporation's revolving credit facility requires it to maintain a consolidated debt ratio of 65 percent or less of its total capitalization. Some of the Utility operating company credit facilities have similar covenants. In addition, the Utility operating companies had a total of $262 million of funded storm reserves reflected in other property and investments as of September 30, 2008. In October 2008, Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans drew a total of $229 million from their funded storm reserves. Entergy also anticipates that operating cash flow in excess of storm restoration spending will remain a source of liquidity.

Long-term debt maturities in the fourth quarter 2008 include $160 million at Entergy Texas and $21 million at Non-Utility Nuclear. Long-term debt maturities in 2009 occur in the fourth quarter and include $219 million at the Utility, $30 million at Non-Utility Nuclear, and $267 million at Entergy Corporation. $500 million of Entergy Corporation notes associated with the equity units are subject to remarketing provisions in November or December 2008 or February 2009. In the event remarketing efforts fail, Entergy will issue shares of stock pursuant to the equity units conversion in February 2009 and retire $500 million of notes. Should the remarketing succeed, Entergy will receive $500 million of cash, issue shares of stock pursuant to the equity units and the $500 million of notes will remain outstanding. The Entergy Arkansas and Entergy Mississippi revolving credit facilities of $100 million and $50 million expire in April and May 2009, respectively. These facilities are generally renewed on an annual basis. The remaining Utility operating company credit facilities and the Entergy Corporation credit facility expire in 2012. See Note 5 to the financial statements in the Form 10-K and Note 4 to the financial statements herein for details regarding long-term debt.

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 2007 to 2008 is primarily the result of additional borrowings under Entergy Corporation's revolving credit facilities. The increase in the debt to capital percentage is in line with Entergy's financial and risk management aspirations.

 

 

September 30,
2008

 

December 31,
2007

 

 

 

 

 

Net debt to net capital

 

54.9%

 

54.7%

Effect of subtracting cash from debt

 

5.5%

 

2.9%

Debt to capital

 

60.4%

 

57.6%

Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, 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 has in place a $3.5 billion credit facility that expires in August 2012. Entergy Corporation has the ability to issue letters of credit against the total borrowing capacity of the facility. As of September 30, 2008, amounts outstanding under the credit facility are:

15


Capacity

 


Borrowings

 

Letters
of Credit

 

Capacity
Available

(In Millions)

             

$3,500 

 

$3,208 

 

$68 

 

$224

Under covenants contained in Entergy Corporation's credit facility and in the indenture governing the Entergy Corporation senior notes and the Entergy Corporation equity units, Entergy is required to maintain a consolidated debt ratio of 65% or less of its total capitalization.  The calculation of this debt ratio under Entergy Corporation's credit facility and in the indenture governing the Entergy Corporation senior notes and the Entergy Corporation equity units is different than the calculation of the debt to capital ratio above. Entergy is currently in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the Entergy Corporation credit facility's maturity date may occur and there may be an acceleration of amounts due under the Entergy Corporation senior notes and the Entergy Corporation equity units.

Capital Expenditure Plans and Other Uses of Capital

See the table and discussion in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," that sets forth the amounts of planned construction and other capital investments by operating segment for 2008 through 2010. Following is an update to the discussion in the Form 10-K.

Little Gypsy Repowering Project

See the Form 10-K for a discussion of the Little Gypsy repowering project. The preconstruction and operating air permits for the Little Gypsy repowering project were issued by the Louisiana Department of Environmental Quality (LDEQ) in November 2007 under then-effective federal and state air regulations, including the EPA's Clean Air Mercury Rule that had been issued in 2005 (CAMR 2005). As discussed in more detail in Part I, Item 1, "Environmental Regulation, Clean Air Act and Subsequent Amendments, Hazardous Air Pollutants" in the Form 10-K, in February 2008 the U.S. Court of Appeals for the D.C. Circuit struck down CAMR 2005. The D.C. Circuit decision requires utilities that have not yet begun construction of the facility in question to undergo before beginning construction a case-by-case Maximum Achievable Control Technology (MACT) analysis for construction or reconstruction of emission units pursuant to the Clean Air Act. The Little Gypsy project as currently configured is expected to meet MACT standards. Little Gypsy received its construction permit before a formal MACT analysis was required, however, and Entergy Louisiana has sought a MACT determination from the LDEQ. The filing was made in June 2008, and the LDEQ has certified that the filing is complete. A decision on the MACT determination is expected by first quarter 2009. Entergy Louisiana also is awaiting permit determinations from several additional agencies. These permits are unrelated to CAMR 2005 and always have been part of the construction process. Onsite construction of the project was scheduled to begin in July 2008, but obtaining the MACT determination will cause a delay in the start of construction, which Entergy Louisiana now expects to begin in mid-year 2009. This delays the expected commercial operation date of the project to mid-year 2013.

The LPSC Phase I order has been appealed to the state district court in Baton Rouge, Louisiana by a group led by the Sierra Club and represented by the Tulane Environmental Law Clinic. A status conference is set for December 3, 2008, at which time a procedural schedule should be established for the appeal.

The LPSC had approved the temporary suspension of Phase II of the Little Gypsy proceedings because Entergy Louisiana must update its estimated project cost and schedule in order to support the request to recover cash earnings on its construction work in progress (CWIP) costs. On October 16, 2008, Entergy Louisiana, together with Entergy Gulf States Louisiana, filed an application to resume Phase II of the proceeding. The Phase II filing seeks certification for Entergy Gulf States Louisiana to participate in a one-third ownership share in the

 

16

 

 

repowering project. In addition, Entergy Louisiana and Entergy Gulf States Louisiana seek recovery of approximately 79% of their construction financing costs through the recovery of cash earnings on CWIP costs. The LPSC previously found that the recovery of CWIP for a large baseload project may be in the public interest as cash earnings may be needed to protect the utility's financial integrity, maintain an acceptable credit rating, prevent an undue increase in the utility's cost of capital, or to accomplish phasing in of the cost of a large capital project for the benefit of customers. In Phase II, the LPSC will rule on Entergy Gulf States Louisiana's certification request, determine the appropriate amount of CWIP costs, if any, to be recovered and will develop the allocation, accounting and rate recovery mechanisms for such recovery. The LPSC also will determine the appropriate procedure or mechanism for synchronizing base rate recovery of Little Gypsy's fixed or non-fuel costs with its commercial in-service date. A status conference is set for November 14, 2008, at which time a procedural schedule should be established for Phase II. Entergy Louisiana and Entergy Gulf States Louisiana have requested that the case be decided in time to permit the recovery of cash earnings on CWIP beginning in July 2009.

The delayed construction of the Little Gypsy repowering project is expected to increase the total project cost from approximately $1.55 billion to $1.76 billion, primarily due to price escalation on non-contracted equipment and material and increased carrying cost due to the extended construction period.

Waterford 3 Steam Generator Replacement Project

As discussed in more detail in the Form 10-K, Entergy Louisiana plans to replace the Waterford 3 steam generators, along with the reactor vessel closure head and control element drive mechanisms, in 2011.  In June 2008, Entergy Louisiana filed with the LPSC for approval of the project, including full cost recovery. Entergy Louisiana estimates in the filing that it will spend approximately $511 million on this project. The filing seeks relief in two phases. Phase I seeks certification within 120 days that the public convenience and necessity would be served by undertaking this project. Among other relief requested, Entergy Louisiana is also seeking approval for a procedure to synchronize permanent base rate recovery when the project is placed in service, either by a formula rate plan or base rate filing. In Phase II, Entergy Louisiana will seek cash earnings on construction work in progress. Entergy Louisiana and the LPSC staff filed a joint motion and a settlement that will resolve Phase I of the proceeding. The settlement also provides that Phase II of the proceeding will be consolidated with Phase II of the Little Gypsy proceeding described above. An ALJ will consider the settlement at a hearing scheduled for November 7, 2008.

White Bluff Environmental Project

The planned construction and other capital investments disclosure in the Form 10-K includes approximately $24 million for initial spending during the 2008-2010 period on installation of scrubbers and low NOx burners at Entergy Arkansas' White Bluff coal plant, which under current environmental regulations must be operational by September 2013. The project remains in the planning stages and has not been fully designed, but the latest conceptual cost estimate has gone up significantly from previous estimates due to increases in equipment, commodity, and labor costs. These estimates indicate that Entergy Arkansas' share of the project could cost approximately $630 million compared to the $375 million reported in the Form 10-K. Entergy continues to review potential environmental spending needs and financing alternatives for any such spending, and future spending estimates could change based on the results of this continuing analysis.

Sources of Capital

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, 2010, as established by a FERC order issued March 31, 2008 (except for the Entergy Gulf States Louisiana and Entergy Texas limits, which are effective through November 8, 2009, as established by an earlier FERC order). See Note 4 to the financial statements for further discussion of the Utility's short-term borrowing limits.

17

Hurricane Katrina and Hurricane Rita

In August and September 2005, Hurricanes Katrina and Rita caused catastrophic damage to large portions of the Utility's service territories in Louisiana, Mississippi, and Texas, including the effect of extensive flooding that resulted from levee breaks in and around the greater New Orleans area. The storms and flooding resulted in widespread power outages, significant damage to electric distribution, transmission, and generation and gas infrastructure, and the loss of sales and customers due to mandatory evacuations and the destruction of homes and businesses. Entergy has pursued a broad range of initiatives to recover storm restoration and business continuity costs, including obtaining reimbursement of certain costs covered by insurance and pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies, including the issuance of securitization bonds. Following are updates regarding Entergy's cost recovery efforts.

Storm Cost Financings

In March 2008, Entergy Gulf States Louisiana, Entergy Louisiana, and the Louisiana Utilities Restoration Corporation (LURC), an instrumentality of the State of Louisiana, filed at the LPSC an application requesting that the LPSC grant financing orders authorizing the financing of Entergy Gulf States Louisiana and Entergy Louisiana storm costs, storm reserves, and issuance costs pursuant to Act 55 of the Louisiana Legislature (Act 55 financings). The Act 55 financings are expected to produce additional customer benefits as compared to Act 64 traditional securitization.  Entergy Gulf States Louisiana and Entergy Louisiana also filed an application requesting LPSC approval for ancillary issues including the mechanism to flow charges and savings to customers via a Storm Cost Offset rider.  On April 3, 2008, the Louisiana State Bond Commission granted preliminary approval for the Act 55 financings.  On April 8, 2008, the Louisiana Public Facilities Authority (LPFA), which is the issuer of the bonds pursuant to the Act 55 financings, approved requests for the Act 55 financings.  On April 10, 2008, Entergy Gulf States Louisiana and Entergy Louisiana and the LPSC Staff filed with the LPSC an uncontested stipulated settlement that includes Entergy Gulf States Louisiana and Entergy Louisiana's proposals under the Act 55 financings, which includes a commitment to pass on to customers a minimum of $10 million and $30 million of customer benefits, respectively, through prospective annual rate reductions of $2 million and $6 million for five years. On April 16, 2008, the LPSC approved the settlement and issued two financing orders and one ratemaking order intended to facilitate implementation of the Act 55 financings.  In May 2008, the Louisiana State Bond Commission granted final approval of the Act 55 financings.

On July 29, 2008, the LPFA issued $687.7 million in bonds under the aforementioned Act 55. From the $679 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $152 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $527 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana invested $545 million, including $17.8 million that was withdrawn from the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 5,449,861.85 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 10% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2008 and have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion.

On August 26, 2008, the LPFA issued $278.4 million in bonds under the aforementioned Act 55. From the $274.7 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $87 million in a restricted escrow account as a storm damage reserve for Entergy Gulf States Louisiana and transferred $187.7 million directly to Entergy Gulf States Louisiana. From the bond proceeds received by Entergy Gulf States Louisiana from the LURC, Entergy Gulf States Louisiana invested $189.4 million, including $1.7 million that was withdrawn from the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 1,893,918.39 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 10% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2008 and have a liquidation price of $100 per unit.

 

18

 

The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion.

Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana will not report the bonds on their balance sheets because the bonds are the obligation of the LPFA, and there is no recourse against Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the event of a bond default.

Insurance Claims

See Note 8 to the financial statements in the Form 10-K for a discussion of Entergy's conventional property insurance program and its Hurricane Katrina and Hurricane Rita claims.

