UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission Registrant, State of Incorporation, IRS Employer File Number Address of Principal Executive Identification No. Offices and Telephone Number 1-11299 ENTERGY CORPORATION 72-1229752 (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 576-4000 1-10764 ENTERGY ARKANSAS, INC. 71-0005900 (an Arkansas corporation) 425 West Capitol Avenue, 40th Floor Little Rock, Arkansas 72201 Telephone (501) 377-4000 1-27031 ENTERGY GULF STATES, INC. 74-0662730 (a Texas corporation) 350 Pine Street Beaumont, Texas 77701 Telephone (409) 838-6631 1-8474 ENTERGY LOUISIANA, INC. 72-0245590 (a Louisiana corporation) 4809 Jefferson Highway Jefferson, Louisiana 70121 Telephone (504) 840-2734 0-320 ENTERGY MISSISSIPPI, INC. 64-0205830 (a Mississippi corporation) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 0-5807 ENTERGY NEW ORLEANS, INC. 72-0273040 (a Louisiana corporation) 1600 Perdido Street, Building 505 New Orleans, Louisiana 70112 Telephone (504) 670-3674 1-9067 SYSTEM ENERGY RESOURCES, INC. 72-0752777 (an Arkansas corporation) Echelon One 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000
Securities registered pursuant to Section 12(b) of the Act: <TABLE> <CAPTION> Name of Each Exchange Registrant Title of Class on Which Registered <S> <C> <C> Entergy Corporation Common Stock, $0.01 Par Value - 222,201,504 New York Stock Exchange, Inc. shares outstanding at February 28, 2002 Chicago Stock Exchange Inc. Pacific Exchange Inc. Entergy Arkansas Capital I 8-1/2% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc. Securities, Series A Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value: $4.40 Dividend Series New York Stock Exchange, Inc. $4.52 Dividend Series New York Stock Exchange, Inc. $5.08 Dividend Series New York Stock Exchange, Inc. Adjustable Rate Series B (Depository Receipts) New York Stock Exchange, Inc. Entergy Gulf States Capital I 8.75% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc. Securities, Series A Entergy Louisiana Capital I 9% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc. Securities, Series A </TABLE> Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class Entergy Arkansas, Inc. Preferred Stock, Cumulative, $100 Par Value Preferred Stock, Cumulative, $0.01 Par Value Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy Louisiana, Inc. Preferred Stock, Cumulative, $100 Par Value Preferred Stock, Cumulative, $25 Par Value Entergy Mississippi, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy New Orleans, Inc. Preferred Stock, Cumulative, $100 Par Value
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 X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Entergy Corporation Common Stock, $0.01 Par Value, held by non-affiliates, was $9.2 billion based on the reported last sale price of $41.28 per share for such stock on the New York Stock Exchange on February 28, 2002. Entergy Corporation is directly or indirectly the sole holder of the common stock of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders, to be held May 10, 2002, are incorporated by reference into Parts I and III hereof. TABLE OF CONTENTS Page Number Definitions i Part I Item 1. Business 1 Item 2. Properties 45 Item 3. Legal Proceedings 45 Item 4. Submission of Matters to a Vote of Security 45 Holders Directors and Executive Officers of Entergy 45 Corporation Part II Item 5. Market for Registrants' Common Equity and 48 Related Stockholder Matters Item 6. Selected Financial Data 49 Item 7. Management's Discussion and Analysis of 49 Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures 49 About Market Risk Item 8. Financial Statements and Supplementary Data 50 Item 9. Changes in and Disagreements with Accountants 228 on Accounting and Financial Disclosure Part III Item 10. Directors and Executive Officers of the 228 Registrants Item 11. Executive Compensation 232 Item 12. Security Ownership of Certain Beneficial 244 Owners and Management Item 13. Certain Relationships and Related Transactions 247 Part IV Item 14. Exhibits, Financial Statement Schedules, and 248 Reports on Form 8-K Signatures 249 Report of Independent Accountants on Financial Statement 257 Schedules Index to Financial Statement Schedules S-1 Exhibit Index E-1 This combined Form 10-K is separately filed by Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representations whatsoever as to any other company. This report should be read in its entirety. No one section of the report deals with all aspects of the subject matter.
FORWARD-LOOKING INFORMATION The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that forward-looking statements contained herein with respect to the revenues, earnings, performance, strategies, prospects and other aspects of the business of Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. and their affiliated companies may involve risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, risks and uncertainties relating to: the effects of weather, the performance of generating units and transmission systems, the possession of nuclear materials, fuel and purchased power prices and availability, the effects of regulatory decisions and changes in law, litigation, capital spending requirements and the availability of capital, the onset of competition, the ability to recover net regulatory assets and other potential stranded costs, the effects of recent developments in the California electricity market on the utility industry nationally, advances in technology, changes in accounting standards, corporate restructuring and changes in capital structure, the success of new business ventures, changes in the markets for electricity and other energy-related commodities, including the use of financial and derivative instruments and volatility of changes in market prices, changes in interest rates and in financial and foreign currency markets generally, the economic climate and growth in Entergy's service territories, changes in corporate strategies, actions of rating agencies, and other factors.
DEFINITIONS Certain abbreviations or acronyms used in the text and notes are defined below: Abbreviation or Acronym Term ADEQ Arkansas Department of Environmental Quality AFUDC Allowance for Funds Used During Construction Algiers 15th Ward of the City of New Orleans, Louisiana ALJ Administrative Law Judge ANO 1 and 2 Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear), owned by Entergy Arkansas APB Accounting Principles Board APSC Arkansas Public Service Commission Availability Agreement Agreement, dated as of June 21, 1974, as amended, among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and the assignments thereof BCF One billion cubic feet of natural gas BCF/D One billion cubic feet of natural gas per day BPS British pounds sterling Board Board of Directors of Entergy Corporation Boston Edison Boston Edison Company Cajun Cajun Electric Power Cooperative, Inc. CitiPower CitiPower Pty., an electric distribution company serving Melbourne, Australia and surrounding suburbs, which was sold by Entergy effective December 31, 1998 Consolidated Edison Consolidated Edison, Inc. Council Council of the City of New Orleans, Louisiana D.C. Circuit United States Court of Appeals for the District of Columbia Circuit DOE United States Department of Energy domestic utility companies Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively EITF Emerging Issues Task Force ENHC Entergy Nuclear Holding Company #1 EPA United States Environmental Protection Agency EPAct Energy Policy Act of 1992 EPDC Entergy Power Development Corporation EPMC Entergy Power Marketing Corporation ET&M Entergy Trading and Marketing, Ltd. ETHC Entergy Technology Holding Company EWG Exempt wholesale generator under PUHCA EWO Entergy Wholesale Operations, which primarily consists of Entergy's power development business Entergy Entergy Corporation and its various direct and indirect subsidiaries Entergy Arkansas Entergy Arkansas, Inc. Entergy Corporation Entergy Corporation, a Delaware corporation Entergy Gulf States Entergy Gulf States, Inc., including its wholly owned subsidiaries - Varibus Corporation, GSG&T, Inc., Prudential Oil & Gas, Inc., and Southern Gulf Railway Company
DEFINITIONS (Continued) Abbreviation or Acronym Term Entergy-Koch Entergy-Koch, L.P., a joint venture equally owned by Entergy and Koch Industries, Inc. Entergy London Entergy London Investments plc, formerly Entergy Power UK plc (including its wholly owned subsidiary, London Electricity plc), which was sold by Entergy effective December 4, 1998 Entergy Louisiana Entergy Louisiana, Inc. Entergy Mississippi Entergy Mississippi, Inc. Entergy New Orleans Entergy New Orleans, Inc. Entergy Nuclear Entergy Nuclear, Inc. Entergy Nuclear Operations Entergy Nuclear Operations, Inc. Entergy Operations Entergy Operations, Inc. Entergy Power Entergy Power, Inc. Entergy Services Entergy Services, Inc. FASB Financial Accounting Standards Board 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 domestic non-utility nuclear business FUCO Exempt foreign utility company under PUHCA Grand Gulf 1 and 2 Units 1 and 2 of Grand Gulf Steam Electric Generating Station (nuclear), 90% owned or leased by System Energy GWH Gigawatt hours, which equals one million kilowatt- hours Independence Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power Indian Point 1 Indian Point Energy Center Unit 1 - nuclear power plant that has been shut-down and in safe storage since the 1970s, located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's domestic non- utility nuclear business Indian Point 2 Indian Point Energy Center Unit 2 - nuclear power plant, 970 MW facility located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's domestic non- utility nuclear business Indian Point 3 Indian Point Energy Center Unit 3 - nuclear power plant, 980 MW facility located in Westchester County, New York, purchased in November 2000 from NYPA by Entergy's domestic non-utility nuclear business IRS Internal Revenue Service KV kilovolt KW kilowatt KWH kilowatt-hour(s) London Electricity London Electricity plc - a regional electric company serving London, England, which was acquired by Entergy London effective February 1, 1997, and was sold by Entergy effective December 4, 1998 LDEQ Louisiana Department of Environmental Quality LPSC Louisiana Public Service Commission MCF 1,000 cubic feet of gas MMBTU One million British Thermal Units MPSC Mississippi Public Service Commission MW megawatt(s), which equals one thousand kilowatt(s)
DEFINITIONS (Concluded) Abbreviation or Acronym Term N/A Not applicable Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States NERC North American Electric Reliability Council Net debt ratio Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents NRC Nuclear Regulatory Commission NYPA New York Power Authority Pilgrim Pilgrim Nuclear Station, 670 MW facility located in Plymouth, Massachusetts, purchased in July 1999 from Boston Edison by Entergy's domestic non- utility nuclear business 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 RTO Regional transmission organization Reallocation Agreement 1981 Agreement, superseded in part by a June 13, 1985 decision of FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy relating to the sale of capacity and energy from Grand Gulf Ritchie Unit 2 Unit 2 of the R. E. Ritchie Steam Electric Generating Station (gas/oil) River Bend River Bend Steam Electric Generating Station (nuclear) SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards, promulgated by the FASB SMEPA South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf 1 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. tons/hr Tons per hour, used as a measure of steam production UK The United Kingdom of Great Britain and Northern Ireland 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 Warren Power Warren Power Plant, 300 MW simple cycle gas turbine merchant power plant located in Vicksburg, Mississippi 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 weather deviations White Bluff White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas
PART I Item 1. Business BUSINESS OF ENTERGY Entergy Corporation Entergy Corporation is a Delaware corporation which, through its subsidiaries, engages principally in the following businesses: domestic utility, domestic non-utility nuclear, and energy commodity services. Domestic non-utility nuclear and energy commodity services are sometimes referred to as the competitive businesses. Entergy Corporation has no significant assets other than the stock of its subsidiaries. Entergy Corporation is a registered public utility holding company under PUHCA. As such, Entergy Corporation and its subsidiaries generally are subject to the broad regulatory provisions of PUHCA. PUHCA generally limits registered public utility holding company activity to direct and indirect ownership of domestic integrated utility businesses, domestic and foreign electric generation ventures, foreign utility ownership, telecommunications and information service businesses, and certain other domestic energy related businesses. Following are the percentages of Entergy's consolidated revenues and net income generated by Entergy's reportable operating segments and the percentage of total assets held by them: <TABLE> <CAPTION> Segment % of Revenue % of Net Income % of Total Assets 2001 2000 1999 2001 2000 1999 2001 2000 1999 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Domestic utility 77 74 73 77 87 93 78 81 82 Domestic non-utility nuclear 8 3 1 17 7 3 13 9 3 Energy commodity services 14 23 26 14 8 (7) 9 10 8 Other 1 - - (8) (2) 11 - - 7 </TABLE> Additional financial information regarding Entergy Corporation's operating segments is contained in Note 12 to the financial statements. Domestic Utility The domestic utility is Entergy's predominant business segment, as shown in the chart above. Entergy Corporation has five wholly-owned domestic retail electric utility subsidiaries: Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. As of December 31, 2001, these utility companies provided retail electric service to approximately 2.6 million customers in portions of the states of Arkansas, Louisiana, Mississippi, and Texas. In addition, Entergy Gulf States furnishes natural gas utility service in and around Baton Rouge, Louisiana, and Entergy New Orleans furnishes natural gas utility service in New Orleans, Louisiana. The business of the domestic utility companies is subject to seasonal fluctuations, with the peak sales period normally occurring during the third quarter of each year. During 2001, the domestic utility companies' combined retail electric sales volumes as a percentage of total electric sales volumes were: residential - 28.6%; commercial - 22.7%; and industrial - 38.2%. Retail electric revenues from these sectors as a percentage of total electric revenues were: residential - 36.1%; commercial - 25.7%; and industrial - 31.7%. Sales to governmental and municipal sectors and to nonaffiliated utilities accounted for the balances of electric sales and revenues. The major industrial customers of the domestic utility companies are in the chemical, petroleum refining, and paper industries. State or local regulatory authorities regulate the retail rates and services of Entergy's domestic retail utility subsidiaries. Entergy Corporation also owns 100% of the voting stock of System Energy, an Arkansas corporation that owns and leases an aggregate 90% undivided interest in Grand Gulf. System Energy sells all of the capacity and energy from its interest in Grand Gulf 1 at wholesale to its only customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Management discusses sales from Grand Gulf 1 more thoroughly in "CAPITAL REQUIREMENTS AND FUTURE FINANCING - Certain Grand Gulf-related Financial and Support Agreements - - Unit Power Sales Agreement" below. System Energy's wholesale power sales are subject to the jurisdiction of FERC. Entergy Services, a Delaware corporation wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the domestic utility subsidiaries of Entergy Corporation. Entergy Operations, a Delaware corporation, is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf 1, subject to the owner oversight of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, respectively. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans own 35%, 33%, 19%, and 13%, respectively, of the common stock of System Fuels, a Louisiana corporation that implements and manages certain programs to procure, deliver, and store fuel supplies for those companies. Entergy Services, Entergy Operations, and System Fuels provide their services to the domestic utility companies and System Energy on an "at cost" basis, pursuant to service agreements approved by the SEC under PUHCA. Information regarding affiliate transactions is contained in Note 16 to the financial statements. Entergy Gulf States has wholly-owned subsidiaries that (i) own and operate intrastate gas pipelines in Louisiana used primarily to transport fuel to two of Entergy Gulf States' generating stations; (ii) own the Lewis Creek Station, a gas-fired generating plant, which is leased to and operated by Entergy Gulf States; and (iii) own several miles of railroad track constructed in Louisiana primarily for the purpose of transporting coal for use as boiler fuel at Entergy Gulf States' Nelson Unit 6 generating facility. Domestic Non-Utility Nuclear Entergy's domestic non-utility nuclear business is focused on acquiring, owning, operating, and selling power from nuclear power plants and providing operations and management services to nuclear power plants owned by other utilities in the United States. Operations and management services, including decommissioning services, are provided through Entergy's wholly-owned subsidiary, Entergy Nuclear. Entergy's domestic non-utility nuclear business owns the following operating nuclear power plants: Power Plant Acquired Capacity Percent Ownership Location Pilgrim July 1999 670 MW 100% Plymouth, MA FitzPatrick Nov. 2000 825 MW 100% Oswego, NY Indian Point 3 Nov. 2000 980 MW 100% Westchester County, NY Indian Point 2 Sept. 2001 970 MW 100% Westchester County, NY In August 2001, Entergy's domestic non-utility nuclear business agreed to purchase the 510 MW Vermont Yankee Nuclear Power Plant in Vernon, Vermont, from Vermont Yankee Nuclear Power Corporation (VYNPC) for $180 million, to be paid in cash upon closing. Entergy will receive the plant, nuclear fuel, inventories, and related real estate. The liability to decommission the plant, as well as related decommissioning trust funds of approximately $280 million, will also be transferred to Entergy. Management expects to close the transaction in the summer of 2002, pending the approvals of the NRC, the Public Service Board of Vermont, and other regulatory agencies. Entergy's non-utility nuclear business has entered into power purchase agreements (PPAs) to sell the power produced by its power plants at prices established in the PPAs. To the extent that a plant's output is not subject to a PPA, power sales would be subject to the fluctuation of market power prices. Following is a summary of the amount of the Entergy non-utility nuclear business's capacity currently subject to PPAs. Entergy continues to pursue opportunities to extend the existing PPAs and to enter into new PPAs with other parties. Capacity subject to PPAs Entergy's Capacity Power Pool in the Power Pool 2002 2003 2004 2005 New York ISO 2,775 MW 100% 100% 79% 0% ISO New England 670 MW 100% 85% 85% 20% In addition, Entergy will sell 100% of Vermont Yankee's output up to its rated capacity to VYNPC's current owner-utilities under a 10-year PPA executed in conjunction with the transaction, which management expects to close in the summer of 2002. The PPA includes an adjustment clause where the prices specified in the PPA will be adjusted downward annually, beginning in 2006, if power market prices drop below the PPA prices. Vermont Yankee is a part of the ISO New England. Entergy Nuclear is authorized to provide services to nuclear power plants owned by entities that are not affiliated with Entergy. Services provided include engineering, operations and maintenance, fuel procurement, management and supervision, technical support and training, administrative support, and other managerial or technical services required to operate, maintain, and decommission nuclear electric power facilities. Currently Entergy Nuclear is providing decommissioning services for the Maine Yankee nuclear power plant, which is owned by Maine Yankee Atomic Power Company. Entergy Nuclear completed successfully in 2001 its decommissioning services project for Millstone Unit 1. The cost of decommissioning and insuring the plants that Entergy provides decommissioning services for is the responsibility of the plant owners. Entergy Nuclear also is a party to two business arrangements that assist it in providing operation and management services. Entergy Nuclear and Framatome ANP intend to jointly offer operating license renewal and life extension services to nuclear power plants in the United States. Framatome has provided and continues to provide license renewal services to several utilities owning nuclear power plants in the United States. Entergy Nuclear acquired TLG Services in September 2000. The TLG acquisition assists Entergy Nuclear in providing decommissioning, engineering, and related services to nuclear power plant owners. Energy Commodity Services During the third quarter of 2001, Entergy began integration of Entergy-Koch and Entergy Wholesale Operations into the energy commodity services segment. Prior to the third quarter of 2001, Entergy-Koch and Entergy Wholesale Operations operated and were reported as separate segments. Prior to the first quarter of 2001, Entergy had also operated and reported its power marketing and trading segment separately. On January 31, 2001, Entergy contributed substantially all of its power marketing and trading business to Entergy-Koch, which is now a part of the energy commodity services segment. Marketing and Trading In January 2001, subsidiaries of Entergy and Koch Industries, Inc. formed an unconsolidated 50/50 limited partnership, Entergy-Koch, L.P. Entergy-Koch engages in the gathering, transmission, and storage of natural gas in the Gulf Coast region of the United States through its Gulf South Pipeline subsidiary. Entergy-Koch also engages in physical and financial natural gas and power trading, and weather derivatives trading, in the United States, the United Kingdom, Western Europe, and Canada through its Entergy-Koch Trading subsidiaries. In the formation of the partnership, Entergy contributed most of the assets and trading contracts of its power marketing and trading business and $414 million of cash. Koch contributed its 8,800-mile Koch Gateway Pipeline (which has been renamed the Gulf South Pipeline), gas storage facilities including the 65.8 BCF Bistineau storage facility located near Shreveport, Louisiana, and Koch Energy Trading, which marketed and traded electricity, gas, weather derivatives, and other energy-related commodities and services. The Gulf South Pipeline system includes approximately 7,650 miles of transmission pipelines and approximately 1,150 miles of gathering pipelines. Gulf South Pipeline gathers natural gas from the Gulf South region and transports it to local distribution companies, industrial facilities, power generators, utility companies, other pipelines, and natural gas marketing companies. The pipeline system covers parts of Texas, Louisiana, Mississippi, Alabama, and Florida; connects to the Henry Hub, located in Vermilion Parish, Louisiana; and has 67 interconnects with interstate pipelines. Gulf South Pipeline has a total of 68 BCF of working gas storage capacity at two facilities, including Bistineau. Entergy-Koch Trading buys and sells natural gas, power, and other energy-related services and commodities. Entergy-Koch Trading provides energy management using knowledge systems that promote fundamental and quantitative understanding of market risk. The energy management services provide customers with the opportunity to manage the various risk exposures embedded in their businesses and capitalize on non- optimized resources. Entergy-Koch Trading provides customers these solutions by utilizing its proprietary analytical models and its knowledge of the marketplace, natural gas pipelines, power transmission infrastructure, transportation management, gas storage, weather, and the interaction of these factors. Entergy and Koch Industries each indirectly own half of the limited partnership interests in Entergy-Koch, L.P. Entergy and Koch Industries also indirectly own half of the equity of the general partner of Entergy-Koch, L.P. The general partner has an eight-member board of directors. Entergy and Koch each appoint four members of the board. Although the ownership interests are equal, the capital accounts for Entergy and Koch are different. As described above, each contributed different assets to the partnership with those contributed by Koch valued at more than those contributed by Entergy. Through 2003, substantially all of the partnership profits allocated to Entergy, except that profits from weather trading and international trading are allocated disproportionately to Koch and Entergy, respectively. In the partnership agreement, Entergy agreed to contribute $72.7 million to the partnership in January 2004. Koch also will receive a distribution of $72.7 million in 2004. In addition, at that time, Entergy-Koch's assets will be revalued for capital account purposes. If the value of the assets exceeds their carrying value for capital account purposes, then that difference will be allocated to the capital accounts. Entergy expects that after this revaluation the capital accounts of Entergy and Koch Industries will be approximately equal and that future profit allocations other than for weather trading and international trading will be equal. If the capital accounts differ significantly, however, then profits may be allocated disproportionately to one partner or the other until the capital accounts are approximately equal. The partnership agreement provides that losses are allocated between the capital accounts of the partners based on ownership interest. Distributions from operations are shared based on ownership interest and distributions in the event of liquidation are shared based on capital accounts, as revalued at the time of the liquidation. Prior to 2004, a partner may transfer its partnership interest only with the consent of the other partner. Beginning in 2004, a partner may transfer its interest to a third party, only if it has first offered to sell its interest to the other partner at the approximate sales price and the other partner has not accepted the offer. Certain buy/sell rights are triggered (a) at the option of the non-defaulting partner, upon a change of control of, or material breach of the agreement by, either partner or (b) at the option of either partner, at any time beginning in 2004. Under the buy/sell rights, the initiating partner offers to sell all its partnership interest at a specified price and other terms or to buy all of the other partner's partnership interest at the same price and same other terms. Power Development EWO primarily conducts Entergy's power development business, which is focused on acquiring or developing power generation projects in North America and Europe. The power development business owns interests in the following electric generation assets that are currently operating or are under construction: Investment Percent Ownership Status United Kingdom - Damhead Creek, 800 MW 100% operational U.S. (AR)- Ritchie Unit 2, 544 MW 100% operational U.S. (AR)- Independence Unit 2, 842 MW 14% operational U.S. (MS)- Warren Power, 300 MW 100% operational U.S. (IA)- Top of Iowa Wind Farm, 80 MW 99% operational U.S. (LA)- RS Cogen, 425 MW 50% under construction U.S. (IL)- Crete, 320 MW 50% under construction U.S. (TX)- Harrison County, 550 MW 70% under construction Entergy owns its interest in RS Cogen through an unconsolidated 50% interest in RS Cogen, L.L.C., and the remaining 50% interest is owned by PPG Industries, an industrial customer of Entergy Gulf States. Entergy owns its interest in Crete through an unconsolidated 50% interest in Crete Energy Ventures, LLC, and the remaining 50% interest is owned by DTE Energy. The Harrison County plant will be co-owned, with the other 30% held by Northeast Texas Electric Cooperative. Entergy's power development business has several other development projects in the planning stages, including announced projects in the United States, Spain, and Bulgaria. EWO also owns interests in projects in Argentina, Chile, and Peru that are unconsolidated affiliates of Entergy. The Latin American projects are not a core part of Entergy's strategy, and Entergy is considering strategies to maximize the value of these investments, including possibly selling them. In 2000, Entergy entered into an unconsolidated 50/50 joint venture with The Shaw Group Inc. that is named EntergyShaw, L.L.C. EntergyShaw provides management, engineering, procurement, construction, and commissioning services for electric power plants. EntergyShaw was created to operate in the electric power generation market and provide services to Entergy's power development business. EntergyShaw's operations may require the support of Entergy Corporation guarantees. EntergyShaw is currently constructing the Crete and Harrison County plants. Entergy has guaranteed the obligations of EntergyShaw to construct the Harrison County plant, and Entergy's maximum liability on the guarantee is $232.5 million. Domestic and Foreign Generation Investment Restrictions and Risks Entergy's ability to invest in domestic and foreign generation businesses is subject to the SEC's regulations under PUHCA. As authorized by the SEC, Entergy is allowed to invest an amount equal to 100% of its average consolidated retained earnings in domestic and foreign generation businesses. As of December 31, 2001, Entergy's investments subject to this rule totaled $1.64 billion constituting 46.6% of its average consolidated retained earnings. Entergy's ability to guarantee obligations of its non-utility subsidiaries is also limited by SEC regulations under PUHCA. In August 2000, the SEC issued an order, effective through December 31, 2005, that allows Entergy to issue up to $2 billion of guarantees to its non- utility companies. International operations are subject to the risks inherent in conducting business abroad, including possible nationalization or expropriation, price and currency exchange controls, inflation, limitations on foreign participation in local enterprises, and other restrictions. Changes in the relative value of currencies may favorably or unfavorably affect the financial condition and results of operations of Entergy's non-U.S. businesses. In addition, exchange control restrictions in certain countries may limit or prevent the repatriation of earnings. Selected Data Selected domestic utility customers and sales data for 2001 are summarized in the following tables: <TABLE> <CAPTION> Customers as of December 31, 2001 Area Served Electric Gas (In Thousands) <S> <C> <C> <C> Entergy Arkansas Portions of Arkansas 647 - Entergy Gulf States Portions of Texas and Louisiana 690 89 Entergy Louisiana Portions of Louisiana 644 - Entergy Mississippi Portions of Mississippi 404 - Entergy New Orleans City of New Orleans, except Algiers, which is provided electric service by 189 148 Entergy Louisiana ----- --- Total customers 2,574 237 ===== === </TABLE> 2001 - Selected Domestic Utility Electric Energy Sales Data <TABLE> <CAPTION> Entergy Entergy Entergy Entergy Entergy System Arkansas Gulf States Louisiana Mississippi New Orleans Energy Entergy (a) (In GWH) <S> <C> <C> <C> <C> <C> <C> <C> Electric Department: Sales to retail customers 19,377 33,837 28,524 12,621 5,597 - 99,956 Sales for resale: Affiliates 7,217 1,087 381 1,728 115 8,921 - Others 4,909 3,305 334 289 59 - 8,896 --------------------------------------------------------------------------------- Total 31,503 38,229 29,239 14,638 5,771 8,921 108,852 ================================================================================= Average use per residential customer (KWH) 12,627 15,115 14,670 14,268 11,650 - 13,993 ================================================================================= </TABLE> (a) Includes the effect of intercompany eliminations. 2001 - Selected Domestic Utility Natural Gas Sales Data Entergy New Orleans and Entergy Gulf States sold 15,427,960 and 6,682,931 MCF, respectively, of natural gas to retail customers in 2001. For the years ended December 31, 2001, 2000, and 1999, revenues from natural gas operations were not material for Entergy Gulf States. Entergy New Orleans' products and services are discussed below in "BUSINESS SEGMENTS". Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA, INC., ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., and SYSTEM ENERGY RESOURCES, INC." which follow each company's financial statements in this report, for further information with respect to operating statistics. Employees As of December 31, 2001, Entergy had 15,054 employees as follows: Full-time: Entergy Corporation - Entergy Arkansas 1,626 Entergy Gulf States 1,668 Entergy Louisiana 960 Entergy Mississippi 906 Entergy New Orleans 386 System Energy - Entergy Operations 3,181 Entergy Services 2,632 Entergy Nuclear Operations 2,948 Other subsidiaries 564 ------ Total Full-time 14,871 Part-time 183 ------ Total Entergy 15,054 ====== Approximately 4,900 employees are represented by the International Brotherhood of Electrical Workers Union (IBEW), the Utility Workers Union of America (UWUA), and the International Brotherhood of Teamsters Union (IBT). In 2001, Entergy Gulf States - Transmission, Distribution and Customer Service reached a new agreement with IBEW covering approximately 814 employees. Entergy Gulf States - Fossil will be negotiating a new agreement with IBEW covering approximately 297 employees in 2002. Industry Restructuring and Competition As a result of the actions of federal legislative and regulatory bodies over the period of approximately the past twenty years, wholesale markets have been developing in which electricity, gas, and other energy-related products and services are purchased and sold at market-based (rather than traditional cost-based) rates. These wholesale markets are continuing to grow and evolve. This evolution is changing the ways in which public utilities conduct their business and has changed the nature of the participants in these wholesale markets, which now include not only public utilities but also power marketers and traders, other energy commodity marketers and traders, wholesale generators of electricity, and a wide range of wholesale customers. Utilities, including the domestic utility companies, may be required or encouraged to sell generating plants or interests therein, or the output from such plants. Additionally, with regard to transmission assets, FERC originally set December 15, 2001 as the date by which all owners and operators of transmission lines should sell or turn over operating and management responsibility for their transmission systems to independent parties. This date has also been delayed as utility companies and their federal and state regulators work to resolve various issues. Entergy responded to FERC by filing plans to transfer control of its transmission assets to a non- affiliated transmission company subject to control by an RTO, and is now working with the Southern Company and others to obtain approval from FERC of an RTO structure. These changes will alter the historical structure from the operation of the domestic utility companies' electric generation and transmission assets as an integrated system supporting utility service throughout their combined service territories. Major changes in the retail utility business have also been occurring in some parts of the United States, including some states in which Entergy's domestic utility companies operate. Events that occurred in 2001, including the crisis in California's restructured power supply market and the bankruptcy of Enron, have slowed these changes. Both Texas and Arkansas adopted legislation in 1999 aimed at separating ("unbundling") traditionally integrated public utilities into distinct distribution, transmission, generation, and various types of retail marketing businesses, and aimed at introducing competition into the generation component of utility service. Texas originally required restructuring and corporate unbundling by January 1, 2002 but has delayed implementation in Entergy Gulf States' service territory at least until September 15, 2002. Arkansas has also delayed its retail access plan until at least October 2003 and the APSC has asked the Arkansas General Assembly for a further delay until at least 2010. Other jurisdictions in which the domestic utility companies operate have not enacted retail competition and utility unbundling legislation. Further changes in restructuring in Entergy's service territories may result from the effects of the developments in other electric retail markets, the Enron bankruptcy, developments at the FERC on transmission issues, and future developments in the power supply industry. As changes in the wholesale and retail electricity markets in the Entergy system have taken place, regulators and legislators in different jurisdictions have not coordinated these changes. In some cases, actions by one jurisdiction may conflict with actions by another, creating potentially incompatible obligations for public utilities and holding companies, including the Entergy system. Examples include: o the LPSC's docket relating to the changes in corporate structure of Entergy Gulf States as a result of complying with the Texas restructuring law, including generation issues, and its potential impact on Louisiana retail ratepayers (described more fully below in this "Industry Restructuring and Competition" under "Texas - Business Separation Plan" and "Texas - Generation-Related Issues"); o System Agreement restructuring issues, including a separate proceeding at the LPSC to review the proposed System Agreement restructuring (described more fully below in "Rate Matters, Regulation and Litigation - Wholesale Matters - System Agreement"); and o an LPSC show cause order to Entergy Gulf States and Entergy Louisiana why they should not be enjoined from transferring their transmission assets to an independent transmission company or similar organization (described more fully below in "Rate Matters, Regulation and Litigation - Wholesale Matters - Open Access Transmission and Entergy's Independent Transmission Company Proposal"). It is too early to predict accurately what the ultimate effects of changes in U.S. energy markets will be, or their timing, or how potentially incompatible regulatory obligations will be resolved. Restructuring issues are complex and are continually affected by events at the national, regional, state and local levels. However, these changes may result in fundamental alterations in the way traditional integrated utilities and holding company systems, like Entergy and its domestic utility companies, conduct their business. Some of these alterations may be positive for Entergy and its affiliates, while others may not be. These changes are resulting in increased costs associated with utility unbundling and transitioning to new organizational structures and ways of conducting business. It is possible that the new organizational structures that may be required will result in lost economies of scale, less beneficial cost sharing arrangements within utility holding company systems, and, in some cases, greater difficulty and cost in accessing capital. Furthermore, these changes could result in early refinancing of debt, the reorganization of debt, or other obligations between newly-formed companies. As a result of federal and state "codes of conduct" and affiliate transaction rules, adopted as part of restructuring, new non-utility affiliates in the Entergy System may be precluded from, or limited in, doing business with affiliated electric market participants. In addition, regulators may impose limits on, rather than have the market set, wholesale energy prices. There are a number of other changes that may result from electric business competition and unbundling, including, but not limited to, changes in labor relations, management and staffing, structure of operations, environmental compliance responsibility, and other aspects of the utility business. As a potential result of restructuring, Entergy's domestic utility companies may no longer be able to apply regulated utility accounting principles to some or all of their operations, and they may be required to write off certain regulatory assets or recognize asset impairments (described more fully below in Note 2 to the financial statements under "Rate and Regulatory Matters - Electric Industry Restructuring and the Continued Application of SFAS 71"). Following is a summary of the status of the transition to competition in Entergy's five retail jurisdictions: % of Entergy's Consolidated 2001 Revenues Derived from Retail Electric Utility Operations Jurisdiction Status of Retail Open Access in the Jurisdiction Arkansas Commencement delayed by amended 13.6% law until at least October 2003, APSC has recommended delay until at least 2010. Texas Delayed until at least 10.7% September 15, 2002 in Entergy Gulf States' service area in a settlement approved by the PUCT. Louisiana The LPSC has deferred pursuing 33.4% retail open access, pending developments at the federal level and in other states. Mississippi MPSC has recommended not 9.8% pursuing open access at this time. New Orleans City Council has taken no 5.1% action on Entergy's proposal filed in 1997. Arkansas Under current Arkansas legislation, the target date for retail open access has been delayed until no sooner than October 1, 2003 and no later than October 1, 2005. In December 2001, the APSC recommended to the Arkansas General Assembly that legislation be enacted during the 2003 legislative session to either repeal the legislation authorizing retail open access or further delay retail open access until at least 2010. Entergy Arkansas supports the proposal for further delay of retail open access but opposes repeal of deregulation legislation as premature at this time. Texas In June 1999, the Texas legislature enacted a law providing for competition in the electric utility industry through retail open access. The law provided for retail open access by most investor-owned electric utilities on January 1, 2002. As discussed below, retail open access for Entergy Gulf States was subsequently delayed until at least September 15, 2002. With retail open access, generation and a new retail electric provider operation are competitive businesses, but transmission and distribution operations continue to be regulated. The new retail electric providers are the primary point of contact with customers. The provisions of the new law: o require a rate freeze through December 31, 2001 (subject to extension, as described below), with rates reduced by 6% beyond that for residential and small commercial customers of most incumbent utilities except Entergy Gulf States, whose rates are exempt from the 6% reduction requirement. These rates to residential and small commercial customers are known as the "price-to-beat," and they may be adjusted periodically after retail open access begins for fuel and purchased power costs according to PUCT rules; o require utilities to charge the price-to-beat rates until 36 months after the date competition begins or 40% of customers in the jurisdiction have chosen an alternative supplier, whichever comes first. Nevertheless, the price-to-beat rates must continue to be made available at least through 2006; o required utilities to submit a plan to separate (unbundle) their generation, transmission, distribution, and retail electric provider functions, which Entergy Gulf States filed in January 2000 as discussed below; o require utilities to comply with a code of conduct to ensure that utilities do not allow affiliates to have a business advantage over competitors; o require operation in a non-discriminatory manner of transmission and distribution facilities by an organization independent from the generation and retail operations by the time competition is implemented; o allow for recovery of stranded costs incurred in purchasing power and providing electric generation service if the costs are approved by the PUCT; o allow for securitization of regulatory assets and PUCT-approved stranded costs; o provide for the determination of and mitigation measures for generation market power; and o required utilities to file separated cost data and proposed transmission, distribution, and competition transition tariffs by April 1, 2000 (Entergy Gulf States filed a non-unanimous settlement in March 2001 addressing these tariffs and costs, as discussed below). On August 3, 2001, the PUCT staff filed a petition requesting that the PUCT determine whether the market is ready for retail open access in the portion of Texas within the Southeastern Electric Reliability Council (SERC), which includes Entergy Gulf States' service territory. Several parties, including Entergy Gulf States and the PUCT staff, agreed to a non-unanimous settlement that was approved by the PUCT after a hearing in October 2001. In December 2001, the PUCT issued a written order approving the settlement. The settlement agreement contains several points, including: o a delay in the commencement of retail open access in Entergy Gulf States' Texas service territory until at least September 15, 2002, subject to certain provisions of the settlement agreement; o recovery of transition to competition costs incurred by Entergy Gulf States through December 31, 2001 if a rate proceeding is initiated for Entergy Gulf States during the delay period. The settlement agreement provides for a rate freeze during the delay period. Entergy cannot predict whether a new rate proceeding for Entergy Gulf States will be initiated during the delay period or what the outcome of such proceeding might be; o suspension of additional capacity auctions until at least sixty days before retail open access commences (the capacity auctions are discussed below); o continuation of Entergy Gulf States' pilot project; o initiation by the PUCT of a project to develop market protocols to support retail open access; o efforts to develop an interim solution to implement retail open access no sooner than September 15, 2002 in the event that a functional, FERC-approved RTO is not likely to be achieved in the 2002 time frame (the RTO and related power region certification issue are discussed below); o continuation of pending proceedings (discussed below) to determine the fuel and base rate components of the price-to-beat rates with implementation of these rates when retail open access begins, without escalation of the fuel component during the delay period; o continuation of Entergy Gulf States' current bundled rates and fuel factor methodology until the commencement of retail open access unless addressed in the interim solution; o continuation of efforts by Entergy Gulf States to obtain the appropriate approvals with respect to its business separation plan (discussed below) with the actual business separation not occurring until the eve of retail open access; and o filing by Entergy Gulf States for certification by the PUCT of a qualified power region, which filing must contain an assessment of market power, including transmission constraints. In February 2002, certain cities in Texas (cities) served by Entergy Gulf States filed a petition in district court in Travis County, Texas seeking judicial review of the order issued by the PUCT. The cities' petition alleges that the PUCT's order is unlawful because it violates statutory and constitutional provisions. Entergy will defend vigorously its position that the cities' claims are without merit. Management cannot predict the outcome of this litigation at this time. Business Separation Plan Entergy Gulf States' business separation plan provides for the separation of its generation, transmission, distribution and retail electric functions. It has been amended during the course of various PUCT and LPSC proceedings and is subject to further change and regulatory proceedings as described below. The amended plan currently provides that Entergy Gulf States will be separated into the following principal companies: o a Texas distribution company, which will own and operate Entergy Gulf States' electric distribution system in Texas; o an intermediate transmission company; o a Texas generation company (which may be more than one legal entity), which initially will purchase capacity and energy from the generating assets allocated to Texas load (Texas generating assets), and eventually will own those assets; o Texas retail electric providers, which will provide competitive retail electric service in Texas; and o Entergy Gulf States-Louisiana. Entergy Gulf States-Louisiana will: o own and operate Entergy Gulf States' electric distribution system in Louisiana, the Texas generating assets (until they are transferred to the Texas generation company), the remainder of Entergy Gulf States' generating assets, and Entergy Gulf States' other businesses that are not separated, and own Entergy Gulf States' transmission assets allocated to Louisiana (until they are transferred to the intermediate transmission company described in the next bullet); and o indirectly own a portion of an intermediate transmission company, which will own Entergy Gulf States' electric transmission assets allocated to Texas, and later Entergy Gulf States' transmission assets allocated to Louisiana. Entergy Gulf States' assets and liabilities (other than its long- term debt and liabilities) will be allocated among these companies generally based upon categorizing them by function. Entergy Gulf States will allocate assets and liabilities not associated with a single function based upon specified factors. In an April 2001 filing with the LPSC discussing its separation methodology, Entergy Gulf States included a balance sheet separated by jurisdiction and function. The balance sheet was based on September 30, 1999 balances. In this balance sheet, Entergy Gulf States allocated approximately 27% of the net utility plant balance to Texas generation, approximately 12% to Texas distribution, approximately 6% to Texas transmission, approximately 7% to Louisiana transmission, and less than 1% to Texas retail. Applying these percentages to Entergy Gulf States' December 31, 2001 net utility plant book value of $4.3 billion, for illustrative purposes only, results in net book values of approximately $1.2 billion for Texas generation, approximately $520 million for Texas distribution, approximately $260 million for Texas transmission, approximately $300 million for Louisiana transmission, approximately $20 million for Texas retail, and approximately $2.0 billion for the remainder of Entergy Gulf States-Louisiana. The actual allocations could materially differ from these figures because of a number of factors, including changes to the plan and the allocation methodology. In addition, the actual allocations will be based on allocation factors and account balances as of a different date. The business separation plan provides that Entergy Gulf States- Louisiana will retain liability for all of its long-term debt and liabilities and that the property transferred to the Texas companies will be released from the lien of Entergy Gulf States' mortgage on the basis of property additions. Pursuant to separate agreements, the Texas distribution company and the intermediate transmission company will each assume a portion of Entergy Gulf States' long-term debt and liabilities, which assumptions will not act to release Entergy Gulf States-Louisiana's liability. The Texas distribution company and the intermediate transmission company will undertake to pay the outstanding assumed long-term debt and liabilities within 1 year and 3 years, respectively, of the assumption. Entergy must provide a contingent indemnity with respect to the intermediate transmission company's assumed portion of Entergy Gulf States' long-term debt and liabilities in the event that the obligations under the debt assumption agreement have not been extinguished within one year of the assumption. The Texas generation company will be required to pay an allocated portion of the outstanding principal amount of Entergy Gulf States' long-term debt and liabilities each time that Texas generating assets are transferred to it, and the transfers must be completed within 3 years of the commencement of retail open access. After the transfer of the Texas distribution and transmission assets contemplated by the current business separation plan, the distribution and transmission businesses conducted by the Texas distribution company and the intermediate transmission company, respectively, will continue to be regulated as to rates by the PUCT and the FERC, respectively. Accordingly, management believes that the Texas distribution company and the intermediate transmission company will be able to fund the payment of the assumed debt within the required period from a combination of cash flow from operations and third party financing. Entergy Gulf States filed the business separation plan with the PUCT in January 2000 and amended that plan in June and November 2000 and January 2001. In July 2000, the PUCT approved the amended business separation plan in an interim order. In January 2001, the PUCT consolidated remaining action on the business separation plan into the unbundled cost of service proceeding discussed below. In December 2001, the PUCT abated the proceeding and indicated it will consider a final order in a timely manner consistent with the settlement agreement delaying retail open access. The outcome of the LPSC proceedings described below, which have resulted in amendments to the plan beyond what was approved by the PUCT, have been and will continue to be reported to the PUCT and the Office of Public Utility Counsel and may require additional PUCT action before the business separation plan is final. The LPSC opened a docket to identify the changes in corporate structure and operations of Entergy Gulf States, and their potential impact on Louisiana retail ratepayers, resulting from restructuring in Texas and Arkansas. In those proceedings, Entergy Gulf States and the LPSC staff reached a settlement on certain Texas business separation plan issues described above, and after a May 2001 hearing, the LPSC issued an interim order in July 2001 approving the settlement. In July 2001, Entergy Gulf States and the LPSC staff completed an additional settlement on business separation plan issues relating to the separation of Texas distribution and transmission. A hearing on the distribution and transmission settlement has been held and the LPSC approved the settlement in September 2001. With respect to issues related to the separation of generation, the LPSC had scheduled a hearing in November 2001 to address settled issues. In light of the delay in the commencement of retail open access, the procedural schedule in the LPSC docket has been temporarily suspended to assess the impact of the PUCT approval of the settlement agreement delaying retail open access. Generation-related Issues Regarding the generation-related issues referred to in the preceding paragraph, Entergy Gulf States has not yet reached agreement with the LPSC staff on certain matters related to the separation of the Texas generating assets. Entergy Gulf States has proposed that Texas generating assets be a jurisdictional portion (approximately 45 - 50%) of each generating plant and that Entergy Gulf States-Louisiana continue to operate the plants. Entergy Gulf States has also suggested that certain generating assets be allocated by specific plant such that the Texas generating assets have approximately the Texas jurisdictional portion of the capacity and value of all of Entergy Gulf States' generating assets. Until the Texas generating assets are transferred to the Texas generation company, which, as currently proposed, will occur within three years from the commencement of retail open access in Texas, Entergy Gulf States-Louisiana expects to sell most of the Texas jurisdictional capacity and energy from these assets to the Texas generation company under a power sale agreement. The power sale agreement is expected to require the Texas generation company to pay all costs, including a reasonable return on equity, for the capacity and energy of the Texas generating assets. The Texas generation company is expected to sell most of this capacity and energy to Entergy's affiliated Texas retail electric providers at a negotiated rate and sell any remainder to the market. Entergy's affiliated Texas retail electric providers will use the capacity and energy to provide retail electric service to retail customers in Texas, including Entergy's price-to-beat obligation, which requires it to sell electricity to residential and small commercial customers in the service territory of the Texas distribution company at a rate equal to the existing base rates plus a fuel component. Up to 20% of capacity and energy from the Texas generating assets must be sold to third parties under PUCT rules, or to Entergy's domestic utility companies that elect to purchase it, as described below: o Under the Texas restructuring legislation and a stipulation, Entergy Gulf States offered to sell at auction entitlements to approximately 15% (approximately 425MW) of its Texas-jurisdictional installed generation capacity. Auctions occurred in September 2001, but because of the delay in retail open access, Entergy has unwound the auction transactions, and no liability exists for them. Additional capacity auctions are suspended until at least 60 days prior to the introduction of retail open access. The obligation to auction capacity entitlements continues for up to 60 months after retail open access occurs, or until 40% of current customers have chosen an alternative supplier, whichever comes first. o Under the settlement of proceedings affecting the System Agreement, which are described below in "Rate Matters, Regulation, and Litigation - Rate Matters - Wholesale Rate Matters - System Agreement," Entergy's domestic utility companies have the option to purchase up to 5% of the megawatt capacity of the Texas generating assets. Each company has until March 15, 2002 to elect to purchase its pro rata share of the 5% of capacity. If the capacity purchase is elected, it will be for the period from the inception of retail open access in Texas for Entergy Gulf States through June 2008. Beginning on the date retail open access begins, the market power measures in the Texas restructuring law will prohibit the Texas generation company and its affiliates from owning and controlling more than 20% of the installed generation capacity located in, or capable of delivering electricity to, a power region. The implications of this limit are uncertain. It is possible that the Texas generation company (or its affiliates) could be required to auction additional capacity entitlements, divest some of the Texas generating assets, or seek other means of mitigation if it is found to have ownership and control in excess of this limit. Other PUCT Proceedings In March 2001, Entergy Gulf States filed with the PUCT a non- unanimous settlement agreement in the unbundled cost proceeding that establishes the Texas distribution company's revenue requirement. The settlement agreement is between Entergy Gulf States, the PUCT staff, and other parties. Pursuant to a generic order by the PUCT, the Texas distribution company's allowed return on equity will be 11.25%. The capital structure prescribed by the PUCT is 60% debt and 40% equity. A rider to recover nuclear decommissioning costs will be implemented. Also in the settlement agreement, the parties agreed that Entergy Gulf States' Texas-jurisdictional stranded costs and benefits are $0, and no charge to recover stranded costs or credit to refund excess mitigation will be implemented. Entergy Gulf States agreed in the settlement to refund any excess earnings resulting from the restructuring law's annual report process for 2000 and 2001, which management does not expect to have a material financial effect. After a hearing in April 2001, the PUCT voted to approve a rate order consistent with the terms of the settlement. A written interim order was signed in May 2001. In December 2001, the PUCT abated the proceeding and indicated its intent to defer a final ruling on this proceeding until a date closer to the commencement of retail open access. In June 2001, Entergy filed an application with the PUCT seeking certification of the Southwest Power Pool (SPP) as a power region under the Texas restructuring law. The proceeding has been abated, however, due to FERC's order on the establishment of RTOs, discussed in "Rate Matters, Regulation, and Litigation - Rate Matters - Wholesale Rate Matters - Open Access Transmission and Entergy's Independent Transmission Company Proposal,". In addition, the settlement that has delayed the commencement of retail open access requires a new power region certification proceeding. If Entergy Gulf States' power region in Texas is not certified by the PUCT before retail open access is introduced, Entergy's affiliated Texas retail electric provider could be required to maintain rates at the price-to-beat levels for residential and small commercial customers in Entergy Gulf States' service territory beyond January 1, 2007. Entergy's affiliated Texas retail electric provider could also be required to offer rates to industrial and large commercial customers in Entergy Gulf States' service territory that are no higher than the rates that, on a bundled basis, were in effect on January 1, 1999, subject to fuel factor adjustments. Entergy's affiliated Texas retail electric provider might also face requests for restrictions on its ability to compete for retail customers in parts of its power region in Texas outside of its current service area. In July 2001, Entergy Gulf States filed an application for approval of the fuel factor portion of Entergy's affiliated Texas retail electric provider's price-to-beat rates, and the gas prices included in that filing were updated in October 2001. After the gas price update, Entergy Gulf States recommended that the PUCT approve an average fuel factor of approximately $29/MWH adjusted, if necessary, to maintain an adequate competitive margin. The request proceeded to hearing in early October 2001, and an ALJ made a recommendation in November 2001 that would result in a lower fuel factor than Entergy Gulf States requested. The PUCT has requested additional data and has remanded this matter to the State Office of Administrative Hearings for additional findings. In June 2001, Entergy Gulf States filed tariffs for the non-fuel component of the price-to-beat rates. The tariffs are based on Entergy Gulf States' current base rates. In September 2001, Entergy Gulf States entered into a unanimous settlement regarding the non-fuel component of price-to-beat rates. In February 2002, the PUCT voted to approve the settlement. The PUCT has designated an Entergy-affiliated Texas retail electric provider to serve as the provider of last resort (POLR) for residential and small non-residential customers in the service territory of Southwestern Electric Power Company (SWEPCO), and for large non-residential customers in Entergy Gulf States' Texas service territory. Retail open access has been delayed in SWEPCO's service territory and it is likely Entergy's contract to provide POLR services will expire before retail open access begins there. Another designation of a POLR in that territory will be necessary if retail open access is implemented there. The Office of Public Utility Counsel (OPC) has filed a lawsuit in state court seeking a declaratory judgment that the PUCT did not use proper procedures to designate POLRs and that the POLR contracts are void. Neither the timing nor the outcome of this proceeding can be predicted at this time. The PUCT initiated a proceeding to designate SWEPCO's affiliated retail electric provider as the POLR for the residential and small non-residential customers in Entergy Gulf States' Texas service territory. Because of the delay in retail open access in SWEPCO's service area until at least September 15, 2002, the PUCT decided to dismiss only the portion of the proceeding that addressed designation of SWEPCO's affiliated retail electric provider to serve as POLR in Entergy Gulf States' Texas service area; the PUCT continued other portions of the proceeding. A retail electric provider will have to be designated to serve as the POLR when retail open access does begin in Entergy Gulf States' Texas service territory. At that time, it is also possible that an Entergy- affiliated Texas retail electric provider will be designated to serve as the POLR for residential and small non-residential customers at the price-to-beat rate in Entergy Gulf States' service territory. Neither the timing nor the outcome of these proceedings can be predicted at this time. CAPITAL REQUIREMENTS AND FUTURE FINANCING Management discusses Entergy's construction and other capital investment plans, financing requirements, Entergy Corporation credit support requirements, and its sources and uses of capital in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" and Notes 4, 5, 6, 7, 9, and 10 to the financial statements. Certain Grand Gulf-related Financial and Support Agreements Unit Power Sales Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The Unit Power Sales Agreement allocates capacity, energy, and the related costs from System Energy's 90% ownership and leasehold interests in Grand Gulf 1 to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companies is obligated to make payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of the quantity of energy delivered, so long as Grand Gulf 1 remains in commercial operation. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. The financial condition of System Energy depends upon the continued commercial operation of Grand Gulf 1 and the receipt of such payments. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans generally recover payments made under the Unit Power Sales Agreement through the rates charged to their customers. In the case of Entergy Arkansas and Entergy Louisiana, payments are also recovered through sales of electricity from their respective retained shares of Grand Gulf 1. The retained shares are discussed in Note 2 to the financial statements under the heading "Grand Gulf 1 Deferrals and Retained Shares." Availability Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The Availability Agreement among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered into in 1974 in connection with the financing by System Energy of Grand Gulf. The Availability Agreement provided that System Energy would join in the System Agreement on or before the date on which Grand Gulf 1 was placed in commercial operation and would make available to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all capacity and energy available from System Energy's share of Grand Gulf. