__________________________________________________________________________________________
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
(Mark One)
X
OR
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
No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Common Stock Outstanding
Outstanding at July 30, 2004
Entergy Corporation
($0.01 par value)
226,908,516
Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2003, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed by the individual registrants with the SEC, and should be read in conjunction therewith.
ENTERGY CORPORATION AND SUBSIDIARIESINDEX TO QUARTERLY REPORT ON FORM 10-QJune 30, 2004
Page Number
1
4
8
11
17
19
20
22
24
25
26
37
38
39
41
42
43
44
46
47
50
51
53
54
55
56
58
59
60
62
64
65
66
67
68
70
71
73
74
76
77
79
80
82
83
85
86
88
89
91
92
94
95
96
97
99
100
102
113
114
115
116
117
122
126
FORWARD-LOOKING INFORMATION
From time to time, Entergy makes statements 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. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Except to the extent required by the federal securities laws, Entergy undertakes 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, and there are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some of those factors (in addition to others described elsewhere in this report and in subsequent securities filings) include:
(Page left blank intentionally)
DEFINITIONS
Certain abbreviations or acronyms used in the text are defined below:
Abbreviation or Acronym
Term
ALJ
Administrative Law Judge
ANO 1 and 2
Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear)
APSC
Arkansas Public Service Commission
BCF
One billion cubic feet of natural gas
BCF/D
One billion cubic feet of natural gas per day
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
DOE
United States Department of Energy
domestic utility companies
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively
EPA
United States Environmental Protection Agency
EPDC
Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation
electricity marketed
Total physical volume marketed by Entergy-Koch in the U.S. and Europe during the period
electricity volatility
Measure of price fluctuation over time using standard deviation of daily price differences for into-Cinergy power prices for the upcoming month
Energy Commodity Services
Entergy's business segment that is focused almost exclusively on providing energy commodity trading and gas transportation and storage services through Entergy-Koch, LP and also includes Entergy's non-nuclear wholesale assets business
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation, a Delaware corporation
Entergy-Koch
Entergy-Koch, L.P., a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.
FEMA
Federal Emergency Management Agency
FERC
Federal Energy Regulatory Commission
FitzPatrick
James A. FitzPatrick nuclear power plant, 825 MW facility located near Oswego, New York, purchased in November 2000 from NYPA by Entergy's Non-Utility Nuclear business
Form 10-K
The combined Annual Report on Form 10-K for the year ended December 31, 2003 of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy
gain/loss days
Ratio of the number of days when Entergy-Koch recognized a net gain from commodity trading activities to the number of days when Entergy-Koch recognized a net loss from commodity trading activities
gas marketed
gas volatility
Measure of price fluctuation over time using standard deviation of daily price differences for Henry Hub natural gas prices for the upcoming month
DEFINITIONS (Continued)
Grand Gulf 1
Unit No. 1 of the Grand Gulf Nuclear Generating Station
GWh
Gigawatt hour(s), which equals one million kilowatt-hours
Indian Point 2
Indian Point Energy Center Unit 2 - nuclear power plant, 984 MW facility located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's Non-Utility Nuclear business
Indian Point 3
Indian Point Energy Center Unit 3 - nuclear power plant, 994 MW facility located in Westchester County, New York, purchased in November 2000 from NYPA by Entergy's Non-Utility Nuclear business
kW
Kilowatt
kWh
Kilowatt-hour(s)
LDEQ
Louisiana Department of Environmental Quality
LPSC
Louisiana Public Service Commission
Mcf
1,000 cubic feet of gas
miles of pipeline
Total miles of transmission and gathering pipeline
MMBtu
One million British Thermal Units
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatt(s)
MWh
Megawatt-hours
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
Net revenue
Operating revenue net of fuel, fuel-related, and purchased power expenses; other regulatory credits; and amortization of rate deferrals
Non-Utility Nuclear
Entergy's business segment that owns and operates five nuclear power plants and sells electric power produced by those plants to wholesale customers
NRC
Nuclear Regulatory Commission
NYPA
New York Power Authority
Pilgrim
Pilgrim Nuclear Station, 688 MW facility located in Plymouth, Massachusetts, purchased in July 1999 from Boston Edison by Entergy's Non-Utility Nuclear business
production cost
Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas
PPA
Purchased power agreement
PRP
Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination)
PUCT
Public Utility Commission of Texas
PUHCA
Public Utility Holding Company Act of 1935, as amended
PURPA
Public Utility Regulatory Policies Act of 1978
River Bend
River Bend Steam Electric Generating Station (nuclear)
RTO
Regional transmission organization
SEC
Securities and Exchange Commission
SFAS
Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board
SMEPA
South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf 1
DEFINITIONS (Concluded)
spark spread
The dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity
System Agreement
Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources
System Energy
System Energy Resources, Inc.
System Fuels
System Fuels, Inc.
throughput
Gas in BCF/D transported through a pipeline during the period
TWh
Terawatt-hour(s), which equals one billion kilowatt-hours
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 1
UK
The United Kingdom of Great Britain and Northern Ireland
U.S. Utility
Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Vermont Yankee
Vermont Yankee nuclear power plant, 510 MW facility located in Vernon, Vermont, purchased in July 2002 from Vermont Yankee Nuclear Power Corporation by Entergy's Non-Utility Nuclear business
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
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Entergy's consolidated earnings applicable to common stock for the second quarter and six months ended June 30, 2004 and 2003 were as follows:
Second Quarter
Six Months Ended
Operating Segment
2004
2003
(In Thousands)
$194,964
$121,716
$310,621
$229,505
62,994
44,860
131,828
241,845
9,494
48,575
19,303
142,366
(2,270)
(9,510)
10,591
(13,068)
$265,182
$205,641
$472,343
$600,648
Entergy's income before taxes is discussed below according to the operating segments listed above. Earnings for the six months ended June 30, 2003 include the $142.9 million net-of-tax cumulative effect of changes in accounting principle that increased earnings in the first quarter of 2003, almost entirely resulting from the implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. See Note 7 to the consolidated financial statements herein for more information concerning Entergy's operating segments and their financial results in 2004 and 2003.
Refer to SELECTED OPERATING RESULTS OF ENTERGY CORPORATION AND SUBSIDIARIES for further information with respect to operating statistics.
U.S. UTILITY
The increase in earnings for the U.S. Utility for the second quarter of 2004 compared to the second quarter of 2003 from $121.7 million to $195 million was primarily due to a $107.7 million ($65.6 million net-of-tax) accrual in 2003 of the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the consolidated financial statements for more details regarding the River Bend abeyed plant costs. The $7.7 million increase in earnings that remains after considering the effect of the 2003 accrual is primarily due to increases in net revenue and other income and a decrease in interest charges, partially offset by an increase in other operation and maintenance expenses.
The increase in earnings for the U.S. Utility for the six months ended June 30, 2004 compared to the same period in 2003 from $229.5 million to $310.6 million was primarily due to the $107.7 million ($65.6 million net-of-tax) accrual in 2003 discussed above. Also contributing to the increase was the $21.3 million net-of-tax cumulative effect of a change in accounting principle that reduced earnings at Entergy Gulf States in the first quarter of 2003 upon implementation of SFAS 143. The $5.7 million decrease in earnings that remains after considering the effects of the 2003 cumulative effect of accounting change and the 2003 accrual is primarily due to a decrease in net revenue and an increase in other operation and maintenance expenses, partially offset by an increase in other income and a decrease in interest charges.
Net Revenue
Second Quarter 2004 Compared to Second Quarter 2003
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.
Amount
(In Millions)
$1,081.4
9.3
7.3
2.6
$1,100.6
The volume/weather variance resulted from increased usage in the service territories primarily during the unbilled sales period. Billed usage increased a total of 366 GWh in the industrial, commercial, and governmental sectors.
The summer capacity charges variance is due to the amortization in the second quarter of 2003 at Entergy Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. Entergy Gulf States' amortization began in June 2002 and ended in May 2003. Entergy Louisiana's amortization began in August 2002 and ended in July 2003.
Other regulatory charges (credits)
Other regulatory charges decreased primarily due to the cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003 and the amortization of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.
$2,048.2
(46.3)
(42.7)
41.1
15.7
11.1
(1.7)
$2,025.4
The deferred fuel cost revisions variance resulted primarily from a revision in 2003 to an unbilled sales pricing estimate to more closely align the fuel component of that pricing with expected recoverable fuel costs at Entergy Louisiana. Deferred fuel cost revisions also decreased net revenue due to a revision in 2004 to the estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider.
The price applied to unbilled sales variance resulted from a decrease in fuel price in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs.
The volume/weather variance resulted from increased usage in the service territories primarily during the unbilled sales period. Billed usage increased a total of 564 GWh in the industrial, commercial, and governmental sectors. The increase, however, was partially offset by a decrease of 376 GWh in the residential sector primarily due to milder weather as compared to the same period in 2003.
The summer capacity charges variance is due to the amortization in 2003 at Entergy Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. Entergy Gulf States' amortization began in June 2002 and ended in May 2003. Entergy Louisiana's amortization began in August 2002 and ended in July 2003.
Base rates increased net revenue due to a base rate increase at Entergy New Orleans that became effective in June 2003.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues include an increase in fuel cost recovery revenues of $156.5 million primarily due to higher fuel rates resulting from increases in the market prices of non-associated purchased power and natural gas and collections of previous deferrals of fuel costs. As such, this revenue increase is offset by increased fuel and purchased power expenses.
Other regulatory charges decreased primarily due to the cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003 in addition to the amortization of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana.
Other Income Statement Variances
Other operation and maintenance expenses increased for the second quarter and six months ended June 30, 2004 primarily due to lower customer service support costs in 2003.
Other income increased for the second quarter and six months ended June 30, 2004 primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the consolidated financial statements for more details regarding the River Bend abeyed plant costs. Other income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.
Interest and other charges decreased for the second quarter and six months ended June 30, 2004 primarily due to a decrease in interest on long-term debt as a result of the net retirement and refinancing of long-term debt in 2003. See Note 5 to the consolidated financial statements in the Form 10-K and Note 4 to the consolidated financial statements herein for detail of long-term debt.
NON-UTILITY NUCLEAR
Following are key performance measures for Non-Utility Nuclear for the second quarter and six months ended June 30, 2004 and 2003:
4,001
3,955
8,196
7,337
16,882
15,430
93.6%
84.1%
96.3%
88.9%
$41.33
$39.81
$40.49
$39.01
The increase in earnings for Non-Utility Nuclear from $44.9 million to $63.0 million was due to higher revenues, which increased by $47 million, resulting from increased generation in 2004 due to fewer planned and unplanned outages in 2004 and power uprates completed in 2003, and higher contract pricing.
The decrease in earnings for Non-Utility Nuclear from $241.8 million to $131.8 million was primarily due to the $160.3 million net-of-tax cumulative effect of a change in accounting principle recognized in the first quarter of 2003 upon implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. Income before the cumulative effect of accounting change increased by $50.3 million. The increase was due to higher revenues, which increased by $82 million, resulting from increased generation in 2004 due to fewer planned and unplanned outages in 2004 and power uprates completed in 2003, and higher contract pricing. Lower operation and maintenance expenses, which decreased by $26 million, also contributed to the increase in income.