In April 2008, Entergy received from its primary insurer $53.6 million of additional insurance proceeds on its Hurricane Katrina claim, and almost all of the April 2008 proceeds were allocated to Entergy New Orleans. In the third quarter 2008, Entergy received from its primary insurer $17.5 million of additional insurance proceeds on its Hurricane Katrina and Hurricane Rita claims, which were allocated as follows: $1.8 million to Entergy Gulf States Louisiana, $2.2 million to Entergy Louisiana, $9.7 million to Entergy New Orleans, and $3.3 million to Entergy Texas, with the remainder allocated in smaller amounts to other Entergy subsidiaries.

Entergy has settled its lawsuit against one of its excess insurers on the Hurricane Katrina claim, and in July 2008 received $71.5 million in proceeds on the claim. The July 2008 proceeds were allocated as follows: $2.0 million to Entergy Arkansas, $3.0 million to Entergy Gulf States Louisiana, $12.4 million to Entergy Louisiana, $1.8 million to Entergy Mississippi, and $48.4 million to Entergy New Orleans, with the remainder allocated in smaller amounts to other Entergy subsidiaries.

Cash Flow Activity

As shown in Entergy's Consolidated Statements of Cash Flows, cash flows for the nine months ended September 30, 2008 and 2007 were as follows:

 

 

2008

 

2007

 

 

(In Millions)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$1,254 

 

$1,016 

 

 

 

 

 

Effect of reconsolidating Entergy New Orleans

17 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

2,693 

 

1,626 

 

Investing activities

 

(1,943)

 

(1,451)

 

Financing activities

 

551 

 

258 

Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

 

1,302 

 

433 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$2,556 

 

$1,466 

Operating Activities

Entergy's cash flow provided by operating activities increased by $1,067 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Following are cash flows from operating activities by segment:

 

19

 

Investing Activities

Net cash used in investing activities increased by $492 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The following significant investing cash flow activity occurred in the nine months ended September 30, 2008 and 2007:

Financing Activities

Net cash provided by financing activities increased $293 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The following significant financing cash flow activity occurred in the nine months ended September 30, 2008 and 2007:

 

20

 

Significant Factors, Known Trends, and Uncertainties

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

Production Cost Equalization Proceeding Commenced by the LPSC

See the Form 10-K for a discussion of the June 2005 FERC decision in the System Agreement litigation that had been commenced by the LPSC, which was essentially affirmed in the FERC's decision in a December 2005 order on rehearing. The LPSC, APSC, MPSC, and the AEEC appealed the FERC's decision to the United States Court of Appeals for the D.C. Circuit. Entergy and the City of New Orleans intervened in the various appeals. The D.C. Circuit issued its decision in April 2008. The D.C. Circuit affirmed the FERC's decision in most respects, but remanded the case to the FERC for further proceedings and reconsideration of its conclusion that it was prohibited from ordering refunds and its determination to implement the bandwidth remedy commencing with calendar year 2006 production costs (with the first payments/receipts commencing in June 2007), rather than commencing the remedy on June 1, 2005. The D.C. Circuit concluded the FERC had failed so far in the proceeding to offer a reasoned explanation regarding these issues. On July 17, 2008, the Utility operating companies filed with FERC a motion proposing additional procedures on the remanded issues. The proceeding is pending at the FERC.

Rough Production Cost Equalization Rates

2007 Rate Filing Based on Calendar Year 2006 Production Costs

See the Form 10-K for a discussion of the proceeding in which Entergy filed the rates to implement the FERC's orders in the production cost equalization proceeding. Intervenor testimony was filed in which the intervenors and also the FERC Staff advocate a number of positions on issues that affect the level of production costs the individual Utility operating companies are permitted to reflect in the bandwidth calculation, including the level of depreciation and decommissioning expense for nuclear facilities. The effect of the various positions would be to reallocate

 

21

 

 costs among the Utility operating companies. Additionally, the APSC, while not taking a position on whether Entergy Arkansas was imprudent for not exercising its right of first refusal to repurchase a portion of the Independence plant in 1996 and 1997 as alleged by the LPSC, alleges that if the FERC finds Entergy Arkansas to be imprudent for not exercising this option, the FERC should disallow recovery from customers by Entergy of approximately $43 million of increased costs. The Utility operating companies filed rebuttal testimony refuting the allegations of imprudence concerning the decision not to acquire the portion of the Independence plant, explaining why the bandwidth payments are properly recoverable under the AmerenUE contract, and explaining why the positions of FERC Staff and intervenors on the other issues should be rejected. A hearing in this proceeding concluded in July 2008, and the ALJ issued an initial decision in September 2008. The ALJ's initial decision concludes, among other things, that: (1) the decisions to not exercise Entergy Arkansas' option to purchase the Independence plant in 1996 and 1997 were prudent; (2) Entergy Arkansas properly flowed a portion of the bandwidth payments through to AmerenUE in accordance with the wholesale power contract; and (3) the level of nuclear depreciation and decommissioning expense reflected in the bandwidth calculation should be calculated based on NRC-authorized license life, rather than the nuclear depreciation and decommissioning expense authorized by the retail regulators for purposes of retail ratemaking. Following briefing by the parties, the matter will be submitted to the FERC for decision.

As discussed in the Form 10-K, the Utility operating companies had also filed with the FERC during 2007 certain proposed 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. With respect to the proceeding involving changes to the functionalization of costs to the production function, a hearing was held in March 2008 and the ALJ issued an Initial Decision in June 2008 finding the modifications proposed by the Utility operating companies to be just and reasonable. The matter is now pending before the FERC for decision. In the second proceeding, a contested settlement supported by the Utility operating companies is now pending before the FERC. In conjunction with the second proceeding, the LPSC has appealed to the Court of Appeals for the D.C. Circuit the FERC's determination that changes proposed by the Utility operating companies and accepted by the FERC can become effective for the next bandwidth calculation even though such bandwidth calculation may include production costs incurred prior to the date the change is proposed by the Utility operating companies. In August 2008, the D.C. Circuit dismissed the LPSC's appeal.

The intervenor AmerenUE has argued that its current wholesale power contract with Entergy Arkansas, pursuant to which Entergy Arkansas sells power to AmerenUE, does not permit Entergy Arkansas to flow through to AmerenUE any portion of Entergy Arkansas' bandwidth payment.  According to AmerenUE, Entergy Arkansas has sought to collect from AmerenUE approximately $14.5 million of the 2007 Entergy Arkansas bandwidth payment.  The AmerenUE contract is scheduled to expire in August 2009. In April 2008, AmerenUE filed a complaint with the FERC seeking refunds of this amount, plus interest, in the event the FERC ultimately determines that bandwidth payments are not properly recovered under the AmerenUE contract.

On March 31, 2008, the LPSC filed a complaint with the FERC seeking, among other things, three amendments to the rough production cost equalization bandwidth formula. On April 22, 2008, the Utility operating companies filed an answer to the LPSC complaint urging the FERC to reject two of the proposed amendments and not opposing the third. On July 2, 2008, the FERC issued an order that, among other things, ordered the Utility operating companies to implement the LPSC's proposed amendment that they did not oppose and setting two of the LPSC's proposed amendments for hearing and settlement proceedings. Settlement procedures have been terminated, and a hearing is set for March 2009.

2008 Rate Filing Based on Calendar Year 2007 Production Costs

In May 2008, Entergy filed with the FERC the rates for the second year 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 2008, based on calendar year 2007 production costs, commencing for service in June 2008, are necessary to achieve rough production cost equalization under the FERC's orders:

 

22

 

Payments or
(Receipts)

 

(In Millions)

Entergy Arkansas

$252

Entergy Gulf States Louisiana

($124)

Entergy Louisiana

($35)

Entergy Mississippi

($20)

Entergy New Orleans

($7)

Entergy Texas

($66)

Several parties intervened in the proceeding at the FERC, including the APSC, the LPSC, and AmerenUE, which have also filed protests. Several other parties, including the MPSC and the City Council, have intervened in the proceeding without filing a protest. On July 29, 2008, the FERC set the proceeding for hearing and settlement procedures. Settlement procedures were terminated on October 22, 2008. A procedural schedule has not yet been established in the proceeding.

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

Interruptible Load Proceeding

In April 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. The FERC issued in September 2008 an order denying rehearing. The refunds were made to the Utility operating companies that were due a refund on October 15, 2008. The APSC has appealed the FERC decisions to the D.C. Circuit.

AEEC Complaint Regarding the Ouachita Acquisition

In August 2008 the AEEC also filed a complaint at the FERC seeking a review by the FERC of "Entergy Corporation's efforts" to acquire the Ouachita plant, alleging that the acquisition violates the System Agreement and the Federal Power Act and that the plant should be an "[Entergy Arkansas] only resource." The AEEC complaint also states that it seeks clarity on whether Entergy Arkansas' termination of its participation in the System Agreement will affect Entergy Arkansas' rights to the Ouachita facility. The APSC, LPSC, MPSC, and City Council have intervened in the proceeding. Entergy filed in September 2008 its answer to the complaint and asked the FERC to dismiss the proceeding.

23

Independent Coordinator of Transmission

In the FERC's April 2006 order that approved 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 filed a revised tariff with the FERC on January 31, 2008 to address issues identified during the testing of the WPP. The Utility operating companies requested the FERC to rule on the proposed amendments by April 30, 2008 and allow them to go into effect May 11, 2008, following which the WPP would be expected to become operational. In May 2008, the FERC determined it would be premature to implement the WPP on May 11, 2008 as the WPP has not been shown to be just and reasonable. Accordingly, the FERC conditionally accepted and suspended Entergy's proposed tariff amendments for five months from the requested effective date, to become effective October 11, 2008, or on an earlier date, subject to refund and subject to a further order on proposed tariff revisions directed to be filed in the order. Entergy submitted a proposed tariff amendment in August 2008, and on October 10, 2008 the FERC issued an order accepting the amendment. The amendment establishes that the WPP shall take effect at a date to be determined, after completion of successful simulation trials and the ICT's endorsement of the WPP's implementation.

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 fluctuation of market power prices. Following is an updated summary of the amount of the Non-Utility Nuclear business' output that is sold forward as of September 30, 2008 under physical or financial contracts (2008 represents the remaining quarter of the year):

   

2008

 

2009

 

2010

 

2011

 

2012

Non-Utility Nuclear:

                   

Percent of planned energy output sold forward:

                   
 

Unit-contingent

 

53%

 

48%

 

31%

 

29%

 

18%

 

Unit-contingent with availability guarantees (1)

 

35%

 

35%

 

28%

 

14%

 

7%

 

Firm LD

 

4%

 

0%

 

0%

 

0%

 

0%

 

Total

 

92%

 

83%

 

59%

 

43%

 

25%

Planned energy output (TWh)

 

10

 

41

 

40

 

41

 

41

Average contracted price per MWh (2)

 

$53

 

$61

 

$58

 

$55

 

$54

(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.

(2)

The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy most of the power produced by the plant, which is 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, beginning in November 2005, if power market prices drop below PPA prices, which has not happened thus far and is not expected in the foreseeable future.

24

Entergy's Non-Utility Nuclear business' purchase of the FitzPatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. In October 2007, NYPA and the subsidiaries that own the FitzPatrick and Indian Point 3 plants amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements, Entergy's Non-Utility Nuclear business agreed to make annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Entergy's Non-Utility Nuclear business 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. In August 2008, Non-Utility Nuclear entered into a resolution of a dispute with NYPA over the applicability of the value sharing agreements to its FitzPatrick and Indian Point 3 nuclear power plants after the planned spin-off of the Non-Utility Nuclear business. Under the resolution, Non-Utility Nuclear agreed not to treat the separation as a "Cessation Event" that would terminate its obligation to make the payments under the value sharing agreements. As a result, after the spin-off transaction, Non-Utility Nuclear will continue to be obligated to make payments to NYPA under the amended and restated value sharing agreements.

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, 2008, based on power prices at that time, Entergy had in place as collateral $631 million of Entergy Corporation guarantees for wholesale transactions, including $60 million of guarantees that support letters of credit and $11 million of cash collateral. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount of up to $217 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.

For the planned energy output under contract through 2012, 56% of the planned energy output is under contract with counterparties with public investment grade credit ratings; 28% is with counterparties with public non-investment grade credit ratings, primarily Consumers Energy, the BB+ rated company from which Entergy purchased the Palisades power plant and entered into a long-term fixed-price purchased power agreement; and 16% is with load-serving entities without public credit ratings.