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in amounts that (when added to any amounts received by System Energy under the Unit Power Sales Agreement, or otherwise) would at least equal System Energy's total operating expenses for Grand Gulf (including depreciation at a specified rate) and interest charges. The September 1989 write-off of System Energy's investment in Grand Gulf 2, amounting to approximately $900 million, is being amortized for Availability Agreement purposes over 27 years. The allocation percentages under the Availability Agreement are fixed as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation percentages under the Availability Agreement would remain in effect and would govern payments made under such agreement in the event of a shortfall of funds available to System Energy from other sources, including payments under the Unit Power Sales Agreement. System Energy has assigned its rights to payments and advances from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under the Availability Agreement as security for its first mortgage bonds and reimbursement obligations to certain banks providing the letters of credit in connection with the equity funding of the sale and leaseback transactions described in Note 10 to the financial statements under "Sale and Leaseback Transactions - Grand Gulf 1 Lease Obligations." In these assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for example, if FERC reduced or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System Energy in the same amounts and at the same times as the prohibited payments. System Energy would not be allowed to repay these subordinated advances so long as it remained in default under the related indebtedness or in other similar circumstances. Each of the assignment agreements relating to the Availability Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans will make payments directly to System Energy. However, if there is an event of default, those payments must be made directly to the holders of indebtedness that are the beneficiaries of such assignment agreements. The payments must be made pro rata according to the amount of the respective obligations secured. The obligations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans to make payments under the Availability Agreement are subject to the receipt and continued effectiveness of all necessary regulatory approvals. Sales of capacity and energy under the Availability Agreement would require that the Availability Agreement be submitted to FERC for approval with respect to the terms of such sale. No such filing with FERC has been made because sales of capacity and energy from Grand Gulf are being made pursuant to the Unit Power Sales Agreement. If, for any reason, sales of capacity and energy are made in the future pursuant to the Availability Agreement, the jurisdictional portions of the Availability Agreement would be submitted to FERC for approval. Other aspects of the Availability Agreement are subject to the jurisdiction of the SEC, whose approval has been obtained, under PUHCA. Since commercial operation of Grand Gulf 1 began, payments under the Unit Power Sales Agreement to System Energy have exceeded the amounts payable under the Availability Agreement. Therefore, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments. The Availability Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, without further consent of any assignees or other creditors. Capital Funds Agreement (Entergy Corporation and System Energy) System Energy and Entergy Corporation have entered into the Capital Funds Agreement, whereby Entergy Corporation has agreed to supply System Energy with sufficient capital to (i) maintain System Energy's equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt) and (ii) permit the continued commercial operation of Grand Gulf 1 and pay in full all indebtedness for borrowed money of System Energy when due. Entergy Corporation has entered into various supplements to the Capital Funds Agreement. System Energy has assigned its rights under such supplements as security for its first mortgage bonds and for reimbursement obligations to certain banks providing letters of credit in connection with the equity funding of the sale and leaseback transactions described in Note 10 to the financial statements under "Sale and Leaseback Transactions - Grand Gulf 1 Lease Obligations." Each such supplement provides that permitted indebtedness for borrowed money incurred by System Energy in connection with the financing of Grand Gulf may be secured by System Energy's rights under the Capital Funds Agreement on a pro rata basis (except for the Specific Payments, as defined below). In addition, in the supplements to the Capital Funds Agreement relating to the specific indebtedness being secured, Entergy Corporation has agreed to make cash capital contributions directly to System Energy sufficient to enable System Energy to make payments when due on such indebtedness (Specific Payments). However, if there is an event of default, Entergy Corporation must make those payments directly to the holders of indebtedness benefiting from the supplemental agreements. The payments (other than the Specific Payments) must be made pro rata according to the amount of the respective obligations benefiting from the supplemental agreements. The Capital Funds Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, upon obtaining the consent, if required, of those holders of System Energy's indebtedness then outstanding who have received the assignments of the Capital Funds Agreement. RATE MATTERS, REGULATION, AND LITIGATION Rate Matters The retail rates of Entergy's domestic utility companies are regulated by state or local regulatory authorities, as described below. FERC regulates wholesale rates (including intrasystem sales pursuant to the System Agreement) and interstate transmission of electricity, as well as rates for System Energy's sales of capacity and energy from Grand Gulf 1 to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. Wholesale Rate Matters System Energy As described above under "CAPITAL REQUIREMENTS AND FUTURE FINANCING - Certain Grand Gulf-related Financial and Support Agreements," System Energy recovers costs related to its interest in Grand Gulf 1 through rates charged to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans for capacity and energy under the Unit Power Sales Agreement. In December 1995, System Energy implemented a $65.5 million rate increase, subject to refund. In July 2001, the rate increase proceeding became final, with FERC approving a prospective 10.94% return on equity, which is less than System Energy sought. FERC's decision also affected other aspects of System Energy's charges to the domestic utility companies that it supplies with power. In 1998, FERC approved requests by Entergy Arkansas and Entergy Mississippi to accelerate a portion of their Grand Gulf purchased power obligations. Entergy Arkansas' acceleration of Grand Gulf purchased power obligations ceased effective July 2001, as approved by FERC. The rate increase request filed by System Energy with FERC and the Grand Gulf accelerated recovery tariffs are discussed in Note 2 to the financial statements. System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The domestic utility companies have historically engaged in the coordinated planning, construction, and operation of generation and transmission facilities pursuant to the terms of the System Agreement, as described under "PROPERTY - Generating Stations," below. Restructuring in the electric utility industry will affect these coordinated activities in the future. The LPSC and the Council commenced a proceeding at FERC in April 2000 that requests revisions to the System Agreement that the LPSC and the Council allege are necessary to accommodate the proposed introduction of retail competition in Texas and Arkansas. In June 2000, the domestic utility companies filed proposed amendments to the System Agreement with FERC to facilitate the proposed implementation of retail competition in Arkansas and Texas and to provide for continued equalization of costs among the domestic utility companies in Louisiana and Mississippi. These proceedings have been consolidated with a previous complaint filed with FERC by the LPSC in 1995. In that complaint, the LPSC requested, among other things, modification of the System Agreement to exclude curtailable load from the cost allocation determination. In June 2001, in connection with these proceedings, the parties filed an offer of settlement with FERC. The offer of settlement provides for the following amendments to the System Agreement: o the Texas retail jurisdictional division of Entergy Gulf States will terminate its participation in the System Agreement, except for the aspects related to transmission equalization, when Texas implements retail open access for Entergy Gulf States; o five percent of Entergy Gulf States' megawatt capacity allocated to the Texas retail load by the LPSC will be made available to the domestic utility companies remaining under the System Agreement. Each company has until March 15, 2002 to elect to purchase its pro rata share of this capacity. Entergy Arkansas' pro rata share is 27.3%, Entergy Gulf States - Louisiana's pro rata share is 20.2%, Entergy Louisiana's pro rata share is 30.2%, Entergy Mississippi's pro rata share is 15.9%, and Entergy New Orleans' pro rata share is 6.4%. If a company elects to purchase capacity it will be for the period from the inception of retail open access in Texas for Entergy Gulf States through June 30, 2008. If a company elects not to purchase, the other companies are not entitled to purchase that company's share of the capacity; and o the service schedule developed to track changes in energy costs resulting from the Entergy-Gulf States Utilities merger is modified to include one final true-up of fuel costs when the Texas retail jurisdictional division of Entergy Gulf States ceases participation in the System Agreement, after which the service schedule will no longer be applicable for any purpose. As anticipated by the offer of settlement, the LPSC and the Council commenced a new proceeding at FERC in June 2001. In this proceeding, the LPSC and the Council allege that the rough production cost equalization required by FERC under the System Agreement and the Unit Power Sales Agreement has been disrupted by changed circumstances. The LPSC and the Council have requested that FERC amend the System Agreement or the Unit Power Sales Agreement or both to achieve full production cost equalization or to restore rough production cost equalization. Their complaint does not seek a change in the total amount of the costs allocated by either the System Agreement or the Unit Power Sales Agreement. In addition the LPSC and the Council allege that provisions of the System Agreement relating to minimum run and must run units, the methodology of billing versus dispatch, and the use of a rolling twelve month average of system peaks, increase costs paid by ratepayers in the LPSC and Council's jurisdictions. Several parties have filed interventions in the proceeding, including the APSC and the MPSC. Entergy filed its response to the complaint in July 2001 denying the allegations of the LPSC and the Council. The APSC and the MPSC also filed responses opposing the relief sought by the LPSC and the Council. In their complaint, the LPSC and the Council allege that the domestic utility companies' annual production costs over the period 2002 to 2007 will be over or (under) the average for the domestic utility companies by the following amounts: Entergy Arkansas ($130) to ($278) million Entergy Gulf States - Louisiana $11 to $87 million Entergy Louisiana $139 to $132 million Entergy Mississippi ($27) to $13 million Entergy New Orleans $7 to $46 million This range of results is a function of assumptions regarding such things as future natural gas prices, the future market price of electricity, and other factors. In February 2002, the FERC set the matter for hearing and established a refund effective period consisting of the 15 months following September 13, 2001. Although FERC set the matter for hearing, it held the hearing in abeyance to allow the parties to negotiate. A settlement judge was appointed, and the judge is ordered to issue a status report within 60 days. If FERC grants the relief requested by the LPSC and the Council, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the average and a material decrease in production costs allocated to companies whose costs currently are projected to exceed the 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 neither the timing nor the outcome of the proceedings at FERC can be predicted at this time. The LPSC has instituted a companion ex parte System Agreement investigation to litigate several of the System Agreement issues that the LPSC is litigating before the FERC in the previously discussed System Agreement proceeding. This companion proceeding will require the LPSC to interpret various provisions of the System Agreement, including those relating to minimum run and must run units, the propriety of the methods used for billing and dispatch on the Entergy System, and the use of a rolling, twelve-month average of system peaks for allocating certain costs. In addition, by this companion proceeding the LPSC is questioning whether Entergy Louisiana and Entergy Gulf States were prudent for not seeking changes to the System Agreement previously, so as to lower costs imposed upon their ratepayers and to increase costs imposed upon ratepayers of other domestic utility companies. The domestic utility companies have challenged the propriety of the LPSC litigating System Agreement issues. Nevertheless, on January 16, 2002 the LPSC affirmed a decision of its ALJ upholding the LPSC staff's right to litigate System Agreement issues at the LPSC, rather than before the FERC. These System Agreement issues are to be litigated before the LPSC commencing in August 2002. Open Access Transmission and Entergy's Independent Transmission Company Proposal (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) FERC issued Order 2000 in December 1999, which calls for owners and operators of transmission lines in the United States to join RTOs on a voluntary basis. Order 2000 initially required that RTOs commence independent operations no later than December 15, 2001. In compliance with Order 2000, Entergy made a filing with FERC that requested authorization to establish an independent transmission company ("ITC") that would operate within and under the oversight of the proposed Southwest Power Pool RTO. Entergy also requested authorization to transfer the domestic utility companies' transmission assets to the ITC. The amounts of the domestic utility companies' net transmission utility plant assets recorded in their financial statements are provided in Note 1 to the financial statements under the heading "Property, Plant, and Equipment." The proposed ITC would be a limited liability company. The managing member of the ITC would be a separate corporation with a board of directors independent of Entergy. The proposed ITC would: o be regulated by FERC; o own and operate (under the oversight of the RTO) the transmission system transferred to it by the domestic utility companies and other transmission owners in Entergy's current service territory region; o be operated and maintained by employees who would work for the ITC and who would not have any financial interest in Entergy or the domestic utility companies; and o be passively owned by the domestic utility companies and other member companies who transfer assets to the ITC. In March 2001, Entergy, Entergy Services, and the domestic utility companies requested SEC approval under PUHCA of certain elements of the ITC plan. The domestic utility companies have also made filings with their local regulators seeking authorization to implement the ITC plan. In July 2001, the FERC issued an order rejecting the Entergy and SPP proposed RTO on the grounds that it was not large enough to satisfy Order 2000's scope and configuration requirements. At the same time, the FERC indicated that it envisioned the establishment of four RTOs in the United States, one each for the Northeast, Southeast, Midwest, and West. FERC further required utilities within the Northeast and Southeast, including Entergy, to participate in mediation proceedings for the purpose of facilitating the establishment of these regional RTOs. While no consensus was reached during the mediation, following the mediation Entergy continued discussions with the Southern Company and certain municipal and cooperative systems within the Southeast to attempt to develop an RTO proposal. On November 20, 2001, Entergy, the Southern Company, and a number of public power entities filed a proposal with the FERC to establish an RTO for the Southeast referred to as SeTrans. The filing outlined the governance and scope elements of the proposed RTO. The SeTrans sponsors have initiated the process to identify an entity to operate as the RTO and intend to make a more detailed filing with FERC by May 15, 2002. ITC proceedings with state and local regulators have been suspended for the domestic utility companies pending further development of the RTO proposal. In November 2001, FERC issued an order that established a new generation market power screen 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 is buying or selling in the hourly wholesale market within its control area. Entergy requested rehearing of the order, and FERC has delayed the implementation of certain mitigation measures until such time as it has had the opportunity to consider the rehearing request. FERC announced it will convene a technical conference prior to issuing a rehearing order. In September 2001, the LPSC ordered Entergy Gulf States and Entergy Louisiana to show cause as to why these companies should not be enjoined from transferring their transmission assets to an ITC or any similar organization, asserting that FERC does not have jurisdiction to mandate an ITC or RTO. In October 2001, Entergy Gulf States and Entergy Louisiana filed a response to the LPSC's show cause directives. The ultimate outcome of this proceeding cannot be predicted at this time. Retail Rate Regulation General (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) Certain costs related to Grand Gulf 1, Waterford 3, and River Bend were phased into retail rates over a period of years in order to avoid the "rate shock" associated with increasing rates to reflect all such costs at once. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and the portion of Entergy Gulf States regulated by the LPSC have fully recovered such deferred costs associated with one or more of the plants. Entergy New Orleans' phase- in plan was completed in September 2001. The retail regulatory philosophy has shifted in some jurisdictions from traditional, cost-of-service regulation to include performance- based rate elements. Performance-based formula rate plans are designed to encourage efficiencies and productivity while permitting utilities and their customers to share in the benefits. Entergy Mississippi and Entergy Louisiana have implemented performance-based formula rate plans, but Entergy Louisiana's performance-based formula rate plan expired in 2001. Entergy Arkansas Retail Rate Proceedings Entergy Arkansas' material retail rate proceedings that were resolved during the past year, are currently pending, or affect current year results are discussed in Note 2 to the financial statements. Recovery of Grand Gulf 1 Costs Under the settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its share of Grand Gulf 1 costs and recovers the remaining 78% of its share through rates. Under the Unit Power Sales Agreement, Entergy Arkansas' share of Grand Gulf 1 costs is 36%. In the event Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas' cost from the retained share. Fuel Recovery Entergy Arkansas' rate schedules include an energy cost recovery rider to recover fuel and purchased energy costs in monthly bills. The rider utilizes prior year energy costs and projected energy sales for the twelve month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true- up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. Rate Freeze In December 1997, the APSC approved a settlement agreement resolving Entergy Arkansas' transition to competition case. One provision in that settlement was that base rates would remain at the level resulting from that case until at least July 1, 2001. The base rates will remain the same until the next general rate proceeding. The terms of the settlement agreement are discussed in Note 2 to the financial statements. Entergy Gulf States Retail Rate Proceedings Entergy Gulf States' material retail rate proceedings that were resolved during the past year, are currently pending, or affect current year results are discussed in Note 2 to the financial statements. In addition, the 1999 retail rate settlement agreement that resolved Entergy Gulf States' 1996 and 1998 rate proceedings, which is currently under appeal, and various other matters are discussed in Note 2 to the financial statements. Entergy Gulf States' post-merger annual earnings review requirement ceased after the 2001 filing. Entergy plans to propose a statewide formula rate plan in Louisiana, which would include Entergy Gulf States. Texas Jurisdiction - River Bend Costs In March 1998, the PUCT issued an order disallowing recovery of $1.4 billion of company-wide River Bend plant costs which have been held in abeyance since 1988. Entergy Gulf States has appealed the PUCT's decision on this matter to a Texas District Court. The 1999 settlement agreement mentioned above addresses the treatment of abeyed plant costs, and, as a result, Entergy Gulf States removed the reserve for these costs and reduced the carrying value of the plant asset in 1999. Entergy Gulf States agreed not to prosecute its appeal before January 1, 2002 and agreed to cap the recovery of Entergy Gulf States' River Bend abeyed investment at $115 million net plant in service, less depreciation. Entergy Gulf States is now prosecuting its appeal, and argument on the appeal is scheduled for March 22, 2002. The abeyed plant costs are discussed in more detail in Note 2 to the financial statements. Fuel Recovery Entergy Gulf States' Texas rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including carrying charges, not recovered in base rates. The 1999 settlement agreement mentioned above established a methodology for semi-annual revisions of the fixed fuel factor in March and September based on the market price of natural gas. Entergy Gulf States will continue to use this methodology until retail open access begins in Texas. To the extent actual costs vary from the fixed fuel factor, refunds or surcharges are required or permitted. The amounts collected under the fixed fuel factor through the start of retail open access are subject to fuel reconciliation proceedings before the PUCT. At the start of retail open access for Entergy Gulf States in Texas, which will be no sooner than September 15, 2002, fuel and purchased power cost recovery will be subject to the fuel component of the price-to-beat rates approved by the PUCT, as discussed in more detail above under "Industry Restructuring and Competition - Texas - Other PUCT Proceedings." Entergy Gulf States' Louisiana electric rate schedules include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs in the second prior month, adjusted by a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel revenues billed to customers. The LPSC and the PUCT fuel cost reviews that were resolved during the past year or are currently pending are discussed in Note 2 to the financial statements. Entergy Gulf States' Louisiana gas rates include a purchased gas adjustment based on estimated gas costs for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. Entergy Louisiana Retail Rate Proceedings Entergy Louisiana's material retail rate proceedings that were resolved during the past year, are currently pending, or affect current year results are discussed in Note 2 to the financial statements. Recovery of Grand Gulf 1 Costs In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana's share of capacity and energy from Grand Gulf 1, subject to certain terms and conditions. In November 1988, Entergy Louisiana agreed to retain 18% of its share of Grand Gulf 1 costs and recover the remaining 82% of its share through rates. Under the Unit Power Sales Agreement, Entergy Louisiana's share of Grand Gulf 1 costs is 14%. Non-fuel operation and maintenance costs for Grand Gulf 1 are recovered through Entergy Louisiana's base rates. Additionally, Entergy Louisiana is allowed to recover, through the fuel adjustment clause, 4.6 cents per KWH for the energy related to its retained portion of these costs. Alternatively, Entergy Louisiana may sell such energy to nonaffiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC's approval. Performance-Based Formula Rate Plan Entergy Louisiana has filed a performance-based formula rate plan by April 15 of each year that compares the annual rate of return on common equity (ROE) with a benchmark ROE. The benchmark ROE determined under the formula rate plan includes the current approved ROE adjusted for a customer satisfaction performance measure. The formula rate plan allows for periodic adjustments in retail rates if the annually determined actual ROE is outside an allowed range of the benchmark ROE. The performance-based formula rate plan ended in 2001 after the filing for the 2000 test year. Entergy Louisiana's performance-based formula rate plan filings are discussed in Note 2 to the financial statements. Several parties, including Entergy Louisiana, are currently working with the LPSC staff to develop a proposal for a statewide formula rate plan. Fuel Recovery Entergy Louisiana's rate schedules include a fuel adjustment clause designed to recover the cost of fuel in the second prior month, adjusted by a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. Entergy Mississippi Retail Rate Proceedings Entergy Mississippi's material retail rate proceedings that were resolved during the past year, are currently pending, or affect current year results are discussed in Note 2 to the financial statements. Performance-Based Formula Rate Plan Entergy Mississippi files a performance-based formula rate plan every 12 months that compares the annual earned rate of return to, and adjusts it against, a benchmark rate of return. The benchmark is calculated under a separate formula within the formula rate plan. The formula rate plan allows for periodic small adjustments in rates based on a comparison of actual earned returns to benchmark returns and upon certain performance factors. The formula rate plan filing for the 2000 test year is discussed in Note 2 to the financial statements. The formula rate plan filing for the 2001 test year will be submitted in March 2002. Fuel Recovery Entergy Mississippi's rate schedules include an energy cost recovery rider to recover fuel and purchased energy costs. In December 2000, the MPSC approved the recovery of $136.7 million of under- recoveries, plus carrying charges, over a 24-month period effective with the first billing cycle of January 2001. Effective with January 2001 billings, the rider is utilizing projected energy costs filed quarterly by Entergy Mississippi to develop an energy cost rate. The energy cost rate is redetermined each calendar quarter and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy cost as of the second quarter preceding the redetermination. Entergy New Orleans Retail Rate Proceedings Entergy New Orleans' material retail rate proceedings that were resolved during the past year, are currently pending, or affect current year results are discussed in Note 2 to the financial statements. Recovery of Grand Gulf 1 Costs Under Entergy New Orleans' various rate settlements with the Council in 1986, 1988, and 1991, Entergy New Orleans agreed to absorb and not recover from ratepayers a total of $96.2 million of its Grand Gulf 1 costs. Entergy New Orleans was permitted to implement annual rate increases in decreasing amounts each year through 1995, and to defer certain costs and related carrying charges for recovery on a schedule extending from 1991 through 2001. Fuel Recovery Entergy New Orleans' electric rate schedules include a fuel adjustment clause designed to recover the cost of fuel in the second prior month, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. The adjustment also includes the difference between non-fuel Grand Gulf 1 costs paid by Entergy New Orleans and the estimate of such costs, which are included in base rates, as provided in Entergy New Orleans' Grand Gulf 1 rate settlements. Entergy New Orleans' gas rate schedules include an adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, in addition to carrying charges. The Council is currently studying Entergy New Orleans' fuel adjustment methodologies, with the intention of considering means of mitigating the effect on ratepayers of sudden increases in fuel costs. The resolution commencing the study notes that the Council does not intend to deny Entergy New Orleans full recovery of its prudently incurred fuel and purchased power costs. Regulation Federal Regulation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) PUHCA Entergy Corporation and its various direct and indirect subsidiaries are subject to the broad regulatory provisions of PUHCA, with the exception of its EWG and FUCO subsidiaries. Except with respect to investments in EWGs and FUCOs, the principal regulatory provisions of PUHCA: o limit the operations of a registered holding company system to a single, integrated public utility system, plus certain ancillary and related systems and businesses; o regulate certain transactions among affiliates within a holding company system; o govern the issuance, acquisition, and disposition of securities and assets by registered holding companies and their subsidiaries; o limit the entry by registered holding companies and their subsidiaries into businesses other than electric and/or gas utility businesses; and o require SEC approval for certain utility mergers and acquisitions. Entergy Corporation and other electric utility holding companies have supported legislation in the United States Congress to repeal PUHCA and transfer certain aspects of the oversight of public utility holding companies from the SEC to FERC. Entergy believes that PUHCA inhibits its ability to compete in the evolving electric energy marketplace and largely duplicates the oversight activities otherwise performed by FERC and other federal regulators and by state and local regulators. In June 1995, the SEC adopted a report proposing options for the repeal or significant modification of PUHCA, which it continues to support, but the U.S. Congress has not passed legislation pursuant to this report. Federal Power Act The domestic utility companies, System Energy, and Entergy Power are subject to the Federal Power Act as administered by FERC and the DOE. The Federal Power Act provides for regulatory jurisdiction over the transmission and wholesale sale of electric energy in interstate commerce, licensing of certain hydroelectric projects and certain other activities, including accounting policies and practices. Such regulation includes jurisdiction over the rates charged by System Energy for Grand Gulf 1 capacity and energy provided to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas holds a FERC license for two hydroelectric projects totaling 70 MW of capacity that was renewed on July 2, 1980 and expires on February 28, 2003. In December 2000, Entergy Arkansas filed a license extension application with FERC for these two facilities. Regulation of the Nuclear Power Industry (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) Regulation of Nuclear Power Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, the operation of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensing and safety-related requirements. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, as owners of all or portions of ANO, River Bend, Waterford 3, and Grand Gulf 1, respectively, and Entergy Operations, as the licensee and operator of these units, are subject to the jurisdiction of the NRC. Additionally, Entergy's domestic non-utility nuclear business is subject to the NRC's jurisdiction as the owner and operator of Pilgrim, Indian Point Energy Center, and FitzPatrick. Revised safety requirements promulgated by the NRC have, in the past, necessitated substantial capital expenditures at these nuclear plants, and additional expenditures could be required in the future. The nuclear power industry faces uncertainties with respect to the cost and long-term availability of sites for disposal of spent nuclear fuel and other radioactive waste, nuclear plant operations, including security costs, the technological and financial aspects of decommissioning plants at the end of their licensed lives, and requirements relating to nuclear insurance. These matters are briefly discussed below. Regulation of Spent Fuel and Other High-Level Radioactive Waste 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. After twenty years of study, the DOE, in February 2002, formally recommended, and President Bush approved, Yucca Mountain, Nevada as the permanent spent fuel repository. The State of Nevada may veto the site subject to override by simple majority of both houses of Congress. If Yucca Mountain is sustained as the repository site, DOE will proceed with the licensing and eventual construction of the repository and may begin receipt of spent fuel as early as approximately 2010. Otherwise, DOE may not accept spent fuel for a significantly longer period of time. As a result, future expenditures will be required to increase spent fuel storage capacity at Entergy's nuclear plant sites. Information concerning spent fuel disposal contracts with the DOE, current on-site storage capacity, and costs of providing additional on-site storage is presented in Note 9 to the financial statements. Regulation of Low-Level Radioactive Waste The availability and cost of disposal facilities for low-level radioactive waste resulting from normal nuclear plant operations are subject to a number of uncertainties. Under the Low-Level Radioactive Waste Policy Act of 1980, as amended, each state is responsible for disposal of waste originating in that state, but states may participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact) and Mississippi participates in the Southeast Low-Level Radioactive Waste Compact (Southeast Compact). Both the Central States Compact and the Southeast Compact waste facility development projects are on hold and further development efforts are unknown at this time. Neither Massachusetts, where Pilgrim is located, nor New York, where Indian Point Energy Center and FitzPatrick are located, participates in any regional compact and efforts to fulfill their responsibilities have been minimal. Two licensed disposal sites are currently operating in the United States, but only one site, the Barnwell Disposal Facility (Barnwell) located in South Carolina, is open to out-of-region generators. The availability of Barnwell provides only a temporary solution for Entergy's low-level radioactive waste storage and does not alleviate the need to develop new disposal capacity. In June 2000, the governor of South Carolina signed legislation forming a new low-level waste compact with the states of Connecticut and New Jersey. The compact will start restricting acceptance of out-of-region waste in 2002 and totally ban out-of-region waste by 2008. The Southeast Compact has filed sanctions against the host state of North Carolina and the process is currently on hold pending resolution of the sanctions action by the compact. In December 1998, the host state for the Central States Compact, Nebraska, denied the compact's license application. In December 1998, Entergy and two other utilities in the Central States Compact filed a lawsuit against the state of Nebraska seeking damages resulting from delays and a faulty license review process. Entergy Arkansas, Entergy Louisiana, and Entergy Gulf States, along with other waste generators, fund the development costs for new disposal facilities relating to the Central States Compact. Development costs to be incurred in the future are difficult to predict. The current schedules for the site development in both the Central States Compact and the Southeast Compact are undetermined at this time. Until long-term disposal facilities are established, Entergy will seek continued access to existing facilities. If such access is unavailable, Entergy will store low-level waste at its nuclear plant sites. Regulation of Nuclear Plant Decommissioning Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy are recovering through electric rates the estimated decommissioning costs for ANO, River Bend, Waterford 3, and Grand Gulf 1, respectively. These amounts are deposited in trust funds which, together with the related earnings, can only be used for future decommissioning costs. Estimated decommissioning costs are periodically reviewed and updated to reflect inflation and changes in regulatory requirements and technology. Applications are periodically made to appropriate regulatory authorities to reflect, in rates, the changes in projected decommissioning costs. Entergy Arkansas will not recover decommissioning costs in 2002 for ANO 1 and 2 based on the extension of the ANO 1 license and the assumption that the ANO 2 license will be extended and that the existing decommissioning trust funds, together with their expected future earnings, will meet the estimated decommissioning costs. In conjunction with the Pilgrim acquisition, Entergy received Pilgrim's decommissioning trust fund. Entergy believes that Pilgrim's decommissioning fund will be adequate to cover future decommissioning costs for the plant without any additional deposits to the trust. Subject to decommissioning service agreements between Entergy and NYPA, NYPA retains the decommissioning liability and trusts relating to Indian Point 3 and FitzPatrick up to a specified amount. Entergy believes that the amounts that will be available from the trusts will be sufficient to cover the future decommissioning costs of Indian Point 3 and FitzPatrick without any additional contributions to the trusts. As part of the Indian Point 1 and 2 purchase, Consolidated Edison transferred the decommissioning trust fund and the liability to decommission Indian Point 1 and 2 to Entergy. Entergy also funded an additional $25 million to the decommissioning trust fund and believes that the trust will be adequate to cover future decommissioning costs for Indian Point 1 and 2 without any additional deposits to the trust. Additional information with respect to decommissioning costs for ANO, River Bend, Waterford 3, Grand Gulf 1, Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, and FitzPatrick is found in Note 9 to the financial statements. The EPAct requires all electric utilities (including Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) that purchased uranium enrichment services from the DOE to contribute up to a total of $150 million annually over approximately 15 years (adjusted for inflation, up to a total of $2.25 billion) for decontamination and decommissioning of enrichment facilities. At December 31, 2001, five years of assessments remain. In accordance with the EPAct, contributions to decontamination and decommissioning funds are recovered through rates in the same manner as other fuel costs. The estimated annual contributions by Entergy for decontamination and decommissioning fees are discussed in Note 9 to the financial statements. Nuclear Insurance The Price-Anderson Act limits public liability for a single nuclear incident to approximately $9.5 billion. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, System Energy, and Entergy's domestic non-utility nuclear business have protection with respect to this liability through a combination of private insurance and an industry assessment program, as well as insurance for property damage, costs of replacement power, and other risks relating to nuclear generating units. Insurance applicable to the nuclear programs of Entergy is discussed in Note 9 to the financial statements. Nuclear Operations General (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) Entergy Operations operates ANO, River Bend, Waterford 3, and Grand Gulf 1, subject to the owner oversight of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, respectively. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy pay directly or reimburse Entergy Operations at cost for its operation of the nuclear units. Entergy's domestic non-utility nuclear business is the operator of Pilgrim, Indian Point Energy Center, and FitzPatrick. ANO Matters (Entergy Corporation and Entergy Arkansas) In August 2001, the NRC issued a bulletin requesting all pressurized water reactor owners and operators to report on the structural integrity of their reactor vessel head penetration nozzles to justify continued operations past December 31, 2001. These types of reactors are susceptible to water stress corrosion cracking of the reactor vessel head nozzles. ANO 1 and 2 are pressurized water reactors. In March 2001, an inspection of ANO 1 revealed one leaking control rod drive mechanism nozzle, which was subsequently repaired. An inspection at ANO 2 is scheduled during the next refueling outage in April 2002. Entergy Arkansas has received favorable responses from the NRC for continued operations of ANO 1 and 2. Inspections of the ANO 1 steam generators during planned outages also have revealed cracks in certain steam generator tubes, which have been repaired or plugged. The current number of cracks is below the limit authorized by the NRC to allow the unit to remain in operation and has not affected ANO 1's output to date. Using current projections of steam generator tube plugging, the current best estimate is that replacement of the ANO Unit 1 steam generators will be required by 2013. Entergy Operations currently does not expect ANO Unit 1 to have to conduct mid-cycle outages for steam generator inspection before 2005. ANO 2's steam generator was replaced during a refueling outage in the second half of 2000. Entergy Operations is in the process of gathering information and assessing various options for the permanent repair or replacement of ANO 1 and 2's reactor vessel heads and the replacement of ANO 1's steam generators. Certain of these options could, in the future, require significant capital expenditures and/or result in additional unscheduled mid-cycle outages. A decision as to the permanent repair or replacement of the reactor vessel heads and replacement of the steam generators is anticipated in 2002. If permanent replacement is selected, fabrication for a reactor vessel head and steam generators may take up to four years. In December 2000, Entergy Operations applied to the NRC for an amendment to ANO 2's operating license that would allow for an increase in the reactor core power rating. If granted, this amendment will allow ANO 2 to increase its gross electrical output by approximately 90 MW. Entergy Operations has requested action by the NRC on the amendment by April 2002, to permit implementation of the uprate following ANO 2's next scheduled refueling outage. In June 2001, Entergy Arkansas received notification from the NRC of approval for a renewed operating license authorizing operations at ANO 1 through May 2034. Domestic Non-Utility Nuclear (Entergy Corporation) In November 2001, a nonprofit organization, joined by federal and New York state and local officials and other organizations, filed a petition with the NRC alleging that the Indian Point 2 and 3 nuclear power plants were vulnerable to terrorist attack and seeking an immediate shutdown of the plants. Entergy believes the petitioners' requests are without merit and is vigorously contesting the petitioners' allegations. A procedural schedule has not been set by the NRC. Management cannot predict the timing of the NRC's consideration, if any, of this matter. State Regulation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) General Entergy Arkansas is subject to regulation by the APSC, which includes the authority to: o oversee utility service; o set rates; o determine reasonable and adequate service; o require proper accounting; o control leasing; o control the acquisition or sale of any public utility plant or property constituting an operating unit or system; o set rates of depreciation; o issue certificates of convenience and necessity and certificates of environmental compatibility and public need; and o regulate the issuance and sale of certain securities. Entergy Gulf States may be subject to the jurisdiction of the municipal authorities of a number of incorporated cities in Texas as to retail rates and service within their boundaries, with appellate jurisdiction over such matters residing in the PUCT. Entergy Gulf States' Texas business is also subject to regulation by the PUCT as to: o retail rates and service in rural areas; o certification of new transmission lines; and o extensions of service into new areas. Entergy Gulf States' Louisiana electric and gas business and Entergy Louisiana are subject to regulation by the LPSC as to: o utility service; o rates and charges; o certification of generating facilities; o power or capacity purchase contracts; and o depreciation, accounting, and other matters. Entergy Louisiana is also subject to the jurisdiction of the Council with respect to such matters within Algiers in Orleans Parish. Entergy Mississippi is subject to regulation by the MPSC as to the following: o utility service; o service areas; o facilities; and o retail rates. Entergy Mississippi is also subject to regulation by the APSC as to the certificate of environmental compatibility and public need for the Independence Station, which is located in Arkansas. Entergy New Orleans is subject to regulation by the Council as to the following: o utility service; o rates and charges; o standards of service; o depreciation, accounting, and issuance and sale of certain securities; and o other matters. Franchises Entergy Arkansas holds exclusive franchises to provide electric service in approximately 304 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas, franchises are considered to be contracts and, therefore, are terminable upon breach of the terms of the franchise. Entergy Gulf States holds non-exclusive franchises, permits, or certificates of convenience and necessity to provide electric and gas service in approximately 55 incorporated municipalities in Louisiana and to provide electric service in approximately 63 incorporated municipalities in Texas. Entergy Gulf States typically is granted 50- year franchises in Texas and 60-year franchises in Louisiana. Entergy Gulf States' current electric franchises will expire during 2007 - 2036 in Texas and during 2015 - 2046 in Louisiana. The natural gas franchise in the City of Baton Rouge will expire in 2015. In addition, Entergy Gulf States holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within 21 counties in eastern Texas. Retail open access is scheduled to begin in Entergy Gulf States' Texas service territory no sooner than September 15, 2002. Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 116 incorporated Louisiana municipalities. Most of these franchises have 25-year terms, although six of these municipalities have granted 60-year franchises. Entergy Louisiana also supplies electric service in approximately 353 unincorporated communities, all of which are located in Louisiana parishes in which it holds non-exclusive franchises. Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence. Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to city ordinances (except electric service in Algiers, which is provided by Entergy Louisiana). These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties. A resolution to study the advantages for ratepayers that might result from an acquisition of these properties was filed in a committee of the Council in January 2001. The committee has deferred consideration of and has taken no further action regarding that resolution. The full Council must approve the resolution to commence such a study before it can become effective. The business of System Energy is limited to wholesale power sales. It has no distribution franchises. Environmental Regulation General Entergy's facilities and operations are subject to regulation by various domestic and foreign governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that its affected subsidiaries are in substantial compliance with environmental regulations currently applicable to their facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated. Clean Air Legislation The Clean Air Act Amendments of 1990 (the Act) established the following four programs that currently or in the future may affect Entergy's fossil-fueled generation: o an acid rain program for control of sulfur dioxide (SO2) and nitrogen oxides (NOx); o an ozone non-attainment area program for control of NOx and volatile organic compounds; o a hazardous air pollutant emissions reduction program; and o an operating permits program for administration and enforcement of these and other Act programs. Under the current acid rain program, Entergy's subsidiaries have not required additional equipment to control SO2 or NOx. The Act provides SO2 allowances to most of the affected Entergy generating units for emissions based upon past emission levels and operating characteristics. Each allowance is an entitlement to emit one ton of SO2 per year. Under the Act, utilities are required to possess allowances for SO2 emissions from affected generating units. All Entergy fossil-fueled generating units are classified as "Phase II" units under the Act and are subject to SO2 allowance requirements. Entergy is a net buyer of allowances when it generates power using fuel oil. Controls were recently implemented at certain Entergy Gulf States generating units to achieve NOx reductions due to the ozone non- attainment status of areas served in and around Beaumont and Houston, Texas. To date, the cost of additional control equipment necessary to maintain this compliance is immaterial. In April and December 2000, Texas authorities adopted future control strategies for the Beaumont and Houston areas, respectively. These strategies adopted by the State of Texas will cause Entergy Gulf States to incur additional costs for NOx controls through 2007. Entergy commenced projects in 2000 to engineer, procure, and construct needed air pollution control facilities. Cost estimates will be refined as engineering design progresses based on final strategies approved by the EPA. Entergy currently estimates compliance costs to be $22 to $39 million in the Beaumont area and approximately $15 million in the Houston area. Entergy believes the future control strategies in the ozone non- attainment regulations require emission limits that are more restrictive than those related to utility restructuring in Texas. As part of legislation passed in Texas in June 1999 to restructure the electric power industry in the state, certain generating units of Entergy Gulf States will be required to obtain operating permits and meet new, lower emission limits for NOx. As part of its control efforts, Entergy Gulf States is expected to incur costs through 2003 to meet the standards in the restructuring legislation. The State of Louisiana is considering future emission control strategies to address continued ozone non-attainment status of areas in and around Baton Rouge, Louisiana. In November 2001, the LDEQ issued a draft rule for control of NOx as part of the State Implementation Plan (SIP) to bring this area into attainment with the National Ambient Air Quality standards for ozone by May 2005. The draft contains certain provisions that would lead to installation of new NOx control equipment at Entergy Gulf States generating units. Preliminary analyses indicate compliance costs may be as much as $72 million in new capital spending. Most of the related expenditures would take place in 2003 and 2004. The final rule is expected to be in place by March 2002. Cost estimates will be refined as engineering studies progress before and after promulgation of the final NOx rule and approval of the SIP by the EPA. Entergy Gulf States will be required to obtain revised operating permits from the LDEQ and meet new, lower emission limits for NOx. Entergy Gulf States expects to file before October 2002 revised permit applications containing its detailed compliance strategy. In late August 2001, however, a federal magistrate issued a report recommending that the EPA be ordered to make a determination regarding the ozone non- attainment status and any reclassification of the area required as a result of the determination. The recommendation might result in an upgrade from the current status of "serious" to "severe" non-attainment classification for the Baton Rouge area. If this occurs, LDEQ ozone SIP rulemakings could be affected, especially in terms of scheduling. The specific impact of the magistrate's recommendation on Entergy Gulf States will remain unclear until the EPA responds to the magistrate's report. Oil Pollution Prevention and Response The EPA has issued a proposed rule on oil pollution prevention and response. This rule could affect Entergy's operations of its approximately 3,500 transmission and distribution electrical equipment installations that are potentially subject to this proposed rule. If the proposed rule is issued in the form expected by the industry, Entergy will be substantially in compliance with the rule. Nevertheless, there is the possibility that the rule could be issued in a form that would require Entergy to develop site-specific oil spill prevention control and countermeasure plans for the facilities subject to the rule. In addition, secondary containment could be required around the equipment in these facilities. Entergy participates in industry groups involved with the proposed rule and will be monitoring the development of the proposed rule. It is expected that the final rule will be issued in mid-2002. Other Environmental Matters The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), authorizes the EPA and, indirectly, the states, to mandate clean-up, or reimbursement of clean- up costs, by owners or operators of sites from which hazardous substances may be or have been released. Parties that generated or transported hazardous substances to these sites are also deemed liable by CERCLA. CERCLA has been interpreted to impose joint and several liability on responsible parties. The domestic utility companies have sent waste materials to various disposal sites over the years. In addition, environmental laws now regulate certain of the domestic utility companies' operating procedures and maintenance practices which historically were not subject to regulation. Some of Entergy's disposal sites have been the subject of governmental action under CERCLA, resulting in site clean-up activities. The domestic utility companies have participated to various degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with clean-up costs. The affected domestic utility companies have established reserves for such environmental clean-up and restoration activities. Entergy Arkansas Entergy Arkansas entered into a Consent Administrative Order with the ADEQ in which it agreed to conduct initial stabilization associated with contamination at the Utilities Services, Inc. state Superfund site located near Rison, Arkansas. This site was never owned or operated by any Entergy-affiliated company. This site was found to have soil contaminated by polychlorinated biphenyls (PCBs) and pentachlorophenol (a wood preservative). Containers and drums that contained PCBs and other hazardous substances were found at the site. Entergy Arkansas worked with the ADEQ to identify and notify other PRPs with respect to this site. Approximately twenty PRPs have been identified to date. In December 1999, Entergy Arkansas, along with several other PRPs, met with ADEQ representatives to discuss the clean-up of the site. Entergy Arkansas believes that its ultimate responsibility for this site will not materially exceed its existing clean-up provision of $5 million. Entergy has sent a letter of intent to the ADEQ to participate in the site characterization, and Entergy is waiting for a response from the ADEQ. As of December 31, 2001, Entergy Arkansas had incurred approximately $400,000 of clean-up costs at the site. Entergy Gulf States Several class action and other suits have been filed in state and federal courts seeking relief from Entergy Gulf States and others for damages caused by the disposal of hazardous waste and for asbestos- related disease allegedly resulting from exposure on Entergy Gulf States' premises (see "Other Regulation and Litigation" below). In August 1999, Entergy Gulf States received notice from the Texas Natural Resource Conservation Commission (TNRCC) that it is considered to be a PRP for the Spector Salvage Yard in Orange, Texas. The Spector Salvage site operated from approximately 1944 until 1971. In addition to general salvage, the facility functioned as a repository for military surplus equipment and supplies purchased from military, industrial, and chemical facilities. Soil samples from the site indicate the presence of heavy metals and various organics, including PCBs. The TNRCC requested of all PRPs a submission of a good faith offer to fully fund or conduct a remedial investigation. Entergy Gulf States believes that there is insufficient basis for including the company as a PRP. If additional evidence that Entergy Gulf States is a PRP were discovered, Entergy Gulf States would re-evaluate its position. Based on the size of the site, Entergy Gulf States expects that its future expenditures for investigation and clean-up should not exceed its existing clean-up provision of $250,000. Entergy Gulf States is currently involved in a remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana. A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931. Coal tar, a by- product of the distillation process employed at MGPs, was apparently routed to a portion of the property for disposal. The same area has also been used as a landfill. In 1999, Entergy Gulf States signed a second Administrative Consent Order with the EPA to perform removal action at the site. Entergy Gulf States believes that its ultimate responsibility for this site will not materially exceed its existing clean-up provision of $15.1 million. Entergy Gulf States is currently involved in the second phase of an investigation of contamination of an MGP site, known as the Old Jennings Ice Plant, located in Jennings, Louisiana. The MGP is believed to have operated from approximately 1909 to 1926. The site is currently used for an electrical substation and storage of transmission and distribution equipment. In July 1996, a petroleum-like substance was discovered on the surface soil, and notification was made to the LDEQ. The LDEQ was aware of this site based upon a survey performed by an environmental consultant for the EPA. Entergy Gulf States obtained the services of an environmental consultant to collect core samples and to perform a search of historical records to determine what activities occurred at Jennings. Results of the core sampling, which found limited amounts of contamination on-site, were submitted to the LDEQ. A plan to determine a cost-effective remediation strategy will be developed and submitted to the LDEQ for review in 2002. Entergy does not expect that its ultimate financial responsibility with respect to this site will be material. The amount of its existing provision for clean-up is $191,000. In 1994, Entergy Gulf States performed a site assessment in conjunction with a construction project at the Louisiana Station Generating Plant (Louisiana Station). In 1995, a further assessment confirmed subsurface soil and groundwater impact to three areas on the plant site. After further review, a notification was made to the LDEQ. The final phase of groundwater clean up and monitoring at Louisiana Station is expected to continue through 2003. The remediation cost incurred through December 31, 2001 for this site was $6.3 million. Future costs are not expected to exceed the existing provision of $1.2 million. Entergy New Orleans Entergy New Orleans built a new substation on a parcel of land located adjacent to an existing substation which is in close proximity to the former Market Street power plant. During pre-construction activities in January 2000, significant levels of lead were discovered in the soil at this site. Entergy New Orleans notified the LDEQ of the contamination. The contamination at this site was addressed using the LDEQ Risk Evaluation/Corrective Action Plan. The work has been completed and the final closure report was submitted in the first quarter of 2001. The cost of this remediation was approximately $1 million. Entergy is awaiting final written LDEQ approval. No further environmental activity is anticipated. Entergy Louisiana and Entergy New Orleans Several class action and other suits have been filed in state and federal courts seeking relief from Entergy Louisiana and Entergy New Orleans and others for damages caused by the disposal of hazardous waste and for asbestos-related disease allegedly resulting from exposure on Entergy Louisiana's and Entergy New Orleans' premises (see "Other Regulation and Litigation" below). The Southern Transformer shop located in New Orleans has served both Entergy Louisiana and Entergy New Orleans. This transformer shop is now being closed and environmental assessments are now being performed to determine what remediation may be necessary. Based on preliminary findings, an expected clean-up cost of $750,000 has been accrued for this project. From 1992 to 1994, Entergy Louisiana performed remedial activities at a retired power plant known as the Thibodaux municipal site, previously owned and operated by a Louisiana municipality. Entergy Louisiana purchased the power plant at this site as part of the acquisition of municipal electric systems. The site assessment indicated some subsurface contamination from fuel oil. Remediation of the Thibodaux site is expected to continue through 2002. The cost incurred through December 31, 2001 for the Thibodaux site was approximately $657,000. Future costs are not expected to exceed the remaining provision of $174,000 at December 31, 2001. The LDEQ is currently reviewing a groundwater assessment completed in 2001. Results of the review will determine what additional remediation remains to be completed. 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 chose to remediate and repair or close them. Completion of this work is pending LDEQ approval. LDEQ has issued notices of deficiencies for certain of these sites. As a result, recorded liabilities in the amounts of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at December 31, 2001 for wastewater remediation and repairs and closures. Management of Entergy Louisiana and Entergy New Orleans believes these reserves are adequate based on current estimates. Other Regulation and Litigation Entergy Corporation and Entergy Gulf States Merger The APSC, Arkansas Cities and Cooperatives, Arkansas Electric Energy Consumers, the MPSC, and the State of Mississippi appealed to the D.C. Circuit the FERC's approval of the merger of Entergy Corporation and Gulf States Utilities. Entergy and the LPSC intervened in support of the FERC. The appellants seek to overturn the FERC's decision on two broad grounds: first, whether the FERC's approval of the addition of Gulf States produced an unjust and discriminatory rate in violation of Federal Power Act section 205; and second, whether the FERC's approval of the merger without conducting an evidentiary hearing on the effect of the merger on wholesale generation violated Federal Power Act section 203. The D.C. Circuit scheduled oral argument for April 2002. Management cannot predict the timing or outcome of this proceeding. Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) Entergy Corporation and the domestic utility companies are defendants in numerous lawsuits that have been filed by former employees alleging that they were wrongfully terminated and/or discriminated against on the basis of age, race, and/or sex. Entergy Corporation and the domestic utility companies are vigorously defending these suits and deny any liability to the plaintiffs. However, no assurance can be given as to the outcome of these cases, and at this time management cannot estimate the total amount of damages sought. Asbestos and Hazardous Waste Suits (Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) Numerous lawsuits have been filed in federal and state courts in Texas and Louisiana primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana and Entergy New Orleans, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well. Since 1992, the Entergy companies have resolved over 3 thousand claims for nominal amounts that in the aggregate total less that $13 million, including defense costs. Some of this loss has been offset by reimbursement from insurers. Presently there are over 3 thousand claims pending and 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 its financial position or results of operation. Ratepayer Lawsuits (Entergy Corporation, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) Vidalia Project Sub-Docket Marathon Oil Company and Louisiana Energy Users Group, intervenors in another proceeding that has since been settled, requested that the LPSC review the prudence of a contract entered into by Entergy Louisiana to purchase energy generated by a hydroelectric facility known as the Vidalia project through the year 2031. Note 9 to the financial statements contains further discussion of the obligations related to the Vidalia project. By orders entered by the LPSC in 1985 and 1990, the LPSC approved Entergy Louisiana's entry into the Vidalia contract and Entergy Louisiana's right to recover, through the fuel adjustment clause, the costs of power purchased thereunder. Additionally, the wholesale electric rates under the Vidalia power purchase contract were filed at FERC. In December 1999, the LPSC instituted a review of the following issues relating to the Vidalia project: (i) the LPSC's jurisdiction over the Vidalia project; (ii) Entergy Louisiana's management of the Vidalia contract, including opportunities to restructure or otherwise reform the contract; (iii) the appropriateness of Entergy Louisiana's recovery of 100% of the Vidalia contract costs from ratepayers; (iv) the appropriateness of the fuel adjustment clause as the method for recovering all or part of the Vidalia contract costs; (v) the appropriate regulatory treatment of the Vidalia contract in the event the LPSC approves implementation of retail competition; and (vi) Entergy Louisiana's communication of pertinent information to the LPSC regarding the Vidalia project and contract. Based on its review, the LPSC will determine whether it should disallow any of the costs of the Vidalia project included in the fuel adjustment clause. In late April and early May 2001, the LPSC conducted hearings addressing these issues, except for the issue of the appropriate regulatory treatment of the Vidalia contract in the event the LPSC approves implementation of retail competition. With regard to that issue, the parties entered a joint stipulation that the issue more appropriately would be considered in a separate, existing docket specifically devoted to stranded-cost-related issues. With regard to the other issues, Entergy Louisiana asserted at the hearings that it has prudently managed the Vidalia contract and that, through final orders issued in 1985 and 1990, the LPSC itself previously has recognized Entergy Louisiana's prudence by formally and expressly approving the Vidalia contract and the recovery through the fuel adjustment clause of all amounts paid by Entergy Louisiana pursuant to the FERC-filed rate. The LPSC staff alleged at the hearings that the Vidalia project owners' July 30, 1990 request that the LPSC clarify the LPSC's 1985 order (approving the Entergy Louisiana/Vidalia project purchase power agreement) and approve a sale and leaseback of the project, presented Entergy Louisiana with an approximately three-week "window of opportunity" (prior to the LPSC's issuance of the 1990 order) during which Entergy Louisiana could have used its purported leverage either: (1) to attempt to restructure the FERC-filed rate schedule contained in the Vidalia contract; or (2) to attempt to secure a concession from the Vidalia project owners whereby, at a minimum, the owners would share with Entergy Louisiana ratepayers some portion of what the LPSC staff quantifies as approximately $90 million of tax benefits. The LPSC staff and intervenors further alleged at the hearings that Entergy Louisiana was imprudent for not preparing and presenting to the LPSC during the August 1990 hearings on the Vidalia project owners' motion for clarification, an updated life cycle economic analysis showing that, as of August 1990, the Vidalia contract appeared to have become uneconomic due to the significant drop in projected avoided costs precipitated by, among other things, the legislative repeal of the Fuel Use Act of 1978 and the steep decline in oil and gas prices in the mid- to late-1980s. Additionally, Marathon Oil Company and the Sewerage and Water Board of New Orleans alleged at the hearings that the Vidalia project owners had incurred construction cost overruns and escalating operating costs, and had paid excessive royalties to the Town of Vidalia, and that these costs were imprudent and should be disallowed, in whole or in part. However, these intervenors recommended that, although Entergy Louisiana ratepayers should reap the benefits of any such disallowances, the Town of Vidalia and the Vidalia project owners, and not Entergy Louisiana, should bear the cost of any such disallowances. The LPSC staff has proposed several alternative and non-mutually- exclusive remedies, including without limitation: reducing prospectively some portion of the above market Vidalia contract costs that Entergy Louisiana is allowed to recover through the fuel adjustment clause; shifting prudently incurred costs to base rates and disallowing imprudently-incurred costs; imposing a rate of return performance penalty for some appropriate period of time; and disallowing as part of fuel cost recovery some portion of the purported tax savings and other benefits associated with the 1990 clarification motion, plus interest since 1990. The LPSC staff has recommended that the ALJ who presided over the hearings make a recommendation to the LPSC with regard to the prudence and jurisdictional issues and certify the question of remedies to the LPSC. The post-hearing briefing to the ALJ was completed in November 2001. The parties await the ALJ's recommendations. Entergy New Orleans Fuel Clause Lawsuit In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also seek to recover interest and attorneys' fees. Exceptions to the plaintiffs' allegations were filed by Entergy, asserting, among other things, that jurisdiction over these issues rests with the Council and FERC. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. At present, the suit in state court is stayed by stipulation of the parties. Plaintiffs also filed this complaint with the Council in order to initiate a review by the Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Discovery has begun in the proceedings before the Council. Testimony was filed on behalf of the plaintiffs in this proceeding in April 2000 and has been supplemented. The testimony, as supplemented, asserts, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in New Orleans customers being overcharged by more than $100 million over a period of years. In June 2001, the Council's Advisors filed testimony on these issues in which they allege that Entergy New Orleans ratepayers may have been overcharged by more than $32 million, the vast majority of which is reflected in the plaintiffs' claim. However, it is not clear precisely what periods and damages are being alleged in the proceeding. Entergy intends to defend this matter vigorously, both in court and before the Council. Hearings began in February 2002. The ultimate outcome of the lawsuit and the Council proceeding cannot be predicted at this time. Entergy New Orleans Rate of Return Lawsuit In April 1998, a group of residential and business ratepayers filed a complaint against Entergy New Orleans in state court in Orleans Parish purportedly on behalf of all ratepayers in New Orleans. The plaintiffs allege that Entergy New Orleans overcharged ratepayers by at least $300 million since 1975 in violation of limits on Entergy New Orleans' rate of return that the plaintiffs allege were established by ordinances passed by the Council in 1922. The plaintiffs seek, among other things, (i) a declaratory judgment that such franchise ordinances have been violated; and (ii) a remand to the Council for the establishment of the amount of overcharges plus interest. Entergy New Orleans believes the lawsuit is without merit. Entergy New Orleans has charged only those rates authorized by the Council in accordance with applicable law. In May 2000, a court of appeal granted Entergy New Orleans' exception to jurisdiction in the case and dismissed the proceeding. The Louisiana Supreme Court denied the plaintiff's request for a writ of certiorari. The plaintiffs then commenced a similar proceeding before the Council. The plaintiffs and the advisors for the Council each filed their first round of testimony in January 2002. In their testimony, the plaintiffs allege that Entergy New Orleans earned in excess of the legally authorized rate of return during the period 1979 to 2000 and that Entergy New Orleans should be required to refund between $240 million and $825 million to its ratepayers. In the testimony submitted by the Council advisors, the advisors allege that Entergy New Orleans has not earned in excess of its authorized rate of return for the period at issue and that no refund is therefore warranted. A hearing is scheduled to begin in June 2002. Management cannot predict the outcome of the proceeding before the Council. Entergy Gulf States Merger Savings Lawsuit In February 2002, various plaintiffs, who claim to be customers of Entergy Gulf States in Texas and further claim to be class representatives for all other similarly situated customers, filed a lawsuit against Entergy Gulf States and Entergy Corporation in the district court of Jefferson County, Texas. The petition alleges that Entergy Corporation and Entergy Gulf States violated the 1993 agreement entered by parties to the Entergy-Gulf States Utilities merger docket in Texas by failing to pass 100% of Texas retail non-fuel merger- related savings to Entergy Gulf States' ratepayers in Texas beginning on January 1, 2002. The petition alleges that the non-fuel merger- related savings accrue at a rate of about $2 million per month. The petition seeks damages, exemplary damages, and attorney's fees and costs, in addition to certification of the case as a class action. Entergy will vigorously contest the plaintiffs' allegations. Management cannot predict the outcome of this litigation at this time. Entergy Louisiana Formula Ratemaking Plan Lawsuit In May 1998, a group of ratepayers filed a complaint against Entergy Louisiana and the LPSC in state court in East Baton Rouge Parish purportedly on behalf of all Entergy Louisiana ratepayers. The plaintiffs allege that the formula ratemaking plan authorized by the LPSC has allowed Entergy Louisiana to earn amounts in excess of a fair return. The plaintiffs seek, among other things, (i) a declaratory judgment that the formula ratemaking plan is an improper ratemaking practice; and (ii) a refund of the amounts allegedly charged in excess of proper ratemaking practices. Entergy Louisiana believes the lawsuit is without merit and plans to vigorously defend itself. This case has not been active, and abandonment issues are being evaluated. At this time, management cannot determine the amount of damages being sought. July 1999 Power Outages Lawsuit (Entergy Gulf States, Entergy Louisiana, Entergy New Orleans) In February 2000, a lawsuit was commenced in state court in Orleans Parish, Louisiana, against Entergy, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans relating to power outages that occurred in July 1999. The plaintiff, who purports to represent a class of similarly situated persons, claims unspecified damages as a result of these outages, which the plaintiff claims were the result of negligence on the part of the Entergy defendants. Plaintiffs have instituted similar proceedings before the LPSC and the City Council. All of these proceedings have been resolved by settlement for a nominal amount. Street Lighting Lawsuit (Entergy New Orleans) In February 2002, the City of New Orleans (City) filed a petition against Entergy New Orleans in state court in Orleans Parish, seeking declaratory relief, injunctive relief, an unspecified amount of monetary damages, and attorney and consulting fees and costs. The City's petition alleges that Entergy New Orleans has breached its obligations to the City related to the provision of street lighting. The City claims that Entergy New Orleans has not fulfilled all services required under the various street lighting contracts, has over-billed for some services, and has billed for services that were not authorized. Entergy New Orleans intends to defend this matter vigorously. The ultimate outcome of the lawsuit cannot be predicted at this time. Franchise Fee Litigation (Entergy Corporation and Entergy Gulf States) In September 1998, the City of Nederland filed a petition against Entergy Gulf States and Entergy Services in state court in Jefferson County, Texas, purportedly on behalf of all Texas municipalities that have ordinances or agreements with Entergy Gulf States. The lawsuit alleges that Entergy Gulf States has been underpaying its franchise fees due to failure to properly calculate its gross receipts. The plaintiff seeks a judgment for the allegedly underpaid fees and punitive damages. Entergy Gulf States believes the lawsuit is without merit and is vigorously defending itself. The trial in this matter is scheduled to begin in November 2002. At this time, management cannot determine the amount of damages being sought. Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf States, and Entergy Louisiana) In 1998, a group of property owners filed a class action suit against Entergy Corporation, Entergy Gulf States, Entergy Services and ETHC in state court in Jefferson County, Texas purportedly on behalf of all property owners in each of the states throughout the Entergy service area who have conveyed easements to the defendants. The lawsuit alleged that Entergy installed fiber optic cable across their property without obtaining appropriate easements. The plaintiffs sought actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. The state court petition was voluntarily dismissed, and the plaintiffs commenced a class action suit with the same claims in the United States District Court in Beaumont, Texas. Both sides have filed motions for summary judgment, which were heard by the court in late 2001. The magistrate's recommendation to the district judge found that two of the four types of easements did not allow Entergy to place its fiber on the property and the other two were ambiguous and required a jury determination. Subsequently, the district judge held oral arguments and has taken the motions under advisement. Entergy believes the easements did provide it the right to place the fiber optic cable. If the court or jury disagrees, Entergy believes that any damages suffered by the plaintiff landowners are negligible and that there is no basis for the claim seeking a share of profits. At this time, management cannot determine the specific amount of damages being sought. In January 2002, a class action lawsuit asserting similar allegations to those alleged in the lawsuit filed in Texas was commenced in state court in Ascension Parish, Louisiana, against Entergy Louisiana, Entergy Services, ETHC, and Entergy Technology Company, purportedly on behalf of all similarly situated property owners in Louisiana. The plaintiffs seek injunctive and declaratory relief and an unspecified amount of damages. The defendants intend to vigorously defend the lawsuit. At this time, management cannot determine the specific amount of damages being sought. Franchise Service Area Litigation (Entergy Gulf States) In early 1998, Beaumont Power and Light Company (BP&L) unsuccessfully sought a franchise to provide electric service in the City of Beaumont, Texas, where Entergy Gulf States already holds a franchise. In November 1998, BP&L filed a request before the PUCT to obtain a certificate of convenience and necessity (CCN) for those portions of Jefferson County outside the boundaries of any municipality for which Entergy Gulf States provides retail electric service. BP&L's application contemplates using Entergy Gulf States' facilities in their provision of service. In Texas, utilities are required to obtain a CCN prior to providing retail electric service. Jefferson County is currently singly certificated to Entergy Gulf States. If BP&L's application is granted, BP&L would be able to provide retail service to Entergy Gulf States' customers in the area for which the certificate would apply. BP&L has amended its application to add a request for a CCN to provide retail electric service within the City of Beaumont. The amended application acknowledges that the Texas electric utility restructuring law requires BP&L to use its own facilities to connect to its customers if it is granted a CCN. In April 2000, the ALJ recommended denial of BP&L's application. In May 2000, the PUCT voted to remand the proceeding back to the ALJ to allow BP&L to provide further evidence. BP&L filed an updated business plan, pro formas, and direct testimony in response to the remand order. A hearing on the merits was held in November 2001 in which Entergy Gulf States and the PUCT staff argued that BP&L failed to demonstrate its requested certificate should be granted. The parties are awaiting the ALJ's proposal for decision. Litigation Environment (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The four states in which the domestic utility companies operate, in particular Louisiana, Mississippi, and Texas, have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment in these states poses a significant business risk. EARNINGS RATIOS OF DOMESTIC UTILITY COMPANIES AND SYSTEM ENERGY The domestic utility companies' and System Energy's ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of SEC Regulation S-K are as follows: Ratios of Earnings to Fixed Charges Years Ended December 31, 2001 2000 1999 1998 1997 Entergy Arkansas 3.29 3.01 2.08 2.63 2.54 Entergy Gulf States 2.36 2.60 2.18 1.40 1.42 Entergy Louisiana 2.76 3.33 3.48 3.18 2.74 Entergy Mississippi 2.14 2.33 2.44 3.12 2.98 Entergy New Orleans (b) 2.66 3.00 2.65 2.70 System Energy 2.12 2.41 1.90 2.52 2.31 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Years Ended December 31, 2001 2000 1999 1998 1997 Entergy Arkansas 2.99 2.70 1.80 2.28 2.24 Entergy Gulf States (a) 2.21 2.39 1.86 1.20 1.23 Entergy Louisiana 2.51 2.93 3.09 2.75 2.36 Entergy Mississippi 1.96 2.09 2.18 2.80 2.69 Entergy New Orleans (b) (b) 2.43 2.74 2.41 2.44 (a) "Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock, which was redeemed in July 2000. (b) For Entergy New Orleans, earnings for the twelve months ended December 31, 2001 were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively. BUSINESS SEGMENTS AND PRODUCTS Entergy Corporation Entergy's business segments are discussed in Note 12 to the financial statements. Entergy New Orleans and Entergy Gulf States Entergy New Orleans and Entergy Gulf States provide two products within their utility operations, electric power and natural gas. For the year ended December 31, 2001, 98% of Entergy Gulf States' operating revenue was derived from the electric utility business, and only 2% from the natural gas distribution business. Following is data concerning Entergy New Orleans retail operating revenue sources and its customer data as of December 31, 2001: Electric Operating Natural Gas Revenue Revenue Residential 39% 55% Commercial 38% 20% Industrial 6% 11% Governmental/Municipal 17% 14% Number of Customers 189,000 148,000 Financial Information Relating to Products and Services Revenues from Entergy New Orleans' and Entergy Gulf States' electric power and natural gas sales are presented in their respective income statements. PROPERTY Generating Stations Domestic Utility and System Energy The total capability of the generating stations owned and leased by the domestic utility companies and System Energy as of December 31, 2001, by company and by fuel type, is indicated below: <TABLE> <CAPTION> Owned and Leased Capability MW(1) Gas Turbine and Internal Company Total Fossil Nuclear Combustion Hydro <S> <C> <C> <C> <C> <C> Entergy Arkansas 4,637 2,704 1,782 83 68 Entergy Gulf States 6,560 5,580 980 - - Entergy Louisiana 5,286 4,181 1,093 12 - Entergy Mississippi 2,922 2,917 - 5 - Entergy New Orleans 967 956 - 11 - System Energy 1,122 - 1,122 - - ------ ------ ----- --- -- Total 21,494 16,338 4,977 111 68 ====== ====== ===== === == </TABLE> (1) "Owned and Leased Capability" is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. Entergy's domestic utility business is subject to seasonal fluctuations, with the peak period occurring in the summer months. The 2001 peak demand of 20,257 MW occurred on August 21, 2001. Entergy's load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections in light of the availability of power, the location of new loads, and maximum economy to Entergy. Domestically, based on load and capability projections and bulk power availability, Entergy's domestic utility companies meet the need for new generation resources by means other than construction of new base load generating capacity. Entergy's domestic utility companies expect to meet future capacity needs by, among other things, purchasing in the wholesale power market, including plans to contract for up to 3,000 MW of purchased power to meet the expected needs of the domestic utility companies in the summer of 2002. In addition, to address this capacity shortage, the domestic utility companies are currently considering resource plans that could include building additional capacity, re-powering existing power plants, continuing to obtain purchased power, or a combination of those options. The domestic utility companies expect to present these resource plans in 2002 to their regulators. Entergy also reactivated several units in 1999 and 2000 that were in extended reserve shutdown to assist in serving customers during periods of peak demand. Under the terms of the System Agreement, generating capacity and other power resources are shared among the domestic utility companies. The System Agreement provides, among other things, that parties having generating reserves greater than their load requirements (long companies) shall receive payments from those parties having deficiencies in generating reserves (short companies). Such payments are at amounts sufficient to cover certain of the long companies' costs, including operating expenses, fixed charges on debt, dividend requirements on preferred and preference stock, and a fair rate of return on common equity investment. Under the System Agreement, these charges are based on costs associated with the long companies' steam electric generating units fueled by oil or gas. In addition, for all energy exchanged among the domestic utility companies under the System Agreement, the short companies are required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs. FERC proceedings relating to proposed amendments to the System Agreement are discussed more thoroughly in "RATE MATTERS, REGULATION, AND LITIGATION - Rate Matters - Wholesale Rate Matters - System Agreement," above. Domestic Non-Utility Nuclear The capacity of the operating nuclear generating stations owned by the domestic non-utility nuclear segment as of December 31, 2001 is indicated below: Plant Location Owned Capacity MW (1) Pilgrim Plymouth, Massachusetts 670 FitzPatrick Oswego, New York 825 Indian Point 2 Westchester County, New York 970 Indian Point 3 Westchester County, New York 980 (1) "Owned Capacity" refers to the nameplate rating on the generating unit. In August 2001, Entergy's domestic non-utility nuclear segment agreed to purchase the 510 MW Vermont Yankee Nuclear Power Plant in Vernon, Vermont, from Vermont Yankee Nuclear Power Corporation for $180 million, to be paid in cash upon closing. Entergy will receive the plant, nuclear fuel, inventories, and related real estate. Management expects to close the transaction by the summer of 2002, pending the approvals of the NRC, the Public Service Board of Vermont, FERC, and other regulatory agencies. Energy Commodity Services The capacity of the generating stations owned in the energy commodity services segment as of December 31, 2001 is indicated below: Owned Capacity (1) Plant Location MW Type North America Ritchie Unit 2 Helena, Arkansas 544 Fossil Independence Unit 2 Newark, Arkansas 121 (2) Fossil Warren Power Vicksburg, Mississippi 300 Simple Cycle Gas Turbine Top of Iowa Worth County, Iowa 80 Wind Europe Damhead Creek Kent, England 800 Combined-Cycle Gas Turbine (1) "Owned Capacity" refers to the nameplate rating on the generating unit. (2) The owned MW capacity is the portion of the plant capacity owned by Entergy. For a complete listing of Entergy's joint-owned generating stations, refer to "Jointly-Owned Generating Stations" in Note 1 to the financial statements. Entergy's energy commodity services segment also has minority investments in companies owning the following generating stations in Latin America: Costanera, a 2000 MW fossil generation facility located in Buenos Aires, Argentina; Central Buenos Aires, a 220 MW combined- cycle gas turbine addition to the Costanera plant; San Isidro, a 375 MW combined-cycle gas turbine power plant located in Quillota, Chile; and Edegel, a 1000 MW hydroelectric and fossil generation facility located in Lima, Peru. Entergy's energy commodity services segment is currently constructing the following projects. The Crete Project, a 320 MW simple cycle gas turbine merchant power plant in Crete, Illinois, is anticipated to be operational in June 2002. Entergy will own approximately 160 MW of the capacity of the Crete plant, with the remainder owned by DTE Energy. During 2000, construction began on the RS Cogen Project, a 425 MW combined-cycle gas turbine power plant in Lake Charles, Louisiana. Entergy will own approximately 212 MW, with the remainder owned by PPG Industries. RS Cogen is expected to begin operation in 2002. Construction also began in 2001 on the Northeast Texas Electric Cooperative Project, a 550 MW combined-cycle gas turbine power plant in Harrison County, Texas. Entergy will own approximately 385 MW once construction is completed and operation has begun (currently projected to be June 2003), with Northeast Texas Electric Cooperative, Inc. owning the remainder. Interconnections Domestic Utility The electric generating facilities of Entergy's domestic utility companies consist principally of steam-electric production facilities. These generating units are interconnected by a transmission system operating at various voltages up to 500 KV. With the exception of a small portion of Entergy Mississippi's capacity, operating facilities or interests therein generally are owned or leased by the domestic utility company serving the area in which the generating facilities are located. All of these generating facilities are centrally dispatched and operated. Entergy's domestic utility companies are interconnected with many neighboring utilities. In addition, the domestic utility companies are members of the Southeastern Electric Reliability Council (SERC). The primary purpose of SERC is to ensure the reliability and adequacy of the electric bulk power supply in the southeast region of the United States. SERC is a member of the North American Electric Reliability Council. Domestic Non-Utility Nuclear The electric generating facilities of Entergy's domestic non- utility nuclear segment consists of the Pilgrim nuclear production facility, the James A. FitzPatrick nuclear production facility, and the Indian Point Energy Center nuclear production facility. The Pilgrim plant is dispatched as a part of Independent System Operator (ISO) New England. The primary purpose of ISO New England is to direct the operations of the major generation and transmission facilities in the New England region. The James A. FitzPatrick and Indian Point Energy Center plants are dispatched by the New York Independent System Operator (NYISO). The primary purpose of NYISO is to direct the operations of the major generation and transmission facilities in New York state. Gas Property As of December 31, 2001, Entergy New Orleans distributed and transported natural gas for distribution solely within the limits of the City of New Orleans through a total 33 miles of gas transmission pipelines, 1,473 miles of gas distribution mains, and 1,034 miles of gas service line from the distribution mains to the customers. As of December 31, 2001, the gas properties of Entergy Gulf States, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Gulf States' financial position. Titles Entergy's generating stations and major transmission substations are generally located on properties owned in fee simple. The greater portion of the transmission and distribution lines of the domestic utility companies have been constructed on property of private owners pursuant to easements or on public highways and streets pursuant to appropriate franchises. The rights of each company in the property on which its utility facilities are located are considered by such company to be adequate for use in the conduct of its business. Minor defects and irregularities customarily found in properties of like size and character may exist, but such defects and irregularities do not, in the opinion of management, materially impair the use of the properties affected thereby. The domestic utility companies generally have the right of eminent domain, whereby they may, if necessary, perfect or secure titles to, or easements or servitudes on, privately held lands used in or reasonably necessary for their utility operations. Substantially all of the physical properties and assets owned by Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy are subject to the liens of mortgages securing the first mortgage bonds of such company. The Lewis Creek generating station is owned by GSG&T, Inc., a subsidiary of Entergy Gulf States, and is not subject to the lien of the Entergy Gulf States mortgage securing the first mortgage bonds of Entergy Gulf States, but is leased to and operated by Entergy Gulf States. All of the debt outstanding under the original first mortgages of Entergy Mississippi and Entergy New Orleans has been retired and the original first mortgages were cancelled in 1999 and 1997, respectively. As a result, the general and refunding mortgages of Entergy Mississippi and Entergy New Orleans now each constitute a first mortgage lien on substantially all of the respective physical properties and assets of these two companies. FUEL SUPPLY The sources of generation and average fuel cost per KWH for the domestic utility companies and System Energy for the years 1999-2001 were: Natural Gas Fuel Oil Nuclear Fuel Coal % Cents % Cents % Cents % Cents of Per of Per of Per of Per Year Gen KWH Gen KWH Gen KWH Gen KWH 2001 34 4.62 8 4.33 43 .50 15 1.58 2000 42 4.90 4 3.90 39 .56 15 1.51 1999 45 2.75 4 2.06 35 .54 16 1.59 Actual 2001 and projected 2002 sources of generation for the domestic utility companies and System Energy are: Natural Gas Fuel Oil Nuclear Coal 2001 2002 2001 2002 2001 2002 2001 2002 Entergy Arkansas (a) 7% 7% - - 61% 61% 31% 31% Entergy Gulf States 57% 57% 1% - 27% 25% 15% 18% Entergy Louisiana 48% 58% 5% - 47% 42% - - Entergy Mississippi 22% 69% 51% - - - 27% 31% Entergy New Orleans 84% 100% 16% - - - - - System Energy - - - - 100%(b) 100%(b) - - Total (a) 34% 40% 8% 0% 43% 43% 15% 16% (a) Hydroelectric power provided 1% of Entergy Arkansas' generation in 2001 and is expected to provide 1% of its generation in 2002. (b) In addition to the nuclear capacity given above for the following companies, the Unit Power Sales Agreement allocates capacity and energy from System Energy's interest in Grand Gulf 1 as follows: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Natural Gas The domestic utility companies have long-term firm and short-term interruptible gas contracts. Long-term firm contracts comprise less than 26% of the domestic utility companies' total requirements but can be called upon, if necessary, to satisfy a significant percentage of the domestic utility companies' needs. Short-term contracts and spot- market purchases satisfy additional gas requirements. Entergy Gulf States has a transportation service agreement with a gas supplier that provides flexible natural gas service to certain generating stations by using such supplier's pipeline and gas storage facility. Entergy's energy commodity services segment has entered into 15-year gas supply contracts at the project level to supply up to 100% of the gas requirements for the Damhead Creek power plant located in the UK. Many factors, including wellhead deliverability, storage and pipeline capacity, and demand requirements of end users, influence the availability and price of natural gas supplies for power plants. Demand is tied to weather conditions as well as to the prices of other energy sources. Gas demands leveling out to meet more consistently with supplies and higher storage levels brought prices down in 2001. Entergy's supplies of natural gas are expected to be adequate in 2002. However, pursuant to federal and state regulations, gas supplies to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or natural gas prices significantly increase, the domestic utility companies will use alternate fuels, such as oil, or rely to a larger extent on coal and nuclear generation. Coal Entergy Arkansas has long-term contracts for low-sulfur Wyoming coal for White Bluff and Independence. These contracts, which expire in 2002 and 2011, respectively, provide for approximately 70% of Entergy Arkansas' expected coal requirements for 2002. At the expiration of the White Bluff long-term contract in 2002, Entergy plans to enter into short-term and medium-term contracts for White Bluff coal supply based on the company's procurement strategy. Entergy Arkansas has an additional 20% of its 2002 coal requirement committed in a number of one year contracts. Additional requirements are satisfied by spot market purchases. Entergy Gulf States has a contract for the supply of low-sulfur Wyoming coal for Nelson Unit 6, which should be sufficient to satisfy its fuel requirements for that unit at current consumption rates through the first quarter of 2003. The contract includes options to extend supply to 2010 if all price re-openers are accepted. If both parties cannot agree upon a price, then the contract terminates. Effective April 1, 2000, Louisiana Generating LLC assumed Cajun's ownership interest in the Big Cajun 2 generating facilities and operates the plant, which is 42% owned by Entergy Gulf States. The management of Louisiana Generating LLC has advised Entergy Gulf States that it has executed coal supply and transportation contracts that should provide an adequate supply of coal for the operation of Big Cajun 2, Unit 3 for the foreseeable future. Entergy Arkansas has a long-term railroad transportation contract for the delivery of coal to both White Bluff and Independence. This contract will expire in the year 2011. Entergy Arkansas has settled its lawsuit against the railroad that claimed breach of contract by the railroad and requested termination of the contract. Beginning in 2002, a portion of White Bluff's coal requirements will be delivered by a second carrier under a long-term transportation agreement. This agreement will expire on December 31, 2006. Entergy Gulf States has transportation requirements contracts with railroads to deliver coal to Nelson Unit 6 through December 31, 2004. Each of the two contracts governs the movement of approximately one- half of the plant's requirements and the base contract provides flexibility for shipping up to all of the plant's requirements. Nuclear Fuel The nuclear fuel cycle involves the following: o mining and milling of uranium ore to produce a concentrate; o conversion of the concentrate to uranium hexafluoride gas; o enrichment of the hexafluoride gas; o fabrication of nuclear fuel assemblies for use in fueling nuclear reactors; and o disposal of spent fuel. System Fuels is responsible for contracts to acquire nuclear material to be used in fueling Entergy Arkansas', Entergy Louisiana's, and System Energy's nuclear units. System Fuels also maintains inventories of such materials during the various stages of processing. Each of these companies purchases enriched uranium hexafluoride from System Fuels, but contracts separately for the fabrication of its own nuclear fuel. The requirements for River Bend are pursuant to contracts made by Entergy Gulf States. The requirements for Pilgrim, FitzPatrick, Indian Point 2, and Indian Point 3 are pursuant to contracts made by Entergy's domestic non-utility nuclear business. Entergy Nuclear Fuels Company is responsible for contracts to acquire nuclear materials, except for fuel fabrication, for these non-utility nuclear plants. Based upon currently planned fuel cycles, Entergy's nuclear units currently have contracts and inventory that provide adequate materials and services. Existing contracts for uranium concentrate, conversion of the concentrate to uranium hexafluoride, and enrichment of the uranium hexafluoride will provide a significant percentage of these materials and services over the next several years. Additional materials and services required beyond the coverage of these contracts are expected to be available at a reasonable cost for the foreseeable future. Current fabrication contracts will provide a significant percentage of these materials and services over the next several years. The Nuclear Waste Policy Act of 1982 provides for the disposal of spent nuclear fuel or high level waste by the DOE. Refer to Note 9 to the financial statements for a discussion of spent nuclear fuel disposal. It will be necessary for Entergy to enter into additional arrangements to acquire nuclear fuel in the future. It is not possible to predict the ultimate cost of such arrangements. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy each have made arrangements to lease nuclear fuel and related equipment and services. The lessors finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These arrangements are subject to periodic renewal. There is a discussion of nuclear fuel leases in Note 10 to the financial statements. Natural Gas Purchased for Resale Entergy New Orleans has several suppliers of natural gas. Its system is interconnected with three interstate and three intrastate pipelines. Entergy New Orleans' primary suppliers currently are Enron North America, Inc., an interstate gas marketer, Bridgeline Gas Distributors, and Pontchartrain Natural Gas via Louisiana Gas Services. Entergy New Orleans has a "no-notice" service gas purchase contract with Enron North America, Inc. which guarantees Entergy New Orleans gas delivery at specific delivery points and at any volume within the minimum and maximum set forth in the contract amounts. The Enron North America, Inc. gas supply is transported to Entergy New Orleans pursuant to a transportation service agreement with Koch Gateway Pipeline Company (now known as Gulf South Pipeline). This service is subject to FERC-approved rates. The Gulf South Pipeline is now part of the Entergy-Koch joint venture. Enron North America, Inc. ceased to perform on its contract with Entergy New Orleans following the bankruptcy of Enron Corporation late in 2001. Entergy New Orleans has assumed the management of this gas supply contract, which is scheduled to expire on March 31, 2002, with no interruption of supply. Entergy New Orleans will replace the contract through its normal competitive bid process such that supply will continue uninterrupted. Entergy New Orleans has firm contracts with its two intrastate suppliers and also makes interruptible spot market purchases. In recent years, natural gas deliveries to Entergy New Orleans have been subject primarily to weather-related curtailments. However, Entergy New Orleans experienced no such curtailments in 2001. As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply could occur if Entergy New Orleans' suppliers failed to perform their obligations to deliver gas under their supply agreements. Gulf South Pipeline could curtail transportation capacity only in the event of pipeline system constraints. Based on the current supply of natural gas, and absent extreme weather-related curtailments, Entergy New Orleans does not anticipate any interruptions in natural gas deliveries to its customers. Entergy Gulf States purchases natural gas for resale under an agreement with Enbridge Marketing (U.S.) Inc. (formerly Mid Louisiana Gas Company). Enbridge Marketing is not allowed to discontinue providing gas to Entergy Gulf States without obtaining FERC approval. Research Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are members of the Electric Power Research Institute (EPRI). EPRI conducts a broad range of research in major technical fields related to the electric utility industry. Entergy participates in various EPRI projects based on Entergy's needs and available resources. Entergy and its subsidiaries contributed approximately $5 million in 2001, $5 million in 2000, and $6 million in 1999 to EPRI. Item 2. Properties Information regarding the properties of the registrants is included in Item 1. "Business - PROPERTY," in this report. Item 3. Legal Proceedings Details of the registrants' material rate proceedings, environmental regulation and proceedings, and other regulatory proceedings and litigation that are pending or those terminated in the fourth quarter of 2001 are discussed in Item 1. "Business - RATE MATTERS, REGULATION, AND LITIGATION," in this report. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 2001, no matters were submitted to a vote of the security holders of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, or System Energy. DIRECTORS AND EXECUTIVE OFFICERS OF ENTERGY CORPORATION Directors Information required by this item concerning directors of Entergy Corporation is set forth under the heading "Proposal 1--Election of Directors" contained in the Proxy Statement of Entergy Corporation, (the "Proxy Statement"), to be filed in connection with its Annual Meeting of Stockholders to be held May 10, 2002, ("Annual Meeting"), and is incorporated herein by reference. Information required by this item concerning officers and directors of the remaining registrants is reported in Part III of this document. <TABLE> <CAPTION> Executive Officers Name Age Position Period <S> <C> <C> <C> J. Wayne Leonard (a) 51 Chief Executive Officer and Director 1999-Present of Entergy Corporation Director of Entergy Arkansas, Entergy 1998-1999 Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy President and Chief Operating Officer 1998 of Entergy Corporation Chief Operating Officer of Entergy 1998 Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Vice Chairman of Entergy New Orleans 1998 President of Energy Commodities 1996-1998 Strategic Business Unit President of Cinergy Capital & 1996-1998 Trading Donald C. Hintz (a) 59 President of Entergy Corporation 1999-Present Executive Vice President and Chief 1998 Nuclear Officer of Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana Group President and Chief Nuclear 1997-1998 Operating Officer of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana Executive Vice President and Chief 1994-1997 Nuclear Officer of Entergy Corporation Executive Vice President - Nuclear of 1994-1997 Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana Chief Executive Officer and President 1992-1998 of System Energy Director of Entergy Gulf States 1993-Present Director of Entergy Arkansas, Entergy 1992-Present Louisiana, Entergy Mississippi, and System Energy Director of Entergy New Orleans 1999-Present Richard J. Smith (a) 50 Group President, Utility Operations 2001-Present of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Director of Entergy Arkansas, Entergy 2001-Present Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans Senior Vice President, Transition 2000-2001 Management of Entergy Corporation President of Cinergy Resources, Inc. 1999 Vice President Energy Services 1999 Vice President of Finance Services 1996-1999 Business Unit Curtis L. Hebert, Jr. (a) 39 Executive Vice President, External 2001-Present Affairs of Entergy Corporation Chairman and Commissioner of the 1997-2001 Federal Energy Regulatory Commission Chairman and Commissioner of the 1992-1997 Mississippi Public Service Commission Jerry D. Jackson (a) 57 Executive Vice President of Entergy 1999-Present Corporation Group President - Utility Operations 2000-2001 of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans President and Chief Executive Officer 1999-2000 - Louisiana of Entergy Gulf States President and Chief Executive Officer 1999-2000 of Entergy Louisiana Chief Administrative Officer of 1997-1998 Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Executive Vice President - External 1995-1998 Affairs of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Executive Vice President - External 1994-1998 Affairs of Entergy Corporation Director of Entergy Gulf States 1994-2001 Director of Entergy Louisiana 1992-2001 Director of Entergy Arkansas, Entergy 2000-2001 Mississippi, and Entergy New Orleans 1992-1999 Michael G. Thompson (a) 61 Executive Vice President, General 2001-Present Counsel and Secretary of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Senior Vice President and General 1992-2001 Counsel of Entergy Corporation Senior Vice President, General 1995-2001 Counsel, and Secretary of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Secretary of Entergy Corporation 1994-2001 C. John Wilder (a) 43 Executive Vice President and Chief 1998-Present Financial Officer of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Director of Entergy Arkansas, Entergy 1999-Present Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Chief Executive Officer of Shell 1998 Capital Company Assistant Treasurer of the Royal 1996-1998 Dutch/Shell Group Frank F. Gallaher (a) 56 Senior Vice President of Entergy 2001-Present Corporation Senior Vice President, Generation, 1999-2001 Transmission and Energy Management of Entergy Corporation President, Fossil Operations and 2000-Present Transmission of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Senior Vice President, Generation, 1999-2000 Transmission and Energy Management of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Executive Vice President and Chief 1998-1999 Utility Operating Officer for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Group President and Chief Utility 1997-1999 Operating Officer of Entergy Corporation Group President and Chief Utility 1997-1998 Operating Officer of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Director of Entergy Arkansas, Entergy 1997-1999 Louisiana, and Entergy Mississippi Executive Vice President of 1996-1997 Operations of Entergy Corporation Director of Entergy Gulf States 1993-1999 Executive Vice President of 1993-1997 Operations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Joseph T. Henderson (a) 44 Senior Vice President and General Tax 2001-Present Counsel of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Vice President and General Tax 1999-2001 Counsel of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Associate General Tax Counsel of 1998-1999 Shell Oil Company Senior Tax Counsel of Shell Oil 1995-1998 Company Nathan E. Langston (a) 53 Senior Vice President and Chief 2001-Present Accounting Officer of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Vice President and Chief Accounting 1998-2001 Officer of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Director of Tax Services of Entergy 1993-1998 Services Steven C. McNeal (a) 45 Vice President and Treasurer of 1998-Present Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Assistant Treasurer of Entergy 1994-1998 Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Director of Corporate Finance of 1994-1998 Entergy Services </TABLE> (a) In addition, this officer is an executive officer and/or director of various other wholly owned subsidiaries of Entergy Corporation and its operating companies. Each officer of Entergy Corporation is elected yearly by the Board of Directors. PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters Entergy Corporation The shares of Entergy Corporation's common stock are listed on the New York Stock, Chicago Stock, and Pacific Exchanges under the ticker symbol ETR. Entergy Corporation's stock price as of February 28, 2002 was $41.28. The high and low prices of Entergy Corporation's common stock for each quarterly period in 2001 and 2000 were as follows: 2001 2000 High Low High Low (In Dollars) First 42.88 32.56 26.75 15.94 Second 44.67 36.82 31.25 19.94 Third 40.95 33.60 38.13 26.94 Fourth 39.50 35.10 43.88 33.50 Consecutive quarterly cash dividends on common stock were paid to stockholders of Entergy Corporation in 2001 and 2000. In 2001, dividends of $0.315 per share were paid in the first three quarters, and a dividend of $0.33 per share was paid in the fourth quarter. In 2000, dividends of $0.30 per share were paid in the first three quarters, and a dividend of $0.315 per share was paid in the fourth quarter. As of February 28, 2002, there were 60,327 stockholders of record of Entergy Corporation. Entergy Corporation's future ability to pay dividends is discussed in Note 8 to the financial statements. In addition to the restrictions described in Note 8, PUHCA provides that, without approval of the SEC, the unrestricted, undistributed retained earnings of any Entergy Corporation subsidiary are not available for distribution to Entergy Corporation's common stockholders until such earnings are made available to Entergy Corporation through the declaration of dividends by such subsidiaries. Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy There is no market for the common stock of Entergy Corporation's wholly owned subsidiaries. Cash dividends on common stock paid by the domestic utility companies and System Energy to Entergy Corporation during 2001 and 2000, were as follows: 2001 2000 (In Millions) Entergy Arkansas $ 82.5 $ 44.6 Entergy Gulf States $ 83.7 $ 88.0 Entergy Louisiana $134.6 $ 62.4 Entergy Mississippi $ 19.6 $ 18.0 Entergy New Orleans $ 0.8 $ 9.5 System Energy $119.1 $ 91.8 Information with respect to restrictions that limit the ability of System Energy and the domestic utility companies to pay dividends is presented in Note 8 to the financial statements. Item 6. Selected Financial Data Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA, INC., ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., and SYSTEM ENERGY RESOURCES, INC." which follow each company's financial statements in this report, for information with respect to selected financial data and certain operating statistics. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES," " - SIGNIFICANT FACTORS AND KNOWN TRENDS," and "- RESULTS OF OPERATIONS OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, and SYSTEM ENERGY." Item 7A. Quantitative and Qualitative Disclosures About Market Risk Entergy Corporation and Subsidiaries. Refer to information under the heading "ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS." Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Entergy Corporation and Subsidiaries: Report of Management 52 Management's Financial Discussion and Analysis 53 Report of Independent Accountants 76 Management's Financial Discussion and Analysis 77 Consolidated Statements of Income For the Years Ended December 31, 86 2001, 2000, and 1999 Consolidated Statements of Cash Flows For the Years Ended December 87 31, 2001, 2000, and 1999 Consolidated Balance Sheets, December 31, 2001 and 2000 89 Consolidated Statements of Retained Earnings, Comprehensive Income, 91 and Paid-In Capital for the Years Ended December 31, 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 92 Entergy Arkansas, Inc.: Report of Independent Accountants 93 Management's Financial Discussion and Analysis 94 Income Statements For the Years Ended December 31, 2001, 2000, and 99 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 100 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 101 Statements of Retained Earnings for the Years Ended December 31, 103 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 104 Entergy Gulf States, Inc.: Report of Independent Accountants 105 Management's Financial Discussion and Analysis 106 Income Statements For the Years Ended December 31, 2001, 2000, and 111 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 112 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 113 Statements of Retained Earnings for the Years Ended December 31, 115 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 116 Entergy Louisiana, Inc.: Report of Independent Accountants 117 Management's Financial Discussion and Analysis 118 Income Statements For the Years Ended December 31, 2001, 2000, and 122 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 124 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 125 Statements of Retained Earnings for the Years Ended December 31, 127 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 128 Entergy Mississippi, Inc.: Report of Independent Accountants 129 Management's Financial Discussion and Analysis 130 Income Statements For the Years Ended December 31, 2001, 2000, and 134 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 136 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 137 Statements of Retained Earnings for the Years Ended December 31, 139 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 140 Entergy New Orleans, Inc.: Report of Independent Accountants 141 Management's Financial Discussion and Analysis 142 Statements of Operations For the Years Ended December 31, 2001, 145 2000, and 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 146 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 147 Statements of Retained Earnings for the Years Ended December 31, 149 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 150 System Energy Resources, Inc.: Report of Independent Accountants 151 Management's Financial Discussion and Analysis 152 Income Statements For the Years Ended December 31, 2001, 2000, and 154 1999 Statements of Cash Flows For the Years Ended December 31, 2001, 156 2000, and 1999 Balance Sheets, December 31, 2001 and 2000 157 Statements of Retained Earnings for the Years Ended December 31, 159 2001, 2000, and 1999 Selected Financial Data - Five-Year Comparison 160 Notes to Financial Statements for Entergy Corporation and 161 Subsidiaries
ENTERGY CORPORATION AND SUBSIDIARIES REPORT OF MANAGEMENT Management of Entergy Corporation and its subsidiaries has prepared and is responsible for the financial statements and related financial information included herein. The financial statements are based on generally accepted accounting principles in the United States. Financial information included elsewhere in this report is consistent with the financial statements. To meet their responsibilities with respect to financial information, management maintains and enforces a system of internal accounting controls designed to provide reasonable assurance, on a cost-effective basis, as to the integrity, objectivity, and reliability of the financial records, and as to the protection of assets. This system includes communication through written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program. The Audit Committee of our Board of Directors, composed solely of Directors who are not employees of our company, meets with the independent auditors, management, and internal accountants periodically to discuss internal accounting controls and auditing and financial reporting matters. Upon recommendation from the Audit Committee, the Board of Directors appoints the independent auditors annually. However, in August 2001, the Audit Committee selected Deloitte & Touche to succeed PricewaterhouseCoopers as the Company's independent auditors; the Board of Directors ratified the selection in October 2001. The Audit Committee reviews with the independent auditors the scope and results of the audit effort. The Committee also meets periodically with the independent auditors and the chief internal auditor without management, providing free access to the Committee. Independent public accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements. Management believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct. J. WAYNE LEONARD C. JOHN WILDER Chief Executive Officer of Entergy Executive Vice President and Corporation Chief Financial Officer HUGH T. MCDONALD JOSEPH F. DOMINO Chairman, President, and Chief Chairman of Entergy Gulf States, Executive Officer of Inc., President and Chief Entergy Arkansas, Inc. Executive Officer - Texas of Entergy Gulf States, Inc. E. RENAE CONLEY CAROLYN C. SHANKS Chairman, President, and Chief Chairman, President, and Chief Executive Officer of Entergy Executive Officer of Entergy of Entergy Louisiana, Inc.; Mississippi, Inc. President and Chief Executive Officer- Louisiana of Entergy Gulf States, Inc. DANIEL F. PACKER JERRY W. YELVERTON Chairman, President, and Chief Chairman, President, and Chief Executive Officer of Entergy Executive Officer of System New Orleans, Inc. Energy Resources, Inc.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Entergy Corporation is an investor-owned public utility holding company that operates through three business segments. The domestic utility business generates, transmits, distributes, and sells electric power to 2.6 million retail customers in portions of Arkansas, Louisiana, Mississippi, and Texas. The domestic utility business, particularly through Entergy Arkansas and Entergy Gulf States, also generates some revenue from wholesale electric power sales. The domestic non-utility nuclear business owns and operates four nuclear power plants that it has acquired over the past three years, and sells electric power produced by those plants to wholesale customers. Domestic non-utility nuclear also generates some revenue by providing operation and maintenance services to the owners of other nuclear power plants. The energy commodity services business provides energy commodity trading and gas transportation and storage services through Entergy-Koch, L.P., and develops power generation projects in the United States and Europe. Following are the percentages of Entergy's consolidated revenues and net income generated by these segments and the percentage of total assets held by them: <TABLE> <CAPTION> Segment % of Revenue % of Net Income % of Total Assets 2001 2000 1999 2001 2000 1999 2001 2000 1999 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Domestic utility 77 74 73 77 87 93 78 81 82 Domestic non-utility nuclear 8 3 1 17 7 3 13 9 3 Energy commodity services 14 23 26 14 8 (7) 9 10 8 Other 1 - - (8) (2) 11 - - 7 </TABLE> Following are significant factors and known trends that may affect our results of operations or financial position. Critical Accounting Policies Accounting and financial reporting involve significant estimates and judgments, including the selection of appropriate accounting policies. Note 1 to the financial statements provides a comprehensive discussion of Entergy's significant accounting policies. The following represent the accounting policies that Entergy's management believes are especially important to the reporting of Entergy's financial position and results of operations, due to their significance and subjectivity: Application of SFAS 71 - Entergy's application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," to its domestic utility operations has a significant and pervasive impact on accounting and reporting for these operations. These matters are discussed in "Significant Factors and Known Trends - Continued Application of SFAS 71" and in Note 1 to the financial statements. Accounting for Decommissioning - The accounting for decommissioning costs for nuclear power plants involves significant estimates related to costs to be incurred many years in the future. Changes in these estimates could significantly impact Entergy's financial position, results of operations, and cash flows (although estimate changes for the nuclear plants in Entergy's domestic utility operating segment should be earnings-neutral, because these costs are collected from ratepayers). These issues are discussed in more detail in Note 9 to the financial statements. Accounting for Derivative Instruments and Hedges - Entergy's application of the provisions of SFAS 133 and EITF 98-10 to its various commodity and financial contracts has a significant impact on Entergy's financial statements. The risks associated with these instruments and Entergy's accounting for them are discussed in more detail in "Significant Factors and Known Trends - Market Risks Disclosure" and in Note 15 to the financial statements.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Accounting for Equity Method Investees and Off Balance Sheet Arrangements - During 2001, Entergy entered into two significant transactions that involved complex accounting judgments: 1) a joint venture with Koch Industries, Inc. involving energy trading and pipeline operations. This investment is accounted for under the equity method of accounting, and is discussed in more detail in "Results of Operations - Energy Commodity Services" and in Note 13 to the financial statements; and 2) a financing arrangement for Entergy's turbine acquisition program that involved the sale and assignment of Entergy's interests under certain turbine acquisition contracts to an independent special purpose entity. This transaction is described in more detail in "Liquidity and Capital Resources - Off Balance Sheet and Equity Method Investee Debt, Guarantees of Unconsolidated Obligations, and Lease Obligations." Domestic Utility Transition to Retail Competition The electric utility industry for years has been preparing for the advent of competition in its business. For most electric utilities, the transition from a regulated monopoly to a competitive business is challenging and complex. The new electric utility environment presents opportunities to compete for new customers and creates the risk of loss of existing customers. It presents risks along with opportunities to enter into new businesses and to restructure existing businesses. Events that occurred in 2001, particularly the crisis in California's restructured power supply market, may slow the onset of competition. The recent bankruptcy of Enron may further retard the move to competition. For Entergy, the domestic transition to competition is a formidable undertaking, made uniquely difficult because the domestic utility companies operate in five retail regulatory jurisdictions and are subject to the System Agreement, which contemplates the integrated operation of Entergy's electric generation and transmission assets throughout the retail service territories. Entergy is striving to achieve consistent paths to competition in all five retail regulatory jurisdictions. Nevertheless, actions by one jurisdiction may conflict with actions by another. In addition, while the Arkansas and Texas legislatures have enacted laws to bring about electric utility competition, the process is going forward only in Texas, and retail competition in Entergy Gulf States' service area is subject to a delay in that state. Entergy is continuing to work with regulatory and legislative officials in all jurisdictions in designing the rules surrounding the implementation of a competitive electricity industry. There can be no assurance given as to the timing or results of the transition to competition in Entergy's service territories. Following is a summary of the status of the transition to competition in the five retail jurisdictions: % of Entergy's Consolidated 2001 Revenues Derived from Retail Electric Utility Operations Jurisdiction Status of Retail Open Access in the Jurisdiction Arkansas Commencement delayed by amended 13.6% law until at least October 2003, APSC has recommended delay until at least 2010. Texas Delayed until at least 10.7% September 15, 2002 in Entergy Gulf States' service area in a settlement approved by the PUCT. Louisiana The LPSC has deferred pursuing 33.4% retail open access, pending developments at the federal level and in other states. Mississippi MPSC has recommended not 9.8% pursuing open access at this time. New Orleans City Council has taken no 5.1% action on Entergy's proposal filed in 1997.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Arkansas Under current Arkansas legislation, the target date for retail open access has been delayed until no sooner than October 1, 2003 and no later than October 1, 2005. In December 2001, the APSC recommended to the Arkansas General Assembly that legislation be enacted during the 2003 legislative session to either repeal the legislation authorizing retail open access or further delay retail open access until at least 2010. Entergy Arkansas supports the proposal for further delay of retail open access but opposes repeal of deregulation legislation as premature at this time. Texas In June 1999, the Texas legislature enacted a law providing for competition in the electric utility industry through retail open access. With retail open access, generation and a new retail electric provider operation are competitive businesses, but transmission and distribution operations continue to be regulated. The new retail electric providers are the primary point of contact with customers. Although retail open access legislation is in place in Texas, its implementation in Entergy Gulf States' territory is delayed until at least September 15, 2002. Pursuant to the provisions of the retail open access law, Entergy Gulf States' business separation plan provides that Entergy Gulf States will be divided into: o a Texas distribution company; o an intermediate transmission company; o a Texas generation company; o at least two Texas retail electricity providers; and o a Louisiana company that will encompass distribution, generation, transmission, and retail operations. Several proceedings necessary to implement retail open access are still pending, including proceedings to set the price-to-beat rates that will be charged by Entergy's retail electric service provider, to implement Entergy Gulf States' business separation plan, and to form an RTO that includes Entergy's service area. In addition, the LPSC has not approved for the Louisiana jurisdictional operations the transfer of generation assets to, or a power purchase agreement with, Entergy's proposed Texas generation company. Louisiana In a July 2001 report to the LPSC, the LPSC staff concluded that retail competition is not in the public interest at this time for any customer class. Nevertheless, the LPSC staff recommended that retail open access be made available for certain large industrial customers as early as January 2003. An eligible customer choosing to go to competition would be required to provide its utility with a minimum of six months notice prior to the date of retail open access. The LPSC staff report also recommended that all customers who do not currently co- or self-generate, or have co- or self-generation under construction as of a date to be specified by the LPSC, remain liable for their share of stranded costs. During its October 2001 meeting, the LPSC adopted dates by which a total of 800 MW of co- or self-generation could be developed in Louisiana without being affected by stranded costs. During its November 2001 meeting, the LPSC decided not to adopt a plan for retail open access at this time, but to have collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Continued Application of SFAS 71 The domestic utility companies' and System Energy's financial statements primarily reflect assets and costs based on existing cost- based ratemaking regulation in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Under traditional ratemaking practice, regulated electric utilities are granted exclusive geographic franchises to sell electricity. In return, the utilities must make investments and incur obligations to serve customers. Prudently incurred costs are recovered from customers along with a return on investment. Regulators may require utilities to defer collecting from customers some operating costs until a future date. These deferred costs are recorded as regulatory assets in the financial statements. In order to continue applying SFAS 71 to its financial statements, a utility's rates must be set on a cost-of-service basis by an authorized body and the rates must be charged to and collected from customers. As the generation portion of the utility industry moves toward competition, it is likely that generation rates will no longer be set on a cost-of-service basis. When that occurs, the generation portion of the business could be required to discontinue application of SFAS 71. The result of discontinuing application of SFAS 71 would be the removal of regulatory assets and liabilities from the balance sheet, and could include the recording of asset impairments. This result is because some of the costs or commitments incurred under a regulated pricing system might be impaired or not recovered in a competitive market. These costs are referred to as stranded costs. In the non-unanimous settlement agreement filed with the PUCT by Entergy Gulf States in March 2001 described above, the parties agreed that Entergy Gulf States will not implement a charge to recover stranded costs in Texas. A rider to recover nuclear decommissioning costs will be implemented. The PUCT approved the settlement in an interim written order issued in May 2001. In December 2001, the PUCT abated the proceeding until a date closer to opening the market to retail open access. Management believes that definitive outcomes have not yet been determined regarding the transition to competition in any of Entergy's jurisdictions. While Arkansas and Texas have enacted retail open access laws as described above, Entergy believes that significant issues remain to be addressed by Arkansas and Texas regulators, and the enacted laws do not provide sufficient detail to determine definitively the impact on Entergy Arkansas' and Entergy Gulf States' regulated operations. Resolution of the regulatory proceedings affecting the transition to competition of Entergy Gulf States' Texas generation business may require the discontinuance of the application of SFAS 71 accounting treatment to that business. Management does not expect a material adverse effect on Entergy's and Entergy Gulf States' results of operations if SFAS 71 accounting treatment for the Texas generation business is discontinued. Several uncertainties still exist in the transition to competition in Texas, including the effects of the settlement agreement that the PUCT approved that delays retail open access until at least September 15, 2002, and the effects of the ongoing proceedings in Texas. Therefore, the criteria under EITF 97-4 for discontinuing SFAS 71 treatment have not been met as of December 31, 2001. Federal deregulation legislation Over the past several years, a number of bills have been introduced in the United States Congress to deregulate the generation function of the electric power industry. The bills generally have provisions that would give retail consumers the ability to choose their own electric service provider. Entergy Corporation has supported some deregulation legislation in Congress that would lead to an orderly transition to competition and would also repeal PUHCA and PURPA. Congressional sentiment appears to be against mandating retail competition by a certain date and in favor of clarifying state authority to order retail choice for consumers. Congress adjourned in 2001 without final action on a deregulation bill by a committee of the House or Senate, and has not taken any significant action on such a bill in its 2002 session thus far.