ENERGY COMMODITY SERVICES
Following are key performance measures for Entergy-Koch's operations for the second quarter and six months ended June 30, 2004 and 2003:
33%
45%
43%
71%
29%
52%
72%
4.6
5.3
6.0
6.6
88,417
100,865
206,348
224,345
2.0
1.4
1.6
1.90
2.06
2.10
$0.164
$0.138
$0.156
$0.123
The decrease in earnings for Energy Commodity Services from $48.6 million to $9.5 million was primarily due to lower earnings from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was lower by $38 million primarily as a result of:
As discussed in the Form 10-K, Entergy accounts for its 50% share in Entergy-Koch under the equity method of accounting. Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. Certain terms of the partnership arrangement allocated income from various sources, and the taxes on that income, on a significantly disproportionate basis through 2003. Losses and distributions from operations are allocated to the partners equally. Substantially all of Entergy-Koch's profits were allocated to Entergy in 2003, 2002, and 2001. Effective January 1, 2004, a revaluation of Entergy-Koch's assets for legal capital account purposes occurred, and profit allocations changed after the revaluation. The profit allocations other than for weather trading and international trading became equal. Profit allocations for weather trading and international trading remain disproportionate to the ownership interests. The weather trading and international trading allocations are unequal only within a specified range, such that the overall earnings allocation should not materially differ from 50/50. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners.
Review of Strategic Alternatives for Entergy-Koch Investment
On August 2, 2004, Entergy Corporation announced that it had essentially completed a review of strategic alternatives for enhancing the value of Entergy-Koch, LP. As a result of the review Entergy believes that Entergy-Koch Trading would be more valuable if owned by a third party, and therefore Entergy believes that this business may be saleable at an attractive price. Because of this, Entergy and Koch Industries have been engaged in discussions with numerous potential buyers. Advanced negotiations are underway with one party, and interest continues to be expressed by several others. Entergy and Koch Industries intend to pursue the sale of Gulf South Pipeline upon reaching a definitive agreement to sell Entergy-Koch Trading. Strategic alternatives also considered included maintaining the current Entergy-Koch ownership structure; adding one or more new owners to the venture; or modifying the current ownership structure. There can be no assurance that a third-party sale of Entergy-Koch Trading or Gulf South Pipeline will occur or what the terms of a sale would be.
The decrease in earnings for Energy Commodity Services from $142.4 million to $19.3 million was primarily due to lower earnings from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was lower by $115 million primarily as a result of:
Income Taxes
Liquidity and Capital Resources
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to the information presented in the Form 10-K.
Capital Structure
In May 2004, Entergy Corporation renewed its 364-day bank credit facility into two separate facilities, a 364-day credit facility and a 3-year credit facility. The 364-day credit facility has a borrowing capacity of $485 million and expires in May 2005. As of June 30, 2004, no borrowings were outstanding on this facility. The 3-year credit facility has a borrowing capacity of $965 million and expires in May 2007. As of June 30, 2004, $145 million in borrowings were outstanding on this facility. Entergy also has the ability to issue letters of credit against the 3-year facility, and $40 million had been issued against this facility at June 30, 2004. Although the Entergy Corporation 364-day credit facility expires in May 2005, Entergy has the discretionary option to extend the period to repay the amount then outstanding for an additional 364-day term. Because of this option, which Entergy intends to exercise if it does not renew the credit line or obtain an alternative source of financing, the debt outstanding on the credit facilities is reflected in long-term debt on the balance sheet.
In April 2004, Entergy Arkansas renewed its 364-day credit facility, increasing the amount to $85 million, until April 2005. In May 2004, Entergy Mississippi renewed its credit facility for the same amount, $25 million, which will expire in May 2005. As of June 30, 2004, the amounts outstanding on the Entergy Arkansas and Entergy Mississippi credit facilities were $85 million and $25 million, respectively.
In May 2004, Entergy Louisiana extended the maturity date of its credit facility to July 2004. In July 2004, Entergy Louisiana renewed the facility and Entergy New Orleans entered into a separate credit facility with the same lender. Both facilities will expire in April 2005. Entergy Louisiana can borrow up to $15 million and Entergy New Orleans can borrow up to $14 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $15 million.
As discussed in the Form 10-K, in August 2001, EntergyShaw, LLC entered into a turnkey construction agreement with an Entergy subsidiary, Entergy Power Ventures, L.P. (EPV), and with Northeast Texas Electric Cooperative, Inc. (NTEC), providing for the construction by EntergyShaw of a 550 MW electric power plant located in Harrison County, Texas. EntergyShaw is an unconsolidated joint venture in which Entergy owns a 50% member interest. Entergy guaranteed the obligations of EntergyShaw to construct the power plant, 70% of which is owned by EPV. The power plant commenced commercial operation in June 2003, the base warranty period for the construction expired in June 2004, and Entergy's maximum liability on the guarantee has now been reduced to approximately $20 million. Management does not expect any material liability on the warranty.
Capital Expenditure Plans and Other Uses of Capital
See the table in the Form 10-K under "Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," which sets forth the amounts of Entergy's planned construction and other capital investments by operating segment for 2004 through 2006. Entergy Louisiana now expects to complete the purchase of the Perryville plant in the first quarter 2005 for $183.5 million. Therefore, Entergy now expects to spend approximately $385 million for Capital Commitments in the U.S. Utility segment in 2004 and approximately $479 million for Capital Commitments in the U.S. Utility segment in 2005.
Stock Repurchases
In late July 2004 the Board approved a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program is effective immediately and extends through the end of 2006. This repurchase program, which is incremental to the existing authority discussed in the Form 10-K to repurchase shares to fund the exercise of employee stock options, will be decreased to $1 billion should a sale of Entergy-Koch Trading not occur. The amount of the program may also vary as a result of material changes in business results or capital spending or material new investment opportunities.
Cash Flow Activity
As shown in Entergy's Statements of Cash Flows, cash flows for the six months ended June 30, 2004 and 2003 were as follows:
Cash and cash equivalents at beginning of period
$692
$1,335
Cash flow provided by (used in):
Operating activities
929
525
Investing activities
(641)
(1,135)
Financing activities
(392)
351
Effect of exchange rates on cash and cash equivalents
(2)
Net decrease in cash and cash equivalents
(106)
(258)
Cash and cash equivalents at end of period
$586
$1,077
Operating Activities
Entergy's cash flow provided by operating activities increased by $404 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the following:
Investing Activities
Net cash used in investing activities decreased by $494 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the following:
Financing Activities
Financing activities used $392 million for the six months ended June 30, 2004 compared to providing $351 million for the six months ended June 30, 2003 primarily due to the following:
Offsetting the factors that caused an increase in cash used in financing activities in 2004 were the following:
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in the Form 10-K for discussions of rate regulation and fuel-cost recovery, market and credit risks, utility restructuring, and nuclear matters. Following are updates to the information provided in the Form 10-K.
Rate Regulation and Fuel-Cost Recovery
See the Form 10-K for the chart summarizing material rate proceedings. Following are updates to that chart. Base rates in Entergy Gulf States' Texas jurisdiction are currently set at rates approved by the PUCT in June 1999. As further discussed below in "Utility Restructuring, Retail-Texas," in June 2004 the PUCT ordered an indefinite delay in retail open access in Entergy Gulf States' Texas service territory. Entergy Gulf States intends now to file a retail electric rate case and fuel reconciliation proceeding with the PUCT in the third quarter of 2004.
Entergy Mississippi made its formula rate plan filing with the MPSC in March 2004 based on a 2003 test year. In April 2004, the MPSC approved a joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed annual regulatory earnings range of 9.5% to 12.1%.
In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and dockets established to consider issues concerning the companies' power purchases for the summers of 2001, 2002, and 2003. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers and $1 million to Entergy Louisiana's customers, with no change in either company's current base rates. The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.
System Agreement Litigation
See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of any of the domestic utility companies, although the outcome of the proceeding at FERC cannot be predicted at this time.
Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.
In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.
Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.
Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.
Market and Credit Risks
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 and Energy Commodity Services, unless otherwise contracted, is subject to the fluctuation of market power prices. Following is an updated summary of the amount of Non-Utility Nuclear's output that is sold forward as of June 30, 2004 under physical or financial contracts at fixed prices (2004 represents the remainder of the year):
2005
2006
2007
2008
100%
94%
59%
36%
17%
16
34
35
$39
$38
$40
The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy 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. Accordingly, because the price is not fixed, the table above does not report power from that plant as sold forward after October 2005. Approximately 2% of Non-Utility Nuclear's planned generation in 2005, 13% in 2006, 12% in 2007, and 12% in 2008 is under contract from Vermont Yankee after October 2005.
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 may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear business sells its power. The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. Upon a significant decrease in Entergy Corporation's credit rating to specified levels below investment grade, Entergy may be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements. Entergy believes it currently has sufficient cash and bank lines of credit available to meet any reasonably foreseeable requirement to provide cash collateral and letters of credit under these agreements.
In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the Independent System Operators in their area. Following is an updated summary of the amount of the Non-Utility Nuclear business' installed capacity that is 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 June 30, 2004:
55%
15%
13%
41%
25%
0%
96%
38%
26%
4,061
4,158
4,203
$1.3
N/A
93%
67%
Marketing and Trading
Following are EKT's mark-to-market assets (liabilities) and the period within which the assets (liabilities) would be realized (paid) in cash if they are held to maturity and market prices are unchanged:
0-12 months
13-24 months
25+ months
Total
$5.3
($43.8)
($3.9)
($42.4)
2.8
(9.6)
0.4
(6.4)
1.7
0.2
2.1
$9.8
($53.2)
($3.3)
($46.7)
As of June 30, 2004, approximately 94% of EKT's counterparty credit exposure was associated with parties that have at least investment grade credit ratings.
Utility Restructuring
Transmission
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends, Transmission" in the Form 10-K for discussion of Entergy's contemplated independent transmission entity proposal. In April 2004, Entergy filed a proposal with the FERC to commit voluntarily to retain an independent entity ("Independent Coordinator of Transmission" or "ICT") to oversee the granting of transmission or interconnection service on Entergy's transmission system, to implement a transmission pricing structure that ensures that Entergy's retail native load customers are required to pay for only those upgrades necessary to reliably serve their needs, and to have the ICT serve as the security coordinator for the Entergy region. Assuming applicable regulatory support and approvals can be obtained, Entergy proposes to contract with the ICT to oversee the granting of transmission service on the Entergy system as well as the implementation of the proposed weekly procurement process. The proposal was structured to not transfer control of Entergy's transmission system to the ICT, but rather to vest with the ICT broad oversight authority over transmission planning and operations.
Entergy proposes to have the ICT administer a transmission expansion pricing protocol that will increase the efficiency of transmission pricing on the Entergy system and that will be designed to protect Entergy's native load customers from bearing the cost of transmission upgrades not required to reliably serve these customers' needs. Entergy intends for the ICT to determine whether transmission upgrades associated with new requests for service should be funded directly by the party requesting such service or by a broader group of transmission customers, including Entergy's native load customers. This determination would be made in accordance with protocols approved by the FERC and any party contesting such determination, including Entergy, would be required to seek review at the FERC.
Entergy has requested that the FERC provide its retail regulators sufficient time to review the proposal and provide their comments prior to the FERC ruling on the proposal. In March 2004, the APSC initiated a proceeding to review Entergy's proposal and compare the benefits of such a proposal to the alternative of Entergy joining the Southwest Power Pool RTO. The APSC sought comments from all interested parties on this issue, with initial comments due in May 2004 and reply comments due in June 2004. Various parties, including the APSC General Staff, filed comments opposing the ICT proposal. A public hearing has not been scheduled by the APSC at this time. In May 2004, Entergy Mississippi filed a petition for review with the MPSC requesting MPSC support for the ICT proposal. A hearing in that proceeding is scheduled for late August. Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the proposal is a prudent and appropriate course of action. No procedural schedule has been established for that proceeding. In addition to these proceedings, a technical conference regarding the ICT proposal was held late in July 2004.