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 as of September 30, 2008 (2008 represents the remaining quarter of the year):

   

2008

 

2009

 

2010

 

2011

 

2012

Non-Utility Nuclear:

                   

Percent of capacity sold forward:

                   
 

Bundled capacity and energy contracts

 

27%

 

27%

 

26%

 

27%

 

19%

 

Capacity contracts

 

60%

 

45%

 

31%

 

15%

 

2%

 

Total

 

87%

 

72%

 

57%

 

42%

 

21%

Planned net MW in operation

 

4,998

 

4,998

 

4,998

 

4,998

 

4,998

Average capacity contract price per kW per month

 

$2.0

 

$2.1

 

$3.4

 

$3.7

 

$3.5

Blended Capacity and Energy (based on revenues)

                   

% of planned generation and capacity sold forward

 

89%

 

80%

 

53%

 

35%

 

18%

Average contract revenue per MWh

 

$55

 

$62

 

$61

 

$57

 

$54

25

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. Following is an update to that discussion.

Qualified Pension and Other Postretirement Benefits

Costs and Funding

As discussed in the Form 10-K, the intent of the Pension Protection Act of 2006 is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008. The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability.

The recent decline in stock market prices may affect Entergy's planned levels of contributions.  Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the market-related values of assets and funding liabilities as measured at that date.  An excess of the funding liability over the market-related value of assets, as determined under the Pension Protection Act, would result in a funding shortfall which, under the Pension Protection Act, must be funded over a seven-year rolling period.  Entergy's minimum required contributions for the 2009 plan year are generally payable in installments throughout 2009 and 2010 and will be based on the funding calculations as of January 1, 2009.  The final date at which 2009 plan year contributions may be made is September 15, 2010.  Absent a significant recovery in stock market prices by January 1, it is likely that the minimum required contributions for the 2009 plan year, payable in 2009 or 2010, will increase although the level of increase or timing of that increase cannot be determined until the January 1, 2009 valuation is performed.  If the required discount rate to calculate the funding liabilities  increases , it would result in a decrease in the liability, which would somewhat offset the increase in the level of the minimum required contributions caused by the decline in the market related values of assets. Entergy does not anticipate any significant additional pension funding contributions in 2008, and contributions for the 2008 plan year that remain to be paid in 2009 are not expected to increase significantly as a result of the current market conditions.

New Accounting Pronouncements

In March 2008 the FASB issued Statement of Financial Accounting Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161), which requires enhanced disclosures about an entity's derivative and hedging activities. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

 

26

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2008 and 2007
(Unaudited)
                 
    Three Months Ended   Nine Months Ended
    2008   2007   2008   2007
   

 (In Thousands, Except Share Data)

                 
OPERATING REVENUES                
Electric   $3,209,000    $2,646,546    $7,779,450    $6,952,648 
Natural gas   41,981    30,154    185,361    158,014 
Competitive businesses   712,903    612,387    2,128,077    1,641,836 
TOTAL   3,963,884    3,289,087    10,092,888    8,752,498 
                 
OPERATING EXPENSES                
Operating and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   1,270,160    809,283    2,537,498    2,192,296 
  Purchased power   764,122    520,622    2,132,967    1,565,861 
  Nuclear refueling outage expenses   58,079    44,387    165,177    131,977 
  Other operation and maintenance   636,989    667,376    1,958,566    1,871,424 
Decommissioning   47,515    43,597    140,327    123,507 
Taxes other than income taxes   140,819    129,123    375,332    368,153 
Depreciation and amortization   263,656    239,064    756,617    710,127 
Other regulatory charges - net   30,452    25,303    99,970    62,187 
TOTAL   3,211,792    2,478,755    8,166,454    7,025,532 
                 
OPERATING INCOME   752,092    810,332    1,926,434    1,726,966 
                 
OTHER INCOME                
Allowance for equity funds used during construction   10,411    9,367    28,782    34,084 
Interest and dividend income   30,400    63,754    108,080    174,811 
Equity in earnings (loss) of unconsolidated equity affiliates   1,459    1,432    (2,042)   3,533 
Miscellaneous - net   5,200    (6,103)   (2,439)   (17,881)
TOTAL   47,470    68,450    132,381    194,547 
                 
INTEREST AND OTHER CHARGES                
Interest on long-term debt   128,746    133,165    371,793    380,321 
Other interest - net   33,229    52,503    93,795    118,270 
Allowance for borrowed funds used during construction   (5,939)   (5,260)   (15,992)   (20,175)
Preferred dividend requirements and other   4,998    6,375    14,971    18,784 
TOTAL   161,034    186,783    464,567    497,200 
                 
INCOME BEFORE INCOME TAXES   638,528    691,999    1,594,248    1,424,313 
                 
Income taxes   168,239    230,840    544,256    483,357 
                 
CONSOLIDATED NET INCOME   $470,289    $461,159    $1,049,992    $940,956 
                 
                 
Earnings per average common share:                
  Basic   $2.47    $2.37    $5.48    $4.77 
  Diluted   $2.41    $2.30    $5.33    $4.63 
Dividends declared per common share   $0.75    $0.75    $2.25    $1.83 
                 
Basic average number of common shares outstanding   190,379,009    194,864,359    191,444,611    197,443,652 
Diluted average number of common shares outstanding   194,960,830    200,532,942    197,064,629    203,362,110 
                 
See Notes to Financial Statements.                

27

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2008 and 2007
(Unaudited)
    2008   2007
    (In Thousands)
   
OPERATING ACTIVITIES        
Consolidated net income   $1,049,992    $940,956 
Adjustments to reconcile consolidated net income to net cash flow        
provided by operating activities:        
  Reserve for regulatory adjustments   (1,861)   (18,337)
  Other regulatory charges - net   99,970    62,187 
  Depreciation, amortization, and decommissioning   896,945    833,634 
  Deferred income taxes, investment tax credits, and non-current taxes accrued   561,704    510,435 
  Equity in earnings of unconsolidated equity affiliates - net of dividends   2,042    (3,533)
  Changes in working capital:        
    Receivables   (265,349)   (317,454)
    Fuel inventory   (19,881)   390 
    Accounts payable   126,665    (155,736)
    Taxes accrued     (176,790)
    Interest accrued   (8,152)   8,180 
    Deferred fuel   (395,618)   (89,558)
    Other working capital accounts   (88,417)   (53,977)
  Provision for estimated losses and reserves   230,834    24,753 
  Changes in other regulatory assets   941,625    124,102 
  Other   (437,685)   (62,500)
Net cash flow provided by operating activities   2,692,814    1,626,752 
         
INVESTING ACTIVITIES        
Construction/capital expenditures   (1,455,657)   (1,083,090)
Allowance for equity funds used during construction   28,782    34,084 
Nuclear fuel purchases   (327,606)   (272,137)
Proceeds from sale/leaseback of nuclear fuel   250,447    128,292 
Proceeds from sale of assets and businesses   30,725    13,063 
Payment for purchase of plant   (266,823)   (336,211)
Insurance proceeds received for property damages   130,120    82,648 
Changes in transition charge account   (2,151)  
NYPA value sharing payment   (72,000)  
Decrease (increase) in other investments   (227,976)   71,770 
Proceeds from nuclear decommissioning trust fund sales   1,228,760    1,299,685 
Investment in nuclear decommissioning trust funds   (1,259,288)   (1,388,806)
Net cash flow used in investing activities   (1,942,667)   (1,450,702)
         
See Notes to Financial Statements.        
         

2

 
         
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2008 and 2007
(Unaudited)
    2008   2007
    (In Thousands)
     
FINANCING ACTIVITIES        
Proceeds from the issuance of:        
  Long-term debt   3,433,184    2,437,163 
  Common stock and treasury stock   35,841    59,175 
Retirement of long-term debt   (2,004,118)   (889,813)
Repurchase of common stock   (468,079)   (1,024,185)
Redemption of preferred stock     (3,450)
Changes in credit line borrowings - net     60,000 
Dividends paid:        
  Common stock   (431,032)   (361,574)
  Preferred stock   (15,028)   (19,532)
Net cash flow provided by financing activities   550,768    257,784 
         
Effect of exchange rates on cash and cash equivalents   1,245    (394)
         
Net increase in cash and cash equivalents   1,302,160    433,440 
         
Cash and cash equivalents at beginning of period   1,253,728    1,016,152 
         
Effect of the reconsolidation of Entergy New Orleans on cash and cash equivalents     17,093 
         
Cash and cash equivalents at end of period   $2,555,888    $1,466,685 
         
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
  Cash paid during the period for:        
    Interest - net of amount capitalized   $455,791    $449,038 
    Income taxes   $127,953    $349,058 
         
See Notes to Financial Statements.        
         

29

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2008 and December 31, 2007
(Unaudited)
    2008   2007
    (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $132,169    $126,652 
  Temporary cash investments - at cost,        
   which approximates market   2,423,719    1,127,076 
     Total cash and cash equivalents   2,555,888    1,253,728 
Securitization recovery trust account   21,424    19,273 
Accounts receivable:        
  Customer   939,028    610,724 
  Allowance for doubtful accounts   (23,025)   (25,789)
  Other   249,808    303,060 
  Accrued unbilled revenues   275,605    288,076 
     Total accounts receivable   1,441,416    1,176,071 
Deferred fuel costs   342,924   
Accumulated deferred income taxes   -     38,117 
Fuel inventory - at average cost   228,465    208,584 
Materials and supplies - at average cost   755,220    692,376 
Deferred nuclear refueling outage costs   187,394    172,936 
System agreement cost equalization   108,048    268,000 
Prepayments and other   246,185    129,162 
TOTAL   5,886,964    3,958,247 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   78,116    78,992 
Decommissioning trust funds   3,002,792    3,307,636 
Non-utility property - at cost (less accumulated depreciation)   232,213    220,204 
Other   309,587    82,563 
TOTAL   3,622,708    3,689,395 
         
PROPERTY, PLANT AND EQUIPMENT        
Electric   34,196,682    32,959,022 
Property under capital lease   738,129    740,095 
Natural gas   301,535    300,767 
Construction work in progress   1,453,227    1,054,833 
Nuclear fuel under capital lease   450,961    361,502 
Nuclear fuel   652,986    665,620 
TOTAL PROPERTY, PLANT AND EQUIPMENT   37,793,520    36,081,839 
Less - accumulated depreciation and amortization   15,741,373    15,107,569 
PROPERTY, PLANT AND EQUIPMENT - NET   22,052,147    20,974,270 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   604,553    595,743 
  Other regulatory assets   2,830,088    2,971,399 
  Deferred fuel costs   168,122    168,122 
Goodwill   377,172    377,172 
Other   916,210    908,654 
TOTAL   4,896,145    5,021,090 
         
TOTAL ASSETS   $36,457,964    $33,643,002 
         
See Notes to Financial Statements.        
 