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS State and Local Rate Regulation and Fuel-Cost Recovery The retail regulatory basis for setting rates for electric service is shifting in some jurisdictions from traditional, exclusively cost-of- service regulation to include performance-based elements. Performance- based formula rate plans are designed to reward increased efficiency and productivity, with utility shareholders and customers sharing in the benefits. Entergy Mississippi and Entergy Louisiana have implemented performance-based rate plans, although Entergy Louisiana's formula rate plan expired at the end of 2001. Entergy plans to propose a statewide formula rate plan in Louisiana, which would include Entergy Louisiana and Entergy Gulf States. If a statewide formula rate plan is not adopted in Louisiana in 2002, Entergy Gulf States will have to file a cost-of-service rate case by mid-2002, and Entergy Louisiana may have to file a rate case in the same timeframe. These filings are required because Entergy Gulf States' annual earnings review requirement ceased after the 2001 filing, and Entergy Louisiana's formula rate plan expired with the 2001 filing. These cost-of-service rate cases would be in addition to the Entergy New Orleans case that is scheduled to be filed by mid-2002. In addition to their rate proceedings, the domestic utility companies' fuel costs recovered from customers are subject to regulatory scrutiny. This regulatory risk represents the domestic utility companies' largest potential exposure to price changes in the commodity markets. The domestic utility companies' retail and wholesale rate matters and proceedings, including fuel cost recovery- related issues, are discussed more thoroughly in Note 2 to the financial statements. System Agreement Proceedings The System Agreement provides for the integrated planning, construction, and operation of Entergy's electric generation and transmission assets throughout the retail service territories of the domestic utility companies. Under the terms of the System Agreement, generating capacity and other power resources are shared among the domestic utility companies. The System Agreement provides that parties having generating reserves greater than their load requirements (long companies) shall receive payments from those parties having deficiencies in generating reserves (short companies). Such payments are at amounts sufficient to cover certain of the long companies' costs for generating units fueled by oil or gas, including operating expenses, fixed charges on debt, dividend requirements on preferred and preference stock, and a fair rate of return on common equity investment. In addition, for all energy exchanged among the domestic utility companies under the System Agreement, the short companies are required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs. The LPSC and the Council commenced a proceeding in 2001 at the FERC that requests amendments to the System Agreement, particularly in the area of production cost equalization. The LPSC and Council also allege that certain provisions of the System Agreement increase costs paid by the ratepayers in their jurisdictions. The APSC, MPSC, and Entergy have each opposed the relief sought by the LPSC and the Council. The LPSC also instituted a proceeding in 2001 to litigate several of the same issues. In the proceeding, the LPSC also questions whether Entergy Louisiana and Entergy Gulf States were prudent for not seeking changes to the System Agreement previously, so as to lower costs imposed upon their ratepayers and to increase costs imposed upon ratepayers of the other domestic utility companies. The domestic utility companies have challenged the propriety of the LPSC litigating these issues, and will oppose the relief sought by the LPSC staff. Nevertheless, the decisions in these proceedings could affect the rates charged to ratepayers by the individual domestic utility companies, and the timing and outcome of these proceedings cannot be predicted at this time.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Industrial, Commercial, and Wholesale Customers Some of Entergy Gulf States' and Entergy Louisiana's large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a significant portion of Entergy Gulf States' and Entergy Louisiana's industrial customer base. Entergy responds by working with industrial and commercial customers and negotiating electric service contracts that provide service at rates lower than would otherwise be charged. Despite these actions, Entergy Gulf States and Entergy Louisiana each expect to lose large industrial customers to cogeneration by the end of 2002. Entergy Gulf States expects to lose two customers that accounted for approximately 1% of its net revenue in 2001. Entergy Louisiana expects to lose a customer that accounted for approximately 2% of its net revenue in 2001. In addition to working with its current customers, Entergy also continually participates in economic development activities that can increase industrial and commercial energy demand, from both current and new customers. Entergy also faces competition in making wholesale power sales. In 2001, Entergy Arkansas lost a contract with a municipal wholesale customer that accounted for approximately 2% of its 2001 net revenue. The current contract with this customer expires on June 30, 2002, at which time the customer will buy power from another supplier. Entergy Arkansas is aggressively pursuing other wholesale power sales opportunities, however, to offset the revenue loss resulting from the loss of this contract. Attacks of September 11, 2001 Since the attacks on New York and Washington, D.C. on September 11, 2001, security at Entergy's nuclear power plants has been at a heightened alert level. Entergy is working with the NRC and other government agencies on security at its nuclear sites. Based on current security plans, management does not expect a material effect on Entergy's financial statements to result from additional security measures that may be implemented at its nuclear sites. As the NRC, other governmental entities, and the industry continue to consider security issues, it is possible that more extensive security plans requiring higher-than-expected costs could be required. Environmental Matters Entergy is subject to federal and state regulation regarding air and water quality and other environmental matters. The Clean Air Act amendments of 1990 established programs to control sulfur dioxide, nitrogen oxides, and hazardous air pollutant emissions (primarily mercury). The ozone non-attainment program for control of nitrogen oxides currently impacts Entergy Gulf States' operations in the Beaumont and Houston areas. Entergy expects to incur up to $54 million in capital costs through 2007 to comply with the program controls. In addition, Entergy Gulf States expects to spend up to $72 million in capital costs through 2005 if LDEQ-proposed controls for the Baton Rouge area are implemented. The United States Congress is considering a multi-pollutant approach to reauthorization of the Clean Air Act. In addition to the three types of emissions mentioned above, Congress is considering controls on carbon dioxide emissions. Entergy is committed to environmental compliance, and its high percentage of nuclear and natural gas capacity gives it an advantage when compared to the costs other utilities will face from potential environmental requirements. Furthering its commitment to reduce emissions, Entergy purchased 80 MW of wind-powered capacity in December 2001, and will consider additional investment in wind power. Nuclear Matters Concerns continue to be expressed in public forums about the safety of nuclear generation units and nuclear fuel. These concerns have led to various proposals being made to federal authorities as well as in some of the localities where Entergy owns nuclear power plants for legislative and regulatory changes that could lead to shut down of nuclear units, denial of life extension applications, unavailability of sites for spent nuclear fuel disposal, or other adverse effects on nuclear generation. Entergy currently owns 9 nuclear generation units and has agreed to acquire a tenth unit. If any of these proposals become effective, it may have a material adverse effect on the results of operations or financial condition of Entergy.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Market Risks Disclosure Entergy is exposed to the following market risks (market risk is the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions): o the commodity price risk associated with its energy commodity services segment; o the foreign currency exchange rate risk associated with certain of its contractual obligations; o the interest rate risk associated with variable rate credit facilities in its energy commodity services segment; and o the interest rate and equity price risk associated with its investments in decommissioning trust funds. In addition to these market risks, Entergy is also exposed to credit risk. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counter-parties to a contract or agreement. Where it is a significant consideration, counter-party credit risk is addressed in the discussions that follow. Commodity Price Risk Power Generation The sale of electricity from the power generation plants owned by Entergy's non-utility nuclear business and energy commodity services is subject to the fluctuation of market power prices. Entergy's non- utility nuclear business has entered into power purchase agreements (PPAs) to sell the power produced by its power plants at prices established in the PPAs. To the extent that a plant's output is not subject to a PPA, power sales would be subject to market fluctuations. Following is a summary of the amount of the Entergy non-utility nuclear business' capacity currently subject to PPAs. Entergy continues to pursue opportunities to extend the existing PPAs and to enter into new PPAs with other parties. Capacity subject to PPAs Entergy's Capacity Power Pool in the Power Pool 2002 2003 2004 2005 New York ISO 2,775 MW 100% 100% 79% 0% ISO New England 670 MW 100% 85% 85% 20% In addition, Entergy will sell 100% of Vermont Yankee's output up to its rated capacity to Vermont Yankee Nuclear Power Corporation's current owner-utilities under a 10-year PPA executed in conjunction with the transaction, which management expects to close in the summer of 2002. The PPA includes an adjustment clause where the prices specified in the PPA will be adjusted downward annually, beginning in 2006, if power market prices drop below the PPA prices. Vermont Yankee is a part of ISO New England. Under the PPAs with NYPA for the output of power from Indian Point 3 and FitzPatrick, Entergy's non-utility nuclear business is obligated to produce at an average capacity factor of 85% with a financial true- up payment due to NYPA should NYPA's cost to purchase power due to an output shortfall be higher than the PPAs' price. These plants operated at 94% and 99% capacity factors, respectively, in 2001. The financial true-up obligation is guaranteed up to $20 million by an Entergy affiliate.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Energy commodity services enters into forward power sale agreements to hedge its exposure to market price fluctuations. The following represents the percentage of planned electricity output under physical or financial contract for energy commodity services' generation facilities as of December 31, 2001: 2002 2003 % under % under Planned GWH contract Planned GWH contract Peaking plants 303 81% 345 12% Base load plants 8,089 62% 10,463 25% In many regions of the United States the spark spread, the difference between the price of electricity and the price of natural gas at certain conversion efficiencies, has declined significantly in 2001. The decline is adversely impacting the profitability of power projects selling into power markets on a spot or short-term basis. Energy commodity services actively manages its assets as an investment portfolio, and attempts to maximize flexibility to respond to different market environments. Active management of the portfolio by energy commodity services is expected to result in: the commercial operation of projects by energy commodity services; the sale of projects at various stages in their planning, development, or operation; or the abandonment of projects. Entergy continually monitors industry trends in order to determine whether asset impairments or other losses could result from a decline in value, or cancellation, of merchant power projects and the related turbines, and records provisions for impairments and losses accordingly. Marketing and Trading The earnings of Entergy's energy commodity services segment are exposed to commodity price market risks through Entergy's 50%-owned, unconsolidated investment in Entergy-Koch, energy-related derivative commodity and financial instruments held by certain consolidated subsidiaries, and Entergy's consolidated power marketing and trading business in 2000, which was contributed to Entergy-Koch in January 2001. Entergy-Koch Trading (EKT) and Entergy use VAR models as one measure of the market risk of a loss in fair value for EKT's natural gas and power trading portfolio and energy commodity services' mark-to- market portfolio. VAR acts in conjunction with stress testing, position reporting, and profit and loss reporting in order to measure and control the risk inherent in these portfolios. The primary use of VAR is to provide a benchmark for market risk contained in these portfolios. VAR does not function as a comprehensive measure of all risks in the portfolios. EKT's and Entergy's calculations of VAR exposure represent an estimate of reasonably possible net losses that would be recognized on portfolios of commodities and derivative financial instruments, assuming hypothetical movements in prices. VAR does not represent the maximum possible loss, because actual future gains and losses will differ from those estimated based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in the portfolio of derivative financial instruments during the year. EKT To manage its portfolio, EKT enters into various derivative and contractual transactions in accordance with the policy approved by the trading committee of the governing board of its general partner. The trading portfolio consists of physical and financial natural gas and power as well as other energy and weather-related contracts. These contracts take many forms, including futures, forwards, swaps, and options.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS EKT estimates its VAR using a model based on J.P. Morgan's Risk Metrics methodology combined with a Monte Carlo simulation approach. EKT estimates its daily VAR for natural gas and power using a 97.5% confidence level. EKT's daily VAR is a measure that indicates that, if prices moved against the positions, the loss in neutralizing the portfolio would not be expected to exceed the calculated VAR. EKT seeks to limit the daily VAR on any given day to a certain dollar amount approved by the trading committee. EKT's daily VAR for natural gas at December 31, 2001 was $4 million, with an average of $3 million for the year, and its daily VAR for power at December 31, 2001 was $2 million, with an average of $1 million for the year. For all derivative and contractual transactions, EKT is exposed to losses in the event of nonperformance by counter-parties to these transactions. EKT's operations are primarily concentrated in the energy industry. Its trade receivables and other financial instruments are predominantly with energy, utility, and financial services related companies, as well as other trading companies in the United States, UK, and Western Europe. EKT maintains credit policies, which its management believes minimize overall credit risk. Prospective and existing customers are reviewed for creditworthiness based upon pre- established standards, with customers not meeting minimum standards providing various requisite secured payment terms, including the posting of cash collateral. EKT also has master netting agreements in place that allow EKT to offset gains and losses arising from derivative instruments that may be settled in cash and/or gains and losses arising from derivative instruments that may be settled with the underlying physical commodity. EKT's policy is to have such master netting agreements in place with significant counter-parties. Based on EKT's policies, risk exposures, and valuation adjustments related to credit, EKT does not anticipate a material adverse effect on its financial position as a result of counter-party nonperformance. Other Marketing and Trading The energy commodity services segment's VAR methodology for its derivative instruments, and for its consolidated power marketing and trading business in 2000, uses a variance/covariance approach to the measurement of market risk. The variance/covariance approach assumes that prices follow a "random-walk" process in which prices are lognormally distributed. This approach requires the following inputs: o a test with a 97.5% confidence interval that measures the probability of loss; and o a cross-product correlation matrix that measures the tendency of different basis products to move together. Energy commodity services' consolidated subsidiaries VAR for its mark- to-market derivative instruments was approximately $7.3 million as of December 31, 2001. Management excludes the long-term gas supply contract for its UK power plant from this VAR computation due to its size and length. Management estimates that a 10% change in UK gas prices would result in approximately a $7.7 million change in net income due to mark-to-market accounting for this contract. Power marketing and trading's VAR was approximately $3 million as of December 31, 2000.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Mark-to-market accounting As required by generally accepted accounting principles, Entergy and Entergy-Koch mark-to-market commodity instruments held by them for trading and risk management purposes that are considered derivatives under SFAS 133 or energy trading contracts under EITF 98-10. Conversely, commodity contracts that are not considered derivatives or energy trading contracts, generally because they involve physical delivery of a commodity to the purchaser, are not marked to market. Examples of commodity instruments that are marked to market include: o commodity options, swaps, and forwards that are expected to be net settled; o power sales agreements that do not involve delivery of power from Entergy's power plants; and o fuel supply contracts with volumetric optionality. Examples of commodity contracts that are not marked to market include: o the PPAs for Entergy's domestic non-utility nuclear plants; o capacity purchases and sales by the domestic utility companies; and o forward contracts that will result in physical delivery. Fair value estimates of the commodity instruments that are marked to market are made at discrete points in time based on relevant market information. Market quotes are used in determining fair value whenever they are available. When market quotes are not available (e.g., in the case of a long-dated commodity contract), other information is used, including transactional data and internally developed models. Fair value estimates based on these other methodologies are necessarily subjective in nature and involve uncertainties and matters of significant judgment. Therefore, actual results may differ from these estimates. Following are the net mark-to- market assets and the period within which the assets would be realized in cash if they are held to maturity and market prices are unchanged: <TABLE> <CAPTION> Net mark-to- market asset at Cumulative cash realization Dec. 31, 2001 period 2002 2003 2004-2005 <S> <C> <C> <C> <C> Entergy consolidated subsidiaries $41 million 55% 98% 100% Entergy-Koch $107 million 10% 83% 100% </TABLE> Foreign Currency Exchange Rate Risk System Fuels and Entergy's domestic non-utility nuclear business entered into foreign currency forward contracts to hedge the Euro- denominated payments due under certain purchase contracts. The notional amounts of the foreign currency forward contracts are 61.3 million Euro ($54.5 million) and the forward currency rates range from .8690 to .8981. The maturities of these forward contracts depend on the purchase contract payment dates and range in time from June 2002 to February 2004. The mark-to-market valuation of the forward contracts at December 31, 2001 was a net liability of $0.4 million. The counter- party banks obligated on these agreements are rated by Standard and Poor's Rating Services at AA on their senior debt obligations as of December 31, 2001.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Interest Rate Risk - Debt Entergy uses interest rate swaps to reduce the impact of interest rate changes on the Damhead Creek variable-rate credit facilities. Under the interest rate swap agreements, Entergy receives floating-rate interest payments and pays fixed-rate interest rate payments over the life of the agreements. The floating-rate interest that Entergy receives is approximately equal to the interest it must pay on the variable-rate credit facilities. Therefore, through the use of the swap agreements, Entergy effectively achieves a fixed rate of interest on the credit facilities. The following details information about the interest rate swaps as of December 31, 2001: Average Notional Amount Fixed Maturity Fair value Pay Rate Damhead Creek BPS275.8 million 6.52% 2010 BPS15.9 million ($396.8 million) liability ($22.9 million) The counter-party banks obligated on these interest swaps are rated by Standard & Poor's Rating Services at AA- or higher on their senior debt obligations. Interest Rate and Equity Price Risk - Decommissioning Trust Funds Entergy's nuclear decommissioning trust funds expose it to fluctuations in equity prices and interest rates. The NRC requires Entergy to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf 1, Pilgrim, and Indian Point 1 and 2 (NYPA currently retains the decommissioning trusts and liabilities for Indian Point 3 and Fitzpatrick). The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the ANO, River Bend, Grand Gulf 1, and Waterford 3 trust funds because of the application of regulatory accounting principles. The Pilgrim and Indian Point 1 and 2 trust funds collectively hold approximately $542 million of fixed-rate, fixed-income securities as of December 31, 2001. These securities have an average coupon rate of approximately 6.8%, an average duration of approximately 5.4 years, and an average maturity of approximately 8.3 years. The Pilgrim and Indian Point 1 and 2 trust funds also collectively hold equity securities worth approximately $272 million as of December 31, 2001. These securities are held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor's 500 Index. The decommissioning trust funds are discussed more thoroughly in Notes 1 and 9 to the financial statements. Litigation Environment The four states in which the domestic utility companies operate, in particular Louisiana, Mississippi, and Texas, have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment in these states poses a significant business risk. New Accounting Pronouncements The FASB issued several new accounting pronouncements in mid-2001. See Note 1 to the financial statements for a discussion of the expected effects of these pronouncements on Entergy.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Cash Flow Operations Net cash flow provided by operating activities for Entergy, the domestic utility companies, and System Energy for the years ended December 31, 2001, 2000, and 1999 was: 2001 2000 1999 (In Millions) Entergy $2,215.5 $1,967.8 $1,389.0 Entergy Arkansas $ 413.2 $ 421.6 $ 352.6 Entergy Gulf States $ 338.5 $ 403.9 $ 387.6 Entergy Louisiana $ 430.5 $ 270.4 $ 410.4 Entergy Mississippi $ 178.1 $ 182.3 $ 142.4 Entergy New Orleans $ 77.7 $ 30.5 $ 60.2 System Energy $ 165.9 $ 395.6 $ 102.8 Entergy's consolidated net cash flow provided by operating activities increased in 2001 primarily due to: o an increase, after eliminating the effect of money pool activity, of $432 million in cash provided by the parent company, Entergy Corporation, primarily due to decreased income taxes paid resulting from book and tax income timing differences and the receipt of a federal tax refund associated primarily with deductions for 2000 ice storm costs, partially offset by increased interest expense and the payment of FPL merger-related costs; and o an increase of $171 million in cash provided by the domestic non- utility nuclear business, primarily from the operation of the FitzPatrick and Indian Point 3 plants purchased in the fourth quarter of 2000 and the Indian Point 2 plant purchased in the third quarter of 2001. These increases were partially offset by a decrease, after eliminating the effect of money pool activity, of $129 million in cash provided by the domestic utility companies and System Energy and net cash used of $128 million in 2001 compared to net cash provided of $64.3 million in 2000 by the energy commodity services segment. The energy commodity services segment includes the EWO business and the Entergy-Koch joint venture. In 2001, EWO used $73 million of net cash in operating activities; in 2000, EWO provided $37 million of operating cash flow. This fluctuation is primarily due to a net loss, excluding the gain on the sale of the Saltend plant, generated in 2001 compared with net income generated in 2000. Entergy's investment in Entergy- Koch used $55 million of net cash in operating activities in 2001 compared with power marketing and trading providing $27 million of operating cash flow in 2000. This fluctuation is primarily because, although income from this activity is higher in 2001, Entergy has not received dividends from Entergy-Koch, as the joint venture is currently retaining capital for trading opportunities. Entergy Louisiana made a tax accounting election in 2001 that is expected to provide a cash flow benefit in 2002 through 2005. For the years 2006 through 2031, this benefit is expected to reverse, resulting in increased tax payments. The amount of the benefits in 2002 through 2005 will vary, depending on market prices of power, but it is likely to be substantial.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Money pool activity also affected the operating cash flows of the domestic utility companies and System Energy. The following represents the domestic utility companies and System Energy's receivables from and (payables) to the money pool as of December 31 for each of the years presented below. An increase in a company's (payable) to the money pool increases the operating cash flow of that company. An increased in a company's receivable from the money pool decreases the operating cash flow of that company. Company 2001 2000 1999 (In Millions) Entergy Arkansas $23.8 ($30.7) ($40.6) Entergy Gulf States $27.7 $23.4 ($36.1) Entergy Louisiana $3.8 $22.9 ($91.5) Entergy Mississippi $11.5 ($33.3) ($50.0) Entergy New Orleans $9.2 ($5.7) ($9.6) System Energy $13.9 $155.3 $234.2 See Note 4 to the financial statements for a description of the money pool. The reduction in System Energy's net cash provided by operating activities in 2001 was caused by its payment of a refund to the four domestic utility companies that buy power from Grand Gulf 1. In the third quarter of 2001, System Energy's 1995 rate proceeding became final. System Energy refunded a total of $530.7 million in December 2001 to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. A total of $108.4 million will in turn be refunded to the customers of these domestic utility companies in early 2002. Refunds to customers will be lower than the amounts received from System Energy because the utility companies did not pass through to customers all of System Energy's proposed rate increase. The refunds from System Energy and the amounts due customers are as follows: System Energy Refund due refund customers (In Millions) Entergy Arkansas $191.1 $53.7 Entergy Louisiana $74.3 $ 6.2 Entergy Mississippi $175.1 $14.8 Entergy New Orleans $90.2 $33.6 See Note 2 to the financial statements for additional discussion of the rate proceeding and refunds. Entergy's consolidated cash flow from operations increased in 2000 primarily due to the domestic utility companies and System Energy providing an additional $277.5 million and the competitive businesses providing an additional $223.7 million to operating cash flows for the year ended December 31, 2000. Fuel cost recovery activity in 2000 significantly affected the operating cash flows for the domestic utility companies. Historically high natural gas and purchased power costs in 2000 caused the domestic utility companies' fuel payments to increase significantly during the year. In the case of Entergy Arkansas, the Texas portion of Entergy Gulf States, and Entergy Mississippi, the 2000 under-recoveries have been treated as regulatory investments in the cash flow statements because those companies are allowed by their regulatory jurisdictions to recover the fuel costs accumulated in 2000 over longer than a twelve- month period, and are earning a return on the under-recovered balances.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Entergy Arkansas' and Entergy Gulf States' operating cash flows were also affected by increases in their net income for the year ended December 31, 2000. The increase in operating cash flow for Entergy Gulf States was partially offset by the increased use of cash for fuel costs related to the Louisiana jurisdiction and refunds of $83 million paid to Louisiana customers during the third quarter of 2000 as a result of earnings reviews settled with the LPSC, as discussed further in Note 2 to the financial statements. The decrease in operating cash flow for Entergy Louisiana and Entergy New Orleans was partially caused by the increased use of cash related to fuel costs in 2000. The increase in operating cash flow in 2000 for the competitive businesses is attributable to the following: o the operations of Pilgrim, Indian Point 3, and FitzPatrick that primarily caused an increase of $73.9 million in operating cash flow from the domestic non-utility nuclear business; and o net income generated by and improved operations in the power marketing and trading and power development businesses in 2000, which resulted in an additional $40.2 million and $91.0 million of operating cash flow, respectively, compared with net losses from their operations in 1999. Pilgrim was purchased in July 1999 and provided operating cash flow for all of 2000 compared with only six months in 1999. Indian Point 3 and FitzPatrick were purchased in November 2000 and provided operating cash flow for two months in 2000. Investing Activities Net cash used in investing activities increased in 2001 primarily due to: o approximately $600 million paid to acquire the Indian Point 2 nuclear plant in the third quarter of 2001; o cash contributions of approximately $414 million made in the formation of Entergy-Koch; o investments used as collateral for letters of credit by the domestic non-utility nuclear business discussed below in "Uses of Capital - Domestic Non-Utility Nuclear"; and o the maturity of other temporary investments in 2000 and additional temporary investments made in 2001. The following factors partially offset the overall increase in cash used in investing activities for 2001: o receipt of approximately $810 million in proceeds from the sale of the Saltend plant to Calpine Corporation in August 2001; o decreased construction expenditures due to completion of construction of the Saltend and Damhead Creek plants; o decreased payments by EWO for turbines in 2001, discussed below in "Uses of Capital - Energy Commodity Services"; and o decreased under-recovery of deferred fuel costs incurred at certain of the domestic utility companies. Entergy Arkansas, the Texas portion of Entergy Gulf States, and Entergy Mississippi for 2000 only, have treated these costs as regulatory investments because these companies are allowed by their regulatory jurisdictions to recover the accumulated fuel cost regulatory asset over longer than a twelve-month period. Entergy Mississippi's fuel recovery mechanism changed effective January 2001, and Entergy Mississippi's fuel cost under- recoveries incurred after that date are being recovered over less than a twelve-month period. The companies will earn a return on the under- recovered balances. Net cash used in investing activities increased for 2000 due to increased construction expenditures, decreased proceeds from sales of businesses, decreased net proceeds from maturities of notes receivable, and higher fuel costs.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES The increased construction expenditures were primarily due to: o spending on customer service and reliability improvements by the domestic utility companies; o costs incurred related to the December 2000 ice storms, primarily at Entergy Arkansas; and o costs incurred for replacement of the steam generators at ANO 2. The following items also contributed to the overall increase in cash used in 2000: o the maturity of notes receivable in August 1999 when only a portion of the proceeds were reinvested in other temporary investments; o payments made by Entergy's power development business in 2000 for turbines; and o the under-recovery of deferred fuel costs incurred in 2000 at certain of the domestic utility companies due to significantly higher market prices of fuel and purchased power expenses. Partially offsetting the overall increase in cash used is the maturity of other temporary investments and proceeds from the sale of the Freestone power project in 2000. Financing Activities Financing activities used cash in 2001 compared to providing a small amount of cash in 2000 primarily due to: o the $555 million retirement of the Saltend credit facility in August 2001 when the plant was sold; o a higher amount of debt issued by the domestic utility companies in 2000 than in 2001; o no additional borrowings in 2001 under the Saltend and Damhead Creek credit facilities due to the completion of the construction of the plants in 2000; and o a reduction in the amount of debt outstanding on the Entergy Corporation credit facility. Partially offsetting the increase in cash used in 2001 were the following: o decreased repurchases of Entergy common stock in 2001; and o the redemption of Entergy Gulf States' preference stock in 2000. Financing activities provided cash for 2000 primarily due to: o new long-term debt issuances by each of the domestic utility companies; and o increased borrowings under the Entergy Corporation credit facility.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Partially offsetting the overall cash provided were the following in 2000: o increased repurchases of Entergy Corporation common stock; o redemption of Entergy Gulf States' preference stock; and o decreased borrowings under the credit facilities for the construction of the Saltend and Damhead Creek power projects by Entergy's power development business. Capital Resources Uses of Capital Entergy requires capital resources for: o construction and other capital investments; o debt and preferred stock maturities; o working capital purposes, including the financing of fuel and purchased power costs; o dividend and interest payments; and o common stock repurchases. Following are the amounts of Entergy's planned construction and other capital investments, existing debt and lease obligations, and other purchase obligations (the domestic utility companies and System Energy present this information in their "Selected Financial Data - Five-Year Comparison," which follow their respective financial statements): 2002 2003 2004 After 2004 (In Millions) Planned construction and capital $1,731 $1,352 $1,225 N/A investment Long-term debt maturities $683 $1,170 $899 $5,252 Short-term facility maturities (1) $350 N/A N/A N/A Capital and operating lease $102 $88 $85 $180 payments(2) Unconditional fuel and purchased $424 $379 $385 $5,453 power obligations(3) Nuclear fuel lease obligations (2)(4) $138 $129 N/A N/A (1) These 364-day credit facilities are discussed below under "Sources of Capital." (2) Lease obligations are discussed in Note 10 to the financial statements. (3) Unconditional fuel and purchased power obligations are discussed in Note 9 to the financial statements under "Fuel Purchase Agreements" and "Power Purchase Agreements." (4) It is expected that additional financing under these leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES In addition to the capital spending plans and contractual commitments, Entergy has guarantees of unconsolidated obligations outstanding as of December 31, 2001 as follows: <TABLE> <CAPTION> Total Amounts Committed Amount of Commitment Expiration per Period 2002-2003 2004-2006 Beyond 2006 <S> <C> <C> <C> <C> Guarantees of unconsolidated obligations $617 million $40 million $542 million $35 million </TABLE> These guarantees of unconsolidated obligations are discussed further in the section below titled "Off Balance Sheet and Equity Method Investee Debt, Guarantees of Unconsolidated Obligations, and Lease Obligations." The planned capital investment estimate includes $2.8 billion in spending by the domestic utility companies and System Energy, $0.8 billion in spending by energy commodity services, and $0.7 billion in spending by the domestic non-utility nuclear business. This plan reflects capital required to support existing businesses and Board- approved investments. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, business opportunities, market volatility, economic trends, business restructuring, and the ability to access capital. Management provides more information on construction expenditures and long-term debt and preferred stock maturities in Notes 5, 6, 7, and 9 to the financial statements. The domestic utility companies and System Energy will focus their planned spending on projects that will support continued reliability improvements and customer growth. Following is a discussion, by business segment, of potential significant uses of capital by Entergy. Entergy Corporation Declarations of dividends on Entergy's common stock are made at the discretion of the Board. The Board evaluates the level of Entergy common stock dividends based upon Entergy's earnings and financial strength. At its October 2001 meeting, the Board increased Entergy's quarterly dividend per share by 5%, to $0.33. In 2001, Entergy Corporation paid $269.1 million in cash dividends on its common stock. Dividend restrictions are discussed in Note 8 to the financial statements. Management is also actively considering a share repurchase program and expects to reach a decision sometime in 2002. Domestic Non-Utility Nuclear The domestic non-utility nuclear business will focus its planned spending on routine construction projects and nuclear fuel purchases for owned plants, power uprates for those plants, and on the anticipated purchase of the Vermont Yankee nuclear power plant. In August 2001, Entergy's domestic non-utility nuclear business agreed to purchase the 510 MW Vermont Yankee Nuclear Power Plant in Vernon, Vermont, from Vermont Yankee Nuclear Power Corporation for $180 million, to be paid in cash upon closing. Management expects to close the transaction in the summer of 2002, pending the approvals of the NRC, the Public Service Board of Vermont, and other regulatory agencies.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES In connection with the acquisition of FitzPatrick and Indian Point 3 in 2000, the installment payments due by Entergy to NYPA must be secured by a letter of credit from an eligible financial institution. On November 21, 2000, upon closing the acquisition of the NYPA plants, Entergy delivered a $577 million letter of credit, with NYPA as beneficiary. The letter of credit was backed by cash collateral, and this cash is reflected in the consolidated balance sheet at December 31, 2000, as "Special deposits." In January 2001, Entergy replaced $440 million of the cash collateral with an Entergy Corporation guarantee. Most of the cash released by this guarantee was used to fund Entergy's contributions to the Entergy-Koch joint venture. In June 2001, Entergy Corporation obtained new letters of credit totaling $577 million, which replaced the letter of credit initially provided to NYPA. The new letters of credit are partially backed by an Entergy Corporation guarantee and partially backed by $272 million of cash collateral. The cash collateral is included in "Other" in the Other Property and Investments section of the consolidated balance sheet at December 31, 2001. Energy Commodity Services Energy commodity services will focus its planned spending on merchant power plant projects currently under construction, including the purchase of some of the gas turbines scheduled for delivery in 2002 through 2004 under an option to purchase obtained from General Electric Company that is discussed below. The estimate does not include potential acquisitions of assets that may be offered for sale by third parties or additional capital investment in Entergy-Koch, which is an unconsolidated equity investment. Entergy is obligated to make a $73 million cash contribution to Entergy-Koch in January 2004. Entergy's energy commodity services segment is currently constructing the following projects. The Crete Project, a 320 MW simple cycle gas turbine merchant power plant in Crete, Illinois, is anticipated to be operational in June 2002. Entergy will own approximately 160 MW of the capacity of the Crete plant, with the remainder owned by DTE Energy. During 2000, construction began on the RS Cogen Project, a 425 MW combined-cycle gas turbine power plant in Lake Charles, Louisiana. Entergy will own approximately 212 MW, with the remainder owned by PPG Industries. RS Cogen is expected to begin operation in 2002. Construction also began in 2001 on the Northeast Texas Electric Cooperative Project, a 550 MW combined-cycle gas turbine power plant in Harrison County, Texas. Entergy will own approximately 385 MW once construction is completed and operation has begun (currently projected to be June 2003), with Northeast Texas Electric Cooperative, Inc. owning the remainder. The power development business obtained contracts in October 1999 to acquire 36 turbines from General Electric Company. The rights and obligations under the contracts for 22 of the turbines were sold to an independent special purpose entity in May 2001. In conjunction with Entergy's obligations related to this sale, Entergy retained certain rights to reacquire turbines or to cancel the construction of turbines. Thus far, EWO has placed 17 of the originally planned 36 turbines at sites that are either operating, under construction, or sold. In addition, as allowed by the May 2001 sale agreement, cancellation of four turbines is pending. If EWO were to decide to cancel the remaining turbines subject to the May 2001 sale agreement, its maximum projected exposure would be approximately $250 million. This exposure, however, does not take into account EWO's ongoing efforts to develop sites for the turbines. Entergy continually monitors its obligations under this arrangement and provides for potential losses (e.g., as a result of turbine cancellations) when the losses become likely. EWO will continue to actively manage its assets as an investment portfolio, and attempt to maximize flexibility to respond to different market environments. Active management of the portfolio by EWO is expected to result in: the commercial operation of projects by EWO; the sale of projects at various stages in their planning, development, or operation; or the abandonment of projects.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES PUHCA Restrictions on Uses of Capital Entergy's ability to invest in domestic and foreign generation businesses is subject to the SEC's regulations under PUHCA. As authorized by the SEC, Entergy is allowed to invest an amount equal to 100% of its average consolidated retained earnings in domestic and foreign generation businesses. As of December 31, 2001, Entergy's investments subject to this rule totaled $1.64 billion constituting 46.6% of its average consolidated retained earnings. Entergy's ability to guarantee obligations of its non-utility subsidiaries is also limited by SEC regulations under PUHCA. In August 2000, the SEC issued an order, effective through December 31, 2005, that allows Entergy to issue up to $2 billion of guarantees to its non- utility companies. Under PUHCA, the SEC imposes a limit equal to 15% of consolidated capitalization on the amount that may be invested in "energy-related" businesses without specific SEC approval. Entergy has made investments in energy-related businesses, including power marketing and trading. Entergy's available capacity to make additional investments at December 31, 2001 was approximately $1.7 billion. Sources of Capital Entergy's sources to meet its capital requirements include: o internally generated funds, which have been the source of the majority of Entergy's capital; o cash on hand ($750 million as of December 31, 2001) and other temporary investments ($150 million as of December 31, 2001); o debt issuances; o bank financing under new or existing facilities; and o sales of assets. The majority of Entergy's internally generated funds come from the domestic utility segment. Circumstances such as unusual weather patterns, unusual price fluctuations, and unanticipated expenses, including unscheduled plant outages, could affect the level of internally generated funds in the future. Each of the domestic utility companies issued debt in 2001, with the exception of Entergy Louisiana. The net proceeds of these issuances were used for general corporate purposes, including capital expenditures and the retirement of short-term indebtedness incurred for working capital and other purposes. The domestic utility companies and System Energy expect to continue refinancing or redeeming higher-cost debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable. In December 2001, Entergy indirectly acquired the controlling interest in the Top of Iowa Wind Farm, an 80 MW wind generation facility. An Entergy subsidiary in the energy commodity services segment financed the acquisition of its interest in the wind farm through a $95 million credit facility that is backed by an Entergy Corporation guarantee. As of December 31, 2001, $78.5 million had been drawn on the facility. The facility is a bridge loan that matures January 19, 2003. The interest margins and commitment fees under the credit facility vary based on the rating of the second-lowest credit rating for senior secured long-term debt of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana and Entergy Mississippi. Entergy is not in default under the credit facility if a minimum credit rating is not maintained. The Entergy guarantee does not require the posting of alternative credit support or cash collateral if a minimum credit rating is not maintained.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES In 2000, long-term debt on Entergy's balance sheet was increased by approximately $750 million by the issuance of notes payable to NYPA in the Indian Point 3 and FitzPatrick acquisition. Also in 2000, the power development business increased its borrowings under the Damhead Creek credit facility by approximately $164 million to finance construction of the plant. Damhead Creek commenced commercial operation in 2001. The Damhead Creek credit facility requires that the annual debt service coverage ratio be at least 1.05 to 1 for the previous 12 months at semi-annual dates commencing with June 30, 2002. Given the low electricity prices currently affecting the UK market, Damhead Creek may not meet the annual debt service coverage ratio test in respect of the 12 months to June 30, 2002, which could trigger an event of default. In the event the annual debt service coverage ratio is deficient at June 30, 2002, the power development business will seek a waiver of the default from the lenders. There is no requirement for EPDC to make capital contributions or provide credit support to Damhead Creek following the occurrence of an event of default. Note 7 to the financial statements more thoroughly discusses long-term debt. All debt and common and preferred stock issuances by the domestic utility companies and System Energy require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. As shown in the earnings ratios in Item 1 of this Form 10-K, Entergy New Orleans' earnings for the year ended December 31, 2001 were not adequate to cover its fixed charges. Under its mortgage covenants, Entergy New Orleans does not have the capacity to issue new secured debt. Management does not have plans to issue new secured debt at Entergy New Orleans through at least 2002, however, and believes that its short-term and unsecured borrowing capacity will be sufficient for its foreseeable capital needs. Under restrictions contained in its articles of incorporation, Entergy New Orleans could issue approximately $38 million of new unsecured debt as of December 31, 2001. Short-term borrowings by the domestic utility companies and System Energy, including borrowings under the money pool, are limited to amounts authorized by the SEC. Under the SEC order authorizing the short-term borrowing limits, the domestic operating companies cannot incur new short-term indebtedness if the issuer's equity would comprise less than 30% of its capital. In addition, this order restricts Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, or System Energy from issuing long-term debt unless that debt will be rated as investment grade. See Note 4 to the financial statements for further discussion of Entergy's short-term borrowing limits. Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows: Amount of Amount Drawn Company Expiration Facility as of Dec. Date 31, 2001 Entergy Corporation May 2002 $1.375 billion $350 million Entergy Arkansas May 2002 $63 million - Entergy Louisiana January 2003 $15 million - Entergy Mississippi May 2002 $25 million -
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Entergy Corporation has used borrowings from its facility for general corporate purposes and to make additional investments in competitive businesses, including the purchase of Indian Point 2 from Consolidated Edison in September 2001. Entergy Corporation's facility requires Entergy to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy's debt ratio exceeds this limit, or if Entergy or the domestic utility companies default on other credit facilities or are in bankruptcy or insolvency proceedings, an acceleration of the facility's maturity may occur. Off Balance Sheet and Equity Method Investee Debt, Guarantees of Unconsolidated Obligations, and Lease Obligations Entergy has an off balance sheet financing arrangement to finance EWO's turbine acquisition program, and the debt of its equity method investees is not consolidated in Entergy's financial statements, according to generally accepted accounting principles. The equity method investees are discussed more thoroughly in Note 13 to the financial statements. Entergy also has guarantees outstanding, which are discussed below, in support of unconsolidated obligations. In addition, Entergy has operating lease obligations that are not reflected as liabilities in the financial statements, according to generally accepted accounting principles. The operating leases are discussed more thoroughly in Note 10 to the financial statements. In order to provide a source of financing for EWO's turbine acquisition program, an Entergy subsidiary (EPDC) sold its rights and obligations under certain of its turbine acquisition contracts with General Electric Company to an independent special-purpose entity in May 2001. The special-purpose entity was formed through equity contributions from an unrelated third party. The rights to 22 turbines were included in the sale. As discussed above in "Uses of Capital," cancellation of four of these turbines is pending, and three others have been committed to a site under construction. Construction of some of the turbines had begun at the time of the sale, and the sale price of approximately $150 million corresponded to the amount that EPDC had invested in the turbines that were under construction at that time. The purchaser obtained a revolving financing facility of up to $450 million for the construction and acquisition of turbines. EPDC has certain rights to reacquire the turbines from the purchaser, whether pursuant to an interim lease commencing when a turbine is ready for shipment or pursuant to certain purchase rights. The methodology for calculation of the lease payments and purchase price for each turbine have been established pursuant to various agreements between EPDC, the purchaser, and the purchaser's lenders. If EPDC does not take title to the turbines prior to certain specified dates, the purchaser has certain rights to sell the turbines and EPDC may be held liable for specific defined shortfalls, if any. If Entergy were to consolidate the special-purpose entity as of December 31, 2001, its net debt ratio would increase from 49.7% to 50.5%. Certain EPDC obligations under these agreements are backed by an Entergy Corporation guarantee of up to $309 million as of December 31, 2001, including $84 million related to the Harrison County project currently under construction. In addition, if Entergy Corporation's debt is rated by two rating agencies (Entergy Corporation currently does not have debt issued that is rated) and if one rating falls below investment grade, or if two or more of its significant subsidiaries have their credit ratings downgraded to below investment grade, Entergy will have to put up cash collateral. As of December 31, 2001, Entergy would have to post up to $258 million as collateral in the event of such downgrades, including $59 million related to the Harrison County project. Two of Entergy's unconsolidated 50/50 joint ventures, Entergy-Koch and RS Cogen, have obtained long-term financing. As of December 31, 2001, 50% of the debt financing outstanding for those two entities was $347 million. Two of the contracts transferred to Entergy-Koch by Entergy's power marketing and trading business were backed by Entergy Corporation guarantees authorized in the amount of $45 million at December 31, 2001. RS Cogen is currently in the construction phase, and Entergy's $30 million equity commitment has not been funded. This commitment is secured by an Entergy Corporation guarantee, which will terminate when Entergy makes its equity contribution upon completion of construction. Entergy has also supported the RS Cogen project by causing a subsidiary to enter into a power toll processing agreement (PTPA) with RS Cogen. The PTPA provides for a 20-year term, dedicates 50% of RS Cogen's conversion capacity to the Entergy subsidiary and obligates the Entergy subsidiary to pay a monthly capacity charge.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES In August 2001, EntergyShaw 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 generating station to be located in Harrison County, Texas. Entergy has guaranteed the obligations of EntergyShaw to construct the plant, which will be 70% owned by EPV. Entergy's maximum liability on the guarantee is $232.5 million. Entergy Corporation and System Energy Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to: o maintain System Energy's equity capital at a minimum of 35% of its total capitalization (excluding short-term debt); o permit the continued commercial operation of Grand Gulf 1; o pay in full all System Energy indebtedness for borrowed money when due; and o enable System Energy to make payments on specific System Energy debt, under supplements to the agreement assigning System Energy's rights in the agreement as security for the specific debt. The Capital Funds Agreement and other Grand Gulf 1-related agreements are more thoroughly discussed in Note 9 to the financial statements.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Corporation: We have audited the accompanying consolidated balance sheets of Entergy Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, of retained earnings, comprehensive income, and paid-in capital and of cash flows (pages 86 through 91 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Entergy Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments in 2001. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Entergy's consolidated earnings applicable to common stock were $726.2 million and $679.3 million for the years ended December 31, 2001 and 2000, respectively. The changes in earnings applicable to common stock by operating segments for 2001 and 2000 as compared to the prior year are as follows: <TABLE> <CAPTION> Increase/(Decrease) Operating Segments 2001 2000 (In Thousands) <S> <C> <C> Domestic Utility and System Energy ($36,399) $75,684 Domestic Non-Utility Nuclear 78,722 33,453 Energy Commodity Services (primarily EWO and Entergy-Koch) 51,031 94,848 Other, including parent company (46,452) (77,150) ------- -------- Total $46,902 $126,835 ======= ======== Increases in earnings per average common share for Entergy: Basic 10% 33% Diluted 9% 32% </TABLE> Entergy's income before taxes is discussed according to the operating segments listed above. See Note 12 to the financial statements for further discussion of Entergy's operating segments and their financial results in 2001, 2000, and 1999. In addition to the matters discussed below, Entergy's share repurchase program contributed to the increases in earnings per share in both 2001 and 2000 by decreasing the weighted average number of shares outstanding. Also, as noted below under Energy Commodity Services, the cumulative effect of $23.5 million (net of tax) of an accounting change made in the fourth quarter of 2001 contributed to the increase in net income. Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC. AND SUBSIDIARIES, ENTERGY LOUISIANA, INC., ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., AND SYSTEM ENERGY RESOURCES, INC." which follow each company's financial statements in this report for further information with respect to operating statistics. Domestic Utility and System Energy The decrease in earnings for the domestic utility companies and System Energy in 2001 was primarily due to less favorable sales volume and weather, a decrease in the pricing of unbilled revenue, and an increase in interest expense. The decrease in earnings was partially offset by decreases in decommissioning expense, other operation and maintenance expenses, and depreciation and amortization expense, largely as a result of adjustments made after receipt of a final FERC order issued in connection with the 1995 System Energy rate increase filing, as well as by increased interest and dividend income. See Note 2 to the financial statements herein for further discussion of the System Energy rate proceeding. The increase in 2000 earnings at the domestic utility companies and System Energy was primarily due to more favorable sales volume and weather, an increase in the pricing of unbilled revenue, and a decrease in interest expense, partially offset by increases in other operation and maintenance expenses, depreciation and amortization expense, taxes other than income taxes, and the effective income tax rate.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues The changes in electric operating revenues for Entergy's domestic utility companies for 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes $62.0 ($94.2) Rate riders (38.5) (17.1) Fuel cost recovery 462.7 792.5 Sales volume/weather (76.8) 107.1 Unbilled revenue (261.1) 94.7 Other revenue (95.0) 39.6 Sales for resale (28.2) 25.7 ----- ------ Total $25.1 $948.3 ===== ====== Base rate changes Base rate changes increased revenue in 2001 primarily due to lower accruals for rate refund provisions at Entergy Gulf States and Entergy Louisiana. Base rate changes decreased revenue in 2000 primarily due to the non-recurring effect on 1999 revenues of the reversal of regulatory reserves associated with the accelerated amortization of accounting order deferrals resulting from the settlement agreement in Entergy Gulf States' 1996 and 1998 Texas rate filings. Rate riders Rate rider revenues do not impact earnings since specific incurred expenses offset them. In 2001, rate rider revenues decreased as a result of the cessation of the ANO decommissioning rate rider for calendar year 2001 at Entergy Arkansas and decreases in the Grand Gulf riders effective July 2001 and October 2000 at Entergy Arkansas and Entergy Mississippi, respectively. Fuel cost recovery The domestic utility companies are allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy's financial statements such that these costs do not have a material net effect on earnings. The increase in fuel cost recovery revenue in 2001 is primarily due to: o increased fuel recovery factors at Entergy Arkansas, Entergy Gulf States in the Texas jurisdiction, and Entergy Mississippi; and o higher fuel and purchased power costs recovered through fuel mechanisms at Entergy Gulf States in the Louisiana jurisdiction and Entergy New Orleans due to the increased market prices of natural gas and purchased power early in 2001.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Corresponding to the increase in fuel cost recovery revenue, fuel and purchased power expenses related to electric sales increased by $418.0 million in 2001 primarily due to an increase in the market prices of natural gas and purchased power early in 2001. Fuel cost recovery revenues increased in 2000 primarily due to: o increased fuel recovery factors at Entergy Arkansas, Entergy Gulf States in the Texas jurisdiction, and Entergy Mississippi; and o higher fuel and purchased power costs at Entergy Gulf States in the Louisiana jurisdiction, Entergy Louisiana, and Entergy New Orleans due to the increased market price of natural gas. Along with the increase in fuel cost recovery revenue, fuel and purchased power expenses increased by $794.2 million in 2000 primarily due to: o an increase in the market prices of purchased power, natural gas, and fuel oil; and o an increase in volume due to an increase in demand. The increase in fuel and purchased power expenses in 2000 was partially offset by a $23.5 million adjustment to the Entergy Arkansas deferred fuel balance to record deferred fuel costs that Entergy Arkansas expects to recover in the future through its fuel adjustment clause. Sales volume/weather Lower electric sales volume reduced revenues in 2001 due to decreased weather-adjusted usage of 2,067 GWH. The primary decreases in weather-adjusted usage were from industrial customers at Entergy Louisiana and Entergy Gulf States. The effect of milder-than-normal weather conditions also caused a decrease in electric sales in 2001. Electric sales volume in the domestic utility companies' service territories decreased 1,194 GWH due to the impact of weather conditions in 2001. The number of customers in the domestic utility companies' service territories increased only slightly during these periods. In 2000, higher electric sales volume increased revenues primarily due to increased usage and more favorable weather conditions as well as increased generation and subsequent sales from River Bend in 2000 as a result of a refueling outage in 1999. Unbilled revenue Unbilled revenues decreased in 2001 due to the effect of higher fuel prices and more favorable weather in December 2000 on the unbilled revenue calculation. In 2000, unbilled revenues increased due to the effect of higher fuel prices in December 2000 on the unbilled revenue calculation. Other revenue Other revenue decreased in 2001, reflecting the receipt of a final FERC order requiring System Energy to refund a portion of its December 1995 rate increase, which increased provisions for rate refunds by $93 million at System Energy. The net income impact of the provision was more than offset by the other effects of the final FERC order that are discussed below in "Other effects on results of operations."