FERC's Supply Margin Assessment
In November 2001, FERC issued an order that established a new generation market power screen (called Supply Margin Assessment) for purposes of evaluating a utility's request for market-based rate authority, applied that new screen to the Entergy System (among others), determined that Entergy and the others failed the screen within their respective control areas, and ordered these utilities to implement certain mitigation measures as a condition to their continued ability to buy and sell at market-based rates. Among other things, the mitigation measures would require that Entergy transact at cost-based rates when it sells in the hourly wholesale market within its control area. Entergy requested rehearing of the order, and FERC delayed the implementation of certain mitigation measures until such time as it had the opportunity to consider the rehearing request. In June 2003, the FERC proposed and ultimately adopted new market behavior rules and tariff provisions that would be applied to any market-based sale. Entergy modified its market-based rate tariffs to reflect the new provisions but requested rehearing of FERC's order.
In April 2004, the FERC issued its Order on Rehearing and Modifying Interim Generation Market Power Analysis and Mitigation Policy. In its Order on Rehearing, the FERC established a new interim generation market power analysis that will consider two indicative market power screens: (1) the pivotal supplier screen that is designed to measure an applicant's market power based on the applicant's share of uncommitted capacity at the time of the control area market's annual peak demand; and (2) the market share screen that is designed to evaluate an applicant's market share of uncommitted capacity on a seasonal basis. An integrated utility's native load obligation will be reflected in both screens; however, the proxy for native load obligation differs between the screens. For the uncommitted pivotal supplier screen the proxy for native load is the average of the daily native load peaks during the month in which the annual peak load day occurs; for the uncommitted market share screen the proxy for native load is the minimum peak load day for each season. In the event an applicant fails either of these screens, there will be a rebuttable presumption that market power exists. The applicant will then have the opportunity to either: (1) submit a more detailed market power analysis that reflects market prices and measures an applicant's "economic capacity" and "available economic capacity" under the "delivered price test;" or (2) propose case-specific mitigation tailored to the applicant's specific circumstances or adopt cost-based rates for sales within the applicant's control area. In its Order on Rehearing, the FERC also determined: (1) that transmission market power and the need to employ an independent entity to operate and administer an applicant's OASIS site is more properly considered in other proceedings, to the extent appropriate, and would not be considered in evaluating an applicant's generation market power for purposes of granting market-based rate authority; and (2) to eliminate the exemption from the generation market power analysis for sales within an RTO/ISO that had approved market monitoring. Several parties, including Entergy, filed for rehearing of the April 2004 Order. Among other things, Entergy argued that the market share screen is overly conservative and overstates vertically integrated utilities' ability to exercise market power. On July 8, 2004, the FERC issued an order on rehearing reaffirming the use of the pivotal supplier and market share screens and clarified certain instructions for performing such analysis. With regard to the delivered price test analysis, the FERC declined to make a determination on whether an applicant's native load obligations should be included in the delivered price analysis, but instead indicated that it would evaluate the arguments of both the applicant and intervenors as to which measure (one with or without native load obligations) more accurately reflects market conditions. Entergy is required to file its generation market power analysis pursuant to the two indicative screens in August 2004.
In a companion order, the FERC initiated a rulemaking proceeding to address, among other things, whether the FERC should retain or modify its existing four-prong test for evaluating market-based rate applications (i.e., whether the applicant has generation or transmission market power, whether the applicant can erect barriers to entry, and whether there are affiliate abuse or reciprocal dealing concerns), and whether the FERC should adopt different approaches for affiliate transactions. Initially, the FERC will hold a series of technical conferences to determine the issues that need to be considered and the procedural direction the rulemaking should take. The first of these technical conferences was held in June 2004.
Interconnection Orders
See the Form 10-K for discussion of the order on rehearing issued by FERC on March 5, 2004 that modified Order 2003 to, among other things, eliminate the requirement that the generation owners receive their money back in no more than five years and to include a requirement that the generation owners receive credits only when transmission service is taken from the specific generating facility served by the interconnection or upgrade. In addition, the order on rehearing clarified that a transmission provider continues to have the option to charge a transmission rate that is the higher of the incremental cost rate for network upgrades required to interconnect a generating facility or an embedded cost rate so as to ensure that "other transmission customers, including a Transmission Provider's native load, will not subsidize Network Upgrades required to interconnect merchant generation." Consistent with the principles articulated in the order on rehearing, Entergy incorporated into its recent ICT filing an approach to the pricing of transmission expansion that protects the transmission provider's native load customers from the effects of service requests by other transmission customers and provides more efficient price signals for resource procurement and siting decisions. In addition, the transmission expansion pricing protocol included in the ICT filing proposes that the ICT review all costs that were previously charged to interconnecting customers for interconnection facilities to determine whether, under the proposed pricing policy, such costs were properly classified as Supplemental Upgrades that are directly assigned to the interconnecting generator or whether such costs were properly Base Plan Upgrades that are rolled into transmission rates for all customers. Any payments made by an interconnecting generator that have not already been refunded to that customer through crediting for transmission service will be subject to the cost assignment by the ICT.
Also see the Form 10-K for a discussion of the proceedings involving the interconnection agreements with certain generators interconnecting to the domestic utility companies' transmission system. In June 2004, a FERC ALJ issued an Initial Decision in a proceeding involving a complaint filed by one of the generators. In the complaint, the generator was seeking to modify its previous interconnection agreement in order to obtain more favorable transmission crediting provisions contained in Entergy's current pro forma interconnection and operating agreement. In the Initial Decision, the ALJ determined that the generator is entitled to obtain the benefits of Entergy's current pro forma interconnection and operating agreement. Entergy has filed a brief on exceptions with the FERC opposing the Initial Decision.
Retail-Texas
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.
Nuclear Matters
See the Form 10-K for the discussion of the review by the Federal Emergency Management Agency (FEMA) of the emergency evacuation plans for Indian Point, and Westchester County's appeal to FEMA of FEMA's notice of certification of the Indian Point Emergency Plan. In June 2004, FEMA issued letters rejecting Westchester County's appeal and reaffirming its certification.
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, impairment of long-lived assets, mark-to-market derivative instruments, pension and other postretirement costs, and other contingencies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES
Sales Warranties and Indemnities
See Notes 9 and 14 to the consolidated financial statements in the Form 10-K for information on certain warranties made by Entergy or its subsidiaries in the Saltend sales transaction.
Nuclear Insurance and Spent Nuclear Fuel
See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy's nuclear power plants.
The Property Insurance Policy was renewed on April 1, 2004 with the following changes: 1) the deductibles for Indian Point 2 and 3 (each unit has a separate parameter), FitzPatrick, Pilgrim, and Vermont Yankee increased to $2.5 million per occurrence for other than turbine/generator damage; and 2) the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for turbine/generator damage and $5 million per occurrence for other than turbine/generator damage.
Under Nuclear Electric Insurance Limited's (NEIL) Accidental Outage Coverage program, FitzPatrick's and Pilgrim's weekly indemnity decreased to $4 million and Vermont Yankee's weekly indemnity decreased to $3.5 million.
Under the property damage and accidental outage insurance programs, Entergy's nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of June 30, 2004, the maximum amount of such possible assessments per occurrence was $68.9 million for the Non-Utility Nuclear plants and $50.8 million for the U.S. Utility plants.
Decommissioning Costs
See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard for the rate-regulated business of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change. For the Non-Utility Nuclear business, the implementation of SFAS 143 resulted in an increase in earnings in 2003 of approximately $155 million net-of-tax ($0.67 per share) as a result of a one-time cumulative effect of accounting change.
In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.
As discussed in the Form 10-K, the Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning (D&D) of the DOE's past uranium enrichment operations. The Energy Policy Act calls for cessation of annual D&D assessments not later than October 24, 2007. Entergy will oppose any attempts to extend the assessments past this date, but cannot state with certainty that an extension will not be made.
CashPoint Bankruptcy
The domestic utility companies entered an agreement with CashPoint Network Services (CashPoint) under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The payment agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use this process.
On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana; enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimate of maximum exposure to loss is approximately $26 million.
Employment Litigation
Entergy Corporation and certain subsidiaries are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.
NOTE 2. RATE AND REGULATORY MATTERS
Electric Industry Restructuring and the Continued Application of SFAS 71
Previous developments and information related to electric industry restructuring are presented in Note 2 to the consolidated financial statements in the Form 10-K.
Texas
Deferred Fuel Costs
In March 2004, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2004 through March 2005. The filed energy cost rate, which accounts for 12 percent of a typical residential customer's bill using 1,000 kWh per month, increased 16 percent due primarily to the elimination of a credit contained in the prior year's rate to refund previously over-recovered fuel costs. Also included in this year's energy cost calculation is a decrease in rates of $3.9 million as a result of Entergy Arkansas' proposed retail customer protections due to the operation of a revised energy association method between the retail and wholesale sectors resulting from the approval of a life-of-resources power purchase agreement with Entergy New Orleans.
In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are scheduled to occur in October 2004 with a final PUCT decision expected in the first quarter of 2005.
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court is scheduled for September 2004.
As discussed in Note 2 to the consolidated financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in April 2005.
Retail Rate Proceedings
Filings with the PUCT and Texas Cities
Recovery of River Bend Costs
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.
Filings with the LPSC
Annual Earnings Reviews (Entergy Gulf States)
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of approximately $30 million and a prospective rate reduction of approximately $50 million. Hearings concluded in May 2004.
Proposed Settlement (Entergy Gulf States and Entergy Louisiana)
Retail Rates
(Entergy Gulf States)
In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. Entergy Gulf States is also seeking approval of certain proposed rate design, rate schedule and policy changes. A procedural schedule has not yet been established.
(Entergy Louisiana)
See Note 2 to the consolidated financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended up to a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding.
Filings with the City Council
Formula Rate Plan Filings
In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council in 2003. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans' gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.
Fuel Adjustment Clause Litigation
See "Fuel Adjustment Clause Litigation" in Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. Oral argument on the plaintiffs' appeal is scheduled for February 2005. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999. This proceeding has been stayed pending resolution of plaintiffs' appeal in the proceeding commenced with the City Council.
NOTE 3. COMMON EQUITY
Common Stock
Earnings per Share
The following tables present Entergy's basic and diluted earnings per share (EPS) calculations included on the consolidated income statement:
For the Three Months Ended June 30,
(In Millions, Except Per Share Data)
$/share
$265.2
$205.6
228.7
$1.16
226.6
$0.91
3.6
(0.018)
4.3
(0.017)
0.3
(0.002)
0.5
(0.001)
232.8
$1.14
231.6
$0.89
For the Six Months Ended June 30,
$472.3
$457.7
229.5
$2.06
225.1
$2.03
4.0
(0.035)
4.1
(0.036)
(0.003)
(0.005)
234.0
$2.02
229.9
$1.99
$600.6
$2.67
(0.048)
(0.006)
$2.61
Entergy's stock option and other stock compensation plans are discussed in Note 8 to the consolidated financial statements in the Form 10-K.
For the six months ended June 30, 2004, Entergy Corporation issued 2,885,436 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards and repurchased 5,000,000 shares of common stock for a total purchase price of $271.2 million.
Retained Earnings
On July 30, 2004, Entergy Corporation's Board of Directors declared a common stock dividend of $0.45 per share, payable on September 1, 2004, to holders of record as of August 12, 2004.