30

 
 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, 2008 and December 31, 2007
(Unaudited)
    2008   2007
    (In Thousands)
         
CURRENT LIABILITIES        
Currently maturing long-term debt   $217,563    $996,757 
Notes payable   25,034    25,037 
Accounts payable   1,919,113    1,031,300 
Customer deposits   302,116    291,171 
Accumulated deferred income taxes   42,418    -  
Interest accrued   179,809    187,968 
Deferred fuel costs   2,254    54,947 
Obligations under capital leases   151,721    152,615 
Pension and other postretirement liabilities   35,765    34,795 
System agreement cost equalization   149,397    268,000 
Other   294,167    214,164 
TOTAL   3,319,357    3,256,754 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   6,764,567    6,379,679 
Accumulated deferred investment tax credits   330,058    343,539 
Obligations under capital leases   308,826    220,438 
Other regulatory liabilities   389,721    490,323 
Decommissioning and asset retirement cost liabilities   2,633,331    2,489,061 
Accumulated provisions   365,427    133,406 
Pension and other postretirement liabilities   1,138,677    1,361,326 
Long-term debt   11,952,591    9,728,135 
Other   967,463    1,066,508 
TOTAL   24,850,661    22,212,415 
         
Commitments and Contingencies        
         
Preferred stock without sinking fund   311,023    311,162 
         
SHAREHOLDERS' EQUITY        
Common stock, $.01 par value, authorized 500,000,000        
 shares; issued 248,174,087 shares in 2008 and in 2007   2,482    2,482 
Paid-in capital   4,864,968    4,850,769 
Retained earnings   7,354,147    6,735,965 
Accumulated other comprehensive income (loss)   (111,338)   8,320 
Less - treasury stock, at cost (58,319,245 shares in 2008 and        
 55,053,847 shares in 2007)   4,133,336    3,734,865 
TOTAL   7,976,923    7,862,671 
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $36,457,964    $33,643,002 
         
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, 2008 and 2007
(Unaudited)
                     
        2008   2007
        (In Thousands)
                     
RETAINED EARNINGS                    
                     
Retained Earnings - Beginning of period       $7,027,630        $6,372,687     
                     
  Add: Consolidated net income       470,286    $470,286    461,159    $461,159
                     
  Deduct:                    
    Dividends declared on common stock       143,769        145,891     
                     
Retained Earnings - End of period       $7,354,147        $6,687,955     
                     
                     
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       ($476,586)       ($59,562)    
                     
  Pension and other postretirement liabilities       (109,034)       (105,770)    
                     
  Net unrealized investment gains       67,838        116,897     
                     
  Foreign currency translation       6,824        6,666     
     Total       (510,958)       (41,769)    
                     
Net derivative instrument fair value changes                    
 arising during the period (net of tax expense of $245,497 and $24,296)       439,852    439,852    42,201    42,201
                     
Pension and other postretirement liabilities (net of tax expense (benefit) of ($1,317) and $682)       (547)   (547)   69    69
                     
Net unrealized investment gains (losses) (net of tax expense (benefit) of ($33,716) and $24,586)       (38,009)   (38,009)   7,541    7,541
                     
Foreign currency translation (net of tax expense (benefit) of ($902) and $82)       (1,676)   (1,676)   152    152
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       (36,734)       (17,361)    
                     
  Pension and other postretirement liabilities       (109,581)       (105,701)    
                     
  Net unrealized investment gains       29,829        124,438     
                     
  Foreign currency translation       5,148        6,818     
     Total       ($111,338)       $8,194     
Comprehensive Income (Loss)           $869,906        $511,122
                     
PAID-IN CAPITAL                    
                     
Paid-in Capital - Beginning of period       $4,860,481        $4,841,059     
                     
  Add:                    
    Common stock issuances related to stock plans       4,487        5,775     
                     
Paid-in Capital - End of period       $4,864,968        $4,846,834     
                     
                     
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, 2008 and 2007
(Unaudited)
                     
        2008   2007
        (In Thousands)
                     
RETAINED EARNINGS                    
                     
Retained Earnings - Beginning of period       $6,735,965        $6,113,042     
                     
  Add:                    
    Consolidated net income       1,049,992    $1,049,992    940,956    $940,956
    Adjustment related to FIN 48 implementation             (4,600)    
      Total       1,049,992        936,356     
                     
  Deduct:                    
    Dividends declared on common stock       431,810        361,443     
                     
Retained Earnings - End of period       $7,354,147        $6,687,955     
                     
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       ($12,540)       ($105,578)    
                     
  Pension and other postretirement liabilities       (107,145)       (105,909)    
                     
  Net unrealized investment gains       121,611        104,551     
                     
  Foreign currency translation       6,394        6,424     
     Total       8,320        (100,512)    
                     
                     
Net derivative instrument fair value changes                    
 arising during the period (net of tax expense (benefit) of ($14,377) and $54,472)       (24,194)   (24,194)   88,217    88,217
                     
Pension and other postretirement liabilities (net of tax expense of $3,008 and $2,048)       (2,436)   (2,436)   208    208
                     
Net unrealized investment gains (losses) (net of tax expense (benefit) of ($68,247) and $10,968)       (91,782)   (91,782)   19,887    19,887
                     
Foreign currency translation (net of tax expense (benefit) of ($671) and $442)       (1,246)   (1,246)   394    394
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       (36,734)       (17,361)    
                     
  Pension and other postretirement liabilities       (109,581)       (105,701)    
                     
  Net unrealized investment gains       29,829        124,438     
                     
  Foreign currency translation       5,148        6,818     
     Total       ($111,338)       $8,194     
Comprehensive Income           $930,334        $1,049,662
                     
PAID-IN CAPITAL                    
                     
Paid-in Capital - Beginning of period       $4,850,769        $4,827,265     
                     
  Add (Deduct):                    
    Common stock issuances related to stock plans       14,199        19,569     
                     
                     
Paid-in Capital - End of period       $4,864,968        $4,846,834     
                     
                     
See Notes to Financial Statements.                    
                     
                     

 

33

 

ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Nine Months Ended September 30, 2008 and 2007
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2008   2007   (Decrease)   %
    (Dollars In Millions)    
Utility Electric Operating Revenues:                
  Residential   $1,295    $1,076   $219    20 
  Commercial   867    684   183    27 
  Industrial   897    646   251    39 
  Governmental   74    60   14    23 
     Total retail   3,133    2,466   667    27 
  Sales for resale   91    106   (15)   (14)
  Other   (15)   75   (90)   (120)
     Total   $3,209    $2,647   $562    21 
                 
Utility Billed Electric Energy                
 Sales (GWh):                 
  Residential   10,671    11,128   (457)   (4)
  Commercial   7,997    8,111   (114)   (1)
  Industrial   10,110    10,120   (10)   - 
  Governmental   649    637   12    2 
     Total retail   29,427    29,996   (569)   (2)
  Sales for resale   1,431    1,413   18    1 
     Total   30,858    31,409   (551)   (2)
                 
Non-Utility Nuclear:                
Operating Revenues   $654    $554   $100    18 
Billed Electric Energy Sales (GWh)   10,316    10,105   211    2 
                 
                 
    Nine Months Ended   Increase/    
Description   2008   2007   (Decrease)   %
    (Dollars In Millions)    
Utility Electric Operating Revenues:                
  Residential   $2,833    $2,512   $321    13 
  Commercial   2,076    1,816   260    14 
  Industrial   2,241    1,920   321    17 
  Governmental   186    163   23    14 
     Total retail   7,336    6,411   925    14 
  Sales for resale   277    295   (18)   (6)
  Other   166    247   (81)   (33)
     Total   $7,779    $6,953   $826    12 
                 
Utility Billed Electric Energy                
 Sales (GWh):                
  Residential   26,055    25,905   150    1 
  Commercial   20,922    20,708   214    1 
  Industrial   29,217    29,256   (39)   - 
  Governmental   1,805    1,749   56    3 
     Total retail   77,999    77,618   381    - 
  Sales for resale   4,160    4,479   (319)   (7)
     Total   82,159    82,097   62    - 
                 
Non-Utility Nuclear:                
Operating Revenues   $1,945    $1,484   $461    31 
Billed Electric Energy Sales (GWh)   31,221    27,315   3,906    14 
                 
                 

34

 

 

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

 

NOTE 1. COMMITMENTS AND CONTINGENCIES

Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business. While management is unable to predict the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy's results of operations, cash flows, or financial condition, except as otherwise discussed in the Form 10-K or herein. Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K, the Entergy Texas Form 10, and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and the Entergy Texas Form 10, and in Note 10 to the financial statements herein.

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.

Conventional Property Insurance

See Note 8 to the financial statements in the Form 10-K and Note 6 to the financial statements in the Entergy Texas Form 10 for information regarding Entergy's non-nuclear property insurance program. In April 2008, Entergy received from its primary insurer $53.6 million of additional insurance proceeds on its Hurricane Katrina claim, and almost all of the April 2008 proceeds were allocated to Entergy New Orleans. In the third quarter 2008, Entergy received from its primary insurer $17.5 million of additional insurance proceeds on its Hurricane Katrina and Hurricane Rita claims, which were allocated as follows: $1.8 million to Entergy Gulf States Louisiana, $2.2 million to Entergy Louisiana, $9.7 million to Entergy New Orleans, and $3.3 million to Entergy Texas, with the remainder allocated in smaller amounts to other Entergy subsidiaries.

Entergy has settled its lawsuit against one of its excess insurers on the Hurricane Katrina claim, and in July 2008 received $71.5 million in proceeds on the claim. The July 2008 proceeds were allocated as follows: $2.0 million to Entergy Arkansas, $3.0 million to Entergy Gulf States Louisiana, $12.4 million to Entergy Louisiana, $1.8 million to Entergy Mississippi, and $48.4 million to Entergy New Orleans, with the remainder allocated in smaller amounts to other Entergy subsidiaries.

NYPA Value Sharing Agreements

Entergy's Non-Utility Nuclear business' purchase of the FitzPatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. In October 2007, NYPA and the subsidiaries that own the FitzPatrick and Indian Point 3 plants amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements, Entergy's Non-Utility Nuclear business agreed to make annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Entergy's Non-Utility Nuclear business 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. In August 2008, Non-Utility Nuclear entered into a resolution of a dispute with NYPA over the applicability of the value sharing agreements to its FitzPatrick and Indian Point 3 nuclear power plants after the planned spin-off of the Non-Utility Nuclear business. Under the resolution, Non-Utility Nuclear agreed not to treat the separation as a

 

35

 

"Cessation Event" that would terminate its obligation to make the payments under the value sharing agreements. As a result, after the spin-off transaction, Non-Utility

Nuclear will continue to be obligated to make payments to NYPA under the amended and restated value sharing agreements.

Employment Litigation

The Registrant Subsidiaries and other Entergy subsidiaries are responding to various lawsuits in both state and federal courts and to other labor-related proceedings filed by current and former employees and third parties not selected for open positions. 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.

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

See Note 8 to the financial statements in the Form 10-K for information regarding asbestos and hazardous material litigation involving Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans and see Note 6 to the financial statements in the Entergy Texas Form 10 for information regarding asbestos and hazardous material litigation involving Entergy Texas.

 

NOTE 2. RATE AND REGULATORY MATTERS

Regulatory Assets

Other Regulatory Assets

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

Hurricane Gustav and Hurricane Ike

As a result of Hurricane Gustav and Hurricane Ike, which caused catastrophic damage to portions of Entergy's service territories in Louisiana and Texas, and to a lesser extent in Arkansas and Mississippi, Entergy has recorded accounts payable for the estimated costs incurred that were necessary to return customers to service.  Entergy recorded corresponding regulatory assets of approximately $550 million and construction work in progress of approximately $430 million. Entergy recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service territories (except for Entergy Arkansas), because management believes that recovery through some form of regulatory mechanism is probable. Because Entergy has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery. The construction work in progress that has not been paid as of September 30, 2008, approximately $117 million, including $47 million for Entergy Gulf States Louisiana, $11 million for Entergy Louisiana, $13 million for Entergy New Orleans, and $44 million for Entergy Texas, represents non-cash investing activity not reported in the statement of cash flows.

Fuel and purchased power cost recovery

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

 

36

 

Entergy Arkansas

Production Cost Allocation Rider

In its June 2007 decision on Entergy Arkansas' August 2006 rate filing, the APSC approved 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 proceedings, but set a termination date of December 31, 2008 for the rider. In December 2007, the APSC issued a subsequent order stating the production cost allocation rider will remain in effect, and any future termination of the rider will be subject to eighteen months advance notice by the APSC, which would occur following notice and hearing. On March 18, 2008, the Arkansas attorney general and the AEEC filed a notice of appeal of the December 2007 APSC order. The appellants' and appellees' briefs have been filed with the court of appeals.

In June 2008, Entergy Arkansas filed with the APSC its annual redetermination of the production cost allocation rider. The redetermination resulted in a slight increase in the rates beginning with the first billing cycle of July 2008.

See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - Federal Regulation - System Agreement Proceedings" in the Form 10-K and herein for a discussion of the System Agreement proceedings.

Energy Cost Recovery Rider

Entergy Arkansas' retail rates include an energy cost recovery rider. In December 2007, the APSC issued an order stating that Entergy Arkansas' energy cost recovery rider will remain in effect, and any future termination of the rider will be subject to eighteen months advance notice by the APSC, which would occur following notice and hearing. On March 18, 2008, the Arkansas attorney general and the AEEC filed a notice of appeal of the December 2007 APSC order. The appellants' and appellees' briefs have been filed with the court of appeals.