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Gas operating revenues Natural gas revenues increased $20.0 million in 2001, primarily due to increased market prices for natural gas early in 2001 and additional sales volume due to the colder-than-normal January 2001 winter period. Natural gas revenues increased $55.5 million in 2000, primarily due to higher natural gas prices in late 2000. Other effects on results of operations Results for the year ended December 31, 2001 for the domestic utility companies and System Energy were also affected by the following: o decreases in other operation and maintenance expenses of $95.6 million, which are explained below; o a decrease in decommissioning expense at System Energy of $32.4 million resulting from the final resolution of the FERC order addressing the 1995 rate increase filing; o decreases in depreciation and amortization expense at System Energy of $74.5 million primarily resulting from the final resolution of the FERC order addressing the 1995 rate increase filing; o net increases in regulatory credits of $40.8 million, which are explained below; and o increases in interest expense of $61.5 million, which are explained below. The decreases in other operation and maintenance expenses in 2001 were primarily due to: o a decrease in property damage expenses of $49.7 million primarily due to a reversal of $24.5 million in June 2001, upon recommendation from the APSC, of ice storm costs previously charged to expense in December 2000 (these costs are now reflected as regulatory assets). The effect of the reversal of the ice storm costs on net income was largely offset by the adjustment to the transition cost account as a result of the 2000 earnings review in 2001; o decreases in outside services employed of $9.3 million and $11.0 million at Entergy Arkansas and Entergy Louisiana, respectively, as a result of rate and regulatory proceedings in 2000; and o decreases of $10.7 million and $14.6 million at Entergy Louisiana and Entergy Mississippi, respectively, because of maintenance and planned maintenance outages at certain fossil plants in 2000. The net increases in regulatory credits in 2001 were primarily due to: o the amount of capacity charges included in purchased power costs for the summers of 2000 and 2001 that Entergy Gulf States and Entergy Louisiana deferred and will recover in future periods; and o an under-recovery of Grand Gulf costs in 2001 at Entergy Mississippi as a result of a lower rider implemented in October 2000. The net increases in regulatory credits in 2001 were partially offset by the following: o the accrual of $22.3 million in the transition cost account at Entergy Arkansas; and o the amortization of the 2000 capacity charges mentioned above, which will occur through July 2002. The increases in interest expense in 2001 were primarily due to: o the final FERC order addressing the 1995 System Energy rate increase filing; o debt issued at Entergy Arkansas in July 2001, at Entergy Gulf States in June 2000 and August 2001, at Entergy Mississippi in January 2001, and at Entergy New Orleans in July 2000 and February 2001; and
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS o borrowings under credit facilities during 2001, primarily at Entergy Arkansas. Results for the year ended December 31, 2000 for the domestic utility companies and System Energy were also affected by the following: o increases in other operation and maintenance expenses of $95.8 million, which are explained below; o an increase of $44.5 million in depreciation and amortization expenses, which is explained below; and o a decrease in interest charges of $21.4 million primarily due to an adjustment in 1999 at System Energy to the interest recorded for the potential refund to customers of its proposed rate increase. Other operation and maintenance expenses increased in 2000 primarily due to: o increased damage expenses of $22.8 million primarily due to storm damage accruals related to the December 2000 ice storms at Entergy Arkansas, and due to changes in storm damage reserve amortization at Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi in accordance with regulatory treatment; o increased customer service expenses of $11.4 million primarily related to spending on vegetation management at Entergy Arkansas; o increased nuclear expenses of $17.2 million primarily from Entergy Arkansas and Entergy Gulf States; o an increase of $28.4 million primarily due to an increase in legal and contract expenses for the transition to retail open access at Entergy Arkansas and Entergy Gulf States, and for legal services employed for rate-related proceedings at Entergy Louisiana; and o an increase of $21.9 million in plant maintenance expense primarily at Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi. The increase in other operation and maintenance expenses in 2000 was partially offset by the following: o a $9.5 million larger nuclear insurance refund in 2000 compared to 1999; and o a decrease in injury and damages claims of $12.3 million. Depreciation and amortization expenses increased in 2000 primarily due to: o the review of plant-in-service dates for consistency with regulatory treatment that reduced depreciation expense by $17.7 million in August 1999; o increased depreciation of $14.0 million associated with the principal payment on the sale and leaseback of Grand Gulf 1; and o net capital additions primarily at Entergy Louisiana and Entergy Mississippi. Domestic Non-Utility Nuclear The increase in earnings in 2001 for the domestic non-utility nuclear business was primarily due to the operation of FitzPatrick and Indian Point 3 for a full year, as each was purchased in November 2000, and the operation of Indian Point 2, which was purchased in September 2001. Following are key performance measures for domestic non-utility nuclear operations: 2001 2000 Net MW in operation at December 31 3,445 2,475 Generation in GWH for the year 22,614 7,171 Capacity factor for the year 93% 94%
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following fluctuations in the results of operations for domestic non-utility nuclear in 2001 were primarily caused by the acquisition of FitzPatrick, Indian Point 3, and Indian Point 2: o revenues increased by $491.1 million; o other operation and maintenance expenses increased $217.6 million; o interest expense, primarily related to debt incurred to purchase the plants, increased $47.9 million; o fuel expenses increased $51.0 million; and o taxes other than income taxes increased $30.9 million. The increased earnings in 2000 for the domestic non-utility nuclear business were primarily due to increased revenues from the operation of the Pilgrim, FitzPatrick, and Indian Point 3 plants. Pilgrim was purchased in July 1999 and FitzPatrick and Indian Point 3 were purchased in November 2000. Partially offsetting the increased revenues were increases in fuel and purchased power expense, other operation and maintenance expense, and interest expense resulting from the acquisition of these three plants. Energy Commodity Services The increase in earnings for energy commodity services in 2001 was primarily due to: o the gain on the sale of EWO's Saltend plant discussed below; o the favorable results from Entergy-Koch discussed below; o the $33.5 million ($23.5 million net of tax) cumulative effect of an accounting change marking to market the Damhead Creek gas contract; o liquidated damages of $13.9 million ($9.7 million net of tax) received in 2001 from the Damhead Creek construction contractor as compensation for lost operating margin from the plant due to construction delays; and o a $12.2 million ($7.9 million net of tax) gain on the sale of a permitted site in Desoto County, Florida, in May 2001. Partially offsetting the increase in earnings for energy commodity services in 2001 was the following: o $60.1 million ($49.9 million net of tax) of losses or asset impairments recorded on EWO's Latin American investments and other development projects; o a $9.8 million ($6.4 million net of tax) loss recorded primarily because of the pending cancellation of four gas turbines scheduled for delivery in 2004; o liquidated damages of $55.1 million ($38.6 million net of tax) received in 2000 from the Saltend contractor as compensation for lost operating margin from the plant due to construction delays; o a $19.7 million ($12.8 million net of tax) gain on the sale of the Freestone project located in Fairfield, Texas, in June 2000; o increased depreciation expense of $23.6 million in 2001 primarily due to the commencement of the commercial operation of the Saltend and Damhead Creek plants; and o increased interest expense of $78.7 million in 2001 primarily because of the commencement of commercial operation of the Saltend and Damhead Creek plants.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Revenues decreased for energy commodity services by $983.3 million in 2001, primarily due to the contribution of substantially all of Entergy's power marketing and trading business to Entergy-Koch in 2001. Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. As a result, in 2001, revenues from this activity were lower by $1,957.0 million compared to 2000 revenue for Entergy's power marketing and trading segment, and purchased power expenses were lower by $1,830.0 million. The net income effect in 2001 of the lower revenue was more than offset by the equity in earnings from Entergy's interest in Entergy-Koch. Entergy's earnings from this activity increased in 2001 as a result of increased electricity and gas trading volumes as well as a broader range of commodity sources and options provided to customers by the joint venture than provided previously by Entergy. Following are key performance measures for Entergy-Koch's operations in 2001: Entergy-Koch Trading Gas volatility 81% Electricity volatility 66% Gas marketed (BCF/D) 6.9 Electricity marketed (GWH) 108,645 Gulf South Pipeline Throughput (BCF/D) 2.45 Production cost ($/MMBTU) $0.093 Entergy accounts for its 50% share in Entergy-Koch under the equity method of accounting. Certain terms of the partnership arrangement allocate 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. The disproportionate allocations were favorable to Entergy in the aggregate in 2001. In 2004, a revaluation of Entergy-Koch's assets for capital account purposes will occur, and future allocations will change after the revaluation. The profit allocations other than for weather trading and international trading are expected to become equal, unless special allocations are necessary to equalize the partners' capital accounts. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners. The decrease in revenues in 2001 was partially offset by an increase in operating revenues for EWO primarily due to an increase of $409.8 million from EWO's interest in Highland Energy and an increase of $450.1 million from the Saltend and Damhead Creek plants. Highland Energy was acquired in June 2000, and the Saltend and Damhead Creek plants began commercial operation in late November 2000 and early 2001, respectively. Highland Energy was sold in the fourth quarter of 2001. The increase in revenues for EWO is largely offset by increased fuel and purchased power expenses of $644.1 million and increased other operation and maintenance expenses of $94.6 million. EWO sold the Saltend plant in August 2001 and revenues include the $88.1 million ($57.2 million net of tax) gain on the sale. In 2000, the increase in earnings for energy commodity services was primarily due to the following related to the power marketing and trading business: o improved trading performance in electricity; o increased long-term marketing of electricity; and o trading gains in natural gas in 2000 due to natural gas prices reaching record high levels compared to trading losses in 1999.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Also contributing to the increase in earnings in energy commodity services in 2000 was $55.1 million of liquidated damages received from the Saltend contractor as compensation for lost operating margin from the plant due to construction delays and a $19.7 million ($12.8 million net of tax) gain in June 2000 on the sale of the power development business' investment in the Freestone project located in Fairfield, Texas. Partially offsetting the increase was the absence of a $26.7 million ($17 million net of tax) gain on the sale of Entergy Power Edesur Holdings which occurred in June 1999. Other, including parent company Earnings from Other decreased in 2001 primarily due to a decrease in interest income of $41.2 million and $21.8 million ($14.1 million net of tax) of merger-related expenses incurred by Entergy Corporation in the first quarter of 2001. Also contributing to the decreased earnings was an increase in interest expense of $19.5 million. The decreased earnings were partially offset by the write-down of investments in Latin American projects in 2000 discussed below. Earnings from Other decreased in 2000 primarily due to a $42.5 million ($27.6 million net of tax) write-down in 2000 of investments in Latin American projects to their estimated fair values. The decrease is also due to the absence of the following items that occurred in 1999: o a $12.9 million ($8 million net of tax) gain on the sale of Entergy Hyperion Telecommunications in June 1999; o a $22.0 million ($6.4 million net of tax) gain on the sale of Entergy Security, Inc. in January 1999, including a true-up recognized in December 1999; o a $7.6 million ($4.9 million net of tax) favorable adjustment to the final sale price of CitiPower in January 1999; and o a more favorable experience on warranty reserves in 1999 for the businesses sold during 1998. Income taxes The effective income tax rates for 2001, 2000, and 1999 were 38.5%, 40.3%, and 37.5%, respectively. The decrease in 2001 was primarily due to the effects of the final FERC order addressing System Energy's 1995 rate proceeding. The increase in 2000 was primarily due to the recognition in 1999 of deferred tax benefits related to the expected utilization of foreign tax credits resulting in lower income taxes.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> For the Years Ended December 31, 2001 2000 1999 (In Thousands, Except Share Data) <S> <C> <C> <C> OPERATING REVENUES Domestic electric $7,244,827 $7,219,686 $6,271,414 Natural gas 185,902 165,872 110,355 Steam products - - 15,852 Competitive businesses 2,190,170 2,636,571 2,368,014 ----------- ----------- ----------- TOTAL 9,620,899 10,022,129 8,765,635 ----------- ----------- ----------- OPERATING EXPENSES Operating and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 3,681,677 2,645,835 2,082,875 Purchased power 1,021,432 2,662,881 2,442,484 Nuclear refueling outage expenses 89,145 70,511 76,057 Other operation and maintenance 2,151,742 1,943,814 1,705,545 Decommissioning 3,189 39,484 45,988 Taxes other than income taxes 399,849 370,344 339,284 Depreciation and amortization 721,033 746,125 698,881 Other regulatory charges (credits) - net (37,093) 3,681 14,833 Amortization of rate deferrals 16,583 30,392 115,627 ----------- ----------- ----------- TOTAL 8,047,557 8,513,067 7,521,574 ----------- ----------- ----------- OPERATING INCOME 1,573,342 1,509,062 1,244,061 ----------- ----------- ----------- OTHER INCOME Allowance for equity funds used during construction 26,209 32,022 29,291 Gain on sale of assets - net 5,226 2,340 71,926 Interest and dividend income 159,805 163,050 143,601 Equity in earnings of unconsolidated equity affiliates 180,956 13,715 7,593 Miscellaneous - net (22,843) 27,077 10,822 ----------- ----------- ----------- TOTAL 349,353 238,204 263,233 ----------- ----------- ----------- INTEREST AND OTHER CHARGES Interest on long-term debt 544,920 477,071 476,877 Other interest - net 197,638 85,635 82,471 Distributions on preferred securities of subsidiaries 18,838 18,838 18,838 Allowance for borrowed funds used during construction (21,419) (24,114) (22,585) ----------- ----------- ----------- TOTAL 739,977 557,430 555,601 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,182,718 1,189,836 951,693 Income taxes 455,693 478,921 356,667 ----------- ----------- ----------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 727,025 710,915 595,026 CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of income taxes of $10,064) 23,482 - - ----------- ----------- ----------- CONSOLIDATED NET INCOME 750,507 710,915 595,026 Preferred dividend requirements and other 24,311 31,621 42,567 ----------- ----------- ----------- EARNINGS APPLICABLE TO COMMON STOCK $726,196 $679,294 $552,459 =========== =========== =========== Earnings per average common share before cumulative effect of accounting change: Basic $3.18 $3.00 $2.25 Diluted $3.13 $2.97 $2.25 Earnings per average common share: Basic $3.29 $3.00 $2.25 Diluted $3.23 $2.97 $2.25 Dividends declared per common share $1.28 $1.22 $1.20 Average number of common shares outstanding: Basic 220,944,270 226,580,449 245,127,460 Diluted 224,733,662 228,541,307 245,326,883 See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Consolidated net income $750,507 $710,915 $595,026 Noncash items included in net income: Amortization of rate deferrals 16,583 30,392 115,627 Reserve for regulatory adjustments (359,199) 18,482 10,531 Other regulatory charges (credits) - net (37,093) 3,681 14,833 Depreciation, amortization, and decommissioning 724,222 785,609 744,869 Deferred income taxes and investment tax credits 87,752 124,457 (189,465) Allowance for equity funds used during construction (26,209) (32,022) (29,291) Cumulative effect of accounting change (23,482) - - (Gain) on sale of assets - net (5,226) (2,340) (71,926) Equity in undistributed earnings of subsidiaries and unconsolidated affiliates (168,873) (13,715) (7,593) Changes in working capital (net of effects from acquisitions and dispositions): Receivables 302,230 (437,146) 9,246 Fuel inventory (3,419) (20,447) (1,359) Accounts payable (415,160) 543,606 35,233 Taxes accrued 486,676 20,871 158,733 Interest accrued 17,287 45,789 (56,552) Deferred fuel 495,007 (38,001) 10,583 Other working capital accounts (39,978) 102,336 45,285 Provision for estimated losses and reserves 19,093 6,019 (59,464) Changes in other regulatory assets 119,215 (66,903) (36,379) Other 275,615 186,264 101,087 ------------ ----------- ------------ Net cash flow provided by operating activities 2,215,548 1,967,847 1,389,024 ------------ ----------- ------------ INVESTING ACTIVITIES Construction/capital expenditures (1,380,417) (1,493,717) (1,195,750) Allowance for equity funds used during construction 26,209 32,022 29,291 Nuclear fuel purchases (130,670) (121,127) (137,649) Proceeds from sale/leaseback of nuclear fuel 71,964 117,154 137,093 Proceeds from sale of businesses 784,282 61,519 351,082 Investment in other nonregulated/nonutility properties (1,278,990) (238,062) (81,273) Changes in other temporary investments - net (150,000) 321,351 635,005 Decommissioning trust contributions and realized change in trust assets (95,571) (63,805) (61,766) Other regulatory investments (3,460) (385,331) (81,655) Other (68,067) (44,016) (42,258) ------------ ----------- ------------ Net cash flow used in investing activities (2,224,720) (1,814,012) (447,880) ------------ ----------- ------------ See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> FINANCING ACTIVITIES Proceeds from the issuance of: Long-term debt 682,402 904,522 1,113,370 Common stock 64,345 41,908 15,320 Retirement of: Long-term debt (962,112) (181,329) (1,195,451) Repurchase of common stock (36,895) (550,206) (245,004) Redemption of preferred stock (39,574) (157,658) (98,597) Changes in short-term borrowings - net (37,004) 267,000 (165,506) Dividends paid: Common stock (269,122) (271,019) (291,483) Preferred stock (24,044) (32,400) (43,621) ----------- ----------- ----------- Net cash flow provided by (used in) financing activities (622,004) 20,818 (910,972) ----------- ----------- ----------- Effect of exchange rates on cash and cash equivalents 325 (5,948) (948) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (630,851) 168,705 29,224 Cash and cash equivalents at beginning of period 1,382,424 1,213,719 1,184,495 ----------- ----------- ----------- Cash and cash equivalents at end of period $751,573 $1,382,424 $1,213,719 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest - net of amount capitalized $708,748 $505,414 $601,739 Income taxes ($118,881) $345,361 $373,537 Noncash investing and financing activities: Change in unrealized appreciation/ (depreciation) of decommissioning trust assets ($34,517) ($11,577) $41,582 Proceeds from long-term debt issued for the purpose of refunding prior long-term debt $47,000 - - Decommissioning trust funds acquired in nuclear power plant acquisitions $430,000 - $428,284 Acquisition of Indian Point 3 and FitzPatrick Fair value of assets acquired - $917,667 - Initial cash paid at closing - $50,000 - Liabilities assumed and notes issued to seller - $867,667 - See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS <TABLE> <CAPTION> December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents: Cash $129,866 $157,550 Temporary cash investments - at cost, which approximates market 618,327 640,038 Special deposits 3,380 584,836 ----------- ---------- Total cash and cash equivalents 751,573 1,382,424 ----------- ---------- Other temporary investments 150,000 - Notes receivable 2,137 3,608 Accounts receivable: Customer 294,799 497,821 Allowance for doubtful accounts (19,255) (9,947) Other 286,671 395,518 Accrued unbilled revenues 268,680 415,409 ----------- ---------- Total receivables 830,895 1,298,801 ----------- ---------- Deferred fuel costs 172,444 568,331 Accumulated deferred income taxes 6,488 - Fuel inventory - at average cost 97,497 93,679 Materials and supplies - at average cost 460,644 425,357 Rate deferrals - 16,581 Deferred nuclear refueling outage costs 79,755 46,544 Prepayments and other 129,251 122,690 ----------- ---------- TOTAL 2,680,684 3,958,015 ----------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 766,103 136,487 Decommissioning trust funds 1,775,950 1,315,857 Non-utility property - at cost (less accumulated depreciation) 295,616 262,952 Other 495,542 79,917 ----------- ---------- TOTAL 3,333,211 1,795,213 ----------- ---------- PROPERTY, PLANT AND EQUIPMENT Electric 26,359,376 25,137,562 Plant acquisition adjustment 374,399 390,664 Property under capital lease 753,310 831,822 Natural gas 201,841 190,989 Construction work in progress 882,829 936,785 Nuclear fuel under capital lease 265,464 277,673 Nuclear fuel 232,387 157,603 ----------- ---------- TOTAL PROPERTY, PLANT AND EQUIPMENT 29,069,606 27,923,098 Less - accumulated depreciation and amortization 11,805,578 11,477,352 ----------- ---------- PROPERTY, PLANT AND EQUIPMENT - NET 17,264,028 16,445,746 ----------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 946,126 980,266 Unamortized loss on reacquired debt 166,546 183,627 Deferred fuel costs - 95,661 Other regulatory assets 707,439 792,515 Long-term receivables 28,083 29,575 Other 784,194 1,171,278 ----------- ---------- TOTAL 2,632,388 3,252,922 ----------- ---------- TOTAL ASSETS $25,910,311 $25,451,896 =========== =========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY <TABLE> <CAPTION> December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Currently maturing long-term debt $682,771 $464,215 Notes payable 351,018 388,023 Accounts payable 592,529 1,204,227 Customer deposits 188,230 172,169 Taxes accrued 700,133 451,811 Accumulated deferred income taxes - 225,649 Nuclear refueling outage costs 2,080 10,209 Interest accrued 192,420 172,033 Obligations under capital leases 149,352 156,907 Other 345,387 192,908 ----------- ---------- TOTAL 3,203,920 3,438,151 ----------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 3,574,664 3,249,083 Accumulated deferred investment tax credits 471,090 494,315 Taxes accrued 250,000 - Obligations under capital leases 181,085 201,873 Other regulatory liabilities 135,878 135,586 Decommissioning 1,194,333 749,708 Transition to competition 231,512 191,934 Regulatory reserves 37,591 396,789 Accumulated provisions 425,399 390,116 Other 852,269 853,137 ----------- ---------- TOTAL 7,353,821 6,662,541 ----------- ---------- Long-term debt 7,321,028 7,732,093 Preferred stock with sinking fund 26,185 65,758 Preferred stock without sinking fund 334,337 334,688 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated deferrable debentures 215,000 215,000 SHAREHOLDERS' EQUITY Common stock, $.01 par value, authorized 500,000,000 shares; issued 248,174,087 shares in 2001 and 248,094,614 shares in 2000 2,482 2,481 Paid-in capital 4,662,704 4,660,483 Retained earnings 3,638,448 3,190,639 Accumulated other comprehensive loss (88,794) (75,033) Less - treasury stock, at cost (27,441,384 shares in 2001 and 28,490,031 shares in 2000) 758,820 774,905 ----------- ----------- TOTAL 7,456,020 7,003,665 ----------- ----------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $25,910,311 $25,451,896 =========== =========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL <TABLE> <CAPTION> For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> <C> <C> <C> RETAINED EARNINGS Retained Earnings - Beginning of period $3,190,639 $2,786,467 $2,526,888 Add-Earnings applicable to common stock 726,196 $726,196 679,294 $679,294 552,459 $552,459 Deduct: Dividends declared on common stock 278,342 275,929 294,352 Capital stock and other expenses 45 (807) (1,472) ------------ ----------- ----------- Total 278,387 275,122 292,880 ------------ ----------- ----------- Retained Earnings - End of period $3,638,448 $3,190,639 $2,786,467 ============ =========== =========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Net of tax): Balance at beginning of period ($75,033) ($73,805) ($46,739) Cumulative effect to January 1, 2001 of accounting change regarding fair value of derivative instruments (18,021) - - Net derivative instrument fair value changes arising during the period 48 48 - - - - Foreign currency translation adjustments 4,615 4,615 (5,216) (5,216) (22,043) (22,043) Net unrealized investment gains (losses) (403) (403) 3,988 3,988 (5,023) (5,023) ------------ ----------- ----------- Balance at end of period: Accumulated derivative instrument fair value changes (17,973) - - Other accumulated comprehensive income (loss) items (70,821) (75,033) (73,805) ------------ ----------- ----------- Total ($88,794) ($75,033) ($73,805) ============ =========== =========== Comprehensive Income $730,456 $678,066 $525,393 ======== ======== ======== PAID-IN CAPITAL Paid-in Capital - Beginning of period $4,660,483 $4,636,163 $4,630,609 Add: Common stock issuances related to stock plans 2,221 24,320 5,554 ------------ ----------- ----------- Paid-in Capital - End of period $4,662,704 $4,660,483 $4,636,163 =========== =========== =========== See Notes to Financial Statements </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 (1) 1997 (2) (In Thousands, Except Percentages and Per Share Amounts) <S> <C> <C> <C> <C> <C> Operating revenues $ 9,620,899 $10,022,129 $ 8,765,635 $11,494,772 $ 9,538,926 Income before cumulative effect of accounting change $ 727,025 $ 710,915 $ 595,026 $ 785,629 $ 300,899 Earnings per share before cumulative effect of accounting change Basic $ 3.18 $ 3.00 $ 2.25 $ 3.00 $ 1.03 Diluted $ 3.13 $ 2.97 $ 2.25 $ 3.00 $ 1.03 Dividends declared per share $ 1.28 $ 1.22 $ 1.20 $ 1.50 $ 1.80 Return on average common equity 10.04% 9.62% 7.77% 10.71% 3.71% Book value per share, year-end $ 33.78 $ 31.89 $ 29.78 $ 28.82 $ 27.23 Total assets $25,910,311 $25,451,896 $22,969,940 $22,836,694 $27,000,700 Long-term obligations (3) $ 7,743,298 $ 8,214,724 $ 7,252,697 $ 7,349,349 $10,154,330 </TABLE> (1) Includes the effects of the sales of London Electricity and CitiPower in December 1998. (2) Includes the effects of the London Electricity acquisition in February 1997. (3) Includes long-term debt (excluding currently maturing debt), preferred stock with sinking fund, preferred securities of subsidiary trusts and partnership, and noncurrent capital lease obligations. <TABLE> <CAPTION> 2001 2000 1999 1998 1997 (Dollars In Thousands) <S> <C> <C> <C> <C> <C> Domestic Electric Operating Revenues: Residential $2,612,889 $2,524,529 $2,231,091 $2,299,317 $2,271,363 Commercial 1,860,040 1,699,699 1,502,267 1,513,050 1,581,878 Industrial 2,298,825 2,177,236 1,878,363 1,829,085 2,018,625 Governmental 205,054 185,286 163,403 172,368 171,773 -------------------------------------------------------------------- Total retail 6,976,808 6,586,750 5,775,124 5,813,820 6,043,639 Sales for resale 395,353 423,519 397,844 448,842 359,881 Other (1) (127,334) 209,417 98,446 (126,340) 135,311 -------------------------------------------------------------------- Total $7,244,827 $7,219,686 $6,271,414 $6,136,322 $6,538,831 ==================================================================== Billed Electric Energy Sales (GWH): Residential 31,080 31,998 30,631 30,935 28,286 Commercial 24,706 24,657 23,775 23,177 21,671 Industrial 41,577 43,956 43,549 43,453 44,649 Governmental 2,593 2,605 2,564 2,659 2,507 -------------------------------------------------------------------- Total retail 99,956 103,216 100,519 100,224 97,113 Sales for resale 8,896 9,794 9,714 11,187 9,707 -------------------------------------------------------------------- Total 108,852 113,010 110,233 111,411 106,820 ==================================================================== </TABLE> (1) 1998 includes the effect of a reserve for rate refund at Entergy Gulf States. 2001 includes the effect of a reserve for rate refund at System Energy.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Arkansas, Inc.: We have audited the accompanying balance sheets of Entergy Arkansas, Inc. as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows (pages 99 through 103 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Arkansas, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased in 2001 primarily due to a refund from System Energy as a result of the receipt of a final FERC order in System Entergy's 1995 rate proceeding and decreased operation and maintenance expenses. The adjustments necessary to record the effects of the FERC order reduced purchased power expense by $62.7 million ($38.6 million net-of-tax). The increase was partially offset by decreased regulatory credits and other income and increased interest charges. Refer to Note 2 of the financial statements for further discussion of the FERC order in System Entergy's 1995 rate proceeding. Net income increased in 2000 primarily due to increased electric operating revenues and lower regulatory charges, partially offset by increased operation and maintenance expenses. Revenues and Sales The changes in electric operating revenues for the twelve months ended December 31, 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes $0.7 ($6.5) Rate riders (18.6) (21.8) Fuel cost recovery 78.8 61.8 Sales volume/weather 5.1 30.8 Unbilled revenue (15.9) 45.1 Other revenue 3.2 2.5 Sales for resale (39.2) 108.8 ----- ------ Total $14.1 $220.7 ===== ====== Rate riders Rate rider revenues have no material effect on net income because specific incurred expenses offset them. In 2001, rate rider revenues decreased as a result of the cessation of the ANO Decommissioning rate rider for the calendar year 2001. The ANO Decommissioning rider allows Entergy Arkansas to recover the decommissioning costs associated with ANO 1 and 2. In October 2000, the APSC concluded that funds previously collected, together with future earnings on those funds, will be sufficient to decommission ANO 1 and 2. Also contributing to the decrease in rate rider revenues is a decrease in the Grand Gulf rate rider effective July 2001. The Grand Gulf rate rider allows Entergy Arkansas to recover 78% of its share of operating costs for Grand Gulf 1. In 2000, rate rider revenues decreased as a result of decreased ANO Decommissioning and Grand Gulf rate riders. The decreased rates in both riders became effective in January 2000.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Fuel cost recovery Entergy Arkansas is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Arkansas' financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues increased in 2001 primarily due to increases in the energy cost rate that became effective in April 2000 and April 2001. The energy cost recovery rider (Rider ECR) is determined annually by formula. The increase in the energy cost rate allows Entergy Arkansas to recover previously under-recovered fuel expenses. Rider ECR is discussed further in Note 2 to the financial statements. Fuel cost recovery revenues increased in 2000 primarily due to an increase in the energy cost rate in April 2000. Sales volume/weather Electric sales vary seasonally in response to weather and usually peak in the summer. The colder winter weather in 2000 contributed 1,508 GWH to the increase in electric sales volume in the residential and commercial sectors as compared to 1999. Higher electric sales volume in 2000 also increased revenues due to increased weather- adjusted usage of 742 GWH in the residential and commercial sectors. Increased usage in the industrial sector of 406 GWH also contributed to the increase in electric sales. Unbilled revenue In 2001, unbilled revenue decreased primarily due to the effect of colder weather in December 2000 on the unbilled revenue calculation compared to the calculation in the current year. In 2000, unbilled revenue increased primarily as a result of a change in estimated unbilled revenues and a $13.4 million adjustment to third quarter 1999 unbilled revenues that excluded fuel recovery and rate rider revenues from the unbilled balance in accordance with regulatory treatment. Unbilled revenues also increased due to greater unbilled volume and the addition of unbilled revenue for wholesale customers to the unbilled balance. Sales for resale In 2001, sales for resale decreased due to a decrease in sales volume to adjoining utility systems and municipal and co-operative customers as a result of less energy available for resale, coupled with a decrease in the average price of energy. In 2000, sales for resale increased primarily due to an increase in the market price of electricity.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Fuel and purchased power In 2001, fuel and purchased power expenses decreased primarily due to: o decreased gas generation as a result of displacement by nuclear generation; o decreased purchased power volume as a result of displacement by nuclear generation; and o receipt of a final FERC order requiring System Energy to refund a portion of its requested December 1995 rate increase. The effect of the order required adjustments that reduced purchased power expense at Entergy Arkansas by $62.7 million. In 2000, fuel and purchased power expenses increased primarily due to: o an increase in the market price of natural gas; o an increase in the market price of purchased power; and o increased purchased power volume due to increased demand for electricity and to offset decreased nuclear generation due to maintenance, inspection, and refueling outages during the year. The increased fuel and purchased power expenses were partially offset by a $23.5 million adjustment to the deferred fuel balance as a result of the 1999 and 2000 Rider ECR filings. This adjustment reflects deferred costs that Entergy Arkansas expects to recover in the future. Other operation and maintenance Other operation and maintenance expenses decreased for 2001 primarily due to: o a decrease in damage expenses of $49.7 million primarily due to a reversal of $24.5 million in June 2001, upon recommendation from the APSC, of ice storm costs previously charged to expense in December 2000 (these costs are now reflected in other regulatory assets on Entergy Arkansas' balance sheet). The effect of the reversal of the ice storm costs on net income was largely offset by the adjustment to the transition cost account as a result of the 2000 earnings review in 2001; o a decrease in nuclear expenses of $17 million due to maintenance and inspection outages in 2000, compared to no outages in 2001, as well as the steam generator replacement project at ANO 2 in late 2000; and o a decrease in outside service expense of $9.3 million primarily due to decreased transition to competition support costs. The decrease in other operation and maintenance expenses was partially offset by a $15.9 million increase due to the payment of turbine refurbishing costs for the Blytheville plant, the lease of which expired after the summer of 1999. Other operation and maintenance expenses increased for 2000 primarily due to: o an increase in property damage expense of $14.5 million due to December 2000 ice storms; o an increase in nuclear expenses of $7.9 million related to maintenance and inspection outages and the steam generator replacement project at ANO 2; o an increase in spending of $7.1 million on vegetation management; o an increase in plant maintenance expense of $5.0 million; and o an increase in spending of $4.5 million for outside services employed related primarily to transition to competition support work.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Decommissioning Decommissioning expense decreased in 2001 primarily due to the cessation of the ANO Decommissioning rate rider for the calendar year 2001. In October 2000, the APSC concluded that funds previously collected, together with future earnings on those funds, will be sufficient to decommission ANO 1 and 2. Decommissioning expense decreased in 2000 primarily due to a true- up of the decommissioning liability in June 2000 for previous over- accruals. Other regulatory charges (credits) - net In 2001, other regulatory credits decreased primarily due to: o the accrual of $22.3 million to the transition cost account; o the decreased accrual of transition costs recorded as a regulatory asset expected to be recovered in a customer transition tariff; and o increased recovery of Grand Gulf 1 costs due to an increase in the Grand Gulf 1 rider effective January 2001, partially offset by a later decrease in the rider effective July 2001. In 2000, other regulatory credits increased primarily due to: o a $16.6 million under-recovery of Grand Gulf 1 costs as a result of a decreased rate rider that became effective in January 2000 as ordered by the APSC; o the recording of a regulatory asset for certain transition costs expected to be recovered in a customer transition tariff; and o accruals in 1999 of $15.4 million to the transition cost account. The transition cost account and the December 2000 ice storms are discussed in more detail in Note 2 to the financial statements. Other Other income Other income decreased in 2001 primarily due to a decrease in the allowance for equity funds used during construction due to a lower construction work in progress balance during 2001 compared to the same period in 2000. The construction balance was lower because the ANO 2 replacement steam generators were placed in service in late 2000. Interest charges Interest charges increased in 2001 primarily due to: o a decrease in the allowance for borrowed funds used for construction because of the lower construction work in progress balance during 2001; o the issuance of $100 million of long-term debt in July 2001; and o interest expense on a $63 million credit facility obtained in January 2001.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Interest charges increased in 2000 due to the issuance of $100 million of long-term debt in March 2000. Income taxes The effective income tax rates for 2001, 2000, and 1999 were 37.3%, 42.3%, and 43.8%, respectively. The effective income tax rate decreased in 2001 primarily due to resolution of matters related to prior year taxes, which were lower than previously estimated. Also contributing to the decreased rate was lower tax depreciation.