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
In May 2004, Entergy Corporation renewed its 364-day bank credit facility with two separate facilities, a 364-day credit facility and a 3-year credit facility. The 364-day credit facility has a borrowing capacity of $485 million and expires in May 2005. As of June 30, 2004, no borrowings were outstanding on this facility. The 3-year credit facility has a borrowing capacity of $965 million and expires in May 2007. As of June 30, 2004, $145 million in borrowings were outstanding on this facility. Entergy also has the ability to issue letters of credit against the 3-year facility, and $40 million had been issued against this facility at June 30, 2004. Although the Entergy Corporation 364-day credit facility expires in May 2005, Entergy has the discretionary option to extend the period to repay the amount then outstanding for an additional 364-day term. Because of this option, which Entergy intends to exercise if it does not renew the credit line or obtain an alternative source of financing, any debt outstanding under the credit facilities is reflected in long-term debt on the balance sheet. The average commitment fee for the facilities is currently 0.14% of the line amount. Commitment fees and interest rates on loans under the credit facilities can fluctuate depending on the senior debt ratings of the domestic utility companies.
The short-term borrowings of Entergy's subsidiaries are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, Entergy's subsidiaries are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. As of June 30, 2004, Entergy's subsidiaries' authorized limit was $1.6 billion and the outstanding borrowing from the money pool was $157.4 million.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have separate short-term credit facilities available as follows:
Company
Expiration Date
Amount of Facility
Amount Drawn as of June 30, 2004
April 2005
$85 million
$15 million
-
May 2005
$25 million
$14 million
The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million. The facilities have variable interest rates and the average commitment fee is 0.15%.
The following long-term debt has been issued by Entergy in 2004:
Issue Date
March 2004
$100,000
April 2004
$80,000
The following long-term debt has been retired by Entergy in 2004:
Retirement Date
$292,000
May 2004
$75,000
$60,000
$6,348
$14,809
NOTE 5. STOCK-BASED COMPENSATION
As described more fully in Note 8 to the consolidated financial statements in the Form 10-K, Entergy grants stock options to key employees of the Entergy subsidiaries. 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 the stock option grants. Effective January 1, 2003, Entergy prospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation." Awards under Entergy's stock-based compensation plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. The following table illustrates the effect on net income and earnings per share if Entergy would have historically applied the fair value based method of accounting to stock-based employee compensation.
Three Months Ended June 30,
Six Months Ended June 30,
(In Thousands, Except Per Share Data)
Earnings applicable to common stock
1,389
717
2,362
1,421
4,271
6,142
8,126
12,271
Pro forma earnings applicable to common stock
$262,300
$200,216
$466,579
$589,798
Earnings per average common share:
Basic
Basic - pro forma
$1.15
$0.88
$2.62
Diluted
Diluted - pro forma
$1.13
$0.86
$2.57
NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's pension cost, including amounts capitalized, for the three months ended June 30, 2004 and 2003, included the following components:
$18,527
$14,430
35,979
30,363
(38,580)
(36,702)
(190)
(180)
1,413
1,362
4,407
1,146
$21,556
$10,419
Entergy's pension cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:
$37,262
$32,146
71,994
67,504
(77,304)
(83,212)
(382)
(402)
2,826
3,056
8,808
2,098
$43,204
$21,190
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the three months ended June 30, 2004 and 2003, included the following components:
$8,145
$10,533
13,436
13,284
(4,625)
(3,828)
205
2,868
(609)
249
5,474
4,440
$22,026
$27,546
Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:
$17,853
$18,912
27,733
26,094
(9,327)
(8,056)
1,447
5,736
(1,498)
498
11,427
7,170
$47,635
$50,354
Employer Contributions
Entergy previously disclosed in its 2003 Form 10-K that it expected to contribute $110 million to its pension plans in 2004. In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution to $72.8 million. As of June 30, 2004, Entergy has contributed $33.1 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $39.7 million to fund its pension plans in 2004.
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)
As disclosed in Note 11 to the consolidated financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis at June 30, 2004, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation by $72 million and reduced the second quarter 2004 and six months ended June 30, 2004 other postretirement benefit cost by $4.5 million and $7 million, respectively. When specific guidance for the federal subsidy is issued, these estimates could change.
NOTE 7. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of June 30, 2004 are U.S. Utility, Non-Utility Nuclear, and Energy Commodity Services. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Competitive Retail Services business, which has higher revenues in 2004 as its number of customers has increased, and earnings on the proceeds of sales of previously-owned businesses.
Entergy's segment financial information for the second quarters of 2004 and 2003 is as follows:
U. S. Utility
Non-UtilityNuclear*
EnergyCommodityServices *
All Other*
Eliminations
Consolidated
$1,990,644
$338,745
$56,114
$117,000
($17,406)
$2,485,097
20,288
123,852
40,638
6,966
(5,261)
166,195
200,793
271,011
$1,960,186
$292,082
$69,494
$38,031
($5,884)
$2,353,909
70,292
76,787
29,007
35,891
(15,852)
125,833
127,592
211,517
Entergy's segment financial information for the six months ended June 30, 2004 and 2003 is as follows:
$3,776,162
$683,593
$99,283
$210,384
($32,776)
$4,736,646
40,107
196,530
84,333
10,335
(19,006)
272,192
322,306
484,028
22,578,669
4,402,482
2,232,268
1,138,057
(1,481,908)
28,869,568
$3,642,558
$601,887
$100,879
$52,648
($6,340)
$4,391,632
198,353
158,668
52,087
86,916
(19,420)
278,251
(21,333)
160,360
3,895
142,922
241,297
612,440
22,888,750
4,157,603
2,364,914
1,592,420
(2,171,226)
28,832,461
Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.
In the opinion of the management of Entergy Corporation, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the U.S. Utility segment, however, is subject to seasonal fluctuations with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
ENTERGY ARKANSAS, INC.
Net Income
Net income decreased $4.3 million primarily due to an increase in other operation and maintenance expenses, partially offset by a decrease in interest charges.
Net income decreased $12.1 million primarily due to a decrease in net revenue and an increase in other operation and maintenance expenses, partially offset by a decrease in interest charges.
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Net revenue increased slightly, less than 1%, for the second quarter 2004 compared to the second quarter 2003, as shown below.
$246.1
$248.2
$473.6
(16.9)
$455.0
Deferred fuel cost revisions decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue by $11.5 million. The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, which increased net revenue in 2003.
Other operation and maintenance expenses increased primarily due to:
Interest charges decreased primarily due to the refinancing of First Mortgage Bonds in mid-2003.
The effective income tax rates for the second quarters of 2004 and 2003 were 34.4% and 37.1%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 36.4% and 38.6%, respectively. The differences in the effective income tax rates for the second quarter 2003 and the six months ended June 30, 2003 versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by flow-through book and tax timing differences and the amortization of investment tax credits.
Cash Flow
Cash flows for the six months ended June 30, 2004 and 2003 were as follows:
$8,834
$95,513
78,212
115,047
(115,838)
(134,891)
65,412
241,155
Net increase in cash and cash equivalents
27,786
221,311
$36,620
$316,824
Cash flow from operations decreased $36.8 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to money pool activity. Money pool activity used $92.5 million of Entergy Arkansas' operating cash flows in the six months ended June 30, 2004 and used $50.3 million in the six months ended June 30, 2003.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows:
June 30,2004
December 31,2003
June 30,2003
December 31,2002
$23,370
($69,153)
$54,606
$4,279
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Net cash used by investing activities decreased $19.1 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to a decrease in construction expenditures resulting from less independent power producer-related work performed in 2004 combined with lower spending on customer support projects in 2004.
Net cash provided by financing activities decreased $175.7 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the net issuance of $262 million of First Mortgage Bonds for the six months ended June 30, 2003. The decrease was partially offset by an $85 million borrowing made on Entergy Arkansas' 364-day credit facility during the six months ended June 30, 2004.
Uses and Sources of Capital
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Arkansas' uses and sources of capital. Following is an update to the information provided in the Form 10-K.
In April 2004, Entergy Arkansas renewed its 364-day credit facility through April 30, 2005 and increased the amount available to $85 million. The facility was fully drawn at June 30, 2004.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, System Agreement proceedings, market and credit risks, state and local regulatory risks, nuclear matters, and environmental risks. The following is an update to the Form 10-K.
System Agreement Proceedings
See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Arkansas, although the outcome of the proceeding at FERC cannot be predicted at this time.
Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.
See
Nuclear Decommissioning Costs
ENTERGY GULF STATES, INC.
Net income increased $75.7 million primarily due to a $107.7 million accrual ($65.6 million net-of-tax) in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. The $10.1 million increase in earnings that remains after considering the effect of the 2003 accrual is primarily due to increases in net revenue and miscellaneous income and decreased interest charges on long-term debt, in each case as explained below.
Net income increased $105.7 million primarily due to:
$291.3
6.1
2.2
1.8
(4.2)
(0.8)
$296.4
The net wholesale revenue variance resulted primarily from increased volume associated with sales to affiliated systems.
The summer capacity charges variance is due to the amortization in the second quarter of 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003.
The volume/weather variance resulted from increased usage primarily in the unbilled sales period, partially offset by the effect of milder weather on billed sales compared to the same period in 2003.
The price applied to unbilled sales variance results primarily from a decrease in the fuel price applied to unbilled sales.
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues decreased primarily due to a decrease of $22 million in fuel cost recovery revenues partially offset by increased gross wholesale revenues of $6.9 million primarily due to increased sales to affiliated systems.
Fuel and purchased power expenses decreased primarily due to the displacement of higher-priced gas generation by lower-priced coal and nuclear generation and purchased power.
$548.9
14.3
5.7
5.5
(10.2)
(5.1)
$559.1
The net wholesale revenue variance resulted from increased volume associated with sales to affiliated systems and higher pricing on sales to municipal and co-op customers and adjoining utility systems.
The volume/weather variance resulted from increased usage in the industrial sector, partially offset by decreased residential usage due to the effect of milder weather on billed sales as compared to the same period in 2003.
The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003.
Gross operating revenues increased primarily due to an increase of $41 million in fuel cost recovery revenues due to higher fuel rates.
Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas, oil, and purchased power, and an increase in electric generation.
Other regulatory credits increased primarily due to:
Miscellaneous income - net increased $119.4 million primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. Miscellaneous income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.
Interest on long-term debt decreased $8.1 million primarily due to the financing program and debt restructuring implemented in 2003, which resulted in extended maturities and lowered interest rates in Entergy Gulf States' debt portfolio.
Miscellaneous income - net increased $121.9 million primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. Miscellaneous income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.
Interest on long-term debt decreased $9.2 million primarily due to the financing program and debt restructuring implemented in 2003, which resulted in extended maturities and lowered interest rates in Entergy Gulf States' debt portfolio.
The effective income tax rates for the second quarters of 2004 and 2003 were 38.2% and 47.4%, respectively. The effective income tax rate for the six months ended June 30, 2004 was 35.6%. The differences in the effective income tax rates for the second quarter of 2004 and the six months ended June 30, 2004 versus the federal statutory rate of 35% are primarily due to state income taxes partially offset by the amortization of investment tax credits. The difference in the effective income tax rate for the second quarter of 2003 versus the federal statutory rate of 35% is primarily due to flow-through book and tax timing differences and investment tax credit amortization. There was no meaningful effective income tax rate for the six months ended June 30, 2003 as a result of flow-through book and tax timing differences and investment tax credit amortization generating a tax benefit, while income before income taxes was positive.