In March 2008, Entergy Arkansas filed with the APSC its annual energy cost rate for the period April 2008 through March 2009. The filed energy cost rate increased from $0.01179/kWh to $0.01869/kWh. The increase was caused by the following: 1) all three of the nuclear power plants from which Entergy Arkansas obtains power, ANO 1 and 2 and Grand Gulf, will have refueling outages in 2008, and the energy cost rate is adjusted to account for the replacement power costs that will be incurred while these units are down; 2) Entergy Arkansas has a deferred fuel cost balance from under-recovered fuel costs at December 31, 2007; and 3) fuel and purchased power prices have increased.

In August 2008, as provided for by its energy cost recovery rider, Entergy Arkansas filed with the APSC an interim revision to its energy cost rate. The revised energy cost rate is an increase from $0.01869/kWh to $0.02456/kWh. The increase was caused by the continued increase in natural gas and purchased power prices from the levels used in setting the rate in March 2008. The interim revised energy cost rate went into effect for the first billing cycle of September 2008. In October 2008 the APSC issued an order that requires Entergy Arkansas to file for investigative purposes only monthly updates of its actual and projected over/under-recovery of fuel and purchased power costs. The APSC order also states that the interim revised energy cost rate will remain in effect pending further investigation and order of the APSC, and the APSC reserves the right after notice and hearing to prospectively modify the energy cost rate.

APSC Investigations

See the Form 10-K for a discussion of the APSC's investigation of Entergy Arkansas' energy cost recovery practices. In January 2007, the APSC issued an order in its review of Entergy Arkansas' September 2005 interim rate. The APSC found that Entergy Arkansas failed to maintain an adequate coal inventory level going into the summer of 2005 and that Entergy Arkansas should be responsible for any incremental

 

37

 

energy costs resulting from two outages caused by employee and contractor error. The coal plant generation curtailments were caused by railroad delivery problems and Entergy has since resolved litigation with the railroad regarding the delivery problems. The APSC staff was directed to perform an analysis with Entergy Arkansas' assistance to determine the additional fuel and purchased energy costs associated with these findings and file the analysis within 60 days of the order. After a final determination of the costs is made by the APSC, Entergy Arkansas would be directed to refund that amount with interest to its customers as a credit on the energy cost recovery rider. The order also stated that the APSC would address any additional issues regarding the energy cost recovery rider in Entergy Arkansas' rate case filed in August 2006. Entergy Arkansas requested rehearing of the order. 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 order. In October 2008, Entergy Arkansas filed a motion to lift the stay and asks for rescission of the APSC's January 2007 order in light of the arguments advanced in Entergy Arkansas' rehearing petition and because the value for the Entergy Arkansas' customers obtained through the resolved railroad litigation is significantly greater than the incremental cost of actions identified by the APSC as imprudent. The APSC staff, the AEEC, and the Arkansas attorney general support the lifting of the stay but request additional proceedings. The APSC staff submitted a proposed procedural schedule that calls for a hearing in April 2009.

Entergy Mississippi

In May 2008, Entergy Mississippi filed its quarterly fuel adjustment factor for the third quarter 2008, effective beginning with July 2008 bills. The third quarter 2008 factor is $0.038861/kWh, which is an increase from the $0.010878/kWh factor for the second quarter 2008. The increase is due to a significant increase in fuel prices, and Entergy Mississippi has gone from an over-recovery to an under-recovery position during 2008. After a decline in fuel prices, Entergy Mississippi filed on August 13, 2008 a mid-quarter revision to its fuel adjustment factor. The revised factor is $0.024058/kWh, effective for September 2008 bills. On August 15, 2008, Entergy Mississippi filed its quarterly fuel adjustment factor for the fourth quarter 2008, effective beginning with October 2008 bills. Under an agreement with the Mississippi Public Utilities staff, approved by the MPSC, the fourth quarter 2008 rate will be set at the September 2008 rate of $0.024058/kWh.

In July 2008, the MPSC began a proceeding to investigate the fuel procurement practices and fuel adjustment schedules of the Mississippi utility companies, including Entergy Mississippi. A two-day public hearing was held in July 2008, and after a recess during which the MPSC reviewed information, the hearing resumed on August 5, 2008 for additional testimony by an expert witness retained by the MPSC. The expert witness presented testimony regarding a review of the utilities' fuel adjustment clauses. The MPSC stated that the goal of the proceeding is fact-finding so that the MPSC may decide whether to amend the current fuel cost recovery process.

The Mississippi attorney general has also issued a civil investigative demand directed at Entergy Corporation, Entergy Mississippi, and Entergy Services regarding information related to Entergy Mississippi's fuel adjustment clause. The Mississippi attorney general states that he is investigating whether Entergy has violated Mississippi's consumer protection laws. Entergy opposes the civil investigative demand of the Mississippi attorney general on several grounds, including that the proper jurisdiction for the Mississippi attorney general's request for information is through the MPSC and the FERC. On October 29, 2008, the MPSC issued a subpoena to Entergy Mississippi and Entergy Services requesting documents associated with fuel adjustment clause litigation in Louisiana involving Entergy Louisiana and Entergy New Orleans.

Entergy Texas

In January 2008, Entergy Texas made a compliance filing with the PUCT describing how its 2007 Rough Production Cost Equalization receipts under the System Agreement were allocated between Entergy Gulf States, Inc.'s Texas and Louisiana jurisdictions. Several parties have intervened in the proceeding. A hearing was held at the end of July 2008, and in October 2008 the ALJ issued a proposal for decision recommending an additional $18.6 million allocation to Texas retail customers. Entergy Texas will file exceptions to the ALJ's proposal for decision. Because the PUCT allocation to Texas retail customers is inconsistent with the LPSC allocation to Louisiana retail customers, adoption of the proposal for decision by the PUCT would result in trapped costs between the Texas and Louisiana jurisdictions.

 

38

 

Entergy will seek relief from the FERC or other appropriate relief if that occurs. The PUCT will consider final action on the proposal for decision and exceptions thereto at a future meeting.

In October 2007, Entergy Texas filed a request with the PUCT to refund $45.6 million, including interest, of fuel cost recovery over-collections through September 2007. In January 2008, Entergy Texas filed with the PUCT a stipulation and settlement agreement among the parties that updated the over-collection balance through November 2007 and establishes a refund amount, including interest, of $71 million. The PUCT approved the agreement in February 2008. The refund was made over a two-month period beginning February 2008, but was reduced by $10.3 million of under-recovered incremental purchased capacity costs. Amounts refunded through the interim fuel refund are subject to final reconciliation in a future fuel reconciliation proceeding.

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 is an update to the Form 10-K.

Entergy Gulf States Louisiana and Entergy Louisiana - Storm Cost Financings

In March 2008, Entergy Gulf States Louisiana, Entergy Louisiana, and the Louisiana Utilities Restoration Corporation (LURC), an instrumentality of the State of Louisiana, filed at the LPSC an application requesting that the LPSC grant financing orders authorizing the financing of Entergy Gulf States Louisiana and Entergy Louisiana storm costs, storm reserves, and issuance costs pursuant to Act 55 of the Louisiana Legislature (Act 55 financings). The Act 55 financings are expected to produce additional customer benefits as compared to Act 64 traditional securitization.  Entergy Gulf States Louisiana and Entergy Louisiana also filed an application requesting LPSC approval for ancillary issues including the mechanism to flow charges and savings to customers via a Storm Cost Offset rider.  On April 3, 2008, the Louisiana State Bond Commission granted preliminary approval for the Act 55 financings.  On April 8, 2008, the Louisiana Public Facilities Authority (LPFA), which is the issuer of the bonds pursuant to the Act 55 financings, approved requests for the Act 55 financings.  On April 10, 2008, Entergy Gulf States Louisiana and Entergy Louisiana and the LPSC Staff filed with the LPSC an uncontested stipulated settlement that includes Entergy Gulf States Louisiana and Entergy Louisiana's proposals under the Act 55 financings, which includes a commitment to pass on to customers a minimum of $10 million and $30 million of customer benefits, respectively, through prospective annual rate reductions of $2 million and $6 million for five years. On April 16, 2008, the LPSC approved the settlement and issued two financing orders and one ratemaking order intended to facilitate implementation of the Act 55 financings.  In May 2008, the Louisiana State Bond Commission granted final approval of the Act 55 financings.

On July 29, 2008, the LPFA issued $687.7 million in bonds under the aforementioned Act 55. From the $679 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $152 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $527 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana invested $545 million, including $17.8 million that was withdrawn from the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 5,449,861.85 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 10% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2008 and have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion.

On August 26, 2008, the LPFA issued $278.4 million in bonds under the aforementioned Act 55. From the $274.7 million of bond proceeds loaned by the LPFA to the LURC, the LURC deposited $87 million in a restricted escrow account as a storm damage reserve for Entergy Gulf States Louisiana and transferred $187.7 million directly to Entergy Gulf States Louisiana. From the bond proceeds received by Entergy Gulf States Louisiana from the LURC, Entergy Gulf States Louisiana invested $189.4 million, including $1.7 million that was withdrawn from

 

39

 

the restricted escrow account as approved by the April 16, 2008 LPSC orders, in exchange for 1,893,918.39 Class A preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 10% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2008 and have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1 billion.

Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana will not report the bonds on their balance sheets because the bonds are the obligation of the LPFA, and there is no recourse against Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the event of a bond default.

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)

Retail Rates

See the Form 10-K for a discussion of the proceedings in Entergy Arkansas' August 2006 request for a change in base rates. Oral argument on Entergy Arkansas' appeal to the Arkansas Court of Appeals has been scheduled for November 19, 2008.

Ouachita Acquisition

Entergy Arkansas filed with the APSC in September 2007 for its approval of the Ouachita plant acquisition, including full cost recovery.  The APSC Staff and the Arkansas attorney general supported Entergy Arkansas' acquisition of the plant, but oppose the sale of one-third of the capacity and energy to Entergy Gulf States Louisiana.  The industrial group AEEC opposed Entergy Arkansas' purchase of the plant.  The Arkansas attorney general opposed recovery of the non-fuel costs of the plant through a separate rider, while the APSC Staff recommended revisions to the rider. In December 2007, the APSC issued an order approving recovery through a rider of the capacity costs associated with the interim tolling agreement, which was in effect until the APSC took action on the acquisition of the plant. A hearing before the APSC was held in April 2008 to address Entergy Arkansas' request for acquisition of the plant and concurrent cost recovery. In June 2008 the APSC approved Entergy Arkansas' acquisition of the Ouachita plant and approved recovery of the acquisition and ownership costs through a rate rider. The APSC also approved the planned sale of one-third of the capacity and energy to Entergy Gulf States Louisiana. The Arkansas attorney general, the AEEC, and Entergy Arkansas requests for rehearing of the APSC order were denied. Entergy Arkansas' request for rehearing concerned the 7.61% before-tax return on rate base approved by the APSC, which reflects significant sources of zero-cost capital already reflected in base rates. Entergy Arkansas had requested a 10.87% before-tax return on rate base reflecting the cost of the debt and equity capital resources available to finance the Ouachita plant acquisition.

On March 18, 2008 the Arkansas attorney general and the AEEC filed a notice of appeal of the December 2007 APSC order that approved recovery through a rider of the capacity costs associated with the interim tolling agreement. This order also rejected various annual earnings review proposals. The Arkansas attorney general and the AEEC filed their appeal briefs in October 2008, and the appellees' briefs, including Entergy Arkansas', are due November 12, 2008.

In August 2008 the AEEC also filed a complaint at the FERC seeking a review by the FERC of "Entergy Corporation's efforts" to acquire the Ouachita plant, alleging that the acquisition violates the System Agreement and the Federal Power Act and that the plant should be an "[Entergy Arkansas] only resource." The AEEC complaint also states that it seeks clarity on whether Entergy Arkansas' termination of its participation in the System Agreement will affect Entergy Arkansas' rights to the Ouachita facility. The APSC, LPSC, MPSC, and City

 

40

 

Council have intervened in the proceeding. Entergy filed in September 2008 its answer to the complaint and asked the FERC to dismiss the proceeding.

Entergy Arkansas purchased the Ouachita plant on September 30, 2008.