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. INCOME STATEMENTS For the Years Ended December 31, 2001 2000 1999 (In Thousands) OPERATING REVENUES <S> <C> <C> <C> Domestic electric $1,776,776 $1,762,635 $1,541,894 ---------- ---------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 397,080 258,294 257,946 Purchased power 397,885 560,793 455,425 Nuclear refueling outage expenses 28,695 25,884 29,857 Other operation and maintenance 364,409 427,409 389,462 Decommissioning 13 3,845 10,670 Taxes other than income taxes 35,186 39,662 36,669 Depreciation and amortization 174,539 169,806 161,234 Other regulatory charges (credits) - net (721) (33,078) 5,230 ---------- ---------- ---------- TOTAL 1,397,086 1,452,615 1,346,493 ---------- ---------- ---------- OPERATING INCOME 379,690 310,020 195,401 ---------- ---------- ---------- OTHER INCOME Allowance for equity funds used during construction 6,115 15,020 12,866 Interest and dividend income 8,983 8,784 7,274 Miscellaneous - net (5,109) (4,453) (3,652) ---------- ---------- ---------- TOTAL 9,989 19,351 16,488 ---------- ---------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 90,260 88,140 80,800 Other interest - net 14,163 8,360 11,123 Distributions on preferred securities of subsidiary 5,100 5,100 5,100 Allowance for borrowed funds used during construction (3,962) (9,788) (8,459) ---------- ---------- ---------- TOTAL 105,561 91,812 88,564 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 284,118 237,559 123,325 Income taxes 105,933 100,512 54,012 ---------- ---------- ---------- NET INCOME 178,185 137,047 69,313 Preferred dividend requirements and other 7,744 7,776 10,854 ---------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $170,441 $129,271 $58,459 ========== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) OPERATING ACTIVITIES <S> <C> <C> <C> Net income $178,185 $137,047 $69,313 Noncash items included in net income: Other regulatory charges (credits) - net (721) (33,078) 5,230 Depreciation, amortization, and decommissioning 174,552 173,651 171,904 Deferred income taxes and investment tax credits 6,389 39,776 22,421 Allowance for equity funds used during construction (6,115) (15,020) (12,866) Changes in working capital: Receivables (16,073) (47,647) 40,375 Fuel inventory 5,437 (6,512) (4,633) Accounts payable (206,185) 141,172 56,985 Taxes accrued 64,018 1,731 (30,054) Interest accrued 2,920 5,246 (2,908) Deferred fuel costs 89,184 35,993 38,814 Other working capital accounts 23,283 17,162 2,444 Provision for estimated losses and reserves (978) (895) (8,116) Changes in other regulatory assets (39,924) (85,452) 45,898 Other 139,206 58,386 (42,249) -------- -------- -------- Net cash flow provided by operating activities 413,178 421,560 352,558 -------- -------- -------- INVESTING ACTIVITIES Construction expenditures (280,755) (369,370) (238,009) Allowance for equity funds used during construction 6,115 15,020 12,866 Nuclear fuel purchases (19,103) (44,722) (32,517) Proceeds from sale/leaseback of nuclear fuel 19,103 44,722 32,517 Decommissioning trust contributions and realized change in trust assets (10,105) (15,761) (17,746) Changes in other temporary investments - net (38,397) - - Other regulatory investments (3,460) (97,343) (39,243) -------- -------- -------- Net cash flow used in investing activities (326,602) (467,454) (282,132) -------- -------- -------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 97,384 99,381 - Retirement of long-term debt - (220) (39,607) Redemption of preferred stock - - (22,666) Dividends paid: Common stock (82,500) (44,600) (82,700) Preferred stock (5,832) (7,691) (11,696) -------- -------- -------- Net cash flow provided by (used in) financing activities 9,052 46,870 (156,669) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 95,628 976 (86,243) Cash and cash equivalents at beginning of period 7,838 6,862 93,105 -------- -------- -------- Cash and cash equivalents at end of period $103,466 $7,838 $6,862 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $101,330 $91,291 $94,872 Income taxes $31,939 $60,291 $61,273 Noncash investing and financing activities: Change in unrealized appreciation/(depreciation) of decommissioning trust assets ($14,843) ($3,920) $22,980 Proceeds from long-term debt issued for the purpose of refunding prior long-term debt $47,000 - - See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) CURRENT ASSETS <S> <C> <C> Cash and cash equivalents: Cash $18,331 $7,838 Temporary cash investments - at cost, which approximates market 85,135 - ---------- ---------- Total cash and cash equivalents 103,466 7,838 ---------- ---------- Other temporary investments 38,397 - Accounts receivable: Customer 80,719 98,550 Allowance for doubtful accounts (1,667) (1,667) Associated companies 65,102 22,286 Other 20,889 26,221 Accrued unbilled revenues 62,307 65,887 ---------- ---------- Total accounts receivable 227,350 211,277 ---------- ---------- Deferred fuel costs 17,246 102,970 Accumulated deferred income taxes 22,698 - Fuel inventory - at average cost 4,372 9,809 Materials and supplies - at average cost 75,499 80,682 Deferred nuclear refueling outage costs 14,508 23,541 Prepayments and other 53,386 5,540 ---------- ---------- TOTAL 556,922 441,657 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 11,217 11,217 Decommissioning trust funds 351,114 355,852 Non-utility property - at cost (less accumulated depreciation) 1,465 1,469 Other - at cost (less accumulated depreciation) 2,976 3,032 ---------- ---------- TOTAL 366,772 371,570 ---------- ---------- UTILITY PLANT Electric 5,399,294 5,274,066 Property under capital lease 35,604 40,289 Construction work in progress 157,994 87,389 Nuclear fuel under capital lease 65,556 107,023 Nuclear fuel 8,156 6,720 ---------- ---------- TOTAL UTILITY PLANT 5,666,604 5,515,487 Less - accumulated depreciation and amortization 2,615,013 2,534,463 ---------- ---------- UTILITY PLANT - NET 3,051,591 2,981,024 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 164,146 162,952 Unamortized loss on reacquired debt 40,817 44,428 Other regulatory assets 260,535 221,805 Other 10,797 4,775 ---------- ---------- TOTAL 476,295 433,960 ---------- ---------- TOTAL ASSETS $4,451,580 $4,228,211 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 2000 (In Thousands) CURRENT LIABILITIES <S> <C> <C> Currently maturing long-term debt $85,000 $100 Notes payable 667 667 Accounts payable: Associated companies 32,868 94,776 Other 87,036 231,313 Customer deposits 32,589 29,775 Taxes accrued 104,281 40,263 Accumulated deferred income taxes - 55,127 Interest accrued 30,544 27,624 Obligations under capital leases 51,973 45,962 System Energy refund 53,732 - Other 17,221 14,942 ---------- ---------- TOTAL 495,911 540,549 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 809,742 715,891 Accumulated deferred investment tax credits 83,239 88,264 Obligations under capital leases 49,187 101,350 Transition to competition 152,414 119,553 Accumulated provisions 41,415 42,393 Other 107,424 64,267 ---------- ---------- TOTAL 1,243,421 1,131,718 ---------- ---------- Long-term debt 1,308,075 1,239,712 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 60,000 60,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 116,350 116,350 Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares in 2001 and 2000 470 470 Paid-in capital 591,127 591,127 Retained earnings 636,226 548,285 ---------- ---------- TOTAL 1,344,173 1,256,232 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,451,580 $4,228,211 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Retained Earnings, January 1 $548,285 $463,614 $487,855 Add: Net income 178,185 137,047 69,313 Deduct: Dividends declared: Preferred stock 7,744 7,776 9,223 Common stock 82,500 44,600 82,700 Capital stock expenses and other - - 1,631 -------- -------- -------- Total 90,244 52,376 93,554 -------- -------- -------- Retained Earnings, December 31 $636,226 $548,285 $463,614 ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $1,776,776 $1,762,635 $1,541,894 $1,608,698 $1,715,714 Net income $ 178,185 $ 137,047 $ 69,313 $ 110,951 $ 127,977 Total assets $4,451,580 $4,228,211 $3,917,111 $4,006,651 $4,106,877 Long-term obligations (1) $1,417,262 $1,401,062 $1,265,846 $1,335,248 $1,419,728 </TABLE> (1) Includes long-term debt (excluding currently maturing debt), preferred securities of subsidiary trust, and noncurrent capital lease obligations. <TABLE> <CAPTION> 2001 2000 1999 1998 1997 <S> <C> <C> <C> <C> <C> Electric Operating Revenues: (Dollars In Thousands) Residential $586,361 $561,363 $533,245 $562,325 $551,821 Commercial 329,437 307,320 288,677 288,816 332,715 Industrial 370,772 353,046 335,824 330,016 372,083 Governmental 16,149 14,935 14,606 14,640 18,200 --------------------------------------------------------------- Total retail 1,302,719 1,236,664 1,172,352 1,195,797 1,274,819 Sales for resale: Associated companies 240,073 245,541 178,150 149,603 213,845 Non-associated companies 201,111 234,873 193,449 240,090 215,249 Other 32,873 45,557 (2,057) 23,208 11,801 --------------------------------------------------------------- Total $1,776,776 $1,762,635 $1,541,894 $1,608,698 $1,715,714 =============================================================== Billed Electric Energy Sales (GWH): Residential 6,918 6,791 6,493 6,613 5,988 Commercial 5,162 5,063 4,880 4,773 4,445 Industrial 7,052 7,240 7,054 6,837 6,647 Governmental 245 239 237 233 239 --------------------------------------------------------------- Total retail 19,377 19,333 18,664 18,456 17,319 Sales for resale: Associated companies 7,217 6,513 7,592 6,500 9,557 Non-associated companies 4,909 5,537 4,868 5,948 6,828 --------------------------------------------------------------- Total 31,503 31,383 31,124 30,904 33,704 =============================================================== </TABLE> <TABLE> <CAPTION> 2002 2003 2004 after 2004 (In Millions) <S> <C> <C> <C> <C> Planned construction and capital investment $239 $200 $194 N/A Long-term debt maturities $85 $255 $- $1,053 Short-term facility maturities (1) $- N/A N/A N/A Capital and operating lease payments $31 $22 $22 $45 Unconditional fuel and purchased power $228 $200 $203 $1,428 obligations Nuclear fuel lease obligations (2) $47 $19 N/A N/A </TABLE> (1) Entergy Arkansas' 364-day credit facility is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES". (2) It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Gulf States, Inc.: We have audited the accompanying balance sheets of Entergy Gulf States, Inc. as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows (pages 111 through 115 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Gulf States, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased slightly in 2001 primarily due to decreased unbilled revenue, less favorable sales volume and weather, and increased interest expense. The decrease was offset by lower rate refund provisions, decreased nuclear refueling outage expenses, increased interest income, and lower income taxes. Net income increased in 2000 primarily due to increased sales volume, increased unbilled revenue, increased wholesale revenue, and decreased charges for regulatory reserves. Revenues and Sales Electric operating revenues The changes in electric operating revenues for the twelve months ended December 31, 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes $35.9 ($83.2) Fuel cost recovery 200.9 342.5 Sales volume/weather (30.9) 40.7 Unbilled revenue (96.8) 33.7 Other revenue (2.0) (3.9) Sales for resale 12.9 58.7 ------ ------ Total $120.0 $388.5 ====== ====== Base rate changes In 2001, base rate changes increased primarily due to lower accruals for rate refund provisions in 2001. In 2000, base rate changes decreased primarily due to the reversal in 1999 of regulatory reserves associated with the accelerated amortization of accounting order deferrals and rate refunds in conjunction with the Texas rate settlement in June 1999. The LPSC and PUCT rate issues are discussed in Note 2 to the financial statements. Fuel cost recovery Entergy Gulf States is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Gulf States' financial statements such that these costs generally have no net effect on earnings.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS In 2001, fuel cost recovery revenues increased in both operational jurisdictions of Entergy Gulf States. In the Louisiana jurisdiction, fuel recovery revenues increased $103.9 million due to the recovery through the fuel adjustment clause of higher fuel and purchased power costs in 2001. In the Louisiana jurisdiction, these fuel costs are recovered on a two-month lag. In the Texas jurisdiction, fuel cost recovery revenues increased $97 million due to increases in the fixed fuel factor in March 2001 and August 2001 as well as a fuel recovery surcharge which became effective in February 2001 and expired in December 2001. In 2000, fuel cost recovery revenues increased primarily due to increased market prices for fuel and purchased power, resulting in an increased recovery of $226.7 million in the Louisiana jurisdiction. Fuel cost recovery revenues increased in the Texas jurisdiction by $82.4 million due to a higher fuel recovery factor that became effective in September 1999 and by $33.4 million due to a fuel surcharge implemented in January 2000. Sales volume/weather Electric sales vary seasonally in response to weather and usually peak in the summer. Lower electric sales volume reduced revenues for 2001 primarily due to decreased usage of 379 GWH in the residential and commercial sectors as a result of less favorable summer weather. Lower usage in the industrial sector of 1,302 GWH also contributed to the decrease in electric sales. In 2000, higher electric sales volume increased revenues primarily due to more favorable weather. The effect of more favorable winter weather increased usage by 462 GWH in the residential and commercial sectors. The increase in revenues was also due to increased usage of 276 GWH in the industrial sector. Unbilled revenue In 2001, unbilled revenue decreased as a result of higher fuel prices and more favorable weather in December 2000. In 2000, unbilled revenue increased due to the effect of a change in estimate on unbilled revenue, more favorable weather, and increased sales volume. Sales for resale In 2001, sales for resale increased primarily due to increased sales volume to municipal and co-op customers coupled with an increase in the average price of energy supplied, partially offset by decreased sales volume to adjoining utility systems and affiliated companies due to decreased demand. In 2000, sales for resale increased primarily due to increased sales volume including sales of energy from the non-regulated piece of River Bend to affiliated companies. Such sales volume was possible as a result of increased generation, particularly nuclear generation, resulting in more energy available for resale.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Gas and steam operating revenues Gas operating revenues increased in 2001 primarily due to a 39% increase in the market price for natural gas as well as increased sales volume in the residential and commercial sectors, particularly during the first quarter of 2001. The increase in gas revenues was largely offset by increased expense for gas purchased for resale. Gas operating revenues increased in 2000 due to an increase in the market price for natural gas as well as increased sales volume in the residential and commercial sectors. In 2000, steam operating revenues decreased primarily due to a new lease arrangement that began in June 1999 for the Louisiana Station 1 generating facility. Under the new arrangement, revenues and expenses are now classified as other income. The previous classifications were steam operating revenues and other operation and maintenance expenses. Expenses Fuel and purchased power In 2001, fuel and purchased power expenses increased primarily due to adjustments to the deferred fuel balance as a result of the over- recovery of fuel and purchased power costs. The over-recovery in the Louisiana jurisdiction is due to the collection of higher fuel and purchased power costs through the fuel adjustment clause as discussed above. The over-recovery in the Texas jurisdiction is due to increases in the fixed fuel factor and a fuel recovery surcharge. In 2000, fuel and purchased power expenses increased primarily due to: o higher market prices for gas and purchased power; o increased nuclear generation; and o an adjustment in March 2000 of $11.5 million to the Texas jurisdiction deferred fuel balance as a result of a fuel reconciliation settlement with the PUCT. Nuclear refueling outage expenses In 2001, nuclear refueling outage expenses decreased as a result of the lower accrual of anticipated future outage expenses. River Bend's next refueling outage is not scheduled until 2003. Other operation and maintenance expenses In 2000, other operation and maintenance expenses increased primarily due to increased expenses of $12.6 million in outside services employed related to legal and contract services for transition work and increased nuclear plant operations costs of $5.8 million. These increases were largely offset by decreases in pension and benefits costs of $7.3 million and a decrease in environmental reserve charges of $5.7 million. Depreciation and amortization In 2000, depreciation and amortization increased primarily due to a review of plant-in-service dates for consistency with regulatory treatment, reducing depreciation expense by $6.7 million in 1999, as well as additional depreciation expense related to net capital additions in 2000.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other regulatory credits In 2001, other regulatory credits increased due to: o the establishment of the Texas System Benefit Fund; and o the deferral of the Louisiana Retail jurisdiction portion of capacity charges included in purchased power costs for the summers of 2000 and 2001 that Entergy Gulf States expects to recover in the future. The increase was partially offset by the amortization of the 2000 capacity charges, which will occur through July 2002. In 2000, other regulatory credits decreased due to: o the amortization of the Year 2000 regulatory asset deferred in 1999; and o the completion of the amortization of the deferred financing costs in accordance with the December 1998 rate order settlement with the PUCT. Amortization of rate deferrals In 2000, the amortization of rate deferrals decreased primarily due to the large reduction in the rate deferral balance upon the PUCT's approval in June 1999 of the Texas rate settlement. This settlement increased amortization expense in 1999 but was offset by increased revenues. As of December 31, 2001, the rate deferrals have been fully amortized. Other Other income In 2001, other income increased primarily due to increased interest income recorded on the deferred fuel balance. In 2000, other income decreased primarily due to decreased non- utility operating income from Louisiana Station 1 as well as the 1999 adjustment to the accumulated depreciation balance of River Bend abeyed plant. Interest charges Interest charges increased in 2001 primarily due to: o the issuance of $300 million of long-term debt in June 2000 and the net issuance of an additional $177 million of long-term debt in August 2001; and o an adjustment to the liability for deferred compensation for certain former Entergy Gulf States employees in accord with an actuarial study. In 2000, interest charges increased as a result of the issuance of $300 million of long-term debt in June 2000.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Income taxes The effective income tax rates for 2001, 2000, and 1999 were 31.4%, 36.5%, and 37.6%, respectively. The decrease in the effective income tax rate in 2001 was primarily due to accelerated tax depreciation deductions accounted for on a flow-through basis and an adjustment of prior year taxes, which were lower than estimated.
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. INCOME STATEMENTS For the Years Ended December 31, 2001 2000 1999 (In Thousands) OPERATING REVENUES <S> <C> <C> <C> Domestic electric $2,590,836 $2,470,884 $2,082,358 Natural gas 57,724 40,356 28,998 Steam products - - 15,852 ---------- ---------- ---------- TOTAL 2,648,560 2,511,240 2,127,208 ---------- ---------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 1,061,037 895,361 634,726 Purchased power 467,196 455,300 365,245 Nuclear refueling outage expenses 11,159 16,663 16,307 Other operation and maintenance 422,667 423,031 419,713 Decommissioning 6,247 6,273 7,588 Taxes other than income taxes 118,670 120,428 111,872 Depreciation and amortization 191,120 189,149 185,254 Other regulatory credits - net (32,334) (13,860) (24,092) Amortization of rate deferrals 5,606 5,606 89,597 ---------- ---------- ---------- TOTAL 2,251,368 2,097,951 1,806,210 ---------- ---------- ---------- OPERATING INCOME 397,192 413,289 320,998 ---------- ---------- ---------- OTHER INCOME Allowance for equity funds used during construction 9,248 7,617 6,306 Gain on sale of assets 2,454 2,327 2,046 Interest and dividend income 24,818 16,428 18,069 Miscellaneous - net (7,148) (3,692) 4 ---------- ---------- ---------- TOTAL 29,372 22,680 26,425 ---------- ---------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 153,393 143,053 138,602 Other interest - net 13,537 8,458 6,994 Distributions on preferred securities of subsidiary 7,438 7,438 7,438 Allowance for borrowed funds used during construction (9,286) (6,926) (5,776) ---------- ---------- ---------- TOTAL 165,082 152,023 147,258 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 261,482 283,946 200,165 Income taxes 82,038 103,603 75,165 ---------- ---------- ---------- NET INCOME 179,444 180,343 125,000 Preferred dividend requirements and other 5,025 9,998 17,423 ---------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $174,419 $170,345 $107,577 ========== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) OPERATING ACTIVITIES <S> <C> <C> <C> Net income $179,444 $180,343 $125,000 Noncash items included in net income: Amortization of rate deferrals 5,606 5,606 89,597 Reserve for regulatory adjustments (27,374) (49,571) (97,953) Other regulatory credits - net (32,334) (13,860) (24,092) Depreciation, amortization, and decommissioning 197,367 195,422 192,842 Deferred income taxes and investment tax credits 4,320 54,279 (1,495) Allowance for equity funds used during construction (9,248) (7,617) (6,306) Gain on sale of assets (2,454) (2,327) (2,046) Changes in working capital: Receivables 59,132 (131,643) 9,791 Fuel inventory (16,753) 1,013 (8,070) Accounts payable (151,090) 130,435 42,370 Taxes accrued (41,764) 30,570 46,018 Interest accrued (125) 14,969 (14,061) Deferred fuel costs 161,396 (26,291) 40,851 Other working capital accounts 6,183 20,896 (10,954) Provision for estimated losses and reserves (3,593) (1,991) 8,496 Changes in other regulatory assets (54,613) (47,777) (59,242) Other 64,386 51,424 56,817 -------- -------- -------- Net cash flow provided by operating activities 338,486 403,880 387,563 -------- -------- -------- INVESTING ACTIVITIES Construction expenditures (317,776) (277,635) (199,076) Allowance for equity funds used during construction 9,248 7,617 6,306 Nuclear fuel purchases (14,148) (34,735) (53,293) Proceeds from sale/leaseback of nuclear fuel 15,222 34,154 53,293 Decommissioning trust contributions and realized change in trust assets (11,319) (12,051) (10,853) Changes in other temporary investments - net (44,643) - - Other regulatory investments - (127,377) (42,412) -------- -------- -------- Net cash flow used in investing activities (363,416) (410,027) (246,035) -------- -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 298,554 298,819 122,906 Retirement of long-term debt (124,829) (185) (197,960) Redemption of preferred stock (4,573) (157,658) (25,931) Dividends paid: Common stock (83,700) (88,000) (107,000) Preferred stock (5,073) (10,862) (16,967) -------- -------- -------- Net cash flow provided by (used in) financing activities 80,379 42,114 (224,952) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 55,449 35,967 (83,424) Cash and cash equivalents at beginning of period 68,279 32,312 115,736 -------- -------- -------- Cash and cash equivalents at end of period $123,728 $68,279 $32,312 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $169,067 $136,154 $161,326 Income taxes $107,726 $23,259 $28,410 Noncash investing and financing activities: Change in unrealized appreciation/(depreciation) of decommissioning trust assets ($9,492) ($3,172) $14,054 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) CURRENT ASSETS <S> <C> <C> Cash and cash equivalents: Cash $19,503 $10,726 Temporary cash investments - at cost, which approximates market 104,225 57,553 ---------- ---------- Total cash and cash equivalents 123,728 68,279 ---------- ---------- Other temporary investments 44,643 - Accounts receivable: Customer 81,136 125,412 Allowance for doubtful accounts (2,131) (2,131) Associated companies 34,032 27,660 Other 53,249 22,837 Accrued unbilled revenues 84,744 136,384 ---------- ---------- Total accounts receivable 251,030 310,162 ---------- ---------- Deferred fuel costs 126,730 288,126 Fuel inventory - at average cost 54,011 37,258 Materials and supplies - at average cost 95,674 100,018 Rate deferrals - 5,606 Prepayments and other 22,373 22,332 ---------- ---------- TOTAL 718,189 831,781 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Decommissioning trust funds 245,382 243,555 Non-utility property - at cost (less accumulated depreciation) 194,830 194,422 Other 15,970 14,826 ---------- ---------- TOTAL 456,182 452,803 ---------- ---------- UTILITY PLANT Electric 7,694,226 7,574,905 Property under capital lease 28,087 38,564 Natural gas 59,100 56,163 Construction work in progress 221,730 144,814 Nuclear fuel under capital lease 67,688 57,472 ---------- ---------- TOTAL UTILITY PLANT 8,070,831 7,871,918 Less - accumulated depreciation and amortization 3,750,770 3,680,662 ---------- ---------- UTILITY PLANT - NET 4,320,061 4,191,256 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 426,623 403,934 Unamortized loss on reacquired debt 34,321 37,903 Other regulatory assets 201,329 169,405 Long-term receivables 26,576 29,586 Other 26,460 17,349 ---------- ---------- TOTAL 715,309 658,177 ---------- ---------- TOTAL ASSETS $6,209,741 $6,134,017 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Currently maturing long-term debt $147,921 $122,750 Accounts payable: Associated companies 38,728 66,312 Other 135,023 258,529 Customer deposits 45,876 37,489 Taxes accrued 90,604 132,368 Accumulated deferred income taxes 21,412 94,032 Nuclear refueling outage costs 2,080 10,209 Interest accrued 43,414 43,539 Obligations under capital leases 36,668 42,524 Other 20,995 19,418 ---------- ---------- TOTAL 582,721 827,170 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 1,227,084 1,115,119 Accumulated deferred investment tax credits 163,766 171,000 Obligations under capital leases 60,163 53,512 Other regulatory liabilities - 669 Decommissioning 144,926 142,604 Transition to competition 79,098 72,381 Regulatory reserves 33,591 60,965 Accumulated provisions 63,811 67,404 Other 93,719 98,501 ---------- ---------- TOTAL 1,866,158 1,782,155 ---------- ---------- Long-term debt 1,958,897 1,808,879 Preferred stock with sinking fund 26,185 30,758 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 85,000 85,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 47,327 47,677 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares in 2001 and 2000 114,055 114,055 Paid-in capital 1,157,459 1,153,195 Retained earnings 371,939 285,128 ---------- ---------- TOTAL 1,690,780 1,600,055 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,209,741 $6,134,017 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Retained Earnings, January 1 $285,128 $202,782 $202,205 Add: Net income 179,444 180,343 125,000 Deduct: Dividends declared: Preferred and preference stock 5,025 9,933 16,784 Common stock 83,700 88,000 107,000 Capital stock expenses and other 3,908 64 639 -------- -------- -------- Total 92,633 97,997 124,423 -------- -------- -------- Retained Earnings, December 31 $371,939 $285,128 $202,782 ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $2,648,560 $2,511,240 $2,127,208 $1,853,809 $2,147,829 Net income $ 179,444 $ 180,343 $ 125,000 $ 46,393 $ 59,976 Total assets $6,209,741 $6,134,017 $5,733,022 $6,293,744 $6,488,637 Long-term obligations (1) $2,130,245 $1,978,149 $1,966,269 $1,993,811 $2,098,752 </TABLE> (1) Includes long-term debt (excluding currently maturing debt), preferred stock with sinking fund, preferred securities of subsidiary trust, and noncurrent capital lease obligations. <TABLE> <CAPTION> 2001 2000 1999 1998 1997 <S> <C> <C> <C> <C> <C> Electric Operating Revenues: (Dollars In Thousands) Residential $787,960 $717,453 $607,875 $605,759 $624,862 Commercial 587,148 505,346 430,291 422,944 452,724 Industrial 945,733 870,594 718,779 704,393 740,418 Governmental 38,215 32,939 28,475 35,930 33,774 ---------------------------------------------------------------- Total retail 2,359,056 2,126,332 1,785,420 1,769,026 1,851,778 Sales for resale: Associated companies 72,961 93,675 38,416 14,172 14,260 Non-associated companies 146,092 112,522 109,132 112,182 59,015 Other (1) 12,727 138,355 149,390 (117,796) 136,458 ---------------------------------------------------------------- Total $2,590,836 $2,470,884 $2,082,358 $1,777,584 $2,061,511 ================================================================ Billed Electric Energy Sales (GWH): Residential 9,059 9,405 8,929 8,903 8,178 Commercial 7,668 7,660 7,310 6,975 6,575 Industrial 16,658 17,960 17,684 18,158 18,038 Governmental 452 450 425 560 481 ---------------------------------------------------------------- Total retail 33,837 35,475 34,348 34,596 33,272 Sales for resale: Associated companies 1,087 1,381 677 380 414 Non-associated companies 3,305 3,248 3,408 3,701 1,503 ---------------------------------------------------------------- Total Electric Department 38,229 40,104 38,433 38,677 35,189 ================================================================ </TABLE> (1) 1998 includes the effects of an Entergy Gulf States reserve for rate refund. <TABLE> <CAPTION> 2002 2003 2004 after 2004 (In Millions) <S> <C> <C> <C> <C> Planned construction and capital investment $317 $265 $277 N/A Long-term debt maturities $148 $339 $592 $1,028 Capital and operating lease payments $26 $26 $27 $40 Unconditional fuel and purchased power $53 $34 $32 N/A obligations Nuclear fuel lease obligations (1) $30 $39 N/A N/A </TABLE> (1) It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Louisiana, Inc.: We have audited the accompanying balance sheets of Entergy Louisiana, Inc. as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows (pages 122 through 127 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Louisiana, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased in 2001 primarily due to decreased unbilled revenue and less favorable sales volume and weather. The decrease was partially offset by decreases in rate refund provisions and other operation and maintenance expenses, an increase in regulatory credits, and a refund from System Energy as a result of receipt of a final FERC order in System Entergy's rate proceeding. The adjustments necessary to record the effects of the FERC order reduced purchased power expenses by $68.1 million ($41.9 million net-of-tax). Net income decreased in 2000 primarily due to increased depreciation and amortization costs, increased other operation and maintenance expenses, and decreased unbilled revenue and other regulatory credits, partially offset by decreased provisions for rate refunds. Revenues and Sales The changes in electric operating revenues for the twelve months ended December 31, 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes $31.8 ($4.7) Fuel cost recovery (28.2) 270.8 Sales volume/weather (33.0) 23.9 Unbilled revenue (128.0) (9.2) Other revenue 9.0 (4.3) Sales for resale (12.1) (20.7) ------- ------ Total ($160.5) $255.8 ======= ====== Base rate changes In 2001, base rate changes increased primarily due to $48 million of lower accruals for potential rate refunds and $11 million of higher prices for special-use industrial customers as a result of decreased usage which is reflected in sales volume/weather. The increase in base rate changes was partially offset by additional formula rate plan reductions of $27 million effective August 2000 and October 2001 in the residential, commercial, and industrial sectors. In 2000, base rate changes decreased primarily due to additional formula rate plan reductions in the residential, commercial, and industrial sectors, partially offset by lower accruals for potential rate refunds. Fuel cost recovery revenues Entergy Louisiana is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Louisiana's financial statements such that these costs generally have no net effect on earnings.
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS In 2001, fuel cost recovery revenues decreased as a result of lower fuel and purchased power expenses primarily due to the decreased market price of natural gas coupled with decreased generation requirements. In 2000, fuel cost recovery revenues increased as a result of higher fuel and purchased power expenses primarily due to the increased market price of natural gas. Sales volume/weather Electric sales vary seasonally in response to weather and usually peak in the summer. In 2001, lower electric sales volume decreased revenues due to decreased usage of 168 GWH in the residential sector after adjusting for the weather effect and 782 GWH in the industrial sector. The decreased usage in the industrial sector resulted in higher rates for that sector, which is reflected in base rate changes. The effect of less favorable weather decreased usage by 225 GWH in the residential sector. In 2000, higher electric sales volume increased revenues primarily due to more favorable weather, which increased usage by 392 GWH in the residential and commercial sectors. The increase in revenues was also due to increased usage of 132 GWH in the industrial sector. Unbilled revenue In 2001, unbilled revenue decreased primarily due to the effect of higher fuel prices and more favorable weather in December 2000 on the unbilled calculation. In 2000, unbilled revenue decreased primarily due to the effect of a change in estimate on the 1999 unbilled revenue calculation. Sales for resale In 2001, sales for resale decreased as a result of decreased demand in addition to a decrease in the average market price of energy. In 2000, sales for resale decreased as a result of increased sales to retail customers resulting in less energy available for resale. Expenses Fuel and purchased power In 2001, fuel and purchased power expenses decreased primarily due to: o decreased market prices of natural gas; o decreased demand; and o the reduction of $68.1 million in purchased power expenses as a result of the FERC-ordered refund from System Energy. In 2000, fuel and purchased power expenses increased primarily due to an increase in the market price of natural gas.
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other operation and maintenance Other operation and maintenance expenses decreased in 2001 primarily due to: o a decrease of $11.0 million in outside services employed as a result of legal services for potential rate actions in 2000; and o a decrease of $10.7 million in expenses from maintenance and planned maintenance outages at certain fossil plants in 2000. Other operation and maintenance expenses increased in 2000 primarily due to: o an increase in expenses from maintenance and planned maintenance outages at Waterford 3 and certain fossil plants of $17.9 million; o an increase of $11.0 million in outside services employed for legal services for potential rate actions; and o an increase in property insurance provisions of $5.0 million primarily due to changes in storm damage provisions effective August 1999. The overall increase in other operation and maintenance expenses in 2000 was partially offset by the following: o a decrease in injury and damages claims of $3.5 million; o a decrease of $3.0 million in benefits expense; and o higher nuclear insurance refunds of $1.8 million. Depreciation and amortization In 2000, depreciation and amortization expenses increased primarily due to a review of plant-in-service dates for consistency with regulatory treatment reducing depreciation expense by $3.4 million in August 1999, as well as depreciation expense related to net capital additions in 2000. Other regulatory charges (credits) In 2001, other regulatory credits increased due to the deferral of capacity charges included in purchased power costs for the summers of 2000 and 2001 that Entergy Louisiana expects to recover in the future. The increase was partially offset by the amortization of the 2000 capacity charges. The amortization of these charges will occur through July 2002. In 2000, other regulatory credits decreased due to the LPSC- required deferral in 1999 of Year 2000 costs and the amortization of these costs in 2000. The deferred costs are being recovered over a five-year period. Other Interest and dividend income The decrease in 2001 and the increase in 2000 in interest income were due to interest recorded on deferred fuel costs in 2000.
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Interest charges In 2001, other interest increased primarily due to: o interest accrued on reserves provided for fuel-related refunds that were refunded in July through September 2001; and o interest accrued on over-recovered fuel and purchased power expenses that will be refunded to customers through the fuel adjustment clause. In 2000, interest on long-term debt decreased primarily due to the refinancing and net redemption of $77 million of long-term debt in 1999, partially offset by interest expense incurred on the issuance of $150 million of long-term debt in May 2000. Income taxes The effective income tax rates for 2001, 2000, and 1999 were 39.4%, 40.9%, and 39.0%, respectively.
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. INCOME STATEMENTS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING REVENUES Domestic electric $1,901,913 $2,062,437 $1,806,594 ---------- ---------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 620,415 560,329 421,763 Purchased power 410,435 537,589 418,878 Nuclear refueling outage expenses 12,624 13,542 15,756 Other operation and maintenance 299,532 318,841 289,348 Decommissioning 10,422 10,422 8,786 Taxes other than income taxes 77,376 77,190 75,447 Depreciation and amortization 171,217 171,204 161,754 Other regulatory charges (credits) - net (24,738) 960 (5,280) ---------- ---------- ---------- TOTAL 1,577,283 1,690,077 1,386,452 ---------- ---------- ---------- OPERATING INCOME 324,630 372,360 420,142 ---------- ---------- ---------- OTHER INCOME Allowance for equity funds used during construction 4,531 4,328 4,925 Gain on sale of assets 152 - - Interest and dividend income 6,234 10,100 5,102 Miscellaneous - net (4,056) (3,496) (2,896) ---------- ---------- ---------- TOTAL 6,861 10,932 7,131 ---------- ---------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 97,887 98,655 103,937 Other interest - net 11,889 6,788 7,010 Distributions on preferred securities of subsidiary 6,300 6,300 6,300 Allowance for borrowed funds used during construction (3,422) (3,775) (4,112) ---------- ---------- ---------- TOTAL 112,654 107,968 113,135 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 218,837 275,324 314,138 Income taxes 86,287 112,645 122,368 ---------- ---------- ---------- NET INCOME 132,550 162,679 191,770 Preferred dividend requirements and other 7,495 9,514 9,955 ---------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $125,055 $153,165 $181,815 ========== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Net income $132,550 $162,679 $191,770 Noncash items included in net income: Reserve for regulatory adjustments (11,456) 11,456 - Other regulatory charges (credits) - net (24,738) 960 (5,280) Depreciation, amortization, and decommissioning 181,639 181,626 170,540 Deferred income taxes and investment tax credits (27,382) 16,350 (15,487) Allowance for equity funds used during construction (4,531) (4,328) (4,925) Gain on sale of assets (152) - - Changes in working capital: Receivables 131,313 (97,154) (41,565) Accounts payable (50,121) (11,848) 95,120 Taxes accrued (2,897) (2,555) 7,659 Interest accrued (1,012) 15,300 (33,066) Deferred fuel costs 151,544 (81,890) (9,959) Other working capital accounts (71,119) 38,064 56,714 Provision for estimated losses and reserves 4,321 6,114 5,442 Changes in other regulatory assets 2,569 25,400 38,577 Other 19,987 10,249 (45,146) --------- --------- --------- Net cash flow provided by operating activities 430,515 270,423 410,394 --------- --------- --------- INVESTING ACTIVITIES Construction expenditures (203,059) (203,049) (130,933) Allowance for equity funds used during construction 4,531 4,328 4,925 Nuclear fuel purchases - (38,270) (11,308) Proceeds from sale/leaseback of nuclear fuel - 38,270 11,308 Decommissioning trust contributions and realized change in trust assets (13,651) (12,299) (13,678) Changes in other temporary investments - net (6,152) - - --------- --------- --------- Net cash flow used in investing activities (218,331) (211,020) (139,686) --------- --------- --------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt - 148,736 298,092 Retirement of long-term debt (35,088) (100,000) (386,707) Redemption of preferred stock (35,000) - (50,000) Dividends paid: Common stock (134,600) (62,400) (197,000) Preferred stock (9,047) (9,514) (10,389) --------- --------- --------- Net cash flow used in financing activities (213,735) (23,178) (346,004) --------- --------- --------- Net increase (decrease) in cash and cash equivalents (1,551) 36,225 (75,296) Cash and cash equivalents at beginning of period 43,959 7,734 83,030 --------- --------- --------- Cash and cash equivalents at end of period $42,408 $43,959 $7,734 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $110,971 $89,627 $144,731 Income taxes $111,507 $105,354 $132,924 Noncash investing and financing activities: Change in unrealized appreciation/(depreciation) of decommissioning trust assets ($4,251) ($2,979) $4,585 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents: Cash $28,768 $14,138 Temporary cash investments - at cost, which approximates market 13,640 29,821 ---------- ---------- Total cash and cash equivalents 42,408 43,959 ---------- ---------- Other temporary investments 6,152 - Notes receivable 8 1,510 Accounts receivable: Customer 48,640 111,292 Allowance for doubtful accounts (1,771) (1,771) Associated companies 9,090 30,518 Other 47,965 13,698 Accrued unbilled revenues 71,200 152,700 ---------- ---------- Total accounts receivable 175,124 306,437 ---------- ---------- Deferred fuel costs - 84,051 Accumulated deferred income taxes 42,566 - Materials and supplies - at average cost 77,523 77,389 Deferred nuclear refueling outage costs 4,096 16,425 Prepayments and other 9,000 9,996 ---------- ---------- TOTAL 356,877 539,767 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 14,230 14,230 Decommissioning trust funds 119,663 110,263 Non-utility property - at cost (less accumulated depreciation) 21,671 21,700 ---------- ---------- TOTAL 155,564 146,193 ---------- ---------- UTILITY PLANT Electric 5,456,093 5,357,920 Property under capital lease 239,395 238,427 Construction work in progress 110,792 85,299 Nuclear fuel under capital lease 70,316 63,923 ---------- ---------- TOTAL UTILITY PLANT 5,876,596 5,745,569 Less - accumulated depreciation and amortization 2,538,964 2,441,937 ---------- ---------- UTILITY PLANT - NET 3,337,632 3,303,632 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 179,368 204,810 Unamortized loss on reacquired debt 28,341 33,244 Other regulatory assets 73,754 50,881 Long-term receivables 1,515 - Other 16,650 10,882 ---------- ---------- TOTAL 299,628 299,817 ---------- ---------- TOTAL ASSETS $4,149,701 $4,289,409 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Currently maturing long-term debt $185,627 $35,088 Accounts payable: Associated companies 73,208 71,948 Other 93,460 144,841 Customer deposits 61,359 60,227 Taxes accrued 20,410 23,307 Accumulated deferred income taxes - 20,545 Interest accrued 34,524 35,536 Deferred fuel cost 67,493 - Obligations under capital leases 34,171 34,274 Other 14,119 102,614 ---------- ---------- TOTAL 584,371 528,380 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 776,610 757,362 Accumulated deferred investment tax credits 111,942 117,393 Obligations under capital leases 36,144 29,649 Regulatory reserves - 11,456 Accumulated provisions 68,522 64,201 Other 82,780 61,724 ---------- ---------- TOTAL 1,075,998 1,041,785 ---------- ---------- Long-term debt 1,091,329 1,276,696 Preferred stock with sinking fund - 35,000 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 70,000 70,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 100,500 100,500 Common stock, no par value, authorized 250,000,000 shares; issued and outstanding 165,173,180 shares in 2001 and 2000 1,088,900 1,088,900 Capital stock expense and other (1,718) (2,171) Retained earnings 140,321 150,319 ---------- ---------- TOTAL 1,328,003 1,337,548 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,149,701 $4,289,409 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Retained Earnings, January 1 $150,319 $59,554 $74,739 Add: Net income 132,550 162,679 191,770 Deduct: Dividends declared: Preferred stock 7,495 9,514 9,805 Common stock 134,600 62,400 197,000 Capital stock expenses 453 - 150 -------- -------- ------- Total 142,548 71,914 206,955 -------- -------- ------- Retained Earnings, December 31 $140,321 $150,319 $59,554 ======== ======== ======= See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $1,901,913 $2,062,437 $1,806,594 $1,710,908 $1,803,272 Net income $ 132,550 $ 162,679 $ 191,770 $ 179,487 $ 141,757 Total assets $4,149,701 $4,289,409 $4,084,650 $4,181,041 $4,175,400 Long-term obligations (1) $1,197,473 $1,411,345 $1,274,006 $1,530,590 $1,522,043 </TABLE> (1) Includes long-term debt (excluding currently maturing debt), preferred stock with sinking fund, preferred securities of subsidiary trust, and noncurrent capital lease obligations. <TABLE> <CAPTION> 2001 2000 1999 1998 1997 <S> <C> <C> <C> <C> <C> Electric Operating Revenues: (Dollars In Thousands) Residential $658,137 $716,708 $620,146 $598,573 $606,173 Commercial 429,388 441,338 386,042 367,151 379,131 Industrial 759,580 767,052 646,517 597,536 708,356 Governmental 39,203 38,772 33,738 32,795 34,171 ------------------------------------------------------------ Total retail 1,886,308 1,963,870 1,686,443 1,596,055 1,727,831 Sales for resale: Associated companies 24,993 20,763 27,253 16,002 3,817 Non-associated companies 23,352 39,704 53,923 53,538 55,345 Other (32,740) 38,100 38,975 45,313 16,279 ------------------------------------------------------------ Total $1,901,913 $2,062,437 $1,806,594 $1,710,908 $1,803,272 ============================================================ Billed Electric Energy Sales (GWH): Residential 8,255 8,648 8,354 8,477 7,826 Commercial 5,369 5,367 5,221 5,265 4,906 Industrial 14,402 15,184 15,052 14,781 16,390 Governmental 498 481 468 481 460 ------------------------------------------------------------ Total retail 28,524 29,680 29,095 29,004 29,582 Sales for resale: Associated companies 381 228 415 386 104 Non-associated companies 334 554 831 855 805 ------------------------------------------------------------ Total 29,239 30,462 30,341 30,245 30,491 ============================================================ </TABLE> 2002 2003 2004 after 2004 (In Millions) Planned construction and capital investment $218 $197 $198 N/A Long-term debt maturities $186 $185 $15 $891 Short-term facility maturities (1) $- N/A N/A N/A Capital and operating lease payments $13 $12 $11 $13 Unconditional fuel and purchased power $100 $103 $110 $3,169 obligations Nuclear fuel lease obligations (2) $34 $36 N/A N/A (1) Entergy Louisiana's 364-day credit facility is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES". (2) It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Mississippi, Inc.: We have audited the accompanying balance sheets of Entergy Mississippi, Inc. as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows (pages 134 through 139 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Mississippi, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased slightly in 2001 primarily due to a decrease in other operation and maintenance expenses, increased interest income, and a decrease in the effective tax rate. These changes were almost entirely offset by decreased unbilled revenues, less favorable sales volume and weather, and increased interest expense. Net income decreased in 2000 primarily due to increases in other operation and maintenance expenses, interest expense, depreciation expense, and an increase in the effective income tax rate. These decreases were partially offset by increases in unbilled revenues and sales volume. Revenues and Sales The changes in electric operating revenues for the twelve months ended December 31, 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes $5.2 ($3.8) Grand Gulf rate rider (19.9) 4.7 Fuel cost recovery 157.8 54.8 Sales volume/weather (5.2) 9.6 Unbilled revenue (8.3) 22.3 Other revenue 4.8 1.6 Sales for resale 22.0 15.4 ------ ------ Total $156.4 $104.6 ====== ====== Base rate changes Base rate changes increased in 2001 primarily due to an annual rate increase of $5.6 million under the formula rate plan, which became effective in May 2001. The formula rate plan filing is discussed in Note 2 to the financial statements. Base rate changes decreased in 2000 primarily due to an annual rate reduction of $13.3 million under the formula rate plan, which was effective in May 1999. Grand Gulf rate rider Rate rider revenues have no material effect on net income because specific incurred expenses offset them. Grand Gulf rate rider revenue decreased in 2001 as a result of a lower rider which became effective in October 2000.
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Fuel cost recovery Entergy Mississippi is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates, recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Mississippi's financial statements such that these costs generally have no net effect on earnings. In 2001, fuel cost recovery revenues increased primarily due to an increase in the energy cost recovery rider to collect the under- recovered fuel and purchased power costs incurred as of September 30, 2000. The recovery of $136.7 million, plus carrying charges, will occur over a 24-month period, which began in January 2001. The increase was also due to an additional increase in the energy cost recovery rider effective in April 2001. In 2000, fuel cost recovery revenues increased primarily due to the MPSC's review and subsequent increase of Entergy Mississippi's energy cost recovery rider effective in January 2000. Sales volume/weather Electric sales vary seasonally in response to weather and usually peak in the summer. In 2001, the effect of less favorable weather decreased usage by 204 GWH in the residential and commercial sectors. Lower electric sales volume in the industrial sector of 137 GWH also decreased revenues. These decreases were partially offset by increased usage of 143 GWH in the commercial sector after adjusting for the effect of weather. In 2000, sales volume increased as a result of increased usage after adjusting for weather effects in the residential and commercial sectors, as well as the effect of more favorable weather in the residential sector. Unbilled revenue In 2001, unbilled revenue decreased primarily due to more favorable weather in December 2000 on the unbilled calculation. In 2000, unbilled revenue increased primarily due to the effect of favorable weather in 2000 and the effect of a change in estimate on the 1999 unbilled revenue calculation. Sales for resale In 2001, sales for resale increased primarily due to increased net generation resulting in more energy available for sale. The increase came from sales to affiliates, which are generally made at a low margin. The increase was partially offset by a decrease in the average market price of energy. In 2000, sales for resale increased primarily due to an increase in the average price of energy supplied for resale sales. The increase was partially offset by less energy available for resale sales due to plant outages early in 2000, which resulted in lower sales volume. Expenses Fuel and purchased power In 2001, fuel and purchased power expenses increased primarily due to over-recovery of fuel costs, including the effect of increased recoveries approved by the MPSC to recover previous under-recoveries.
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS In 2000, fuel and purchased power expenses increased primarily due to the increased market prices of natural gas, oil, and purchased power. Other operation and maintenance In 2001, other operation and maintenance expenses decreased primarily due to a decrease in plant maintenance expenses of $14.6 million due to outage costs at certain fossil plants in 2000. In 2000, other operation and maintenance expenses increased primarily due to: o an increase in property insurance expense of $9.3 million primarily due to a change in storm damage provision amortization in accordance with regulatory treatment; and o an increase in maintenance of electric plant of $7.0 million. Depreciation and Amortization In 2000, depreciation and amortization expenses increased due to a review of plant-in-service dates for consistency with regulatory treatment reducing depreciation expense by $2.6 million in August 1999. Capital additions in 1999 and 2000 also contributed to the increase. Other regulatory credits In 2001, other regulatory credits increased primarily due to an under-recovery of Grand Gulf 1-related costs as a result of a lower rider implemented in October 2000. In 2000, other regulatory credits decreased due to a decrease in the deferral of Grand Gulf 1 expenses associated with the System Energy rate increase. Other Other income Interest income increased in 2001 primarily due to interest recorded on the deferred fuel balance as a result of the MPSC order providing for a 24-month recovery of the September 2000 under-recovered deferred fuel balance of $136.7 million. Interest and other charges Interest on long-term debt increased in 2001 primarily due to the issuance of $70 million of long-term debt in January 2001. Interest on long-term debt increased in 2000 primarily due to the issuance of $120 million of long-term debt in February 2000.
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Income taxes The effective income tax rates for 2001, 2000, and 1999 were 34.1%, 37.0%, and 29.7%, respectively. The decrease in the effective income tax rate in 2001 is primarily due to an adjustment of prior year taxes, which were lower than previously estimated. The increase in the effective income tax rate in 2000 is primarily due to the effect that the distribution of the Entergy Corporation income tax benefit had on the 1999 effective income tax rate. In 1999, a tax benefit was recorded related to the 1998 tax return.