$206,030
$318,404
291,317
54,228
(152,709)
(223,296)
(327,410)
281,733
Net increase (decrease) in cash and cash equivalents
(188,802)
112,665
$17,228
$431,069
Cash flow from operations increased $237.1 million in the six months ended June 30, 2004 compared to the same period of 2003 primarily due to increased collections of receivables and money pool activity which provided $96.5 million of Entergy Gulf States' operating cash flows for the six months ended June 30, 2004 compared to using $53.8 million for the six months ended June 30, 2003. Entergy Gulf States' receivables from or (payables to) the money pool were as follows:
($27,126)
$69,354
$71,971
$18,131
Net cash used in investing activities decreased $70.6 million for the six months ended June 30, 2004 compared to the same period of 2003 primarily due to a $39 million decrease in under-recovered fuel and purchased power expenses in Texas that have been deferred and are being collected over a period greater than twelve months. See Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for fuel costs. Also contributing to the decrease in investing activities was the maturity of $23.6 million of other temporary investments that provided cash in 2004.
Financing activities used $327.4 million in the six months ended June 30, 2004 compared to providing $281.7 million in the same period of 2003 primarily due to the receipt of net proceeds of approximately $596.5 million from the issuance of long-term debt in 2003.
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Gulf States' uses and sources of capital. Following is an update to the information provided in the Form 10-K.
In April 2004, Entergy Gulf States retired, at maturity, $292 million of 8.25% Series First Mortgage Bonds due April 1, 2004, using cash on hand and internally generated funds.
Entergy Gulf States has $62 million of 5.65% Series tax-exempt bonds outstanding that are subject to a mandatory tender in September 2004 for purchase from the holders at 100% of the principal amount. Entergy Gulf States expects to purchase the bonds from the holders pursuant to the mandatory tender provision, but does not expect to remarket the bonds at that time. Entergy Gulf States expects to use a combination of cash on hand and short-term borrowing to purchase the bonds.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of transition to retail competition, state and local regulatory risks, System Agreement proceedings, industrial, commercial, and wholesale customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provided in the Form 10-K.
Rate Proceedings
In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and dockets established to consider issues concerning the companies' power purchases for the summers of 2001, 2002, and 2003. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers, with no change in base rates. The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.
Transition to Retail Competition
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding. Entergy Gulf States intends now to file a retail electric rate case and fuel reconciliation proceeding with the PUCT in the third quarter of 2004.
Management cannot predict what effect, if any, the PUCT's order will have on certain prior orders addressing Entergy Gulf States' transition to retail competition. Those prior orders address, for example:
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of the Entergy Gulf States business separation proceeding at the LPSC. In May 2004, the LPSC Staff filed, and the ALJ granted, a request to postpone the procedural schedule for a brief period of time on the basis that the outcome of the then-pending PUCT proceeding to certify Entergy's transmission organization as the independent organization under Texas law could affect the LPSC's business separation proceeding. Entergy Gulf States has provided the LPSC Staff a report addressing the effect of the PUCT's July 2004 order rejecting its application to certify the Entergy transmission organization as the independent organization, and a status conference is expected to be convened to review the effect of the PUCT's order on the LPSC proceeding.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Gulf States, although the outcome of the proceeding at FERC cannot be predicted at this time.
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 Gulf States' accounting for nuclear decommissioning costs, the application of SFAS 71, and pension and other postretirement costs.
TOTAL
ENTERGY LOUISIANA, INC.
Net income decreased $2.0 million primarily due to increased other operation and maintenance expenses, partially offset by increased other income and decreased interest charges.
Net income decreased $24.6 million primarily due to decreased net revenue and increased other operation and maintenance expenses, partially offset by decreased interest charges.
$253.7
(7.9)
5.1
$253.1
The volume/weather variance resulted from decreased usage primarily during the unbilled sales period and the effect of milder weather on billed sales during the second quarter of 2004 compared to the second quarter of 2003.
The summer capacity charges variance is due to the amortization in the second quarter of 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. The amortization of these capacity charges began in August 2002 and ended in July 2003.
Gross operating revenues decreased primarily due to:
Fuel and purchased power expenses decreased primarily due to decreased deferred fuel expense as a result of lower fuel revenues, partially offset by increases in the market prices of natural gas and purchased power.
Other regulatory charges decreased primarily due to:
$490.5
(32.8)
(29.4)
12.1
10.2
(0.3)
$450.3
The price applied to unbilled sales variance is due to a decrease in the price included in unbilled sales in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs.
The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in August 2002 and ended in July 2003.
Gross operating revenues increased primarily due to:
The increase was partially offset by the following:
Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas and purchased power, partially offset by decreased generation.
Other operation and maintenance expenses increased primarily due to lower customer service support costs in 2003.
Other income increased primarily due to the settlement of existing asbestos and pollution liabilities.
Interest charges decreased primarily due to the redemption of $150 million of First Mortgage Bonds in June 2003, partially offset by the issuance of $100 million of First Mortgage Bonds in March 2004.
The effective income tax rates for the second quarters of 2004 and 2003 were 38.5% and 39.5%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 38.1% and 38.9%, respectively. The differences in the effective income tax rates for the second quarter and six months ended June 30, 2004 versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by the amortization of investment tax credits. The differences in the effective income tax rates for the second quarter and six months ended June 30, 2003 are primarily due to book and tax differences related to utility plant items and state income taxes.
$8,787
$311,800
89,012
137,959
(98,594)
(105,456)
53,144
(250,263)
43,562
(217,760)
$52,349
$94,040
Cash flow from operations decreased $48.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to money pool activity, which used $84.9 million of Entergy Louisiana's operating cash flows in the first six months of 2004 compared to providing $3.1 million in the first six months of 2003, and decreased net income, partially offset by the increased collection of deferred fuel costs. Entergy Louisiana's receivables from or (payables to) the money pool were as follows:
June 30, 2004
December 31, 2003
June 30, 2003
$43,577
($41,317)
$15,751
$18,854
Cash used by investing activities decreased $6.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased spending on transmission and nuclear projects, partially offset by increased spending at certain fossil plants.
Entergy Louisiana provided $53.1 million of cash from financing activities in the first six months of 2004 compared to using $250.3 million of cash in the first six months of 2003 primarily due to:
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana's uses and sources of capital. Following is an update to the information provided in the Form 10-K.
Entergy Louisiana now expects to complete the purchase of the Perryville plant in the first quarter 2005 for $183.5 million. Therefore, Entergy Louisiana now expects to spend approximately $271 million for construction and capital investment in 2004 and approximately $559 million for construction and capital investment in 2005.
In May 2004, Entergy Louisiana extended the maturity date of its 364-day credit facility from May 2004 to July 2004. In July 2004, Entergy Louisiana renewed the facility and Entergy New Orleans entered into a separate credit facility with the same lender. Both facilities will expire in April 2005. Entergy Louisiana can borrow up to $15 million and Entergy New Orleans can borrow up to $14 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $15 million.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state rate regulation, System Agreement proceedings, industrial and commercial customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the Form 10-K.
See "Management's Financial Discussion and Analysis - Rate Proceedings" in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding. Additional issues and updates that will be evaluated in connection with this proceeding are likely to result in revisions to the LPSC Staff's recommendation. These issues may reduce the amount of the recommended rate increase or cause it to become a recommendation for a rate decrease.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Louisiana, although the outcome of the proceeding at FERC cannot be predicted at this time.
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 Louisiana's accounting for nuclear decommissioning costs and pension and other retirement costs.
ENTERGY MISSISSIPPI, INC.
Net income decreased $1.5 million primarily due to increases in other operation and maintenance expenses, depreciation and amortization expenses, and taxes other than income taxes, partially offset by increased net revenue.
Net income decreased $5.2 million primarily due to increases in other operation and maintenance expenses, depreciation and amortization expenses, and taxes other than income taxes.
2003 net revenue
$112.9
Volume/weather
4.4
Other
2004 net revenue
$116.5
The volume/weather variance resulted from increased usage primarily during the unbilled sales period.
These increases were partially offset by a decrease of $15.8 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July 2003.
Fuel and purchased power expenses increased primarily due to an increase in recovery of fuel and purchased power costs and increased generation, partially offset by a decrease in the average price of purchased power.
Net revenue was relatively unchanged comparing the six months ended June 30, 2004 to the six months ended June 30, 2003, as shown below:
$204.9
Miscellaneous items
(0.9)
$204.0
These increases were partially offset by a decrease of $33.0 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July 2003.
Fuel and purchased power expenses increased primarily due to an increase in recovery of fuel and purchased power costs and an increase in the market prices of natural gas and oil, partially offset by a decrease in the average price of purchased power.
Other operation and maintenance expenses increased primarily due to an increase of $2.9 million in customer service costs and uncollectible accounts write-offs.
Taxes other than income taxes increased primarily due to a higher assessment of ad valorem and franchise taxes compared to prior year.
Depreciation and amortization expenses increased due to an increase in plant in service.
Other operation and maintenance expenses increased primarily due to an increase of $5.8 million in customer service costs and uncollectible accounts write-offs.
The effective income tax rates for the second quarters of 2004 and 2003 were 37.0% and 36.4%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 35.8% and 35.5%, respectively.
$63,838
$147,721
51,564
73,477
(69,180)
(154,380)
(28,296)
(52,022)
(45,912)
(132,925)
$17,926
$14,796
Cash flow from operations decreased $21.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased recovery of deferred fuel and purchased power costs.
Entergy Mississippi's receivables from the money pool were as follows:
$12,000
$22,076
$855
$8,702
Money pool activity provided $10.1 million of Entergy Mississippi's operating cash flow for the six months ended June 30, 2004 and provided $7.8 million of operating cash flow for the six months ended June 30, 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Net cash used in investing activities decreased $85.2 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to cash used in 2003 for other regulatory investments of $72.6 million as a result of under-recovered fuel and purchased power costs combined with other temporary investments of $7.5 million that provided cash in 2004 upon maturity.
Net cash used in financing activities decreased $23.7 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to a $25 million draw on Entergy Mississippi's short-term bank credit facility.
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Mississippi's uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Mississippi issued $180 million of First Mortgage Bonds in 2004 as follows:
Description
Maturity
6.25% Series
April 2034
4.65% Series
May 2011
80,000
$180,000
Together with other available funds, proceeds from the issuances in April 2004 were used to retire or redeem the following:
6.20% Series
6.45% Series
April 2008
7.70% Series
July 2023
60,000
$215,000
In May 2004, Entergy Mississippi renewed its credit facility for the same amount, $25 million, which is due to expire in May 2005. The facility was fully drawn at June 30, 2004.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state and local rate regulation, System Agreement proceedings, market and credit risks, state and local regulatory risks, and litigation risks. The following are updates to the Form 10-K.
State and Local Rate Regulation
As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, Entergy Mississippi made its anticipated formula rate plan filing with the MPSC in March 2004 based on a 2003 test year. In April 2004, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed annual regulatory earnings range of 9.5% to 12.1%.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Mississippi, although the outcome of the proceeding at FERC cannot be predicted at this time.
ENTERGY NEW ORLEANS, INC.
Net income increased $2.7 million primarily due to an increase in net revenue, partially offset by an increase in interest charges.
Net income increased $14.2 million primarily due to an increase in net revenue, partially offset by an increase in interest charges.
$61.3
3.8
2.7
2.4
(4.1)
1.1
$67.2
The price applied to unbilled electric sales variance results primarily from an increase in the fuel price applied to unbilled sales.
The volume/weather variance resulted from increased electric usage primarily during the unbilled sales period, partially offset by the effects of milder weather on billed sales in the second quarter of 2004 as compared to the same period in 2003.