Storm Cost Recovery in Arkansas

In June 2008, together with other Arkansas utilities, Entergy Arkansas filed a joint application for approval of storm cost recovery accounting and a storm damage rider. To enable recovery of 2008 storm cost expenditures through the rider and storm reserve accounting, the applicants requested that the APSC establish a procedural schedule that would allow resolution of this proceeding no later than December 15, 2008. In light of a separate docket established by the APSC in September 2008 to consider "innovative approaches to utility regulation," including approaches to address "recovery of extraordinary storm damage restoration expenses," the utilities withdrew their joint application in October 2008.

The utilities noted in their withdrawal that the new APSC docket is unlikely to be concluded in 2008, and Entergy Arkansas has experienced extraordinary storm costs in 2008 and requires APSC action to address their effects. Therefore, on October 15, 2008, Entergy Arkansas filed a petition for an accounting order authorizing a regulatory asset and storm damage rider.  In the petition, Entergy Arkansas requests the deferral of $26 million in a regulatory asset that represents extraordinary storm restoration costs for the year 2008 that are in excess of the $14.4 million included in base rates. The regulatory asset would be recovered through a surcharge over a 12-month period beginning in January 2009. A public hearing has been set for December 5, 2008 to consider the petition.

Filings with the LPSC

Retail Rates - Electric

(Entergy Louisiana)

In May 2008, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2007 test year, seeking an $18.4 million rate increase, comprised of $12.6 million of recovery of incremental and deferred capacity costs and $5.8 million based on a cost of service revenue deficiency related to continued lost contribution to fixed costs associated with the loss of customers due to Hurricane Katrina. The filing includes two alternative versions of the calculated revenue requirement, one that reflects Entergy Louisiana's full request for recovery of the loss of fixed cost contribution and the other that reflects the anticipated rate implementation in September 2008, subject to refund, of only a portion of the full request, with the remainder deferred, until the lost fixed cost contribution issue is resolved. Under the first alternative, Entergy Louisiana's earned return on common equity was 9.44%, whereas under the other alternative, its earned return on common equity was 9.04%. The LPSC staff and intervenors issued their reports on Entergy Louisiana's filing on July 31, 2008 and, with minor exceptions, primarily raised proposed disallowance issues that were previously raised with regard to Entergy Louisiana's May 2007 filing and remain at issue in that proceeding. Entergy Louisiana disagrees with the majority of the proposed adjustments. In August 2008, Entergy Louisiana implemented a $43.9 million formula rate plan decrease to remove interim storm cost recovery and to reduce the storm damage accrual. Entergy Louisiana then implemented a $16.9 million formula rate plan increase, subject to refund, effective the first billing cycle in September 2008, comprised of $12.6 million of recovery of incremental and deferred capacity costs and $4.3 million based on a cost of service deficiency. A procedural schedule has not been established yet for further consideration of the issues raised regarding the formula rate plan filing.

In May 2007, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2006 test year, indicating a 7.6% earned return on common equity. That filing 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, a request that was recently reduced to $31.7 million. 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

 

41

 

Louisiana's original filing with which Entergy Louisiana agreed, and to reflect its implementation of an $18.4 million annual formula rate plan 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 LPSC authorized Entergy Louisiana to defer for accounting purposes the difference between its $39.8 million claim, now at $31.7 million, for unrecovered fixed cost and 60% of the revenue deficiency to preserve Entergy Louisiana's right to pursue that claim in full during the formula rate plan proceeding. In October 2007, Entergy Louisiana implemented a $7.1 million formula rate plan decrease that was due primarily to the reclassification of certain franchise fees from base rates to collection via a line item on customer bills pursuant to an LPSC Order. The LPSC staff and intervenors have recommended disallowance of certain costs included in Entergy Louisiana's filing. Entergy Louisiana disagrees with the majority of the proposed disallowances and a hearing on the disputed issues was held in late-September/early-October 2008. Post-hearing briefing is scheduled to conclude in mid-December 2008.

In May 2006, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2005 test year. Entergy Louisiana modified the filing in August 2006 to reflect a 9.45% return on equity which is within the allowed bandwidth. The modified filing includes an increase of $24.2 million for interim recovery of storm costs from Hurricanes Katrina and Rita and a $119.2 million rate increase to recover LPSC-approved incremental deferred and ongoing capacity costs. The filing requested recovery of approximately $50 million for the amortization of capacity deferrals over a three-year period, including carrying charges, and approximately $70 million for ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. Entergy Louisiana subsequently updated its formula rate plan rider to reflect adjustments proposed by the LPSC Staff with which it agrees. The adjusted return on equity of 9.56% remains within the allowed bandwidth. Ongoing and deferred incremental capacity costs were reduced to $118.7 million. The updated formula rate plan rider was implemented, subject to refund, with the first billing cycle of October 2006. An uncontested stipulated settlement was filed in February 2008 that will leave the current base rates in place, and the LPSC approved the settlement in March 2008. In the settlement Entergy Louisiana agreed to credit customers $7.2 million, plus $0.7 million of interest, for customer contributions to the Central States Compact in Nebraska that was never completed and agreed to a one-time $2.6 million deduction from the deferred capacity cost balance. The credit, for which Entergy Louisiana had previously recorded a provision, was made in May 2008.

(Entergy Gulf States Louisiana)

In May 2008, Entergy Gulf States Louisiana made its formula rate plan filing with the LPSC for the 2007 test year. The filing reflected a 9.26% return on common equity, which is below the allowed earnings bandwidth, and indicated a $5.4 million revenue deficiency, offset by a $4.1 million decrease in required additional capacity costs. Entergy Gulf States Louisiana implemented a $20.7 million formula rate plan decrease, subject to refund, effective the first billing cycle in September 2008. The decrease includes removal of interim storm cost recovery and a reduction in the storm damage accrual. Entergy Gulf States Louisiana then implemented a $16.0 million formula rate plan increase, subject to refund, effective the first billing cycle in October 2008 to collect previously deferred and ongoing costs associated with LPSC approved additional capacity, including the Ouachita power plant. Consideration of the formula rate plan filing is pending.

In May 2007, Entergy Gulf States Louisiana 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 Louisiana 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, subject to refund, 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 had not yet occurred. In October 2007, Entergy Gulf States Louisiana implemented a $16.4 million formula rate plan decrease that is due to the reclassification of certain franchise fees from base rates to collection via a line item on customer bills pursuant to an LPSC order. The LPSC staff issued its final report in December 2007, indicating a $1.6 million decrease in

 

42

 

formula rate plan revenues for which interim rates were already in effect. In addition, the LPSC staff recommended that the LPSC give a one-year extension of Entergy Gulf States Louisiana's formula rate plan to synchronize with the final year of Entergy Louisiana's formula rate plan, or alternatively, to extend the formula rate plan for a longer period. Entergy Gulf States Louisiana indicated it is amenable to a one-year extension. An uncontested stipulated settlement was filed in February 2008 that will leave the current base rates in place and extend the formula rate plan for one year, and the LPSC approved the settlement in March 2008.

Retail Rates - Gas (Entergy Gulf States Louisiana)

In January 2008, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ending September 30, 2007.  The filing showed a revenue deficiency of $3.7 million based on a return on common equity mid-point of 10.5%. Entergy Gulf States Louisiana implemented a $3.4 million rate increase in April 2008 pursuant to an uncontested agreement with the LPSC staff.

Filings with the PUCT and Texas Cities

Entergy Texas 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 riders totaling $43.2 million. The base rate increase request includes a $12.2 million annual increase for the storm damage reserve. Entergy Texas requested an 11% return on common equity. In December 2007 the PUCT issued an order setting September 26, 2008 (which it subsequently moved to November 27, 2008) as the effective date for the rate change proposed in this matter. In May 2008, Entergy Texas and certain parties in the rate case filed a non-unanimous settlement that provides for a $42.5 million base rate increase beginning in October 2008 and an additional $17 million base rate increase beginning in October 2009. The non-unanimous settlement also provides that $25 million of System Agreement rough production cost equalization payments will offset the effect on customers of the rate increase. The non-unanimous settlement further provides that an additional $17 million on an annual basis of System Agreement rough production cost equalization payments will be retained by Entergy Texas from January 2009 through September 2009. The non-unanimous settlement also resolves the fuel reconciliation portion of the proceeding with a $4.5 million disallowance. The PUCT staff, the Texas Industrial Energy Consumers (TIEC), and the state of Texas did not join in the settlement and filed a separate agreement among them that provides for a rate decrease, later revised to a slight increase, and a $4.7 million fuel cost disallowance. In May 2008 the ALJs issued an order stating that the proceeding will continue with Entergy Texas having the burden of proof to show that the non-unanimous settlement results in reasonable rates. The hearing on the merits of the non-unanimous settlement was held from June 23 through July 2, 2008, and in September 2008 the ALJs issued a proposal for decision recommending approval of the non-unanimous settlement. On November 5, 2008, the PUCT rejected the non-unanimous settlement and remanded the case for further hearings on the merits of the rate request. The hearings on remand are expected to begin by early December 2008. Entergy Texas agreed to extend until March 2, 2009 the PUCT's jurisdictional deadline to render a decision. In accordance with applicable law, after the requisite number of hearing days occurs, Entergy Texas will have the right to implement rates, up to the level of the requested rates, under bond and subject to refund.

Filings with the MPSC

In March 2008, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2007 test year with the MPSC.  The filing showed that a $10.1 million increase in annual electric revenues is warranted. In June 2008, Entergy Mississippi reached a settlement with the Mississippi Public Utilities Staff that results in a $3.8 million rate increase. An MPSC decision on the settlement is pending.

Filings with the New Orleans City Council

Retail Rates

In January 2008, Entergy New Orleans voluntarily implemented a 6.15% base rate credit (the recovery credit) for electric customers, which Entergy New Orleans estimates will return approximately $10.6 million to electric customers in 2008. Entergy New Orleans was able to

 

43

 

implement this credit because during 2007 the recovery of New Orleans after Hurricane Katrina was occurring faster than expected in 2006 projections. In addition, Entergy New Orleans committed to set aside $2.5 million for an energy efficiency program focused on community education and outreach and weatherization of homes.

On July 31, 2008, Entergy New Orleans filed an electric and gas base rate case with the City Council. The filing requests an 11.75% return on common equity. The filing calls for a $23.0 million decrease in electric base rates, which includes keeping the recovery credit in effect, as well as realigning approximately $12.3 million of capacity costs from recovery through the fuel adjustment clause to electric base rates. The filing also calls for a $9.1 million increase in gas base rates to fund ongoing operations. This request is unrelated to the ongoing rebuild of Entergy New Orleans' natural gas system. The procedural schedule calls for a hearing on the filing to commence on March 2, 2009, with certification of the evidentiary record by a hearing officer on or before March 16, 2009, and a decision by the City Council on or before April 30, 2009.

Fuel Adjustment Clause Litigation

See Note 2 to the financial statements in the Form 10-K for a discussion of the complaint filed in April 1999 by a group of ratepayers against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers and a corresponding complaint filed with the City Council. In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. In May 2005 the Civil District Court for the Parish of Orleans affirmed the City Council resolution, finding no support for the plaintiffs' claim that the refund amount should be higher. In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal. On February 25, 2008, the Fourth Circuit Court of Appeal issued a decision affirming in part, and reversing in part, the Civil District Court's decision.  Although the Fourth Circuit Court of Appeal did not reverse any of the substantive findings and conclusions of the City Council or the Civil District Court, the Fourth Circuit found that the amount of the refund was arbitrary and capricious and increased the amount of the refund to $34.3 million.  Entergy New Orleans believes that the increase in the refund ordered by the Fourth Circuit is not justified. Entergy New Orleans, the City Council, and the plaintiffs requested rehearing, and in April 2008, the Fourth Circuit granted the plaintiffs' request for rehearing. In addition to changing the basis for the court's decision in the manner requested by the plaintiffs, the court also granted the plaintiffs' request that it provide for interest on the refund amount. The court denied the motions for rehearing filed by the City Council and Entergy New Orleans. In May 2008, Entergy New Orleans and the City Council filed with the Louisiana Supreme Court applications for a writ of certiorari seeking, among other things, reversal of the Fourth Circuit decision. The Louisiana Supreme Court granted these writ applications in October 2008 and will review the Fourth Circuit's decision.