The increase in base rates was effective June 2003. The rate increase is discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.
The 2003 deferral variance is due to a regulatory credit recorded in 2003 to defer expenses related to uncollectible accounts. The City Council approved collection of the expense over a five-year period that began in June 2003.
Gross operating revenues increased primarily due to an increase of $21.4 million in gross wholesale revenue as a result of increased sales to affiliates and an increase of $3.4 million in gas fuel cost recovery revenues due to higher fuel rates. The increase is also attributable to the increase in base rates and favorable volume/weather, as discussed above.
Fuel and purchased power expenses increased primarily due to an increase in electricity generated and power purchases.
Other regulatory credits decreased primarily due to the deferral of uncollectible accounts in the second quarter of 2003, as discussed above.
$100.6
9.9
4.7
$120.8
The increase in volume/weather resulted from increased electric usage primarily during the unbilled sales period partially offset by the effect of milder weather on billed sales in 2004.
The price applied to unbilled electric sales variance is due to an increase in the fuel price applied to unbilled sales.
Rate refund provisions decreased net revenue due to higher accruals in February 2004 primarily as a result of a resolution adopted by the City Council. The resolution is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
Gross operating revenues increased primarily due to an increase of $46.9 million in gross wholesale revenue as a result of increased sales to affiliates. The increase is also attributable to the increase in base rates and favorable volume/weather, as discussed above.
Interest charges increased primarily due to a true-up in May 2003 of interest accruals previously made for potential rate actions and refunds. The true-up decreased interest charges in 2003.
Other operation and maintenance expenses decreased primarily due to a decrease of $3.8 million as a result of lower contract costs, decreased loss reserves, and lower company labor costs and a decrease of $1.6 million in fossil expenses as a result of the timing of contract work offset by emergency generator repairs. The decrease was partially offset by an increase of $4.7 million in customer service support costs as a result of increased uncollectible receivables write-offs.
The effective income tax rates for the second quarters of 2004 and 2003 were 38.9% and 39.3%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 38.6% and 42.6%, respectively. The differences in the effective income tax rates for the periods presented versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes.
$4,669
$66,247
20,014
(34,208)
(22,258)
(28,768)
(1,524)
(482)
(3,768)
(63,458)
$901
$2,789
Entergy New Orleans provided $20.0 million of cash flow from operating activities for the six months ended June 30, 2004 compared to using $34.2 million of cash for the six months ended June 30, 2003 primarily due to increased net income, the timing of receivable collections, and the effect of higher fuel costs in 2003, partially offset by money pool activity.
Entergy New Orleans' receivables from or (payables to) the money pool were as follows:
($1,805)
$1,783
($13,741)
$3,500
Money pool activity provided $3.6 million of Entergy New Orleans' operating cash flows for the six months ended June 30, 2004 and provided $17.2 million of Entergy New Orleans' operating cash flows for the six months ended June 30, 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Net cash used in investing activities decreased $6.5 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased capital expenditures of $5.6 million related to a turbine inspection project at a fossil plant in 2003.
Net cash used in financing activities increased $1.0 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to common stock dividends paid in 2004 of $0.8 million.
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy New Orleans' uses and sources of capital. Following is an update to the information provided in the Form 10-K.
In July 2004, Entergy New Orleans entered into a credit facility and Entergy Louisiana renewed its credit facility with the same lender. Both facilities will expire in April 2005. Entergy New Orleans can borrow up to $14 million and Entergy Louisiana can borrow up to $15 million under their respective credit facilities, but at no time can the total amount borrowed by the two companies combined exceed $15 million.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of System Agreement proceedings, market and credit risks, state and local regulatory risks, environmental risks, and litigation risks. The following is an update to the Form 10-K.
As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy New Orleans, although the outcome of the proceeding at FERC cannot be predicted at this time.
In conformance with the City Council's May 2003 resolution discussed in the Form 10-K, in April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.
SYSTEM ENERGY RESOURCES, INC.
System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf 1. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf 1 pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. Net income increased $2.7 million and $3.6 million for the second quarter and six months ended June 30, 2004, respectively, compared to the same periods in 2003 primarily due to an increase in rate base in 2004 resulting in higher operating income.
$52,536
$113,159
98,371
162,389
(24,944)
(209,712)
(69,943)
(58,775)
3,484
(106,098)
$56,020
$7,061
Cash flow from operations decreased $64 million for the six months ended June 30, 2004 compared to the same period in 2003 primarily due to money pool activity as explained below and the cessation of the Entergy Mississippi GGART. System Energy collected $21.7 million in 2003 from Entergy Mississippi in conjunction with the GGART, which provided for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligations. The MPSC authorized the cessation of the GGART effective July 1, 2003. See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the GGART. Partially offsetting the decrease in operating cash flows was a decrease in interest paid during the first quarter of 2004.
System Energy's receivables from the money pool were as follows:
$48,082
$19,064
$1,279
$7,046
Money pool activity used $29 million of System Energy's operating cash flows for the six months ended June 30, 2004 and provided $5.8 million for the same period in 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
The decrease of $184.8 million in net cash used in investing activities for the six months ended June 30, 2004 compared to the same period in 2003 was primarily due to cash collateral of $193 million provided in 2003. System Energy had three-year letters of credit in place that were scheduled to expire in March 2003 securing certain of its obligations related to the sale-leaseback of a portion of Grand Gulf 1. System Energy replaced the letters of credit with new three-year letters of credit totaling approximately $198 million that were backed by cash collateral. In December 2003, System Energy replaced the cash-backed letters of credit with syndicated bank letters of credit that expire in May 2007. Offsetting the cash collateral provided in 2003 was an increase in construction expenditures due to the reclassification of inventory items to capital in addition to facilities upgrades projects begun in late-2003.
The increase of $11.2 million in net cash used by financing activities for the six months ended June 30, 2004 compared to the same period in 2003 was primarily due to:
The increase was partially offset by a decrease of $5 million in the January 2004 principal payment made on the Grand Gulf 1 sale-leaseback compared to the January 2003 principal payment.
See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of System Energy's uses and sources of capital.
See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of market risks, nuclear matters, litigation risks, and environmental risks.
ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY
NOTES TO RESPECTIVE FINANCIAL STATEMENTS
Nuclear Insurance and Spent Nuclear Fuel (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants. The following are updates to the Form 10-K.
The Property Insurance Policy renewed on April 1, 2004 with the following changes: the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for turbine/generator damage and $5 million per occurrence for other than turbine/generator damage.
Under the property damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of June 30, 2004, the maximum amount of such possible assessments per occurrence were $15.1 million for Entergy Arkansas, $11.1 million for Entergy Gulf States, $13.0 million for Entergy Louisiana, $0.06 million for Entergy Mississippi, $0.06 million for Entergy New Orleans, and $11.5 million for System Energy.
Decommissioning and Other Retirement Costs (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard for the rate-regulated business of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings in the first quarter of 2003 by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change.
In accordance with ratemaking treatment and as required by SFAS 71, the depreciation provisions for the domestic utility companies and System Energy include a component for removal costs that are not asset retirement obligations under SFAS 143. In accordance with regulatory accounting principles, Entergy has recorded a regulatory asset (liability) to reflect its estimate of the difference between estimated incurred removal costs and estimated removal costs recovered in rates previously recorded as a component of accumulated depreciation.
CashPoint Bankruptcy (Entergy Arkansas, Entergy Louisiana, Entergy Gulf States, Entergy New Orleans, and Entergy Mississippi)
On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimates of maximum exposure to loss are as follows:
$2
9
4.5
2.5
Environmental Issues
See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information related to the designation of Entergy Gulf States as a PRP for the cleanup of certain hazardous waste disposal sites. During the second quarter of 2004, the reserve balance previously recorded was reduced to approximately $1.5 million based upon activities performed to date and the best estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.
(Entergy Louisiana and Entergy New Orleans)
During 1993, the LDEQ issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana and Entergy New Orleans have determined that certain of their power plant wastewater impoundments were affected by these regulations and have chosen to upgrade or close them. Recorded liabilities in the amounts of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at June 30, 2004 for wastewater upgrades and closures. Completion of this work is awaiting LDEQ approval.
City Franchise Ordinances (Entergy New Orleans)
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties.
Employment Litigation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.
Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Numerous lawsuits have been filed in federal and state courts in Texas, Louisiana, and Mississippi primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, Entergy New Orleans, and Entergy Mississippi, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Generally, many other defendants are named in these lawsuits as well. Presently there are approximately 480 lawsuits involving just over 10,000 claims. Reserves have been established that should be adequate to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement, while new coverage is being secured to minimize anticipated future potential exposures. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial position or results of operation of the domestic utility companies involved in these lawsuits.
Previous developments and information related to electric industry restructuring are presented in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.
Texas (Entergy Gulf States)
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.
(Entergy Arkansas)
See Note 2 to the domestic utility and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court is scheduled for September 2004.
As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in April 2005.
Filings with the PUCT and Texas Cities (Entergy Gulf States)
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of approximately $30 million and a prospective rate reduction of approximately $50 million. Hearings concluded in May 2004.
In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and the purchased power for the summers of 2001, 2002, and 2003 dockets discussed in the Form 10-K. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers and $1 million to Entergy Louisiana's customers, with no change in either company's current base rates. The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding. Additional issues and updates that will be evaluated in connection with this proceeding are likely to result in revisions to the LPSC Staff's recommendation. These issues may reduce the amount of the recommended rate increase or cause it to become a recommendation for a rate decrease. Hearings are currently set for November 2004.
Filings with the City Council (Entergy New Orleans)
In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council in 2003. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.
See "Fuel Adjustment Clause Litigation" in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. Oral argument on the plaintiffs' appeal is scheduled for February 2005. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999. This proceeding has been stayed pending resolution of plaintiffs' appeal in the proceeding commenced with the City Council.