System Energy Rate Proceeding

In March 2008, the LPSC filed a complaint at the FERC under Federal Power Act section 206 against System Energy and Entergy Services. The complaint requests that the FERC set System Energy's rate of return on common equity at no more than 9.75%. The LPSC's complaint further requests that System Energy base its decommissioning and depreciation expenses on a 60-year useful life for Grand Gulf as opposed to the 40-year life specified in the existing NRC operating license. The APSC, the City of New Orleans, the MPSC, and other parties have intervened in the proceeding. System Energy filed its answer to the complaint in April 2008, in which it denies the allegations of the LPSC and requests that the FERC dismiss the complaint without a hearing. On July 1, 2008, the FERC issued an order denying the relief requested by the LPSC.

Electric Industry Restructuring in Texas

Refer to Note 2 to the financial statements in the Form 10-K and Entergy Texas Form 10 for a discussion of electric industry restructuring activity that involves Entergy Texas.

 

44

 

 

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,

 

 

2008

 

2007

 

 

(In Millions, Except $/share Data)

 

 

 

 

$/share

 

 

 

$/share

Consolidated net income

 

$470.3

 

 

 

$461.2

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares
 outstanding - basic

 


190.4

 


$2.47 

 

194.9

 


$2.37 

Average dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock Options

 

3.8

 

(0.048)

 

4.6

 

(0.055)

 

Equity Units

 

0.8

 

(0.010)

 

0.9

 

(0.011)

 

Deferred Units

 

 

(0.000)

 

0.1

 

(0.001)

Average number of common shares
 outstanding - diluted

 


195.0

 


$2.41 

 


200.5

 


$2.30 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

2008

 

2007

 

 

(In Millions, Except $/share Data)

 

 

 

 

$/share

 

 

 

$/share

Consolidated net income

 

$1,050

 

 

 

$941.0

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares
 outstanding - basic

 


191.4

 


$5.48

 

197.4

 


$4.77 

Average dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock Options

 

4.5

 

(0.124)

 

4.9

 

(0.115)

 

Equity Units

 

1.2

 

(0.033)

 

1.0

 

(0.023)

 

Deferred Units

 

 

(0.001)

 

0.1

 

(0.003)

Average number of common shares
 outstanding - diluted

 


197.1

 


$5.33 

 

203.4

 


$4.63 

 

 

 

 

 

 

 

 

 

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

Treasury Stock

During the nine months ended September 30, 2008, Entergy Corporation issued 996,901 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, 2008, Entergy Corporation purchased 4,262,299 shares of common stock for a total purchase price of $468.1 million.

45

Retained Earnings

On October 31, 2008, Entergy Corporation's Board of Directors declared a common stock dividend of $0.75 per share, payable on December 1, 2008 to holders of record as of November 12, 2008.

Accumulated Other Comprehensive Income (Loss)

Based on market prices as of September 30, 2008, cash flow hedges with net unrealized losses of approximately $10.8 million net-of-tax at September 30, 2008 are expected to be reclassified from accumulated other comprehensive income to operating revenues during the next twelve months. The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices. See Note 1 (Derivative Financial Instruments and Commodity Derivatives) and Note 16 to the financial statements in the Form 10-K for additional discussion of the accounting treatment of cash flow hedges.

 

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

Entergy Corporation has in place a credit facility that 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, 2008 was 2.969% 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, 2008.


Capacity

 


Borrowings

 

Letters
of Credit

 

Capacity
Available

(In Millions)

             

$3,500 

 

$3,208 

 

$68 

 

$224

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

Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, and Entergy Texas each had credit facilities available as of September 30, 2008 as follows:



Company

 



Expiration Date

 


Amount of
Facility

 


Interest Rate (a)

 

Amount Drawn
as of
September 30, 2008

 

 

 

 

 

 

     

Entergy Arkansas

 

April 2009

 

$100 million (b)

 

4.50%

 

-

Entergy Gulf States Louisiana

 

August 2012

 

$100 million (c)

 

5.05%

 

$100 million

Entergy Louisiana

 

August 2012

 

$200 million (d)

 

5.05%

 

$200 million

Entergy Mississippi

 

May 2009

 

$30 million (e)

 

4.2875%

 

-

Entergy Mississippi

 

May 2009

 

$20 million (e)

 

4.2875%

 

-

Entergy Texas

 

August 2012

 

$100 million (f)

 

5.05%

 

$100 million

(a)

The interest rate is the weighted average interest rate as of September 30, 2008 applied or that would be applied to the outstanding borrowings under the facility.

(b)

The credit facility requires Entergy Arkansas to maintain a debt ratio of 65% or less of its total capitalization.

 

46

(c)

The credit facility allows Entergy Gulf States Louisiana to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2008, no letters of credit were outstanding. The credit facility requires Entergy Gulf States Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization. Pursuant to the terms of the credit agreement, the amount of debt assumed by Entergy Texas ($930 million as of September 30, 2008 and $1.079 billion as of December 31, 2007) is excluded from debt and capitalization in calculating the debt ratio.

(d)

The credit facility allows Entergy Louisiana to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2008, no letters of credit were outstanding. The credit facility requires Entergy Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization.

(e)

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

(f)

The credit facility allows Entergy Texas to issue letters of credit against the borrowing capacity of the facility. As of September 30, 2008, no letters of credit were outstanding. The credit facility requires Entergy Texas to maintain a consolidated debt ratio of 65% or less of its total capitalization. Pursuant to the terms of the credit agreement, the transition bonds issued by Entergy Gulf States Reconstruction Funding I, LLC, a subsidiary of Entergy Texas, are excluded from debt and capitalization in calculating the debt ratio.

The facility fees on the credit facilities range from 0.09% to 0.15% of the commitment amount.

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, 2010 (except the Entergy Gulf States Louisiana and Entergy Texas limits, which are effective through November 8, 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 short-term borrowings combined may not exceed the FERC authorized limits. As of September 30, 2008, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.1 billion, the aggregate outstanding borrowing from the money pool was $365 million, and Entergy's subsidiaries' had no outstanding short-term borrowing from external sources.

The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings for the Registrant Subsidiaries as of September 30, 2008:

 

 

Authorized

 

Borrowings

 

 

(In Millions)

 

 

 

 

 

Entergy Arkansas

 

$250

 

$5.7

Entergy Gulf States Louisiana

 

$200

 

-

Entergy Louisiana

 

$250

 

-

Entergy Mississippi

 

$175

 

$28.2

Entergy New Orleans

 

$100

 

-

Entergy Texas

 

$200

 

-

System Energy

 

$200

 

-

Debt Issuances and Redemptions

(Entergy Arkansas)

In July 2008, Entergy Arkansas issued $300 million of 5.4% Series First Mortgage Bonds due August 2013. Entergy Arkansas used a portion of the net proceeds to fund the purchase of the Ouachita power plant on September 30, 2008, and the remaining net proceeds will be used to fund improvements relating to the Ouachita power plant and for general corporate purposes. Prior to their application, the remaining net proceeds will be used for working capital purposes, including repayment of short-term debt, and may be invested in temporary cash investments or the Entergy System money pool.

47

(Entergy Gulf States Louisiana)

In May 2008, Entergy Gulf States Louisiana issued $375 million of 6.00% Series First Mortgage Bonds due May 2018. The proceeds were used to pay at maturity the portion of the $325 million of the 3.6% Series First Mortgage Bonds due June 2008 that had not been assumed by Entergy Texas and to redeem, prior to maturity, $189.7 million of the $350 million Floating Rate series of First Mortgage Bonds due December 2008, and for other general corporate purposes.

The portion of the $325 million of 3.6% Series First Mortgage Bonds due June 2008 that had been assumed by Entergy Texas was paid at maturity by Entergy Texas in June 2008, and that bond series is no longer outstanding. The remainder of the $350 million Floating Rate series of First Mortgage Bonds due December 2008 had been assumed by Entergy Texas, and management expects Entergy Texas to redeem those bonds by their maturity date.

(Entergy Louisiana)

In April 2008, Entergy Louisiana repurchased, prior to maturity, $60 million of Auction Rate governmental bonds, which are being held for possible remarketing at a later date.

In August 2008, Entergy Louisiana issued $300 million of 6.50% Series First Mortgage Bonds due September 2018. The net proceeds of the issuance will be used for capital expenditures, working capital needs, and general corporate purposes. Prior to their application, the remaining net proceeds may be invested in temporary cash investments or the Entergy System money pool.

(Entergy Mississippi)

In April 2008, Entergy Mississippi repurchased its $30 million series of Independence County Pollution Control Revenue Bonds due July 2022. In June 2008, Entergy Mississippi remarketed the series and fixed the interest rate to maturity at 4.90%. Entergy Mississippi used the proceeds from the remarketing to repay short-term borrowings that were drawn on its credit facilities to repurchase the bonds in April 2008.

(Entergy New Orleans)

In August 2008, Entergy New Orleans paid, at maturity, its $30 million 3.875% Series first mortgage bonds.

Tax Exempt Bond Audit

The IRS completed an audit of certain Tax Exempt Bonds (Bonds) issued by St. Charles Parish, State of Louisiana (the Issuer). The Bonds were issued to finance previously unfinanced acquisition costs expended by Entergy Louisiana to acquire certain radioactive solid waste disposal facilities (the Facilities) at the Waterford Steam Electric Generating Station. In March and April 2005, the IRS issued proposed adverse determinations that the Issuer's 7.0% Series bonds due 2022, 7.5% Series bonds due 2021, and 7.05% Series bonds due 2022 were not tax exempt. The stated basis for these determinations was that radioactive waste did not constitute "solid waste" within the provisions of the Internal Revenue Code and therefore the Facilities did not qualify as solid waste disposal facilities. The three series of Bonds are the only series of bonds issued by the Issuer for the benefit of Entergy Louisiana that were the subject of audits by the IRS. Because the Issuer, Entergy Louisiana, and IRS Office of Appeals desired to settle the issue that was raised, Entergy Louisiana made a $1.25 million payment to the IRS. The terms of the settlement have no effect on the Issuer or the bondholders.

 

NOTE 5. STOCK-BASED COMPENSATION

Entergy grants stock options, 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

 

48

 

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 the third quarter and nine months ended September 30 for each of the years presented:

 

2008

 

2007

 

(In Millions)

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

$4.7

 

$3.9

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

$1.8

 

$1.5

       

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


$13.8

 


$11.0

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

$5.3

 

$4.2

Compensation cost capitalized as part of fixed assets and inventory for the nine months
  ended September 30,


$2.6

 


$1.8

Entergy granted 1,617,400 stock options during the first quarter 2008 with a weighted-average fair value of $14.43. At September 30, 2008, there were 11,132,319 stock options outstanding with a weighted-average exercise price of $66.37. The aggregate intrinsic value of the stock options outstanding was $252 million.