NOTE 3. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
The short-term borrowings of the domestic utility companies and System Energy are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, the domestic utility companies and System Energy are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce the domestic utility companies' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. The following are the combined short-term borrowings from the money pool and external borrowings, and the SEC-authorized limits for short-term borrowings for the domestic utility companies and System Energy as of June 30, 2004:
Authorized
Borrowings
$235
$85.0
$340
$27.1
$225
$160
$25.0
$100
$1.8
$140
Entergy Arkansas
Entergy Louisiana
Entergy Mississippi
Entergy New Orleans
The following long-term debt has been issued by the domestic utility companies and System Energy in 2004:
The following long-term debt has been retired by the domestic utility companies and System Energy in 2004:
NOTE 4. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the second quarters of 2004 and 2003, included the following components:
System
Arkansas
Gulf States
Louisiana
Mississippi
New Orleans
Energy
$2,923
$2,416
$1,715
$946
$424
$824
8,616
7,108
5,178
2,890
1,041
1,231
(9,288)
(9,931)
(6,937)
(3,694)
(625)
(1,053)
(79)
417
465
189
141
57
18
762
32
132
151
193
$3,430
$90
$227
$415
$1,048
$1,134
$2,730
$1,719
$1,377
$567
$360
$693
8,265
6,036
4,449
1,914
918
996
(10,506)
(9,228)
(6,771)
(2,724)
(681)
(942)
(81)
462
162
21
$951
($1,056)
($783)
($141)
$657
$687
The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:
$5,926
$4,870
$3,440
$1,900
$850
$1,670
17,232
14,218
10,362
5,782
2,082
2,464
(18,534)
(19,822)
(13,732)
(7,384)
(1,552)
(2,088)
(160)
834
930
378
282
36
1,632
674
376
414
208
304
$7,090
$870
$994
$1,702
$2,226
$4,696
$4,394
$3,144
$2,098
$740
$1,328
14,216
15,432
10,158
7,104
1,886
1,910
(18,070)
(23,596)
(15,462)
(10,106)
(1,398)
(1,804)
(156)
794
1,070
372
380
120
$1,636
($2,700)
($1,788)
($524)
$1,348
$1,316
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 2004 and 2003, included the following components:
$827
$1,415
$614
$245
$178
$341
2,394
2,871
1,644
703
810
371
(1,529)
(1,256)
(631)
(558)
(316)
(132)
1,147
300
(43)
529
63
(83)
1,112
514
457
349
$2,735
$4,691
$3,071
$649
$1,078
$416
$1,923
$1,491
$1,104
$528
$324
$471
2,718
2,775
1,788
885
891
363
(1,158)
(1,098)
(522)
(492)
987
1,452
744
375
669
69
6
858
255
342
105
$5,391
$4,944
$4,014
$1,587
$1,521
$735
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:
$2,459
$2,944
$1,333
$721
$382
$729
5,227
5,812
3,344
1,581
1,637
759
(3,131)
(2,491)
(1,284)
(1,124)
(626)
477
2,295
600
211
1,058
7
(175)
2,185
1,163
1,020
697
256
231
$7,280
$9,723
$6,353
$1,952
$2,229
$925
$3,280
$2,632
$1,922
$930
$534
$838
5,340
5,434
3,470
1,740
1,776
702
(2,384)
(2,216)
(1,100)
(1,026)
(544)
1,976
2,904
1,488
750
1,338
108
124
138
72
12
1,264
338
470
448
142
$9,600
$9,230
$7,422
$2,810
$1,248
In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution. The domestic utility companies and System Energy expect to contribute the following to pension plans in 2004:
$5,342
$37
$8,630
$2,989
$4,678
$5,369
$17
$3,907
$1,823
$2,118
$3,742
$1,739
$7
$1,575
$668
$854
$1,410
As disclosed in Note 11 to the domestic utility companies and System Energy's financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis at June 30, 2004, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation (APBO), second quarter 2004 other postretirement benefit cost, and six months ended June 30, 2004 other postretirement benefit cost for the domestic utility companies and System Energy as follows:
($13,806)
($15,272)
($9,493)
($4,611)
($4,994)
($1,879)
($777)
($821)
($605)
($250)
($261)
($161)
($1,275)
($1,375)
($837)
($406)
($405)
($214)
When specific guidance for the federal subsidy is issued, these estimates could change.
__________________________________
In the opinion of the management of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the domestic utility companies and System Energy is subject to seasonal fluctuations, however, with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 2004, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Resources (individually "Registrant" and collectively the "Registrants") management, including their respective Chief Executive Officers (CEO) and Chief Financial Officers (CFO). The evaluations assessed the effectiveness of the Registrants' disclosure controls and procedures. Based on the evaluations, each CEO and CFO has concluded that, as to the Registrant or Registrants for which they serve as CEO or CFO, the Registrants' disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting
In management's evaluation of the Registrants' disclosure controls and procedures, management identified the following initiative as a change that is reasonably likely to affect the Registrants' internal control over financial reporting. Over the last two years, Entergy has been working on an initiative to streamline financial processes, automate and enhance internal controls, and implement or update the systems that support these processes. During the first quarter 2004, the first phase of this effort was completed, the primary focus of which was an upgrade of the existing financial information systems, data warehouse, and financial reporting tools, as well as an update of Entergy's chart of accounts. The implemented product suite includes additional controls and edits which are applied to transactions at the point of entry. Entergy plans to implement subsequent phases of this initiative later in 2004 and 2005, replacing several custom-built computer applications with capabilities now available within the newly-implemented core financial information systems, such as inter-company cost allocation processes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See "PART I, Item 1, Litigation" in the Form 10-K for a discussion of legal proceedings affecting Entergy. Following are updates to that discussion.
Entergy New Orleans Rate of Return Lawsuit (Entergy Corporation and Entergy New Orleans)
See "PART I, Item 1, Entergy New Orleans Rate of Return Lawsuit" in the Form 10-K for a discussion of the motion filed by the City Council Advisors to bifurcate the hearing for the motions filed by the plaintiffs. In April 2004, the City Council adopted a resolution granting the Advisors' motion to bifurcate and setting for hearing in January 2005 the merits of the issue of the proper effect to be given to the 1922 Ordinance in setting lawful rates.
Texas Power Price Lawsuit (Entergy Corporation, Entergy Arkansas and Entergy Gulf States)
See "Part I, Item 1, Texas Power Price Lawsuit" in the Form 10-K for a discussion of the litigation pending in state court in Chambers County, Texas by Texas residents on behalf of a purported class apparently of the Texas retail customers of Entergy Gulf States who were billed and paid for electric power from January 1, 1994 to the present. Originally Entergy Gulf States was not a named defendant but was alleged to be a co-conspirator. The court has granted the request of Entergy Gulf States to intervene in the suit to protect its interests. In addition, the Entergy defendants have filed a motion seeking to have the court dismiss all claims due to lack of subject matter jurisdiction. A hearing has been scheduled for August 20, 2004.
Entergy Gulf States Merger Savings Lawsuit (Entergy Corporation and Entergy Gulf States)
See "PART I, Item 1, Entergy Gulf States Merger Savings Lawsuit" in the Form 10-K for a discussion of the litigation commenced in the district court of Jefferson County, Texas regarding the 1993 agreement entered by parties to the Entergy-Gulf States Utilities merger docket in Texas and the alleged failure of Entergy Gulf States to pass 100% of Texas retail non-fuel merger-related savings to Entergy Gulf States' ratepayers in Texas beginning on January 1, 2002. In June 2004, in response to Entergy's petition for mandamus relief, the Texas Supreme Court concluded that the matters at issue in the lawsuit fall within the PUCT's exclusive jurisdiction and ordered the district court to dismiss the lawsuit.
Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf States and Entergy Louisiana)
See "PART I, Item 1, Fiber Optic Cable Litigation" in the Form 10-K for a discussion of the litigation pending in the United States District Court in Beaumont, Texas pertaining to the alleged installment by defendants of fiber optic cable across plaintiffs' property without obtaining appropriate easements. In April 2004, the court entered an order denying the plaintiffs' request for class certification. Management expects that the plaintiffs will appeal this decision to the U.S. Fifth Circuit Court of Appeals.
With respect to the lawsuit against Entergy Louisiana, Entergy Services, ETHC and Entergy Technology Company pending in state court in St. James Parish, Louisiana purportedly on behalf of all property owners in Louisiana who have conveyed easements to the defendants, the state district judge has entered an order certifying a class. Entergy is seeking appellate review of this order.
Power Generation Mexico, Inc. Lawsuit (Entergy Corporation)
See "PART I, Item 1, Power Generation Mexico, Inc. Lawsuit " in the Form 10-K for a discussion of the lawsuit filed by Power Generation Mexico, Inc. (PGI) against Entergy Power Development Corporation (EPDC), Entergy Power Netherlands Company, B.V., and Entergy Corporation in the San Francisco Superior Court. In April 2004, the parties agreed to a settlement of the proceeding that includes mutual dismissals. Entergy agreed to pay an immaterial amount to the plaintiff.
Michoud Plant Wildlife Inspection (Entergy New Orleans)
In March 2004, agents of the United States Fish and Wildlife Service conducted an inspection of Entergy New Orleans' Michoud power plant and found a number of dead brown pelicans near the facility's water intake structure and fish-return trough. Brown pelicans are an endangered species in Louisiana. The United States Attorney's Office for the Eastern District of Louisiana issued a grand jury subpoena to an Entergy New Orleans employee in May 2004 to give evidence regarding the cause of death of the pelicans. The Attorney's Office then agreed to meet with Entergy New Orleans rather than requiring the employee to testify. As a result of that meeting, Entergy New Orleans is conducting an internal investigation of the matter and will submit a report to the Attorney's Office. Entergy New Orleans also has constructed an engineered walkway and cover over the intake structure and feeding trough to eliminate pelican access to the area. The Endangered Species Act allows the Attorney's Office to seek criminal or civil penalties for actions that "take" an endangered species. While management of Entergy New Orleans believes that the facts of this case do not support the imposition of criminal penalties, a civil penalty is possible. The amount of the civil penalty under the Act can total $25,000 per violation. An estimate of liability cannot be provided at this time due to the uncertainty of the method of penalty calculation that may be implemented by the Attorney's Office.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities (1)
Period
Total Number ofShares Purchased
Average Price Paid per Share
Total Number ofShares Purchased as Part of a Publicly Announced Plan
Maximum Number of Shares that May Yet be Purchased Under the Plan
4/01/2004-4/30/2004
630,000
$56.02
5,846,000
5/01/2004-5/31/2004
3,055,500
$53.34
N/A (1)
6/01/2004-6/30/2004
830,500
$54.19
4,516,000
$53.87
3,685,500
(1)
In accordance with Entergy's stock option plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. See Note 8 to the consolidated financial statements in the Form 10-K for additional discussion of the stock option plans. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans, and this authorization does not have an expiration date. Under this authorization, on June 1, 2002, Entergy publicly announced a plan to repurchase up to 10,000,000 shares of common stock over a period of two years to reduce the increase in outstanding common shares caused by option exercises. As stated above, although the time stated in the publicly announced plan ended on May 31, 2004, the authorization to repurchase shares does not have an expiration date, and depending on market conditions Entergy may continue to repurchase shares to fund the exercise of stock options.
On August 2, 2004 Entergy announced a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program is effective as of the date of the announcement and extends through the end of 2006. This repurchase program, which is incremental to the existing authority to repurchase shares to fund the exercise of employee stock options, will be decreased to $1 billion should a sale of Entergy-Koch Trading not occur. The amount of the program may also vary as a result of material changes in business results or capital spending or material new investment opportunities.
Item 4. Submission of Matters to a Vote of Security Holders
Election of Board of Directors
The annual meeting of stockholders of Entergy Corporation was held on May 14, 2004. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes:
Name of Nominee
Votes For
Votes Withheld
Maureen S. Bateman
200,022,233
3,166,728
W. Frank Blount
196,135,034
7,053,927
Simon D. deBree
199,808,452
3,380,509
Claiborne P. Deming
200,065,223
3,123,738
Alexis M. Herman
188,786,147
14,402,814
Donald C. Hintz
197,324,888
5,864,073
J. Wayne Leonard
197,260,266
5,928,695
Robert v.d. Luft
197,203,987
5,984,974
Kathleen A. Murphy
200,019,351
3,169,610
Paul W. Murrill
197,242,749
5,946,212
James R. Nichols
197,427,848
5,761,113
William A. Percy, II
200,014,675
3,174,286
Dennis H. Reilley
200,037,320
3,151,641
Wm. Clifford Smith
193,065,884
10,123,077
Bismark A. Steinhagen
197,534,237
5,654,724
Steven V. Wilkinson
199,830,264
3,358,697
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
Entergy Gulf States
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.
A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.
Item 5. Other Information
Property and Other Generation Resources
See "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the agreement that Entergy Louisiana signed in January 2004 to acquire the Perryville power plant from a subsidiary of Cleco Corporation. As reported in the Form 10-K, the plant's owner is in Chapter 11 bankruptcy proceedings. In April 2004, the bankruptcy court approved Entergy Louisiana's agreement to acquire the plant. In March 2004, Entergy Gulf States and Entergy Louisiana filed with the LPSC for its approval of the acquisition and long-term cost-of-service power purchase agreement, and hearings are scheduled for November 2004. In July 2004, Entergy Louisiana agreed to negotiate an amendment to this agreement to remove certain interconnection facilities and address some other matters. None of these amendments are expected to change the terms of the acquisition materially. In July 2004, a petition was filed with FERC for a declaratory order disclaiming jurisdiction over the acquisition as amended. Entergy Louisiana now expects the Perryville acquisition to close in the first quarter of 2005.