 

NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's qualified pension cost, including amounts capitalized, for the third quarters of 2008 and 2007, included the following components:

 

 

2008

 

2007

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$22,598 

 

$24,263 

Interest cost on projected benefit obligation

 

51,647 

 

46,508 

Expected return on assets

 

(57,639)

 

(51,008)

Amortization of prior service cost

 

1,266 

 

1,383 

Amortization of loss

 

6,708 

 

11,444 

Net pension costs

 

$24,580 

 

$32,590 

Entergy's qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2008 and 2007, included the following components:

 

 

2008

 

2007

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$67,794 

 

$72,301 

Interest cost on projected benefit obligation

 

154,941 

 

138,662 

Expected return on assets

 

(172,917)

 

(152,514)

Amortization of prior service cost

 

3,798 

 

4,149 

Amortization of loss

 

20,124 

 

34,332 

Net pension costs

 

$73,740 

 

$96,930 

49

The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the third quarters of 2008 and 2007, included the following components:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2008

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$3,584 

 

$1,841 

 

$2,058 

 

$1,063 

 

$445 

 

$968 

$930 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

11,616 

 

5,047 

 

6,784 

 

3,627 

 

1,415 

 

3,882 

1,937 

Expected return on assets

 

(11,765)

 

(7,165)

 

(8,134)

 

(4,075)

 

(1,839)

 

(5,047)

(2,452)

Amortization of prior service

 

 cost

223 

 

110 

 

119 

 

90 

 

52 

 

80 

Amortization of loss

 

2,303 

 

115 

 

920 

 

485 

 

319 

 

156 

90 

Net pension cost/(income)

 

$5,961 

 

($52)

 

$1,747 

 

$1,190 

 

$392 

 

$39 

$514 

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2007

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$3,638 

 

$3,011 

 

$2,231 

 

$1,089 

 

$470 

 

$1,012 

$1,021 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

10,498 

 

8,139 

 

6,251 

 

3,371 

 

1,260 

 

3,439 

1,710 

Expected return on assets

 

(11,009)

 

(10,750)

 

(7,808)

 

(3,837)

 

(1,446)

 

(4,536)

(2,136)

Amortization of prior service

 

 cost

412 

 

304 

 

160 

 

114 

 

44 

 

133 

12 

Amortization of loss

 

2,721 

 

623 

 

1,433 

 

749 

 

368 

 

262 

151 

Net pension cost

 

$6,260 

 

$1,327 

 

$2,267 

 

$1,486 

 

$696 

 

$310 

$758 

50

The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the nine months ended September 30, 2008 and 2007, included the following components:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2008

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$10,752 

 

$5,523 

 

$6,174 

 

$3,189 

 

$1,335 

 

$2,904 

$2,790 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

34,848 

 

15,141 

 

20,352 

 

10,881 

 

4,245 

 

11,646 

5,811 

Expected return on assets

 

(35,295)

 

(21,495)

 

(24,402)

 

(12,225)

 

(5,517)

 

(15,141)

(7,356)

Amortization of prior service

 

 cost

669 

 

330 

 

357 

 

270 

 

156 

 

240 

27 

Amortization of loss

 

6,909 

 

345 

 

2,760 

 

1,455 

 

957 

 

468 

270 

Net pension cost/(income)

 

$17,883 

 

($156)

 

$5,241 

 

$3,570 

 

$1,176 

 

$117 

$1,542 

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2007

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$10,914 

 

$9,033 

 

$6,693 

 

$3,267 

 

$1,410 

 

$3,036 

$3,063 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

31,494 

 

24,417 

 

18,753 

 

10,113 

 

3,780 

 

10,317 

5,130 

Expected return on assets

 

(33,027)

 

(32,250)

 

(23,424)

 

(11,511)

 

(4,338)

 

(13,608)

(6,408)

Amortization of prior service

 

 cost

1,236 

 

912 

 

480 

 

342 

 

132 

 

399 

36 

Amortization of loss

 

8,163 

 

1,869 

 

4,299 

 

2,247 

 

1,104 

 

786 

453 

Net pension cost

 

$18,780 

 

$3,981 

 

$6,801 

 

$4,458 

 

$2,088 

 

$930 

$2,274 

Entergy recognized $4.3 million and $4.0 million in pension cost for its non-qualified pension plans in the third quarters of 2008 and 2007, respectively. Entergy recognized $12.8 million and $12.0 million in pension cost for its non-qualified pension plans for the nine months ended September 30, 2008 and 2007, respectively.

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the third quarters of 2008 and 2007:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

Entergy

 

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

Texas

(In Thousands)

Non-Qualified Pension Cost
 Third Quarter 2008

 

$133 

 

$78 

 

$7 

 

$54 

 

$12 

$227 

Non-Qualified Pension Cost
 Third Quarter 2007

 

$123 

 

$317 

 

$6 

 

$44 

 

$57 

$231 

51

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the nine months ended September 30, 2008 and 2007:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

Entergy

 

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

Texas

(In Thousands)

Non-Qualified Pension Cost
  Nine Months Ended
  September 30, 2008

 



$399 

 



$234 

 



$21 

 



$162 

 



$36 



$681 

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

 



$369 

 



$951 

 



$19 

 



$131 

 



$171 



$693 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the third quarters of 2008 and 2007, included the following components:

 

 

2008

 

2007

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$11,800 

 

$11,105 

Interest cost on APBO

 

17,824 

 

15,869 

Expected return on assets

 

(7,027)

 

(6,358)

Amortization of transition obligation

 

957 

 

958 

Amortization of prior service cost

 

(4,104)

 

(3,959)

Amortization of loss

 

3,890 

 

4,743 

Net other postretirement benefit cost

 

$23,340 

 

$22,358 

Entergy's other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2008 and 2007, included the following components:

 

 

2008

 

2007

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$35,400 

 

$33,032 

Interest cost on APBO

 

53,472 

 

47,363 

Expected return on assets

 

(21,081)

 

(18,943)

Amortization of transition obligation

 

2,871 

 

2,874 

Amortization of prior service cost

 

(12,312)

 

(11,877)

Amortization of loss

 

11,670 

 

14,230 

Net other postretirement benefit cost

 

$70,020 

 

$66,679 

52

The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the third quarters of 2008 and 2007, included the following components:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2008

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$1,706 

 

$1,251 

 

$1,099 

 

$514 

 

$295 

 

$606 

$513 

Interest cost on APBO

 

3,443 

 

1,917 

 

2,187 

 

1,141 

 

953 

 

1,440 

531 

Expected return on assets

 

(2,492)

 

 

 

(905)

 

(789)

 

(1,885)

(511)

Amortization of transition

 

 obligation

205 

 

84 

 

96 

 

88 

 

415 

 

66 

Amortization of prior service

 

 cost

(197)

 

146 

 

117 

 

(62)

 

90 

 

72 

(283)

Amortization of loss

1,440 

 

494 

 

677 

 

534 

 

291 

 

357 

177 

Net other postretirement
 benefit cost

 

$4,105 

 

$3,892 

 

$4,176 

 

$1,310 

 

$1,255 

 

$656 

$429 

 

 

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2007

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$1,525 

 

$1,547 

 

$973 

 

$476 

 

$255 

 

$500 

$451 

Interest cost on APBO

 

3,037 

 

2,876 

 

1,941 

 

1,049 

 

870 

 

1,260 

433 

Expected return on assets

 

(2,231)

 

(1,697)

 

 

(819)

 

(682)

 

(1,697)

(470)

Amortization of transition

 

 obligation

205 

 

151 

 

96 

 

88 

 

416 

 

67 

Amortization of prior service

 

 cost

(197)

 

218 

 

117 

 

(62)

 

90 

 

72 

(283)

Amortization of loss

1,500 

 

793 

 

764 

 

613 

 

282 

 

349 

149 

Net other postretirement benefit
 cost

 

$3,839 

 

$3,888 

 

$3,891 

 

$1,345 

 

$1,231 

 

$551 

$282 

53

The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the nine months ended September 30, 2008 and 2007, included the following components:

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2008

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$5,118 

 

$3,753 

 

$3,297 

 

$1,542 

 

$885 

 

$1,818 

$1,539 

Interest cost on APBO

 

10,329 

 

5,751 

 

6,561 

 

3,423 

 

2,859 

 

4,320 

1,593 

Expected return on assets

 

(7,476)

 

 

 

(2,715)

 

(2,367)

 

(5,655)

(1,533)

Amortization of transition

 

 obligation

615 

 

252 

 

288 

 

264 

 

1,245 

 

198 

Amortization of prior service

 

 cost

(591)

 

438 

 

351 

 

(186)

 

270 

 

216 

(849)

Amortization of loss

4,320 

 

1,482 

 

2,031 

 

1,602 

 

873 

 

1,071 

531 

Net other postretirement benefit
 cost

 

$12,315 

 

$11,676 

 

$12,528 

 

$3,930 

 

$3,765 

 

$1,968 

$1,287 

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

2007

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$4,575 

 

$4,641 

 

$2,919 

 

$1,428 

 

$765 

 

$1,500 

$1,353 

Interest cost on APBO

 

9,111 

 

8,628 

 

5,823 

 

3,147 

 

2,610 

 

3,780 

1,299 

Expected return on assets

 

(6,693)

 

(5,091)

 

 

(2,457)

 

(2,046)

 

(5,091)

(1,410)

Amortization of transition

 

 obligation

615 

 

453 

 

288 

 

264 

 

1,248 

 

201 

Amortization of prior service

 

 cost

(591)

 

654 

 

351 

 

(186)

 

270 

 

216 

(849)

Amortization of loss

4,500 

 

2,379 

 

2,292 

 

1,839 

 

846 

 

1,047 

447 

Net other postretirement benefit
 cost

 

$11,517 

 

$11,664 

 

$11,673 

 

$4,035 

 

$3,693 

 

$1,653 

$846 

Employer Contributions

As of the end of October 2008, Entergy had contributed $288 million to its pension plans. Entergy does not anticipate making additional contributions to its qualified pension plans in 2008.

54

The Registrant Subsidiaries had contributed the following to qualified pension plans through October 2008 and do not anticipate additional contributions in 2008:

Entergy

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

Entergy

 

Entergy

System

 

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

New Orleans

 

Texas

Energy

(In Thousands)

Pension contributions made
  through October 2008

 

$38,866

 

$34,260

 


$ 53

 

$11,688

 


$ -

 


$18,882


$5,812

Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)

Based on actuarial analysis, the estimated effect of future Medicare subsidies reduced the December 31, 2007 Accumulated Postretirement Benefit Obligation (APBO) by $182 million, and reduced the third quarter 2008 and 2007 other postretirement benefit cost by $6.2 million and $6.6 million, respectively. It reduced the nine months ended September 30, 2008 and 2007 other postretirement benefit cost by $18.6 million and $19.9 million, respectively. In the third quarter 2008 and the nine months ended September 30, 2008, Entergy received $2.1 million in Medicare subsidies for prescription drug claims.

Based on actuarial analysis, the estimated effect of future Medicare subsidies reduced the December 31, 2007 APBO, the third quarters 2008 and 2007 other postretirement benefit cost and the nine months ended September 30, 2008 and 2007 other postretirement benefit cost for the Registrant Subsidiaries as follows:

Entergy

Entergy

 

 

Entergy

 

Gulf States

 

Entergy

 

Entergy

 

New

 

Entergy

System

 

 

Arkansas

 

Louisiana

 

Louisiana

 

Mississippi

 

Orleans

 

Texas

Energy

(In Thousands)

Reduction in 12/31/2007 APBO

 

($39,653)

 

($19,662)

 

($21,797)

 

($13,223)

 

($9,487)

 

($15,270)

($6,185)

Reduction in third quarter 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 other postretirement benefit cost

 

($1,266)

 

($876)

 

($706)

 

($406)

 

($279)

 

($263)

($236)

Reduction in third quarter 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 other postretirement benefit cost

 

($1,376)

 

($1,222)

 

($762)

 

($438)

 

($311)

 

($172)

($246)

Reduction in nine months ended

 

 

 

 

 

 September 30, 2008 other

 postretirement benefit cost

($3,798)

 

($2,628)

 

($2,118)

 

($1,218)

 

($837)

 

($789)

($708)

Reduction in nine months ended

 

 

 

 

 

 September 30, 2007 other

 postretirement benefit cost

($4,128)

 

($3,666)

 

($2,286)

 

($1,314)

 

($933)

 

($516)

($738)

Medicare subsidies received in the

 third quarter 2008 & the nine

 months ended September 30,
 2008

$495 

$291 

$316 

$169 

$188 

$229 

$41 

For further information on the Medicare Act refer to Note 11 to the financial statements in the Form 10-K.

 

55

 

 

 

NOTE 7. BUSINESS SEGMENT INFORMATION

Entergy Corporation

Entergy's reportable segments as of September 30, 2008 are Utility and Non-Utility Nuclear. Utility generates, transmits, distributes, and sells electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana. Non-Utility Nuclear owns and operates six nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the non-nuclear wholesale assets business and earnings on the proceeds of sales of previously-owned businesses.

Entergy's segment financial information for the third quarters of 2008 and 2007 is as follows:

 


Utility

 

Non-Utility
Nuclear*

 


All Other*

 


Eliminations

 


Consolidated

(In Thousands)

2008

 

 

 

 

 

 

 

 

 

Operating Revenues

$3,251,796

 

$654,432

 

$64,125 

 

($6,469)

 

$3,963,884 

Equity in earnings of

 

 

 

 

 

 unconsolidated equity affiliates

$-

 

$-

 

$1,459 

 

$- 

 

$1,459 

Income Taxes (Benefit)

$155,392

 

$93,552

 

($80,705)

 

$- 

 

$168,239 

Net Income

$257,812

 

$205,324

 

$7,153 

 

$- 

 

$470,289 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

Operating Revenues

$2,677,291

 

$554,128

 

$64,460 

 

($6,792)

 

$3,289,087 

Equity in earnings of