In April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. A procedural schedule has not been established yet in the APSC investigation.
Also see "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the affiliate purchase transactions that resulted from Entergy's requests for proposals for supply-side resources. In the proceeding at the FERC to review the justness and reasonableness of the affiliate agreements, in March 2004 the FERC staff filed testimony that claims Entergy conveyed undue preference to its affiliates in the bidding process. Hearings in the proceeding commenced in June 2004 and are expected to be completed in the third quarter 2004.
Wholesale Rate Matters
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in this report for updates of the information contained in " PART I, Item 1, Wholesale Rate Matters" regarding the System Agreement, Transmission, FERC's Supply Margin Assessment, and Interconnection Orders.
FERC Reviews of Transmission
In August 2002, the FERC initiated audits and reviews of Entergy's compliance with Order Nos. 888 and 889 and its Open Access Transmission Tariff, and in March, 2004 a separate audit was initiated concerning Entergy's administration of the Generator Operating Limits ("GOL") processes. Entergy has responded to numerous FERC data requests and the FERC staff members have interviewed several employees. The FERC staff has provided Entergy with preliminary draft reports of their findings and recommendations on the issues that they have been examining. The GOL draft audit report identifies and alleges certain input and modeling errors in the implementation of the GOL process (which was replaced in April 2004) and preliminarily recommends, among other things, that Entergy employ an independent third party to conduct certain transmission access modeling. Entergy believes that these recommendations are based on a number of inaccuracies and has and will continue to provide comments on the various findings and the recommendations. Separately, the FERC investigation staff has provided to Entergy its preliminary findings in a non-public draft report identifying certain areas of concern related to Entergy's compliance with certain provisions of its open access transmission tariff, including the time it took for Entergy to process requests to interconnect generating facilities to Entergy's transmission system and the processing of system impact studies related to the granting of transmission service. Entergy has submitted a preliminary response denying the allegations and is in the process of preparing a more comprehensive response to the specific concerns identified by the investigation staff but, at this point, believes that it has complied with the provisions of its open access transmission tariff, including the interconnection and system impact study provisions. These draft reports are not final reports; they may be modified by the FERC staff based on Entergy's responses or otherwise. In addition, Entergy has the ability to appeal the final reports to the full FERC.
Regulation of the Nuclear Power Industry
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. See "PART I, Item 1, Nuclear Waste Policy Act of 1982," for further discussion of this Act. The fees payable to the DOE may be adjusted in the future to assure full recovery of the DOE's costs, and Entergy cannot state with certainty that the fees will not be increased in the future.
The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. DOE will now proceed with the licensing and, if the license is granted by the NRC and if Congress appropriates adequate funds to DOE to complete the project, eventual construction of the repository will begin and receipt of spent fuel may begin as early as approximately 2010, according to the DOE. Considerable uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy's facilities for storage or disposal, and could be several years after 2015. Additional uncertainty was added on July 9, 2004, when the U.S. Court of Appeals vacated a portion of the EPA nuclear waste disposal standard regarding the required compliance period for the repository. It is not known what impact this will have on the Yucca Mountain schedule, but further delays are possible as the EPA and NRC work to reestablish a standard. As a result of the delays in establishing a permanent repository, future expenditures will be required to increase spent fuel storage capacity at Entergy's nuclear plant sites.
Environmental Regulation
See "PART I, Item 1, Clean Air Act and Subsequent Amendments, Ozone Non-attainment" in the Form 10-K for information related to Louisiana and Texas emission control strategies to address continued ozone non-attainment status of areas in and around Houston-Galveston, Texas; Beaumont-Port Arthur, Texas; and Baton Rouge, Louisiana. The EPA has now reclassified the Beaumont-Port-Arthur area from "moderate" to "serious" and has reclassified the Baton Rouge area from "serious" to "severe". These actions require that Texas and Louisiana revise their respective plans to restrict the emission of certain air pollutants and to make progress toward eventual attainment of national standards. The Louisiana plan revisions were due in June 2004; however, because of legal and environmental regulatory disputes over a requirement for reformulated gasoline in the Baton Rouge area unrelated to Entergy's interests in the state implementation plan, the State has chosen to delay the submittal. The Texas plan revisions must be submitted in April 2005. The content or impact of these developing plans is not fully known, but Entergy Gulf States continues to monitor events in these areas. If new NOx control equipment is required to be installed, the cost could be as much as $2.2 million for the facilities in Louisiana in 2004 and early 2005. Information recently published by the State of Texas in support of the state implementation plan indicates that new NOx control equipment will not be required at Entergy Gulf States' Texas facilities.
In April 2004, the EPA issued a final rule, effective June 15, 2005, stating that areas designated as non-attainment under a new "8-hour ozone standard" shall have one year to adjust to the new requirements. For Louisiana, the Baton Rouge area is to be classified as a marginal non-attainment area under the new standard with an attainment date of June 2007. For Texas, the Beaumont-Port Arthur area was designated as a marginal non-attainment area under the new standard with an attainment date of June 2007 and the Houston-Galveston area was designated as moderate non-attainment under the new standard with an attainment date of June 2010. Entergy continues to monitor these regulatory activities and to plan for necessary future action at its facilities.
See "PART I, Item 1, Clean Water Act, 316(b) Cooling Water Intake Structures" in the Form 10-K for information related to the draft permit issued by the New York State Department of Environmental Conservation (NYDEC) indicating that closed cycle cooling would be considered the "best technology available" for minimizing perceived adverse environmental impacts attributable to the intake and discharge of cooling water at Indian Point 2 and 3, if Entergy moves forward to obtain license extensions for these facilities. Entergy has filed an action in New York state court seeking a determination that the state cooling water intake structure regulation underpinning the NYDEC's draft permit for Indian Point 2 and 3 was improperly promulgated and is thus void. Entergy also continues to contest the contents of the draft permit in an administrative process before the NYDEC.
Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of Regulation S-K of the SEC as follows:
Ratios of Earnings to Fixed Charges
Twelve Months Ended
December 31,
June 30,
1999
2000
2001
2002
2.08
3.01
3.29
2.79
3.17
3.10
2.18
2.60
2.36
2.49
1.51
2.40
3.48
3.33
2.76
3.14
3.93
3.66
2.44
2.33
2.14
2.48
3.06
2.93
3.00
2.66
(b)
(c)
1.73
2.92
2.41
2.12
3.25
3.71
Ratios of Earnings to Combined Fixed Chargesand Preferred Dividends
1.80
2.70
2.99
2.53
2.71
Entergy Gulf States (a)
1.86
2.39
2.21
1.45
2.28
3.09
2.51
2.86
3.46
3.20
2.09
1.96
2.27
2.77
2.65
2.74
2.43
1.59
2.69
(a)
"Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock for the twelve months ended December 31, 1999.
Earnings for the twelve months ended December 31, 2001, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively.
Earnings for the twelve months ended December 31, 2002, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits*
3 (ii)(a) -
By-Laws of Entergy Corporation as amended May 13, 2004, and as presently in effect.
**
4 & 10 (a) -
Facility Lease No. 1, dated as of May 1, 2004, between Wachovia Bank and Sterling C. Correia, as Owner Trustees, and System Energy (B-3(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182).
4 & 10 (b) -
Facility Lease No. 2, dated as of May 1, 2004, between Wachovia Bank and Sterling C. Correia, as Owner Trustees, and System Energy (B-4(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182).
4(c) -
Credit Agreement, dated as of May 13, 2004, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Mellon Bank, N.A., Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Deutsche Bank AG New York Branch, KBC Bank N.V., Lehman Brothers Bank, FSB, Mizuho Corporate Bank Limited, The Bank of Nova Scotia, UFJ Bank Limited, and West LB AG, New York Branch, and Citibank, N.A., as Administrative Agent.
4(d) -
Credit Agreement, dated as of May 13, 2004, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Mellon Bank, N.A., Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Deutsche Bank AG New York Branch, KBC Bank N.V., Lehman Brothers Bank, FSB, Mizuho Corporate Bank Limited, The Bank of Nova Scotia, UFJ Bank Limited, and West LB AG, New York Branch, Citibank, N.A., as Administrative Agent and LC Issuing Bank, and ABN AMRO Bank, N.V., as LC Issuing Bank.
10(c) -
Collateral Trust Indenture, dated as of May 1, 2004, among GG1C Funding Corporation, System Energy, and Deutsche Bank Trust Company Americas, as Trustee (A-3(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182), as supplemented by Supplemental Indenture No. 1 dated May 1, 2004 (A-4(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182).
10 (d) -
Consulting Agreement effective May 4, 2004 between Hintz & Associates, LLC and Entergy Services, Inc.
31(a) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.
31(b) -
31(c) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.
31(d) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States.
31(e) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States and Entergy Louisiana.
31(f) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
31(g) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
31(h) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
31(i) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.
31(j) -
32(a) -
Section 1350 Certification for Entergy Corporation.
32(b) -
32(c) -
Section 1350 Certification for Entergy Arkansas.
32(d) -
Section 1350 Certification for Entergy Gulf States.
32(e) -
Section 1350 Certification for Entergy Gulf States and Entergy Louisiana.
32(f) -
Section 1350 Certification for Entergy Mississippi.
32(g) -
Section 1350 Certification for Entergy New Orleans.
32(h) -
Section 1350 Certification for System Energy.
32(i) -
Section 1350 Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.
32(j) -
99(a) -
Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(b) -
Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(c) -
Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(d) -
Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(e) -
Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(f) -
System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined.
___________________________
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.
*
Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, 2004, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended June 30, 2004.
Incorporated herein by reference as indicated.
Reports on Form 8-K
Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy
A Current Report on Form 8-K, dated March 11, 2004, was submitted to the SEC on April 13, 2004 reporting information under Item 5. "Other Events and Regulation FD Disclosure".
A Current Report on Form 8-K, dated April 12, 2004, was submitted to the SEC on April 12, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".
A Current Report on Form 8-K, dated April 26, 2004, was submitted to the SEC on April 26, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".
A Current Report on Form 8-K, dated April 30, 2004, was submitted to the SEC on April 30, 2004, reporting information under Item 5. "Other Events and Regulation FD Disclosure".
A Current Report on Form 8-K, dated May 18, 2004, was submitted to the SEC on May 18, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".
Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans
A Current Report on Form 8-K, dated June 3, 2004, was submitted to the SEC on June 3, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".
A Current Report on Form 8-K, dated June 8, 2004, was submitted to the SEC on June 8, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".
A Current Report on Form 8-K, dated July 14, 2004, was submitted to the SEC on July 14, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".
A Current Report on Form 8-K, dated August 2, 2004, was submitted to the SEC on August 2, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
ENTERGY CORPORATIONENTERGY ARKANSAS, INC.ENTERGY GULF STATES, INC.ENTERGY LOUISIANA, INC.ENTERGY MISSISSIPPI, INC.ENTERGY NEW ORLEANS, INC.SYSTEM ENERGY RESOURCES, INC.
/s/ Nathan E. Langston Nathan E. LangstonSenior Vice President and Chief Accounting Officer(For each Registrant and for each asPrincipal Accounting Officer)
Date: August 5, 2004