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. INCOME STATEMENTS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING REVENUES Domestic electric $1,093,741 $937,371 $832,819 ---------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 415,347 221,075 185,063 Purchased power 365,540 366,491 332,015 Other operation and maintenance 155,646 168,432 152,817 Taxes other than income taxes 47,956 45,436 44,013 Depreciation and amortization 48,933 49,046 42,870 Other regulatory credits - net (29,993) (6,872) (12,044) ---------- -------- -------- TOTAL 1,003,429 843,608 744,734 ---------- -------- -------- OPERATING INCOME 90,312 93,763 88,085 ---------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 2,559 2,385 1,569 Gain on sale of assets 3 19 - Interest and dividend income 18,904 10,750 8,513 Miscellaneous - net (2,918) (2,070) (1,732) ---------- -------- -------- TOTAL 18,548 11,084 8,350 ---------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 46,950 41,583 35,265 Other interest - net 4,041 3,294 3,574 Allowance for borrowed funds used during construction (2,215) (1,871) (1,529) ---------- -------- -------- TOTAL 48,776 43,006 37,310 ---------- -------- -------- INCOME BEFORE INCOME TAXES 60,084 61,841 59,125 Income taxes 20,464 22,868 17,537 ---------- -------- -------- NET INCOME 39,620 38,973 41,588 Preferred dividend requirements and other 3,082 3,370 3,370 ---------- -------- -------- EARNINGS APPLICABLE TO COMMON STOCK $36,538 $35,603 $38,218 ========== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Net income $39,620 $38,973 $41,588 Noncash items included in net income: Other regulatory credits - net (29,993) (6,872) (12,044) Depreciation and amortization 48,933 49,046 42,870 Deferred income taxes and investment tax credits (68,133) 51,081 18,066 Allowance for equity funds used during construction (2,559) (2,385) (1,569) Gain on sale of assets (3) (19) - Changes in working capital: Receivables 1,059 (30,628) 24,208 Fuel inventory (1,388) 338 (771) Accounts payable (46,976) 3,064 54,317 Taxes accrued (378) (4,106) 29,955 Interest accrued 4,568 3,062 (4,595) Deferred fuel costs 54,453 47,939 (45,830) Other working capital accounts 13,672 6,160 10,072 Provision for estimated losses and reserves 821 (568) 4,173 Changes in other regulatory assets 130,333 (9,929) (30,179) Other 34,081 37,105 12,152 --------- --------- --------- Net cash flow provided by operating activities 178,110 182,261 142,413 --------- --------- --------- INVESTING ACTIVITIES Construction expenditures (159,815) (121,252) (94,717) Allowance for equity funds used during construction 2,559 2,385 1,569 Changes in other temporary investments - net (18,566) - - Other regulatory investments - (160,611) - --------- --------- --------- Net cash flow used in investing activities (175,822) (279,478) (93,148) --------- --------- --------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 69,616 118,913 153,629 Retirement of long-term debt - - (163,278) Changes in short-term borrowing, net - - (6) Dividends paid: Common stock (19,600) (18,000) (34,100) Preferred stock (3,369) (3,370) (3,363) --------- --------- --------- Net cash flow provided by (used in) financing activities 46,647 97,543 (47,118) --------- --------- --------- Net increase in cash and cash equivalents 48,935 326 2,147 Cash and cash equivalents at beginning of period 5,113 4,787 2,640 --------- --------- --------- Cash and cash equivalents at end of period $54,048 $5,113 $4,787 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid/(received) during the period for: Interest - net of amount capitalized $43,915 $39,569 $41,567 Income taxes $88,657 ($23,763) ($29,850) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents: Cash $12,883 $5,113 Temporary cash investments - at cost, which approximates market 41,165 - ---------- ---------- Total cash and cash equivalents 54,048 5,113 ---------- ---------- Other temporary investments 18,566 - Accounts receivable: Customer 50,370 44,517 Allowance for doubtful accounts (1,044) (1,044) Associated companies 14,201 10,741 Other 2,892 9,964 Accrued unbilled revenues 30,300 33,600 ---------- ---------- Total accounts receivable 96,719 97,778 ---------- ---------- Deferred fuel costs 106,158 64,950 Fuel inventory - at average cost 4,824 3,436 Materials and supplies - at average cost 16,896 18,485 Prepayments and other 8,521 3,004 ---------- ---------- TOTAL 305,732 192,766 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 5,531 5,531 Non-utility property - at cost (less accumulated depreciation) 6,723 6,851 ---------- ---------- TOTAL 12,254 12,382 ---------- ---------- UTILITY PLANT Electric 1,939,182 1,885,501 Property under capital lease 211 290 Construction work in progress 110,450 44,085 ---------- ---------- TOTAL UTILITY PLANT 2,049,843 1,929,876 Less - accumulated depreciation and amortization 741,892 733,977 ---------- ---------- UTILITY PLANT - NET 1,307,951 1,195,899 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 22,387 25,544 Unamortized loss on reacquired debt 13,925 15,122 Deferred fuel costs - 95,661 Other regulatory assets 13,503 140,679 Other 7,274 5,886 ---------- ---------- TOTAL 57,089 282,892 ---------- ---------- TOTAL ASSETS $1,683,026 $1,683,939 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Currently maturing long-term debt $65,000 $- Accounts payable: Associated companies 45,554 92,980 Other 27,383 26,933 Customer deposits 29,421 26,368 Taxes accrued 31,484 31,862 Accumulated deferred income taxes 19,277 47,734 Interest accrued 17,667 13,099 Obligations under capital leases 36 79 System Energy refund 14,836 - Other 1,964 2,540 ---------- ---------- TOTAL 252,622 241,595 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 266,498 306,295 Accumulated deferred investment tax credits 17,908 19,408 Obligations under capital leases 175 211 Accumulated provisions 7,627 6,806 Other 37,678 31,339 ---------- ---------- TOTAL 329,886 364,059 ---------- ---------- Long-term debt 589,762 584,467 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 50,381 50,381 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares in 2001 and 2000 199,326 199,326 Capital stock expense and other (59) (59) Retained earnings 261,108 244,170 ---------- ---------- TOTAL 510,756 493,818 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,683,026 $1,683,939 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Retained Earnings, January 1 $244,170 $226,567 $222,449 Add: Net income 39,620 38,973 41,588 Deduct: Dividends declared: Preferred stock 3,082 3,370 3,370 Common stock 19,600 18,000 34,100 -------- -------- -------- Total 22,682 21,370 37,470 -------- -------- -------- Retained Earnings, December 31 $261,108 $244,170 $226,567 ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $1,093,741 $ 937,371 $ 832,819 $ 976,300 $ 937,395 Net Income $ 39,620 $ 38,973 $ 41,588 $ 62,638 $ 66,661 Total assets $1,683,026 $1,683,939 $1,460,017 $1,350,929 $1,439,561 Long-term obligations (1) $ 589,937 $ 584,678 $ 464,756 $ 464,000 $ 464,156 </TABLE> (1) Includes long-term debt (excluding currently maturing debt) and noncurrent capital lease obligations. <TABLE> <CAPTION> 2001 2000 1999 1998 1997 <S> <C> <C> <C> <C> <C> Electric Operating Revenues: (Dollars In Thousands) Residential $390,957 $340,691 $311,003 $367,895 $342,818 Commercial 327,770 275,010 250,929 284,787 274,195 Industrial 191,014 161,065 151,659 170,910 173,152 Governmental 30,569 25,612 23,528 26,670 26,882 ----------------------------------------------------------- Total retail 940,310 802,378 737,119 850,262 817,047 Sales for resale: Associated companies 110,553 82,844 63,004 80,357 78,233 Non-associated companies 21,333 27,058 31,546 32,442 21,276 Other 21,545 25,091 1,150 13,239 20,839 ----------------------------------------------------------- Total $1,093,741 $937,371 $832,819 $976,300 $937,395 =========================================================== Billed Electric Energy Sales (GWH): Residential 4,867 4,976 4,753 4,800 4,323 Commercial 4,322 4,307 4,156 4,015 3,673 Industrial 3,051 3,188 3,246 3,163 3,089 Governmental 381 376 363 347 333 ----------------------------------------------------------- Total retail 12,621 12,847 12,518 12,325 11,418 Sales for resale: Associated companies 1,728 1,276 1,774 2,424 1,918 Non-associated companies 289 313 426 484 412 ----------------------------------------------------------- Total 14,638 14,436 14,718 15,233 13,748 =========================================================== </TABLE> 2002 2003 2004 after 2004 (In Millions) Planned construction and capital investment $153 $131 $131 N/A Long-term debt maturities $65 $255 $150 $185 Short-term facility maturities (1) $- N/A N/A N/A (1) Entergy Mississippi's 364-day credit facility is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES".
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy New Orleans, Inc.: We have audited the accompanying balance sheets of Entergy New Orleans, Inc. as of December 31, 2001 and 2000, and the related statements of operations, retained earnings, and cash flows (pages 145 through 149 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy New Orleans, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Entergy New Orleans experienced a net loss in 2001 because of significantly lower operating revenues. Compared to 2000, operating revenues decreased $7.9 million as a result of lower electric sales volume and less favorable weather and unbilled revenues decreased $7.5 million as a result of lower fuel prices. An increase of $3.0 million in other operation and maintenance expenses, $2.0 million in interest expense, and $2.7 million in rate refund provisions also contributed to the decrease in 2001. Net income decreased slightly in 2000 primarily due to increased other operation and maintenance expenses. Revenues and Sales Electric operating revenues The changes in electric operating revenues for the twelve months ended December 31, 2001 and 2000 are as follows: Increase/(Decrease) Description 2001 2000 (In Millions) Base rate changes ($11.6) $4.0 Fuel cost recovery 53.4 62.6 Sales volume/weather (12.8) 2.1 Unbilled revenue (12.1) 2.8 Other revenue (2.2) 1.4 Sales for resale (26.8) 15.4 ------ ----- Total ($12.1) $88.3 ====== ===== Base rate changes In 2001, base rate changes decreased primarily due to $12.2 million of rate reductions that became effective in October 2000. The rate reductions are discussed in Note 2 to the financial statements. In 2000, base rate changes increased primarily due to a decrease in provision for rate refunds accrued for potential rate matters. Fuel cost recovery Entergy New Orleans is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates, recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy New Orleans' financial statements such that these costs generally have no net effect on earnings. In 2001, fuel cost recovery revenues increased primarily due to recovery, through the fuel adjustment clause, of higher fuel and purchased power expenses. The increase in fuel and purchased power expenses was a result of increased market prices of natural gas and purchased power early in 2001.
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS In 2000, fuel cost recovery revenues increased primarily due to the increased market price of natural gas. Sales volume/weather Electric sales vary seasonally in response to weather and usually peak in the summer. In 2001, lower electric sales volume reduced revenues due to decreased usage of 186 GWH in the residential, commercial, and governmental sectors after adjusting for the effects of weather. The effect of less favorable weather decreased usage by 107 GWH in the residential sector. Unbilled revenue In 2001, unbilled revenue decreased primarily due to the effect of higher fuel prices in December 2000 as compared to December 2001 on the unbilled revenue calculation. In 2000, unbilled revenue increased primarily due to the effect of favorable weather and higher fuel and purchased power costs on the unbilled revenue calculation. Sales for resale In 2001, sales for resale decreased due to decreased demand from affiliated systems somewhat offset by increased prices for resale electricity. In 2000, sales for resale increased due to an increase in the average price of electricity supplied for resale sales, coupled with an increase in affiliated sales volume. Gas operating revenues In 2001, gas operating revenues increased primarily due to the increased market prices of natural gas early in the year, partially offset by decreased sales volume. In 2000, gas operating revenues increased primarily due to the increased market price of natural gas. Expenses Fuel and purchased power In 2001, fuel and purchased power expenses increased primarily due to the increased market prices of natural gas and purchased power. In 2000, fuel and purchased power expenses increased primarily due to the increased market price of natural gas. Other operation and maintenance In 2001, other operation and maintenance expenses increased primarily due to increases in: o maintenance of fossil plants of $2.4 million; o rate proceedings costs of $3.3 million; and o uncollectible accounts expense for miscellaneous accounts receivable of $3.5 million.
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The increases are partially offset by a decrease in administrative and general salaries expense of $2.2 million and a decrease in injuries and damage expense of $1.5 million. In 2000, other operation and maintenance expenses increased primarily due to increases in: o uncollectible accounts expense for miscellaneous accounts receivable of $1.3 million; o maintenance of fossil plants of $1.1 million; and o advertising expenses of $1.3 million. Taxes other than income taxes In 2001 and 2000, taxes other than income taxes increased primarily due to increased local franchise taxes as a result of higher retail revenue. Other regulatory credits In 2001, other regulatory credits increased primarily due to the deferral of capacity charges included in purchased power costs for summer capacity that Entergy New Orleans expects to recover in the future. The increase was also due to an under-recovery of Grand Gulf 1 related costs in 2001 compared to an over-recovery in 2000. In 2000, other regulatory credits decreased due to an over- recovery of Grand Gulf 1 related costs in 2000 compared to an under- recovery in 1999 and the deferral of Year 2000 costs in 1999. Amortization of rate deferrals In 2001 and 2000, amortization of rate deferrals decreased due to scheduled rate changes in the amortization of Grand Gulf 1 phase-in expenses. The Grand Gulf 1 phase-in plan was completed in September 2001. Other Interest and other charges In 2001, interest on long-term debt increased primarily due to the issuance of $30 million of long-term debt in February 2001 and the issuance of $30 million of long-term debt in July 2000. In 2000, interest on long-term debt increased primarily due to the issuance of $30 million of long-term debt in July 2000. Income taxes The effective income tax rates for 2001, 2000, and 1999 were 66.7%, 41.2%, and 40.7%, respectively. The increase in the effective income tax rate for 2001 was primarily due to the pre-tax loss, which increased the impact of flow- through items.
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING REVENUES Domestic electric $502,672 $514,774 $426,431 Natural gas 128,178 125,516 81,357 -------- -------- -------- TOTAL 630,850 640,290 507,788 -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 240,781 253,869 135,242 Purchased power 220,268 173,371 166,579 Other operation and maintenance 92,023 87,254 83,197 Taxes other than income taxes 46,878 45,132 39,621 Depreciation and amortization 24,922 23,550 21,219 Other regulatory credits - net (12,049) (7,058) (9,036) Amortization of rate deferrals 10,977 24,786 28,430 -------- -------- -------- TOTAL 623,800 600,904 465,252 -------- -------- -------- OPERATING INCOME 7,050 39,386 42,536 -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 1,987 1,190 1,084 Miscellaneous - net 2,330 2,530 2,263 -------- -------- -------- TOTAL 4,317 3,720 3,347 -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 17,699 14,429 13,277 Other interest - net 1,962 1,462 1,403 Allowance for borrowed funds used during construction (1,703) (900) (788) -------- -------- -------- TOTAL 17,958 14,991 13,892 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (6,591) 28,115 31,991 Income taxes (4,396) 11,597 13,030 -------- -------- -------- NET INCOME (LOSS) (2,195) 16,518 18,961 Preferred dividend requirements and other 965 965 965 -------- -------- -------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK ($3,160) $15,553 $17,996 ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Net income (loss) ($2,195) $16,518 $18,961 Noncash items included in net income: Amortization of rate deferrals 10,977 24,786 28,430 Other regulatory credits - net (12,049) (7,058) (9,036) Depreciation and amortization 24,922 23,550 21,219 Deferred income taxes and investment tax credits (24,198) (639) (3,131) Allowance for equity funds used during construction (1,987) (1,190) (1,084) Changes in working capital: Receivables 33,183 (45,580) (7,258) Fuel inventory 1,123 (911) 179 Accounts payable (40,364) 29,592 23,319 Taxes accrued (5,823) 5,394 429 Interest accrued 913 1,163 37 Deferred fuel costs 38,430 (13,751) (13,293) Other working capital accounts 9,115 (223) 6,607 Provision for estimated losses and reserves (2,669) (365) (531) Changes in other regulatory assets 33,833 (11,637) (11,482) Other 14,495 10,812 6,796 -------- -------- -------- Net cash flow provided by operating activities 77,706 30,461 60,162 -------- -------- -------- INVESTING ACTIVITIES Construction expenditures (61,189) (48,902) (46,239) Allowance for equity funds used during construction 1,987 1,190 1,084 Changes in other temporary investments - net (14,859) - - -------- -------- -------- Net cash flow used in investing activities (74,061) (47,712) (45,155) -------- -------- -------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 29,761 29,564 - Dividends paid: Common stock (800) (9,500) (26,500) Preferred stock (724) (965) (1,206) -------- -------- -------- Net cash flow provided by (used in) financing activities 28,237 19,099 (27,706) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 31,882 1,848 (12,699) Cash and cash equivalents at beginning of period 6,302 4,454 17,153 -------- -------- -------- Cash and cash equivalents at end of period $38,184 $6,302 $4,454 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $18,230 $14,331 $14,281 Income taxes $47,380 $9,207 $12,476 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents: Cash $5,237 $6,302 Temporary cash investments - at cost, which approximates market 32,947 - -------- -------- Total cash and cash equivalents 38,184 6,302 -------- -------- Other temporary investments 14,859 - Accounts receivable: Customer 33,827 67,264 Allowance for doubtful accounts (2,234) (770) Associated companies 10,527 2,800 Other 4,511 3,709 Accrued unbilled revenues 20,027 26,838 -------- -------- Total accounts receivable 66,658 99,841 -------- -------- Deferred fuel costs - 28,234 Accumulated deferred income taxes 4,882 - Fuel inventory - at average cost 3,081 4,204 Materials and supplies - at average cost 8,273 9,630 Rate deferrals - 10,974 Prepayments and other 26,239 1,416 -------- -------- TOTAL 162,176 160,601 -------- -------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 3,259 3,259 -------- -------- UTILITY PLANT Electric 597,575 572,061 Natural gas 142,741 134,826 Construction work in progress 43,166 36,489 -------- -------- TOTAL UTILITY PLANT 783,482 743,376 Less - accumulated depreciation and amortization 396,535 394,271 -------- -------- UTILITY PLANT - NET 386,947 349,105 -------- -------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: Unamortized loss on reacquired debt 761 974 Other regulatory assets 10,843 44,676 Other 2,051 616 -------- -------- TOTAL 13,655 46,266 -------- -------- TOTAL ASSETS $566,037 $559,231 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Accounts payable: Associated companies $18,199 $24,637 Other 23,640 57,566 Customer deposits 18,931 18,311 Taxes accrued - 5,823 Accumulated deferred income taxes - 6,543 Interest accrued 7,032 6,119 Deferred fuel cost 10,196 - Obligations under capital leases - - System Energy refund 33,614 - Other 1,799 3,211 -------- -------- TOTAL 113,411 122,210 -------- -------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 25,326 43,754 Accumulated deferred investment tax credits 5,361 5,868 SFAS 109 regulatory liability - net 19,868 12,607 Other regulatory liabilities - 537 Accumulated provisions 5,802 8,471 Other 16,735 12,356 -------- -------- TOTAL 73,092 83,593 -------- -------- Long-term debt 229,097 199,031 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 19,780 19,780 Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares in 2001 and 2000 33,744 33,744 Paid-in capital 36,294 36,294 Retained earnings 60,619 64,579 -------- -------- TOTAL 150,437 154,397 -------- -------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $566,037 $559,231 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Retained Earnings, January 1 $64,579 $58,526 $67,030 Add: Net income (loss) (2,195) 16,518 18,961 Deduct: Dividends declared: Preferred stock 965 965 965 Common stock 800 9,500 26,500 ------- ------- ------- Total 1,765 10,465 27,465 ------- ------- ------- Retained Earnings, December 31 $60,619 $64,579 $58,526 ======= ======= ======= See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $630,850 $640,290 $507,788 $513,750 $504,822 Net Income (Loss) $ (2,195) $ 16,518 $ 18,961 $ 16,137 $ 15,451 Total assets $566,037 $559,231 $485,746 $471,904 $498,150 Long-term obligations (1) $229,097 $199,031 $169,083 $169,018 $168,953 </TABLE> (1) Includes long-term debt (excluding currently maturing debt). <TABLE> <CAPTION> 2001 2000 1999 1998 1997 <S> <C> <C> <C> <C> <C> Electric Operating Revenues: (Dollars In Thousands) Residential $189,474 $188,314 $158,822 $164,765 $145,688 Commercial 186,299 170,684 146,328 149,353 143,113 Industrial 31,725 25,479 25,584 26,229 24,616 Governmental 80,918 73,028 63,056 62,332 58,746 ----------------------------------------------------- Total retail 488,416 457,505 393,790 402,679 372,163 Sales for resale: Associated companies 9,864 31,629 14,207 10,451 10,342 Non-associated companies 3,466 8,504 10,545 10,590 8,996 Other 926 17,136 7,889 7,733 18,630 ----------------------------------------------------- Total $502,672 $514,774 $426,431 $431,453 $410,131 ===================================================== Billed Electric Energy Sales (GWH): Residential 1,981 2,178 2,102 2,141 1,971 Commercial 2,185 2,260 2,208 2,149 2,072 Industrial 414 384 514 514 484 Governmental 1,017 1,058 1,071 1,037 994 ----------------------------------------------------- Total retail 5,597 5,880 5,895 5,841 5,521 Sales for resale: Associated companies 115 570 441 370 316 Non-associated companies 59 141 180 199 160 ----------------------------------------------------- Total 5,771 6,591 6,516 6,410 5,997 ===================================================== </TABLE> 2002 2003 2004 after 2004 (In Millions) Planned construction and capital investment $51 $49 $49 N/A Long-term debt maturities $- $25 $30 $174
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of System Energy Resources, Inc.: We have audited the accompanying balance sheets of System Energy Resources, Inc. as of December 31, 2001 and 2000, and the related statements of income, retained earnings, and cash flows (pages 154 through 159 and pages 161 through 227) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of System Energy Resources, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased in 2001 due to the final resolution of System Energy's 1995 rate proceeding and the resulting reductions in decommissioning, depreciation, and income tax expenses, partially offset by a decrease in revenue and an increase in interest expense. See Note 2 to the financial statements for further discussion of System Energy's rate proceeding. Net income increased in 2000 due to increased interest earnings from the money pool, an inter-company funding arrangement, and decreased interest expense associated with the potential refund of System Energy's proposed rate increase. This increase in net income was partially offset by a higher effective income tax rate in 2000. Revenues Operating revenues recover operating expenses, depreciation, and capital costs attributable to Grand Gulf 1. Capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1 and adding to such amount System Energy's effective interest cost for its debt. Operating revenues decreased in 2001 primarily due to an increase in the provision for rate refund resulting from the final resolution of System Energy's 1995 rate proceeding. Operating revenues increased in 2000 primarily due to an increase in recoverable expenses. Expenses Fuel expenses In 2001, fuel expenses decreased primarily due to decreased nuclear fuel burn as a result of Grand Gulf 1 being operational 331 days as compared to 358 days in 2000. In 2000, fuel expenses increased primarily due to increased nuclear fuel burn as a result of Grand Gulf 1 being operational 358 days as compared to 295 days in 1999. Decommissioning Decommissioning expenses decreased in 2001 primarily due to the effects of the final FERC order addressing System Energy's rate proceeding. Depreciation and amortization Depreciation and amortization expenses decreased in 2001 primarily due to the effects of the final FERC order addressing System Energy's rate proceeding. In 2000, depreciation expense increased due to higher depreciation associated with the principal payment on the sale and leaseback of a portion of Grand Gulf 1. The depreciation schedule matches the collection of lease principal and revenues with the depreciation of the asset.
SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other regulatory charges In 2000, other regulatory charges increased due to higher accelerated recovery under the GGART at Entergy Arkansas and Entergy Mississippi. The GGART is discussed in Note 2 to the financial statements. Other Interest and dividend income Interest and dividend income increased in 2001 as a result of increased interest on decommissioning trust funds due to the effects of the final FERC order addressing System Energy's rate proceeding. Interest and dividend income increased in 2000 as a result of the interest earned on System Energy's advances to the money pool, an inter- company funding arrangement. The money pool is discussed in Note 4 to the financial statements. Interest charges Interest on long-term debt decreased in 2001 and 2000 primarily due to a decrease in interest expense associated with the sale- leaseback of Grand Gulf 1, decreased interest expense on the sale- leaseback line of credit, and a decrease in interest expense due to the retirement of long-term debt. In 2001, System Energy retired $135 million of first mortgage bonds. In 2000, System Energy retired $75 million of debenture bonds. Other interest increased in 2001 primarily due to the effects of the final FERC order addressing System Energy's rate proceeding. Other interest decreased in 2000 primarily due to decreased interest expense recorded on the potential refund of System Energy's proposed rate increase. Income taxes The effective income tax rates in 2001, 2000, and 1999 were 27.3%, 46.4% and 39.5%, respectively. The decrease in the effective income tax rate in 2001 is primarily due to decreased depreciation as a result of the final resolution of System Energy's 1995 rate proceeding and the distribution of an income tax benefit from Entergy Corporation related to the 2000 tax return. The effective income tax rate for 2000 increased primarily due to the amortization of investment tax credits related to Grand Gulf 2 in 1999.
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. INCOME STATEMENTS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING REVENUES Domestic electric $535,027 $656,749 $620,032 -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 37,010 42,369 37,336 Nuclear refueling outage expenses 13,275 14,423 14,136 Other operation and maintenance 85,491 88,257 87,450 Decommissioning (13,493) 18,944 18,944 Taxes other than income taxes 26,134 30,517 27,212 Depreciation and amortization 53,414 127,904 113,862 Other regulatory charges - net 62,742 63,590 57,656 -------- -------- -------- TOTAL 264,573 386,004 356,596 -------- -------- -------- OPERATING INCOME 270,454 270,745 263,436 -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 1,769 1,482 2,540 Interest and dividend income 26,271 20,528 16,366 Miscellaneous - net (1,190) (82) (57) -------- -------- -------- TOTAL 26,850 21,928 18,849 -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 68,833 87,689 102,764 Other interest - net 69,185 30,830 45,218 Allowance for borrowed funds used during construction (830) (854) (1,920) -------- -------- -------- TOTAL 137,188 117,665 146,062 -------- -------- -------- INCOME BEFORE INCOME TAXES 160,116 175,008 136,223 Income taxes 43,761 81,263 53,851 -------- -------- -------- NET INCOME $116,355 $93,745 $82,372 ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> OPERATING ACTIVITIES Net income $116,355 $93,745 $82,372 Noncash items included in net income: Reserve for regulatory adjustments (322,368) 54,598 108,484 Other regulatory charges - net 62,742 63,590 57,656 Depreciation, amortization, and decommissioning 39,921 146,848 132,806 Deferred income taxes and investment tax credits 106,764 (71,212) (86,860) Allowance for equity funds used during construction (1,769) (1,482) (2,540) Changes in working capital: Receivables 142,797 87,212 (172,354) Accounts payable (9,587) (7,401) (11,688) Taxes accrued 43,992 13,147 (21,424) Interest accrued 3,088 4,008 (2,022) Other working capital accounts (664) 20,754 (4,425) Provision for estimated losses and reserves 16 (1,328) 45 Changes in other regulatory assets 38,732 58,592 (18,492) Other (54,124) (65,491) 41,250 -------- -------- -------- Net cash flow provided by operating activities 165,895 395,580 102,808 -------- -------- -------- INVESTING ACTIVITIES Construction expenditures (40,144) (36,555) (28,848) Allowance for equity funds used during construction 1,769 1,482 2,540 Nuclear fuel purchases (37,639) - (39,975) Proceeds from sale/leaseback of nuclear fuel 37,639 - 39,975 Decommissioning trust contributions and realized change in trust assets (16,147) (23,694) (22,139) Changes in other temporary investments - net (22,354) - - Other 29,242 - - -------- -------- -------- Net cash flow used in investing activities (47,634) (58,767) (48,447) -------- -------- -------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt - - 101,835 Retirement of long-term debt (151,800) (77,947) (282,885) Dividends paid: Common stock (119,100) (91,800) (75,000) -------- -------- -------- Net cash flow used in financing activities (270,900) (169,747) (256,050) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (152,639) 167,066 (201,689) Cash and cash equivalents at beginning of period 202,218 35,152 236,841 -------- -------- -------- Cash and cash equivalents at end of period $49,579 $202,218 $35,152 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid/(received) during the period for: Interest - net of amount capitalized $130,596 $109,046 $141,731 Income taxes ($107,831) $143,040 $154,336 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($5,931) ($1,506) ($37) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS ASSETS December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents: Cash $15 $44 Temporary cash investments - at cost, which approximates market 49,564 202,174 ---------- ---------- Total cash and cash equivalents 49,579 202,218 ---------- ---------- Other temporary investments 22,354 - Accounts receivable: Associated companies 70,755 212,551 Other 1,193 2,194 ---------- ---------- Total accounts receivable 71,948 214,745 ---------- ---------- Materials and supplies - at average cost 51,665 52,235 Deferred nuclear refueling outage costs 8,728 6,577 Prepayments and other 1,631 2,639 ---------- ---------- TOTAL 205,905 478,414 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Decommissioning trust funds 138,546 157,572 ---------- ---------- UTILITY PLANT Electric 3,098,446 3,093,033 Property under capital lease 450,014 449,851 Construction work in progress 36,868 24,029 Nuclear fuel under capital lease 61,905 49,256 ---------- ---------- TOTAL UTILITY PLANT 3,647,233 3,616,169 Less - accumulated depreciation and amortization 1,416,337 1,407,885 ---------- ---------- UTILITY PLANT - NET 2,230,896 2,208,284 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 173,470 195,634 Unamortized loss on reacquired debt 48,381 51,957 Other regulatory assets 157,949 174,517 Other 8,894 8,172 ---------- ---------- TOTAL 388,694 430,280 ---------- ---------- TOTAL ASSETS $2,964,041 $3,274,550 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY December 31, 2001 2000 (In Thousands) <S> <C> <C> CURRENT LIABILITIES Currently maturing long-term debt $100,891 $151,800 Accounts payable: Associated companies 2,404 2,722 Other 14,316 23,585 Taxes accrued 112,522 68,530 Accumulated deferred income taxes 2,360 1,648 Interest accrued 47,095 44,007 Obligations under capital leases 26,503 32,119 Other 1,583 1,674 ---------- ---------- TOTAL 307,674 326,085 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 498,404 391,505 Accumulated deferred investment tax credits 86,040 89,516 Obligations under capital leases 35,401 17,137 Other regulatory liabilities 135,878 103,634 Decommissioning 140,103 153,197 Regulatory reserves - 322,368 Accumulated provisions 705 689 Other 39,117 46,139 ---------- ---------- TOTAL 935,648 1,124,185 ---------- ---------- Long-term debt 830,038 930,854 SHAREHOLDER'S EQUITY Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2001 and 2000 789,350 789,350 Retained earnings 101,331 104,076 ---------- ---------- TOTAL 890,681 893,426 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,964,041 $3,274,550 ========== ========== See Notes to Financial Statements. </TABLE>
SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 2001 2000 1999 (In Thousands) Retained Earnings, January 1 $104,076 $102,131 $94,759 Add: Net income 116,355 93,745 82,372 Deduct: Dividends declared 119,100 91,800 75,000 -------- -------- -------- Retained Earnings, December 31 $101,331 $104,076 $102,131 ======== ======== ======== See Notes to Financial Statements.
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2001 2000 1999 1998 1997 (Dollars In Thousands) <S> <C> <C> <C> <C> <C> Operating revenues $ 535,027 $ 656,749 $ 620,032 $ 602,373 $ 633,698 Net income $ 116,355 $ 93,745 $ 82,372 $ 106,476 $ 102,295 Total assets $2,964,041 $3,274,550 $3,369,048 $3,431,205 $3,432,031 Long-term obligations (1) $ 865,439 $ 947,991 $1,122,178 $1,182,616 $1,364,161 Electric energy sales (GWH) 8,921 9,621 7,567 8,259 9,735 </TABLE> (1) Includes long-term debt (excluding current maturities) and noncurrent capital lease obligations. 2002 2003 2004 after 2004 (In Millions) Planned construction and capital investment $25 $20 $20 N/A Long-term debt maturities $101 $11 $6 $813 Nuclear fuel lease obligations (1) $27 $35 N/A N/A (1) It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations.
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The accompanying consolidated financial statements include the accounts of Entergy Corporation and its direct and indirect subsidiaries, including the domestic utility companies and System Energy, whose separate financial statements are included in this document. The financial statements presented herein result from these companies having registered securities with the SEC. As required by generally accepted accounting principles, all significant intercompany transactions have been eliminated in the consolidated financial statements. The domestic utility companies and System Energy maintain accounts in accordance with FERC and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications, with no effect on net income or shareholders' equity. Use of Estimates in the Preparation of Financial Statements The preparation of Entergy Corporation's and its subsidiaries' financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results are different from the estimates used. Revenues and Fuel Costs Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, and Mississippi, respectively. Entergy Gulf States generates, transmits, and distributes electric power primarily to retail customers in Texas and Louisiana. Entergy Gulf States also distributes gas to retail customers in and around Baton Rouge, Louisiana. Entergy New Orleans sells both electric power and gas to retail customers in the City of New Orleans, except for Algiers, where Entergy Louisiana is the electric power supplier. Entergy's domestic non-utility nuclear and energy commodity services segments derive almost all of their revenue from sales of electric power generated by plants owned by them, except for gains or losses on power plant development projects for energy commodity services, which are discussed below. System Energy's operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf 1. The capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1, plus System Energy's effective interest cost for its debt allocable to its investment in Grand Gulf 1. System Energy's recently resolved rate proceeding is discussed in Note 2 to the financial statements. Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. The monthly estimated unbilled revenue amounts are recorded as revenue and a receivable, and are reversed the following month. The domestic utility companies' rate schedules include either fuel adjustment clauses or fixed fuel factors, both of which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Because the fuel adjustment clause mechanism allows monthly adjustments to recover fuel costs, Entergy Louisiana, Entergy New Orleans, and the Louisiana portion of Entergy Gulf States include a component of fuel cost recovery in their unbilled revenue calculations. Where the fuel component of revenues is billed based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. Effective January 2001, Entergy Mississippi's fuel factor includes an energy cost rider that is adjusted quarterly. In the case of Entergy Arkansas and the Texas portion of Entergy Gulf States, their fuel under-recoveries are treated as regulatory investments in the cash flow statements because those companies are allowed by their regulatory jurisdictions to recover the fuel cost regulatory asset over longer than a twelve- month period, and the companies earn a return on the under-recovered balances. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. The original cost of plant retired or removed, plus the applicable removal costs, less salvage, is charged to accumulated depreciation. Normal maintenance, repairs, and minor replacement costs are charged to operating expenses. Substantially all of the domestic utility companies' and System Energy's plant is subject to mortgage liens. Electric plant includes the portions of Grand Gulf 1 and Waterford 3 that have been sold and leased back. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions. Net property, plant, and equipment by company and functional category, as of December 31, 2001 and 2000, is shown below (in millions): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Production Nuclear $7,657 $1,053 $1,764 $1,722 $- $- $2,103 Other 2,016 317 573 192 206 12 - Transmission 1,788 533 568 336 319 23 9 Distribution 3,848 1,123 1,064 838 551 272 - Other 778 157 156 189 122 37 20 Plant acquisition adjustment - Entergy Gulf States 374 - - - - - - Construction work in progress 883 158 222 111 110 43 37 Nuclear fuel (leased and owned) 498 74 68 70 - - 62 Accumulated provision for decommissioning (1) (578) (363) (95) (120) - - - --------------------------------------------------------------------- Property, plant, and equipment -net $17,264 $3,052 $4,320 $3,338 $1,308 $387 $2,231 ===================================================================== </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Production Nuclear $7,126 $1,092 $1,817 $1,779 $- $- $2,103 Other 2,021 329 595 195 204 12 - Transmission 1,693 504 517 323 316 24 9 Distribution 3,532 1,074 963 796 517 182 - Other 879 149 187 172 115 95 23 Plant acquisition adjustment - Entergy Gulf States 391 - - - - - - Construction work in progress 937 87 145 85 44 36 24 Nuclear fuel (leased and owned) 435 114 57 64 - - 49 Accumulated provision for decommissioning (1) (568) (368) (90) (110) - - - --------------------------------------------------------------------- Property, plant, and equipment -net $16,446 $2,981 $4,191 $3,304 $1,196 $349 $2,208 ===================================================================== </TABLE> (1) This is reflected in accumulated depreciation and amortization on the balance sheet. The decommissioning liabilities related to Grand Gulf 1, Pilgrim, Indian Point 2, and the 30% of River Bend previously owned by Cajun are reflected in the applicable balance sheets in "Deferred Credits and Other Liabilities - Decommissioning." Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation rates on average depreciable property are shown below: Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy(1) States Orleans 2001 2.8% 3.1% 2.5% 2.9% 2.4% 3.0% 2.8% 2000 2.9% 3.2% 2.4% 3.0% 2.5% 3.1% 3.3% 1999 2.9% 3.2% 2.4% 2.9% 2.4% 3.0% 3.3% (1) Per a FERC order in 2001, the depreciation rate for System Energy was changed from 3.3% to 2.8%, retroactive to December 1995. The retroactive effect of the change is reflected in the 2001 financial statements. Refer to Note 2 to the financial statements for further details of the FERC order in the System Energy rate proceeding. Jointly-Owned Generating Stations Certain Entergy subsidiaries jointly own electric generating facilities with third parties. The investments and expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their respective undivided ownership interests. As of December 31, 2001, the subsidiaries' investment and accumulated depreciation in each of these generating stations were as follows: <TABLE> <CAPTION> Total Megawatt Accumulated Generating Stations Fuel-Type Capability (1) Ownership Investment Depreciation (In Milliions) <S> <C> <C> <C> <C> <C> <C> Entergy Arkansas - Independence Unit 1 Coal 836 31.50% $117 $ 62 Common Facilities Coal 15.75% 31 15 White Bluff Units 1 and 2 Coal 1,610 57.00% 414 231 Entergy Gulf States - Roy S. Nelson Unit 6 Coal 550 70.00% 404 218 Big Cajun 2 Unit 3 Coal 562 42.00% 228 117 Entergy Mississippi - Units 1 and 2 and Coal 1,651 25.00% 227 102 Independence Common Facilities System Energy - Grand Gulf Unit 1 Nuclear 1,247 90.00%(2) 3,549 1,416 Entergy Power - Independence Unit 2 Coal 815 14.37% 76 33 Common Facilities Coal 7.18% 5 3 </TABLE> (1)"Total Megawatt Capability" is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. (2)Includes an 11.5% leasehold interest held by System Energy. System Energy's Grand Gulf 1 lease obligations are discussed in Note 10 to the financial statements. Gains or Losses on Sales of Power Development Projects EWO actively manages its assets as an investment portfolio, and attempts to maximize flexibility to respond to different market environments. Active management of the portfolio by EWO is expected to result in: the commercial operation of projects by EWO; the sale of projects at various stages in their planning, development, or operation; or the abandonment of projects. As a result, project sales are a part of the revenue generating activities of EWO, and gains or losses on those sales are reported in operating revenue for that business segment. Nuclear Refueling Outage Costs Entergy records nuclear refueling outage costs in accordance with regulatory treatment and the matching principle. These refueling outage expenses are incurred to prepare the units to operate for the next 18 months without having to be taken off line. Except for the River Bend plant, the costs are deferred during the outage and amortized over the period to the next outage. In accordance with the regulatory treatment of the River Bend plant, the costs are accrued in advance and included in the cost of service used to establish retail rates. Entergy Gulf States relieves the accrual when it incurs costs during the next River Bend outage. Allowance for Funds Used During Construction AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases both the plant balance and earnings, it is realized in cash through depreciation provisions included in rates. Income Taxes Entergy Corporation and its subsidiaries file a U.S. consolidated federal income tax return. Income taxes are allocated to the subsidiaries in proportion to their contribution to consolidated taxable income. SEC regulations require that no Entergy subsidiary pay more taxes than it would have paid if a separate income tax return had been filed. In accordance with SFAS 109, "Accounting for Income Taxes," deferred income taxes are recorded for all temporary differences between the book and tax basis of assets and liabilities, and for certain credits available for carryforward. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates in the period in which the tax or rate was enacted. Investment tax credits are deferred and amortized based upon the average useful life of the related property, in accordance with ratemaking treatment. Earnings per Share The average number of common shares outstanding for the presentation of diluted earnings per share was greater by 3,789,392 shares in 2001, 1,960,858 shares in 2000, and 199,423 shares in 1999, than the number of such shares for the presentation of basic earnings per share due to Entergy's stock option and other stock compensation plans discussed more thoroughly in Note 5 to the financial statements. The dilutive effect of the stock options on earnings per share was $.06 in 2001, $.03 in 2000, and $.00 in 1999. Options to purchase approximately 148,500 and 5,205,000 shares of common stock at various prices were outstanding at the end of 2001 and 1999, respectively, that were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares at the end of each of the years presented. At the end of 2000, all outstanding options, totaling 11,468,316, were included in the computation of diluted earnings per share as a result of the average market price of the common shares being greater than the exercise prices. Application of SFAS 71 The domestic utility companies and System Energy currently account for the effects of regulation pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation." This statement applies to the financial statements of a rate-regulated enterprise that meet three criteria. The enterprise must have rates that (i) are approved by a body empowered to set rates that bind customers (its regulator); (ii) are cost-based; and (iii) can be charged to and collected from customers. These criteria may also be applied to separable portions of a utility's business, such as the generation or transmission functions, or to specific classes of customers. If an enterprise meets these criteria, it capitalizes costs that would otherwise be charged to expense if the rate actions of its regulator make it probable that those costs will be recovered in future revenue. Such capitalized costs are reflected as regulatory assets in the accompanying financial statements. A significant majority of Entergy's regulatory assets, net of related regulatory and deferred tax liabilities, earn a return on investment during their recovery periods. SFAS 71 requires that rate- regulated enterprises assess the probability of recovering their regulatory assets at each balance sheet date. When an enterprise concludes that recovery of a regulatory asset is no longer probable, the regulatory asset must be removed from the entity's balance sheet. SFAS 101, "Accounting for the Discontinuation of Application of FASB Statement No. 71," specifies how an enterprise that ceases to meet the criteria for application of SFAS 71 for all or part of its operations should report that event in its financial statements. In general, SFAS 101 requires that the enterprise report the discontinuation of the application of SFAS 71 by eliminating from its balance sheet all regulatory assets and liabilities related to the applicable segment. Additionally, if it is determined that a regulated enterprise is no longer recovering all of its costs and therefore no longer qualifies for SFAS 71 accounting, it is possible that an impairment may exist that could require further write-offs of plant assets. EITF 97-4: "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101" specifies that SFAS 71 should be discontinued at a date no later than when the effects of a transition to competition plan for all or a portion of the entity subject to such plan are reasonably determinable. Additionally, EITF 97-4 promulgates that regulatory assets to be recovered through cash flows derived from another portion of the entity that continues to apply SFAS 71 should not be written off; rather, they should be considered regulatory assets of the segment that will continue to apply SFAS 71. See Note 2 to the financial statements for discussion of transition to competition activity in the retail regulatory jurisdictions served by the domestic utility companies. Arkansas and Texas have enacted retail open access laws, but Entergy believes that significant issues remain to be addressed by Arkansas and Texas regulators, and the enacted laws do not provide sufficient detail to reasonably determine the impact on Entergy Arkansas' and Entergy Gulf States' regulated operations. Cash and Cash Equivalents Entergy considers all unrestricted highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities of more than three months are classified as other temporary investments on the balance sheet. Investments Entergy applies the provisions of SFAS 115, "Accounting for Investments for Certain Debt and Equity Securities," in accounting for investments in decommissioning trust funds. As a result, Entergy has recorded on the consolidated balance sheet $93 million of additional value in its decommissioning trust funds as of December 31, 2001, and $128 million as of December 31, 2000. This additional value represents the amount by which the fair value of the securities held in such funds exceeds the amounts deposited plus the earnings on the deposits. In accordance with the regulatory treatment for decommissioning trust funds, the domestic utility companies have recorded an offsetting amount of unrealized gains on investment securities in accumulated depreciation. System Energy's offsetting amount of unrealized gains on investment securities is in other regulatory liabilities. Decommissioning trust funds for Pilgrim and Indian Point 2 do not receive regulatory treatment. Accordingly, unrealized gains and losses recorded on the assets in these trust funds are recognized as a separate component of shareholders' equity because these assets are classified as available for sale. Equity Method Investees Entergy owns a number of investments that are accounted for under the equity method of accounting because Entergy's ownership level results in significant influence, but not control, over the investee and its operations. Entergy records its share of earnings or losses of the investee based on the change during the period in the estimated liquidation value of the investment, assuming that the investee's assets were to be liquidated at book value. Entergy discontinues the recognition of losses on equity investments when its share of losses equals or exceeds its carrying amount of investee plus any advances made or commitments to provide additional financial support. See Note 13 to the financial statements for additional information regarding Entergy's equity method investments. Derivative Financial Instruments and Commodity Derivatives Entergy implemented SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. The statement requires that all derivatives be recognized in the balance sheet, either as assets or liabilities, at fair value. The changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For cash-flow hedge transactions in which Entergy is hedging the variability of cash flows related to a variable-rate asset, liability, or forecasted transaction, changes in the fair value of the derivative instrument are reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income are reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portions of all hedges are recognized in current-period earnings. Contracts for commodities that will be delivered in quantities expected to be used or sold in the ordinary course of business, including certain purchases and sales of power and fuel, are not classified as derivatives. Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered. Effective January 1, 2001, Entergy recorded a net-of-tax cumulative-effect-type adjustment of approximately $18.0 million reducing accumulated other comprehensive income to recognize, at fair value, all derivative instruments that are designated as cash-flow hedging instruments, primarily interest rate swaps and foreign currency forward contracts related to Entergy's competitive businesses. Additional information concerning Entergy's interest rate swaps outstanding as of December 31, 2001 is included in Note 7 to the financial statements. Effective October 1, 2001, Entergy recorded an additional net-of-tax cumulative-effect-type adjustment that increased net income by approximately $23.5 million. This adjustment resulted from the implementation of an interpretation of SFAS 133 that requires fuel supply agreements with volumetric optionality to be classified as derivative instruments. The agreement that resulted in the adjustment is in the energy commodity services segment. Impairment of Long-Lived Assets Entergy periodically reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the net cash flows expected to result from such operations and assets. Projected net cash flows depend on the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy over the remaining life of the assets. Assets regulated under traditional cost-of-service ratemaking, and thereby subject to SFAS 71 accounting, are generally not subject to impairment because this form of regulation assures that all allowed costs are subject to recovery. However, certain deregulated assets and other operations of the domestic utility companies totaling approximately $1.2 billion (pre-tax) could be affected in the future. Those assets include Entergy Arkansas' and Entergy Louisiana's retained shares of Grand Gulf 1, Entergy Gulf States' Louisiana deregulated asset plan, the Texas jurisdictional abeyed portion of the River Bend plant and the portion of River Bend transferred from Cajun, and wholesale operations. Additionally, as noted above, the discontinuation of SFAS 71 regulatory accounting principles would require that Entergy review the affected assets for impairment. Regulatory Assets The domestic utility companies and System Energy are subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. In addition to the regulatory assets that are specifically disclosed on the face of the balance sheets, the tables below provide detail of "Other regulatory assets" included on the balance sheets of Entergy, the domestic utility companies, and System Energy as of December 31, 2001 and 2000 (in millions). <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> DOE Fees (Note 9) $47.5 $24.6 $4.3 $9.4 $- $- $9.2 Provisions for storm damages (Note 2) 214.0 178.7 8.7 26.6 - - - Imputed capacity charges (Note 2) 41.7 - 14.8 26.9 - - - Postretirement benefits 26.3 26.3 - - - - - Depreciation re-direct (Note 1) 79.1 - 79.1 - - - - River Bend AFUDC (Note 1) 43.2 - 43.2 - - - - Spindletop gas storage lease 32.2 - 32.2 - - - - 1994 FERC Settlement (Note 2) 20.2 - - - - - 20.2 Sale-leaseback deferral (Note 10) 128.3 - - - - - 128.3 Other 74.9 30.9 19.0 10.9 13.5 10.8 0.2 --------------------------------------------------------------------- Total $707.4 $260.5 $201.3 $73.8 $13.5 $10.8 $157.9 ===================================================================== </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> DOE Fees (Note 9) $53.9 $27.9 $4.9 $10.6 $- $- $10.5 Provisions for storm damages (Note 2) 117.8 80.3 5.7 27.0 4.8 - - Deferred System Energy rate increase 221.1 54.9 - - 129.0 37.2 - (Note 2) Postretirement benefits 28.7 28.7 - - - - - Depreciation re-direct (Note 1) 72.4 - 72.4 - - - - River Bend AFUDC (Note 1) 45.1 - 45.1 - - - - Spindletop gas storage lease 30.2 - 30.2 - - - - 1994 FERC Settlement (Note 2) 28.3 - - - - - 28.3 Sale-leaseback deferral (Note 10) 135.7 - - - - - 135.7 Other 59.3 30.0 11.1 13.3 6.9 7.5 - ---------------------------------------------------------------------- Total $792.5 $221.8 $169.4 $50.9 $140.7 $44.7 $174.5 ====================================================================== </TABLE> River Bend AFUDC The River Bend AFUDC gross-up represents the incremental difference imputed by the LPSC between the AFUDC actually recorded by Gulf States Utilities on a net-of-tax basis during the construction of River Bend and what the AFUDC would have been on a pre-tax basis. The imputed amount was only calculated on that portion of River Bend that the LPSC allowed in rate base and is being amortized over the estimated remaining economic life of River Bend. Transition to Competition Liabilities In conjunction with electric utility industry restructuring activity in Arkansas and Texas, regulatory mechanisms were established to mitigate potential stranded costs. These mechanisms include the transition cost account at Entergy Arkansas, which is discussed further in Note 2 to the financial statements. Also included is a provision in the Texas restructuring legislation that allows depreciation on transmission and distribution assets to be directed toward generation assets. The liabilities recorded as a result of these mechanisms are classified as "transition to competition" deferred credits. Reacquired Debt The premiums and costs associated with reacquired debt of the domestic utility companies and System Energy (except that portion allocable to the deregulated operations of Entergy Gulf States) are being amortized over the life of the related new issuances, in accordance with ratemaking treatment. Entergy Gulf States' Deregulated Operations Entergy Gulf States does not apply regulatory accounting principles to its wholesale jurisdiction, Louisiana retail deregulated portion of River Bend, and the 30% interest in River Bend formerly owned by Cajun. The Louisiana retail deregulated portion of River Bend is operated under a deregulated asset plan representing a portion (approximately 24%) of River Bend plant costs, generation, revenues, and expenses established under a 1992 LPSC order. The plan allows Entergy Gulf States to sell the electricity from the deregulated assets to Louisiana retail customers at 4.6 cents per KWH or off-system at higher prices, with certain provisions for sharing such incremental revenue above 4.6 cents per KWH between ratepayers and shareholders. The results of these deregulated operations before interest charges for the years ended December 31, 2001, 2000, and 1999 are as follows (in thousands): 2001 2000 1999 Operating revenues $238,590 $200,023 $166,509 Operating expenses Fuel, operation, and maintenance 136,043 141,822 126,917 Depreciation 35,508 36,158 35,141 -------- -------- -------- Total operating expense 171,551 177,980 162,058 -------- -------- -------- Operating income 67,039 22,043 4,451 Income tax expense 25,549 8,278 628 -------- -------- -------- Net income from deregulated utility operations $41,490 $13,765 $3,823 ======== ======== ======== The net investment associated with these deregulated operations as of December 31, 2001 and 2000 was approximately $822 million and $821 million, respectively. Foreign Currency Translation All assets and liabilities of Entergy's foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of shareholders' equity. Current exchange rates are used for U.S. dollar disclosures of future obligations denominated in foreign currencies. New Accounting Pronouncements In mid-2001, the FASB issued the following pronouncements: o SFAS 141, "Business Combinations"; o SFAS 142, "Goodwill and Other Intangible Assets"; o SFAS 143, "Accounting for Asset Retirement Obligations"; and o SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets". SFAS 141, which is effective for all business combinations initiated after June 30, 2001, eliminates the pooling-of-interests method of accounting for business combinations and requires that all business combinations be accounted for using the purchase accounting method. SFAS 141 also requires the recording of all acquired intangible assets that either arise from contractual or legal rights, or that are separable from the acquired entity. The implementation of SFAS 141 on July 1, 2001 had no impact on Entergy's financial statements. SFAS 142, which Entergy implemented effective January 1, 2002, eliminates the amortization of goodwill arising from business combinations. Instead, goodwill will be subject to a periodic impairment test at the "reporting unit" level. SFAS 142 also eliminates the arbitrary 40-year cap on useful lives of intangible assets, and acknowledges that some intangible assets may have indefinite useful lives. The implementation of SFAS 142 will require Entergy to cease the amortization of the remaining plant acquisition adjustment recorded in conjunction with its acquisition of Entergy Gulf States; this will increase Entergy's annual net income by approximately $16.3 million. Entergy will also perform an impairment test on the remaining acquisition adjustment. As SFAS 142 allows, Entergy will complete this impairment test in the second quarter of 2002. Entergy does not believe an impairment will result from this test when it is completed. SFAS 143, which must be implemented by 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 will be 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 will be 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 will be depreciated over the useful lives of the assets. Entergy expects that the net effect of implementing this standard for Entergy's regulated utilities will be recorded as a regulatory asset or liability, with no resulting impact on Entergy's net income. Upon adoption, the net effects of implementing this standard, to the extent that they are not recorded as regulatory assets or liabilities, will be recognized as cumulative effects of an accounting change in Entergy's income statement. Entergy has not yet completed its assessment of the likely overall impact of this standard on its financial statements, but anticipates that its assets and liabilities will increase upon implementation. SFAS 144, which Entergy implemented effective January 1, 2002, promulgates standards for measuring and recording impairments of long- lived assets. Additionally, this standard establishes requirements for classifying an asset as held for sale, and changes existing accounting and reporting standards for discontinued operations and exchanges of long-lived assets. Entergy does not expect the implementation of this standard to have a significant effect on Entergy's financial position or results of operations. NOTE 2. RATE AND REGULATORY MATTERS Electric Industry Restructuring and the Continued Application of SFAS 71 Although Arkansas and Texas have enacted retail open access laws, retail open access proceedings in Arkansas are currently suspended. Retail open access in Entergy Gulf States' service territory in Texas has been delayed. Entergy also believes that significant issues remain to be addressed by Texas regulators, and the enacted law does not provide sufficient detail to reasonably determine the impact on Entergy Gulf States' regulated operations. Entergy therefore continues to apply regulatory accounting principles to the retail operations of all of the domestic utility companies. Following is a summary of the status of retail open access in the domestic utility companies' retail service territories. Arkansas (Entergy Corporation and Entergy Arkansas) Under current Arkansas legislation, the target date for retail open access has been delayed until no sooner than October 1, 2003 and no later than October 1, 2005. In December 2001, the APSC recommended to the Arkansas General Assembly that legislation be enacted during the 2003 legislative session to either repeal the legislation authorizing retail open access or further delay retail open access until at least 2010. Entergy Arkansas supports the proposal for further delay of retail open access but opposes repeal of deregulation legislation as premature at this time. Based on the anticipated delay in retail open access, Entergy Arkansas withdrew its notice of intent to recover stranded costs in December 2001. Texas (Entergy Corporation and Entergy Gulf States) Retail open access legislation is in place in Texas, but the implementation of retail open access in Entergy Gulf States' territory is delayed until at least September 15, 2002. Several proceedings necessary to implement retail open access are still pending, including proceedings to set the price-to-beat rates that will be charged by Entergy's retail electric service provider, to implement Entergy Gulf States' business separation plan, and to form an RTO that includes Entergy's service area. In addition, the LPSC has not approved for the Louisiana jurisdictional operations the transfer of generation assets to, or a power purchase agreement with, Entergy's Texas generation company. Therefore, neither the necessary regulatory actions nor the reasonable determinability of the effect of deregulation has occurred for Entergy Gulf States to discontinue the application of regulatory accounting principles to its Texas generation operations. Louisiana (Entergy Corporation, Entergy Gulf States, and Entergy Louisiana) In March 1999, the LPSC deferred making a decision on whether competition in the electric utility industry is in the public interest. However, the LPSC directed the LPSC staff, outside consultants, and counsel to work together to analyze and resolve issues related to competition and to recommend a plan for consideration by the LPSC. In July 2001, the LPSC staff submitted a final response to the LPSC. In its report the LPSC staff concluded that retail competition is not in the public interest at this time for any customer class. Nevertheless, the LPSC staff recommended that retail open access be made available for certain large industrial customers as early as January 2003. An eligible customer choosing to go to competition would be required to provide its utility with a minimum of six months notice prior to the date of retail open access. The LPSC staff report also recommended that all customers who do not currently co- or self-generate, or have co- or self-generation under construction as of a date to be specified by the LPSC, remain liable for their share of stranded costs. During its October 2001 meeting, the LPSC adopted dates by which a total of 800 MW of co- or self-generation could be developed in Louisiana without being affected by stranded costs. During its November 2001 meeting, the LPSC decided not to adopt a plan for retail open access for any customers at this time, but to have collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. Mississippi (Entergy Corporation and Entergy Mississippi) In May 2000, after two years of studies and hearings, the MPSC announced that it was suspending its docket studying the opening of the state's retail electricity markets to competition. The MPSC based its decision on its finding that competition could raise the electric rates paid by residential and small commercial customers. The final decision regarding the introduction of retail competition ultimately lies with the Mississippi Legislature, which is holding its 2002 session from January through March. Management cannot predict when, or if, Mississippi will deregulate its retail electricity market. New Orleans (Entergy Corporation and Entergy New Orleans) Entergy New Orleans filed an electric transition to competition plan in September 1997. This plan is similar to plans that were filed by the other domestic utility companies. No procedural schedule has been established for consideration of that plan by the Council. Retail Rate Proceedings Filings with the APSC (Entergy Corporation and Entergy Arkansas) March 2002 Settlement Agreement In March 2002, Entergy Arkansas, the APSC staff, and the Arkansas Attorney General submitted a settlement agreement to the APSC for approval. The agreement resolves issues discussed below under "Retail Rates," "Transition Cost Account," and "December 2000 Ice Storm Cost Recovery." A hearing before the APSC to consider the settlement is scheduled for April 11, 2002. No assurance can be given as to the timing or outcome of the proceedings before the APSC. Retail Rates Entergy Arkansas is operating under the terms of a 1997 settlement agreement approved by the APSC that currently provides for a rate freeze. As discussed in "December 2000 Ice Storm Cost Recovery" below, Entergy Arkansas was scheduled to file a general rate proceeding in February 2002, in which Entergy Arkansas would have sought an increase in rates. The March 2002 settlement agreement states, however, that Entergy Arkansas will not file an application seeking to increase base rates prior to January 2003. Transition Cost Account The 1997 settlement also provides for the collection of earnings in excess of an 11% return on equity in a transition cost account (TCA) to offset stranded costs if retail open access were implemented. Upon recommendation from the APSC, Entergy Arkansas' 2001 operating expense reflects an adjustment for 2000 TCA accruals of $18.9 million ($11.6 million after tax). Entergy Arkansas filed for a rehearing of the APSC's review of 2000 earnings. The March 2002 settlement agreement would resolve this matter, and issues related to the 1998 and 1999 earnings reviews, resulting in immaterial adjustments to the TCA. In 2001, Entergy Arkansas also recorded $7.9 million ($4.9 million after tax) for 2001 TCA accruals and interest expense of $6.0 million ($3.7 million after tax). As of December 31, 2001, the transition cost account balance was $152.4 million. In light of the delay in retail open access, Entergy Arkansas filed a proposal in December 2001 with the APSC that the balance in the transition cost account be used to offset a large portion of the December 2000 ice storm expenses discussed below. Entergy Arkansas' withdrawal of its notice of intent to recover stranded costs will end the transition cost account earnings review process after the 2001 earnings review is complete. December 2000 Ice Storm Cost Recovery In mid- and late December 2000, two separate ice storms left 226,000 and 212,500 Entergy Arkansas customers, respectively, without electric power in its service area. The storms were the most severe natural disasters ever to affect Entergy Arkansas, causing damage to transmission and distribution lines, equipment, poles, and facilities. Entergy Arkansas filed a proposal to recover costs plus carrying charges associated with power restoration caused by the ice storms. In an order issued in June 2001, the APSC decided not to give final approval to Entergy's proposed storm cost recovery rider outside of a fully developed cost-of-service study in a general rate proceeding. The APSC action resulted in the deferral in 2001 of storm damage costs expensed in 2000 as reflected in Entergy Arkansas' financial statements. Entergy Arkansas filed its final storm damage cost determination, which reflects costs of approximately $195 million. The filing asked for recovery of approximately $170 million through a rider over approximately a six and one-half year period. The remainder of the costs is primarily capital expenditures that would be included in rate base in the general rate proceeding. In December 2001, Entergy Arkansas filed a proposal with the APSC to reduce the ice storm costs with the balance in the transition cost account. In the March 2002 settlement, the parties agree that $159 million of the ice storm costs would be classified as incremental ice storm expenses that can be offset against the TCA, and any excess of ice storm costs over the amount available in the TCA will be deferred for recovery over 30 years. The actual amount available in the TCA will not be known until the 2001 earnings review is complete. Of the remaining ice storm costs, $32.2 million will be addressed through established ratemaking procedures, including $22.2 million classified as capital additions. $3.8 million of the ice storm costs will not be recovered through rates. Grand Gulf Accelerated Recovery Tariff In April 1998, FERC approved the Grand Gulf Accelerated Recovery Tariff (GGART). The GGART was designed to allow Entergy Arkansas to pay down a portion of its Grand Gulf purchased power obligation in advance of the implementation of retail open access in Arkansas. The GGART provided for the acceleration of $165 million of this obligation over the period January 1, 1999 through June 30, 2004. In April 2001, FERC approved Entergy Arkansas' filing that requested cessation of the GGART effective July 1, 2001. Entergy Arkansas made the filing pursuant to the terms of a December 2000 settlement agreement with the APSC. Fuel Cost Recovery In March 2001, Entergy Arkansas filed its annually redetermined energy cost rate with the APSC in accordance with the energy cost recovery rider formula and special circumstances agreement, including a new energy allocation factor. The filing reflected that an increase was warranted due to an increase in fuel and purchased power costs in 2000 and the accumulated under-recovery of 2000 energy costs. The increased energy cost rate is effective April 2001 through March 2002. Decommissioning Cost Recovery The APSC ordered Entergy Arkansas to cease collection of funds to decommission ANO 1 and 2 for the calendar year 2001, and approved the continued cessation of collection of funds during 2002. The APSC based its decision on the anticipated approval of Entergy's application with the NRC to extend the license of ANO 1 by 20 years, and the conclusion that the funds previously collected will be sufficient to decommission the units. This decision will be reviewed annually and reflected in Entergy Arkansas' filing of its annual determination of the nuclear decommissioning rate rider. Filings with the PUCT and Texas Cities Rate Proceedings (Entergy Corporation and Entergy Gulf States) In June 1999, the PUCT approved a settlement agreement that Entergy Gulf States entered into in February 1999. The settlement agreement resolved Entergy Gulf States' 1996 and 1998 rate proceedings and all of the settling parties' pending appeals in other matters, except for the appeal in the River Bend abeyed cost recovery proceeding discussed below. The Office of Public Utility Counsel, an intervenor in the proceeding, has appealed certain aspects of this settlement to Travis County District Court. Entergy Gulf States cannot predict the outcome of the appeal. The settlement agreement provides for the following: o an annual $4.2 million base rate reduction, effective March 1, 1999, which is in addition to the annual $69 million base rate reduction (net of River Bend accounting order deferrals) in the PUCT's second order on rehearing in October 1998; o a methodology for semi-annual revisions of the fixed fuel factor through December 2001 based on the market price of natural gas, which has been extended until the start of retail open access; o a base rate freeze through June 1, 2000. The Texas restructuring law extends the base rate freeze through December 2001. The freeze is still in effect in 2002 pursuant to the settlement that delayed the start of retail open access in Entergy Gulf States' service territory; o amortization of the remaining River Bend accounting order deferrals as of January 1, 1999, over three years on a straight-line basis, and the accounting order deferrals will not be recognized in any subsequent base rate case or stranded cost calculation; o the dismissal of all pending appeals of the settling parties relating to Entergy Gulf States' proceedings with the PUCT, except the River Bend abeyed plant costs appeal discussed below; and o the potential recovery in the River Bend abeyed plant costs appeal is limited to $115 million net plant in service as of January 1, 2002, less depreciation over the remaining life of the plant beginning January 1, 2002 through the date the plant costs are included in rate base (see "Recovery of River Bend Costs" in this note for further discussion). As a result of the settlement agreement, in June 1999, Entergy Gulf States removed the $93.9 million provision recorded in 1998 for the amortization of River Bend accounting order deferrals to reflect the three-year amortization schedule detailed in the agreement. The income impact of this removal was largely offset by an increase in the rate of amortization of the accounting order deferrals. Recovery of River Bend Costs (Entergy Corporation and Entergy Gulf States) In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs which have been held in abeyance since 1988. Entergy Gulf States appealed the PUCT's decision on this matter to the Travis County District Court in Texas. In June 1999, subsequent to the settlement agreement discussed above, Entergy Gulf States removed the reserve for River Bend plant costs held in abeyance and reduced the value of the plant asset. The settlement agreement limits potential recovery of the remaining plant asset, less depreciation, to $115 million as of January 1, 2002. In a settlement in its transition to competition proceedings, and consistent with the June 1999 settlement, Entergy Gulf States agreed not to prosecute its appeal until January 1, 2002. Entergy Gulf States is now prosecuting its appeal, and the argument on the appeal is scheduled for March 22, 2002. Entergy Gulf States also agreed that it will not seek recovery of the abeyed plant costs through any additional charge to Texas ratepayers. The financial statement impact of the retail rate settlement agreement on the abeyed plant costs will ultimately depend on several factors, including the possible discontinuance of SFAS 71 accounting treatment to the Texas generation business, the determination of the market value of generation assets, and any future legislation in Texas addressing the pass-through or sharing of any stranded benefits with Texas ratepayers. No assurance can be given that additional reserves or write-offs will not be required in the future. PUCT Fuel Cost Review (Entergy Corporation and Entergy Gulf States) As determined in the June 1999 retail rate settlement agreement discussed above, Entergy Gulf States adopted a methodology for calculating its fixed fuel factor based on the market price of natural gas. This calculation and any necessary adjustments occur semi- annually. The settlement that delayed implementation of retail open access in Texas for Entergy Gulf States provides that Entergy Gulf States will continue the use of this methodology until retail open access begins. The amounts collected under Entergy Gulf States' fixed fuel factor until the date retail open access commences are subject to fuel reconciliation proceedings before the PUCT. In September 1998, Entergy Gulf States filed an application with the PUCT for an increase in its fixed fuel factor and for a surcharge to Texas retail customers for the cumulative under-recovery of fuel and purchased power costs. The PUCT issued an order in December 1998 approving the implementation of a revised fuel factor and fuel and purchased power surcharge that would result in recovery of $112.1 million of under-recovered fuel costs, inclusive of interest, over a 24- month period. These increases were implemented in the first billing cycle in February 1999. North Star Steel Texas, Inc. has appealed the PUCT's order to the State District Court in Travis County, Texas. Entergy Gulf States cannot predict the outcome of this appeal. Entergy Gulf States filed a fuel reconciliation case in July 1999 reconciling approximately $731 million (after excluding approximately $14 million related to Cajun issues to be handled in a subsequent proceeding) of fuel and purchased power costs incurred from July 1996 through February 1999. In February 2000, Entergy Gulf States reached a settlement with all but one of the parties to the proceeding. The settlement reduced Entergy Gulf States' requested surcharge in the reconciliation filing from $14.7 million to $2.2 million. In April 2000, the PUCT approved this settlement allowing Entergy Gulf States to recover the $2.2 million surcharge beginning with the April 2000 billing cycle and continuing until January 2001. In January 2001, Entergy Gulf States filed a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States is reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested a surcharge to collect $28 million, plus interest, of under- recovered fuel and purchased power costs. A hearing on the merits concluded in August 2001 and the ALJ has recommended that the surcharge be reduced to $7 million. The PUCT considered the ALJ's recommendation in February 2002, but did not reach a final decision. The PUCT recommended certain issues for further consideration by the State Office of Administrative Hearings. No assurance can be given as to the outcome of this proceeding. In November 2001, Entergy Gulf States filed an application with the PUCT requesting an interim surcharge to collect $71 million, plus interest, of under-recovered fuel and purchased power expenses incurred from September 2000 through September 2001. Entergy Gulf States made the application pursuant to one of the terms of the settlement agreement that delayed implementation of retail open access in Texas for Entergy Gulf States. In February 2002, Entergy Gulf States revised its request to collect $40.9 million, plus interest, of under-recovered fuel and purchased power expenses incurred from September 2000 through January 2002. Entergy Gulf States requests that the surcharge begin in March 2002 and extend through August 2002. The ALJ has recommended that the PUCT approve Entergy Gulf States' request. No assurance can be given as to the outcome of this request before the PUCT. Filings with the LPSC Annual Earnings Reviews (Entergy Corporation and Entergy Gulf States) In June 2000, the LPSC approved a settlement between Entergy Gulf States and the LPSC staff to refund $83 million, including interest, resolving refund issues in Entergy Gulf States' second, third, fourth, and fifth post-merger earnings reviews filed with the LPSC in May 1995, 1996, 1997, and 1998, respectively. The refund was made over a three- month period beginning July 2000. Although refund issues in the third, fourth, and fifth post-merger earnings reviews were resolved by the June 2000 settlement, certain prospective issues remained in dispute following the settlement. The fourth earnings review is currently on appeal at the Nineteenth Judicial District Court. A decision from the LPSC in the fifth earnings review is expected in the second quarter of 2002. In June 2001, the LPSC approved a settlement between Entergy Gulf States and the LPSC staff to refund $25.9 million, including interest, resolving issues in Entergy Gulf States' third, sixth, and seventh post- merger earnings reviews filed with the LPSC in May 1996, 1999, and 2000, respectively. The refund was made over a three-month period beginning July 2001. The settlement resolved the prospective return on common equity issue on remand from the Louisiana Supreme Court in the third earnings review. Refund issues from the sixth and seventh earnings reviews were also resolved; however, certain prospective issues remain in dispute. The LPSC approved an 11.1% return on common equity through June 2003, which Entergy Gulf States was allowed to include in its eighth post-merger earnings analysis discussed below. In May 2001, Entergy Gulf States filed its eighth required post- merger earnings analysis with the LPSC. This filing is subject to review by the LPSC and may result in a change in rates. In February 2002, the LPSC staff filed testimony recommending a $16.4 million rate refund and a $39.8 million prospective rate reduction. The prospective reduction includes a recommended reduction in return on equity that would not take effect until June 2003. A procedural schedule has been established by the LPSC and a hearing is scheduled for April 2002. Formula Rate Plan Filings (Entergy Corporation and Entergy Louisiana) In May 1997, Entergy Louisiana made its second annual performance- based formula rate plan filing with the LPSC for the 1996 test year. This filing resulted in a total rate reduction of approximately $54.5 million, which was implemented in July 1997. At the same time, rates were reduced by an additional $0.7 million and by an additional $2.9 million effective March 1998. Upon completion of the hearing process in December 1998, the LPSC issued an order requiring an additional rate reduction and refund, although the resulting amounts were not quantified. Entergy Louisiana has appealed this order and obtained a preliminary injunction pending a final decision on appeal. This appeal is pending before the Louisiana Supreme Court. In April 1999, Entergy Louisiana submitted its fourth annual performance-based formula rate plan filing for the 1998 test year. A rate reduction of $15.0 million was implemented effective August 1, 1999. In May 2000, the LPSC ordered a $6.4 million refund. This refund was made in July 2000. In May 2000, Entergy Louisiana submitted its fifth annual performance-based formula rate plan filing for the 1999 test year. As a result of this filing, Entergy Louisiana implemented a $24.8 million base rate reduction in August 2000. In September 2001, the LPSC approved a settlement in which Entergy Louisiana agreed to increase to $28.2 million the total base rate reduction, effective August 2000. The settlement resolves all issues in the proceeding except for Entergy Louisiana's claim for an increase in its allowed return on common equity from 10.5% to 11.6%. A procedural schedule to address the return on common equity issue has been established and a hearing will be held in March 2002. In April 2001, Entergy Louisiana submitted its sixth annual performance-based formula rate plan filing, which used a 2000 test year. The filing indicated that an immaterial base rate reduction might be appropriate. This filing is subject to review by the LPSC. A procedural schedule has been established and a hearing is scheduled in the second quarter of 2002. Fuel Adjustment Clause Litigation (Entergy Corporation and Entergy Louisiana) In May 1998, a group of ratepayers filed a complaint against Entergy Corporation, Entergy Power, and Entergy Louisiana in state court in Orleans Parish purportedly on behalf of all Entergy Louisiana ratepayers. The plaintiffs sought treble damages for alleged injuries arising from alleged violations by the defendants of Louisiana's antitrust laws in connection with the costs included in fuel filings with the LPSC and passed through to ratepayers. Plaintiffs also requested that the LPSC initiate a review of Entergy Louisiana's monthly fuel adjustment charge filings and force restitution to ratepayers of all costs that the plaintiffs allege were improperly included in those fuel adjustment filings. Entergy Louisiana agreed to settle both of these proceedings. The LPSC approved the settlement agreement following a fairness hearing before an ALJ in November 2000. The state court certified the plaintiff class and approved the settlement after a fairness hearing in April 2001. Under the terms of the settlement agreement, Entergy Louisiana agreed to refund to customers approximately $72 million to resolve all claims arising out of or relating to Entergy Louisiana's fuel adjustment clause filings from January 1, 1975 through December 31, 1999, except with respect to purchased power and associated costs included in the fuel adjustment clause filings for the period May 1 through September 30, 1999. Entergy Louisiana previously recorded provisions for the refund, which Entergy Louisiana made through the fuel adjustment clause over a three-month period beginning in July 2001. Also under the terms of the settlement, Entergy Louisiana consented to future fuel cost recovery under a long-term gas contract based on a formula that will likely result in an under-recovery of actual costs for the remainder of the contract's term, which runs through 2013. The future under-recovery cannot be precisely estimated because it will depend upon factors that are not certain, such as the price of gas and the amount of gas purchased under the long-term contract. In recent years, Entergy Louisiana has made purchases under that contract totaling from $91 million to $121 million annually. Had the settlement terms been applicable to such purchases, the under- recoveries would have ranged from $4 million to $9 million per year. Filings with the MPSC Formula Rate Plan Filings (Entergy Corporation and Entergy Mississippi) In March 2001, Entergy Mississippi submitted its annual performance-based formula rate plan filing for the 2000 test year. The submittal indicated that a $6.7 million rate increase was appropriate under the formula rate plan. In April 2001, the MPSC staff and Entergy Mississippi entered into a stipulation that provides for an increase of $5.6 million, which was approved by the MPSC and was effective May 2001. In March 1999, Entergy Mississippi submitted its annual performance-based formula rate plan filing for the 1998 test year. In April 1999, the MPSC approved a prospective rate reduction of $13.3 million, effective May 1999. In June 1999, Entergy Mississippi revised its March 1999 filing to include a portion of refinanced long-term debt not included in the original filing. This revision resulted in an additional rate reduction of approximately $1.5 million, effective July 1999. MPSC Fuel Cost Review (Entergy Corporation and Entergy Mississippi) In December 2000, the MPSC approved an increase in Entergy Mississippi's energy cost recovery rider to collect the under-recovered fuel and purchased power costs incurred as of September 30, 2000. The recovery of $136.7 million, plus carrying charges, is occurring over a 24-month period which began with the first billing cycle of January 2001. As approved by the MPSC, Entergy Mississippi also began making quarterly energy cost recovery filings beginning in January 2001 to reflect under-recovered fuel and purchased power costs from the second prior calendar quarter. Grand Gulf Accelerated Recovery Tariff (GGART) (Entergy Corporation and Entergy Mississippi) In September 1998, FERC approved the GGART for Entergy Mississippi's allocable portion of Grand Gulf, which was filed with FERC in August 1998. The GGART provides for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligation in an amount totaling $221.3 million over the period October 1, 1998 through June 30, 2004. Filings with the Council Rate Proceedings (Entergy Corporation and Entergy New Orleans) Entergy New Orleans operates currently under the terms of a settlement agreement approved by the Council in November 1998. The settlement agreement required base rate reductions for electric customers of $7.1 million effective January 1, 1999, $3.2 million effective October 1, 1999, $16.1 million effective October 1, 2000, and no base rate increases prior to October 1, 2001. In June 2001, Entergy New Orleans filed with the Council for changes in gas and electric rates based on a test year ending December 31, 2000. The filing indicated that an increase of $12.7 million in gas rates and an increase of $12.5 million in electric rates might be appropriate. Proceedings on Entergy New Orleans' filing have been deferred until June 2002. Entergy New Orleans' rate decrease that would have occurred in October 2001 upon completion of its Grand Gulf 1 phase-in plan has also been deferred. As a result of the deferral of the proceedings, Entergy New Orleans' rates will remain at their current level at this time. Natural Gas (Entergy Corporation and Entergy New Orleans) In a resolution adopted in August 2001, the Council ordered Entergy New Orleans to account for $36 million of certain natural gas costs charged to its gas distribution customers from July 1997 through May 2001. The resolution suggests that refunds may be due to the gas distribution customers if Entergy New Orleans cannot account satisfactorily for these costs. Entergy New Orleans filed a response to the Council in September 2001. Entergy New Orleans has documented a full reconciliation for the natural gas costs during that period. The ultimate outcome of the proceeding cannot be predicted at this time. Fuel Adjustment Clause Litigation (Entergy Corporation and Entergy New Orleans) In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also seek to recover interest and attorneys' fees. Exceptions to the plaintiffs' allegations were filed by Entergy, asserting, among other things, that jurisdiction over these issues rests with the Council and FERC. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. At present, the suit in state court is stayed by stipulation of the parties. Plaintiffs also filed this complaint with the Council in order to initiate a review by the Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding in April 2000 and has been supplemented. The testimony, as supplemented, asserts, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in New Orleans customers being overcharged by more than $100 million over a period of years. In June 2001, the Council's advisors filed testimony on these issues in which they allege that Entergy New Orleans ratepayers may have been overcharged by more than $32 million, the vast majority of which is reflected in the plaintiffs' claim. However, it is not clear precisely what periods and damages are being alleged in the proceeding. Entergy intends to defend this matter vigorously, both in court and before the Council. Hearings began in February 2002. The ultimate outcome of the lawsuit and the Council proceeding cannot be predicted at this time. Purchased Power for Summer 2000, 2001, and 2002 (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) The domestic utility companies filed applications with the APSC, the LPSC, the MPSC, and the Council to approve the sale of power by Entergy Gulf States from its unregulated, undivided 30% interest in River Bend formerly owned by Cajun to the other domestic utility companies during the summer of 2000. These applications were approved subject to subsequent prudence reviews. In addition, Entergy Gulf States and Entergy Louisiana filed an application with the LPSC for authorization to purchase capacity and electric power from third parties for the summer of 2000, and filed a similar application for the summer of 2001. The LPSC approved these applications, with reservations of its rights to review the prudence of the purchases and the appropriate categorization of the costs as either capacity or energy charges for purposes of recovery. A similar application was filed with the LPSC on March 1, 2002 for the summer of 2002, but no action yet has been taken by the LPSC on that filing. The LPSC reviewed the 2000 purchases and found that Entergy Louisiana's and Entergy Gulf States' costs were prudently incurred, but decided that approximately 34% of the costs should be categorized as capacity charges, and therefore should be recovered through base rates and not through the fuel adjustment clause. In November 2000, the LPSC ordered refunds of $11.1 million for Entergy Louisiana and $3.6 million for Entergy Gulf States, for which adequate provisions have been made. In May 2001, the LPSC determined that 24% of Entergy Louisiana's and Entergy Gulf States' costs relating to summer 2001 purchases should be categorized as capacity charges, and is still reviewing certain prudence issues related to the 2001 purchases. Those costs that are categorized as capacity charges will be included in the costs of service used to determine the base rates of Entergy Louisiana and Entergy Gulf States. In 2001, these companies recorded a regulatory asset for the capacity charges incurred in both 2000 and 2001. The capacity charges for 2000 are being amortized through May 2002 for Entergy Gulf States and through July 2002 for Entergy Louisiana. The capacity charges for 2001 will be amortized over a twelve-month period beginning in June 2002 for Entergy Gulf States and August 2002 for Entergy Louisiana. River Bend Cost Deferrals (Entergy Corporation and Entergy Gulf States) Entergy Gulf States was amortizing $182 million of River Bend operating and purchased power costs, depreciation, and accrued carrying charges over a 20-year period. In accordance with the June 1999 Texas settlement agreement discussed above, Entergy Gulf States reduced these deferred costs by $93.9 million, for which adequate reserves had been recorded. Entergy Gulf States also was allowed to amortize the remainder of the accelerated balance as of January 1, 1999, over three years on a straight-line basis, which ended December 31, 2001. Grand Gulf 1 Deferrals and Retained Shares (Entergy Corporation and Entergy Arkansas) Under the settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its 36% share of Grand Gulf 1-related costs and recovers the remaining 78% of its share in rates. In the event that Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas' cost from its retained share. (Entergy Corporation and Entergy Louisiana) In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana's share of capacity and energy from Grand Gulf 1, subject to certain terms and conditions. Entergy Louisiana retains and does not recover from retail ratepayers, 18% of its 14% share of the costs of Grand Gulf 1 capacity and energy and recovers the remaining 82% of its share in rates. Entergy Louisiana is allowed to recover through the fuel adjustment clause 4.6 cents per KWH for the energy related to its retained portion of these costs. Non- fuel operation and maintenance costs for Grand Gulf 1 are recovered through Entergy Louisiana's base rates. Alternatively, Entergy Louisiana may sell such energy to non-affiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC's approval. (Entergy Corporation and Entergy New Orleans) Under various rate settlements with the Council in 1986, 1988, and 1991, Entergy New Orleans agreed to absorb and not recover from ratepayers a total of $96.2 million of its Grand Gulf 1 costs. Entergy New Orleans was permitted to implement annual rate increases in decreasing amounts each year through 1995, and to defer certain costs and related carrying charges for recovery on a schedule extending from 1991 through 2001. As of December 31, 2001, the entire deferred amount has been recovered through rates. System Energy's 1995 Rate Proceeding (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) System Energy applied to FERC in May 1995 for a rate increase, and implemented the increase in December 1995. The request sought changes to System Energy's rate schedule, including increases in the revenue requirement associated with decommissioning costs, the depreciation rate, and the rate of return on common equity. The request also included a proposed change in the accounting recognition of nuclear refueling outage costs from that of expensing those costs as incurred to the deferral and amortization method described in Note 1 to the financial statements. After holding hearings in 1996, a FERC ALJ found that portions of System Energy's request should be rejected, including a proposed increase in return on common equity from 11% to 13% and a requested change in decommissioning cost methodology. The ALJ recommended a decrease in the return on common equity from 11% to 10.8%. Other portions of System Energy's request for a rate increase were approved by the ALJ. After a hearing, FERC issued an order in the proceeding in July 2000. FERC affirmed the ALJ's adoption of a 10.8% return on equity, but modified the return to reflect changes in capital market conditions since the ALJ's decision. FERC adjusted the rate of return to 10.58% for the period December 1995 to the date of FERC's decision, and prospectively adjusted the rate of return to 10.94% from the date of FERC's decision. FERC's decision also changed other aspects of System Energy's proposed rate schedule, including the depreciation rate and decommissioning costs and their methodology. In July 2001, FERC denied requests for rehearing and the July 2000 order became final. System Energy made a compliance tariff filing in August 2001 and it was accepted by FERC in November 2001. System Energy made refunds to the domestic utility companies in December 2001. In accordance with regulatory accounting principles, during the pendency of the case, System Energy recorded reserves for potential refunds against its revenues. Upon the order becoming final, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy recorded entries to spread the impacts of FERC's order to the various revenue, expense, asset, and liability accounts affected, as if the order had been in place since commencement of the case in 1995. System Energy also recorded an additional reserve amount against its revenue, to adjust its estimate of the impact of the order, and recorded additional interest expense on that reserve. System Energy also recorded reductions in its depreciation and its decommissioning expenses to reflect the lower levels in FERC's order, and reduced tax expense affected by the order. In December 2001, Entergy Arkansas filed with the APSC the amount of the refund to retail customers in Arkansas. The total refund of $53.7 million, including interest, is expected to be refunded through the issuance of refund checks in March 2002 after approval by the APSC of the refund rates. Entergy Mississippi's allocation of the proposed System Energy wholesale rate increase was $21.6 million annually. In July 1995, Entergy Mississippi filed a schedule with the MPSC that deferred the retail recovery of the System Energy rate increase. The deferral plan, which was approved by the MPSC, began in December 1995, the effective date of the System Energy rate increase, and was effective until the issuance of the final order by FERC. Entergy Mississippi revised the deferral plan two times during the pendency of the System Energy proceeding. As a result of the final resolution of the FERC order and in accordance with Entergy Mississippi's second revised deferral plan, refunds to Entergy Mississippi from System Energy, including interest, have been credited against deferral balances and refund amounts in excess of the deferral balances are being included as a credit to the amounts billed to Entergy Mississippi's customers in October 2001 through September 2002 under its Grand Gulf Riders. Entergy New Orleans' allocation of the proposed System Energy wholesale rate increase was $11.1 million annually. In February 1996, Entergy New Orleans filed a plan with the Council to defer 50% of the amount of the System Energy rate increase. In December 2001, the Council approved a refund to customers. The total amount of the refund to Entergy New Orleans' customers is $43 million. In anticipation of the FERC order, Entergy New Orleans advanced the refunding of $10 million in February 2001 to customers to assist with unexpected high energy bills. The total refund will also be reduced by an additional $6 million which will be used for the establishment of a public benefits and payments assistance program. The remaining $27 million was refunded through the issuance of refund checks during the first quarter of 2002. FERC Settlement (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) In November 1994, FERC approved an agreement settling a long- standing dispute involving income tax allocation procedures of System Energy. In accordance with the agreement, System Energy has been refunding a total of approximately $62 million, plus interest, to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans through June 2004. System Energy also reclassified from utility plant to other deferred debits approximately $81 million of other Grand Gulf 1 costs. Although such costs are excluded from rate base, System Energy is amortizing and recovering these costs over a 10- year period. Interest on the $62 million refund and the loss of the return on the $81 million of other Grand Gulf 1 costs is reducing Entergy's and System Energy's net income by approximately $10 million annually. NOTE 3. INCOME TAXES Income tax expenses for 2001, 2000, and 1999 consist of the following (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Current: Federal $321,085 $83,314 $60,333 $97,265 $77,074 $16,844 ($56,166) Foreign 3,355 - - - - - - State 53,565 16,230 17,385 16,404 11,523 2,958 (6,837) ----------------------------------------------------------------------- Total 378,005 99,544 77,718 113,669 88,597 19,802 (63,003) Deferred -- net 110,944 11,414 11,554 (21,931) (66,633) (23,691) 110,240 Investment tax credit adjustments - net (23,192) (5,025) (7,234) (5,451) (1,500) (507) (3,476) ----------------------------------------------------------------------- Recorded income tax expense $465,757 $105,933 $82,038 $86,287 $20,464 ($4,396) $43,761 ======================================================================= 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans Current: Federal $291,616 $51,042 $42,587 $83,369 ($24,598) $10,530 $132,725 Foreign 11,555 - - - - - - State 51,293 9,694 6,737 12,926 (3,615) 1,706 19,750 ----------------------------------------------------------------------- Total 354,464 60,736 49,324 96,295 (28,213) 12,236 152,475 Deferred -- net 150,018 46,365 61,779 22,111 52,581 (129) (67,509) Investment tax credit adjustments - net (25,561) (6,589) (7,500) (5,761) (1,500) (510) (3,703) ----------------------------------------------------------------------- Recorded income tax expense $478,921 100,512 $103,603 $112,645 $22,868 $11,597 $81,263 ======================================================================= </TABLE> <TABLE> <CAPTION> 1999 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf Louisiana New Energy States Mississippi Orleans <S> <C> <C> <C> <C> <C> <C> <C> Current: Federal $452,568 $25,811 $64,991 $115,180 ($660) $13,238 $121,733 Foreign 27,730 - - - - - - State 65,834 5,780 11,669 22,675 131 2,923 18,979 ----------------------------------------------------------------------- Total 546,132 31,591 76,660 137,855 (529) 16,161 140,712 Deferred -- net (153,304) 26,335 13,513 (9,953) 19,566 (2,615) (77,173) Investment tax credit adjustments - net (36,161) (3,914) (15,008) (5,534) (1,500) (516) (9,688) ----------------------------------------------------------------------- Recorded income tax expense $356,667 $54,012 $75,165 $122,368 $17,537 $13,030 $53,851 ======================================================================= </TABLE> Total income taxes differ from the amounts computed by applying the statutory income tax rate to income before taxes. The reasons for the differences for the years 2001, 2000, and 1999 are (in thousands): <TABLE> <CAPTION> Entergy Entergy Entergy Entergy Entergy System 2001 Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Computed at statutory rate (35%) $425,692 $99,441 $91,520 $76,594 $21,029 ($2,307) $56,041 Increases (reductions) in tax resulting from: State income taxes net of federal income tax effect 45,124 12,098 7,897 10,160 1,935 (292) 5,803 Depreciation 11,890 4,136 1,504 10,542 (1,091) 17 (3,218) Amortization of investment tax credits (22,488) (5,028) (6,528) (5,448) (1,500) (504) (3,480) Flow-through/permanent Differences (20,698) (5,582) (11,318) (1,620) (856) (702) (620) US tax on foreign income 21,422 - - - - - - Benefit of Entergy Corp. expenses - - (1,510) (4,647) - (746) (10,697) Other - net 4,815 868 473 706 947 138 (68) ---------------------------------------------------------------------- Total income taxes $465,757 $105,933 $82,038 $86,287 $20,464 ($4,396) $43,761 ====================================================================== Effective Income Tax Rate 38.3% 37.3% 31.4% 39.4% 34.1% 66.7% 27.3% </TABLE> <TABLE> <CAPTION> Entergy Entergy Entergy Entergy Entergy System 2000 Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Computed at statutory rate (35%) $416,443 $83,147 $99,380 $96,363 $21,644 $9,840 $61,253 Increases (reductions) in tax resulting from: State income taxes net of federal income tax effect 47,504 11,571 14,421 11,389 2,239 824 7,060 Depreciation 49,741 16,098 4,791 10,810 1,346 1,441 15,255 Amortization of investment tax credits (23,783) (5,112) (7,664) (5,520) (1,500) (507) (3,480) Flow-through/permanent Differences (18,495) (5,596) (10,032) (1,623) (825) (401) (18) US tax on foreign income 1,472 - - - - - - Other - net 6,039 404 2,707 1,226 (36) 400 1,193 ---------------------------------------------------------------------- Total income taxes $478,921 $100,512 $103,603 $112,645 $22,868 $11,597 $81,263 ====================================================================== Effective Income Tax Rate 40.3% 42.3% 36.5% 40.9% 37.0% 41.2% 46.4% </TABLE> <TABLE> <CAPTION> Entergy Entergy Entergy Entergy Entergy System 1999 Entergy Arkansas Gulf Louisiana Mississippi New Energy States Orleans <S> <C> <C> <C> <C> <C> <C> <C> Computed at statutory rate (35%) $333,093 $43,164 $70,058 $109,948 $20,693 $11,196 $47,678 Increases (reductions) in tax resulting from: State income taxes net of federal income tax effect 49,487 6,949 18,805 13,741 1,982 1,930 6,080 Depreciation 49,460 18,429 4,718 9,577 (1,093) 2,232 15,597 Amortization of investment tax credits (29,015) (5,132) (6,642) (5,532) (1,500) (518) (9,691) Flow-through/permanent Differences (8,042) (5,250) (2,795) (1,191) (284) (272) 27 US tax benefit on foreign income (9,584) - - - - - - Benefit of Entergy Corporation expenses - (3,341) (4,046) (4,053) (1,936) (754) (4,552) Change in valuation allowance (46,315) - - - - - - Other - net 17,583 (807) (4,933) (122) (325) (784) (1,288) ---------------------------------------------------------------------- Total income taxes $356,667 $54,012 $75,165 $122,368 $17,537 $13,030 $53,851 ====================================================================== Effective Income Tax Rate 37.5% 43.8% 37.6% 39.0% 29.7% 40.7% 39.5% </TABLE> Significant components of net deferred tax liabilities as of December 31, 2001 and 2000 are as follows (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Deferred Tax Liabilities: Net regulatory assets/(liabilities) ($1,195,100) ($196,800) ($469,073) ($222,443) ($29,237) $17,806 ($274,899) Plant-related basis differences (3,189,015) (608,488) (1,025,047) (741,553) (276,098) (68,765) (391,391) Storm Damage (65,744) (65,744) - - - - - Nuclear Decommissioning (163,869) - (638) - - - (5,047) Other (97,373) (62,630) (13,478) (25,733) (1,531) (3,938) (9,952) ----------------------------------------------------------------------------------------- Total (4,711,101) (933,662) (1,508,236) (989,729) (306,866) (54,897) (681,289) ----------------------------------------------------------------------------------------- Deferred Tax Assets: Accumulated deferred investment tax credit 160,003 32,655 42,450 43,075 6,850 2,063 32,910 Capital loss carryforwards 55,845 - - - - - - Foreign tax credits 73,741 - - - - - - Sale and leaseback 230,157 - - 99,353 - - 130,804 Removal cost 103,338 802 26,877 64,809 (912) 11,762 - Unbilled/Deferred revenues 64,178 - 11,689 - 6,767 - - Pension-related items 113,133 - 5,558 5,529 (4,542) 6,857 3,429 Rate refund 12,477 - 14,545 (4,060) - 1,992 - Reserve for regulatory adjustments 109,370 - 109,370 - - - - Transition cost accrual 55,919 55,919 - - - - - Customer Deposits 77,321 26,664 11,842 25,731 12,928 156 - Nuclear Decommissioning 15,599 12,766 - 2,833 - - - Other 169,855 17,812 37,409 18,415 - 11,623 13,382 Valuation allowance (98,011) - - - - - - ----------------------------------------------------------------------------------------- Total 1,142,925 146,618 259,740 255,685 21,091 34,453 180,525 ----------------------------------------------------------------------------------------- Net deferred tax liability ($3,568,176) ($787,044) ($1,248,496) ($734,044) ($285,775) ($20,444) ($500,764) ========================================================================================== </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Deferred Tax Liabilities: Net regulatory assets/(liabilities) ($1,193,795) ($197,577) ($448,460) ($249,983) ($32,968) $9,755 ($274,562) Plant-related basis differences (3,067,528) (536,985) (1,034,502) (746,274) (223,369) (65,066) (413,200) Rate deferrals (159,148) (17,554) (1,594) - (111,045) (28,955) - Storm Damage (31,424) (31,424) - - - - - Nuclear Decommissioning (19,157) - (509) - - - (5,204) Other (185,640) (101,186) (9,462) (60,390) (4,051) (2,682) (11,815) ----------------------------------------------------------------------------------------- Total (4,656,692) (884,726) (1,494,527) (1,056,647) (371,433) (86,948) (704,781) ----------------------------------------------------------------------------------------- Deferred Tax Assets: Accumulated deferred investment tax credit 168,841 34,626 44,526 45,173 7,424 2,852 34,240 Capital loss carryforwards 39,091 - - - - - - Foreign tax credits 98,468 - - - - - - Sale and leaseback 229,169 - - 103,200 - - 125,969 Removal cost 105,842 872 27,101 65,690 203 11,976 - Unbilled/Deferred revenues 25,790 - 13,143 - 4,845 7,802 - Pension-related items 56,860 - 7,874 7,889 (2,335) 6,217 2,926 Rate refund 152,407 - 25,607 35,803 - - 123,306 Reserve for regulatory adjustments 117,437 - 117,437 - - - - Transition cost accrual 43,568 43,568 - - - - - Customer Deposits 30,747 7,266 - 16,092 7,267 122 - Nuclear Decommissioning 15,354 12,521 - 2,833 - - - Other 191,799 14,855 49,688 2,060 - 7,682 25,187 Valuation allowance (93,413) - - - - - - ----------------------------------------------------------------------------------------- Total 1,181,960 113,708 285,376 278,740 17,404 36,651 311,628 ----------------------------------------------------------------------------------------- Net deferred tax liability ($3,474,732) ($771,018) ($1,209,151) ($777,907) ($354,029) ($50,297) ($393,153) ========================================================================================== </TABLE> The valuation allowance is provided primarily against foreign tax credit carryforwards, which can be utilized against future United States taxes on foreign source income. If these carryforwards are not utilized, they will expire between 2002 and 2006. At December 31, 2001, unremitted earnings of foreign subsidiaries were approximately $60.3 million. Since it is Entergy's intention to indefinitely reinvest these earnings, no U.S. taxes have been provided. Upon distribution of these earnings in the form of dividends or otherwise, Entergy could be subject to U.S. income taxes (subject to foreign tax credits) and withholding taxes payable to various foreign countries. NOTE 4. LINES OF CREDIT AND RELATED SHORT-TERM BORROWINGS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) 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, Entergy companies 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 SEC-authorized limits and borrowings from the money pool for the domestic utility companies, System Energy, and other Entergy subsidiaries as of December 31, 2001 (there were no borrowings outstanding from external sources): Outstanding Authorized Borrowings (In Millions) Entergy Arkansas $235 $ - Entergy Gulf States 340 - Entergy Louisiana 225 - Entergy Mississippi 160 - Entergy New Orleans 100 - System Energy 140 - Other Entergy subsidiaries 420 93 ------ ---- Total $1,620 $ 93 ====== ==== In May 2001, Entergy Corporation amended its 364-day bank credit facility, increasing the capacity from $500 million to $1.275 billion. In July 2001, the borrowing capacity on the facility was increased to $1.325 billion, of which $300 million was outstanding as of December 31, 2001. In December 2001, Entergy Corporation obtained a new line of credit expiring May 16, 2002 with a capacity of $50 million, of which the entire $50 million was drawn as of December 31, 2001. The weighted- average interest rate on Entergy's outstanding borrowings under these facilities as of December 31, 2001 and 2000 was 3.2% and 7.43%, respectively. The commitment fee for this facility is currently 0.20% of the line amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior debt ratings of the domestic utility companies. There is further discussion of commitments for long-term financing arrangements in Note 7 to the financial statements. Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows: Expiration Amount of Amount Drawn as of Company Date Facility Dec. 31, 2001 Entergy Arkansas May 2002 $63 million - Entergy Louisiana January 2003 $15 million - Entergy Mississippi May 2002 $25 million - The facilities have variable interest rates and the average commitment fee is 0.13%. NOTE 5. PREFERRED, PREFERENCE, AND COMMON STOCK (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) Preferred Stock The number of shares authorized and outstanding, and dollar value of preferred stock for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans as of December 31, 2001, and 2000 were: <TABLE> <CAPTION> Shares Call Price Per Authorized Share as of and Outstanding December 31, 2001 2000 2001 2000 2001 (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Entergy Arkansas Preferred Stock Without sinking fund: Cumulative, $100 par value 4.32% Series 70,000 70,000 $ 7,000 $ 7,000 $103.65 4.72% Series 93,500 93,500 9,350 9,350 107.00 4.56% Series 75,000 75,000 7,500 7,500 102.83 4.56% 1965 Series 75,000 75,000 7,500 7,500 102.50 6.08% Series 100,000 100,000 10,000 10,000 102.83 7.32% Series 100,000 100,000 10,000 10,000 103.17 7.80% Series 150,000 150,000 15,000 15,000 103.25 7.40% Series 200,000 200,000 20,000 20,000 102.80 7.88% Series 150,000 150,000 15,000 15,000 103.00 Cumulative, $0.01 par value: $1.96 Series (a) 600,000 600,000 15,000 15,000 25.00 --------- --------- -------- -------- Total without sinking fund 1,613,500 1,613,500 $116,350 $116,350 ========= ========= ======== ======== </TABLE> <TABLE> <CAPTION> Shares Call Price Per Authorized Share as of and Outstanding December 31, 2001 2000 2001 2000 2001 (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Entergy Gulf States Preferred Stock Preferred Stock Authorized 6,000,000 shares, $100 par value, cumulative Without sinking fund: 4.40% Series 51,173 51,173 $ 5,117 $ 5,117 $108.00 4.50% Series 5,830 5,830 583 583 105.00 4.40%-1949 Series 1,655 1,655 166 166 103.00 4.20% Series 9,745 9,745 975 975 102.82 4.44% Series 14,804 14,804 1,480 1,480 103.75 5.00% Series 10,993 10,993 1,099 1,099 104.25 5.08% Series 26,845 26,845 2,685 2,685 104.63 4.52% Series 10,564 10,564 1,056 1,056 103.57 6.08% Series 32,829 32,829 3,283 3,283 103.34 7.56% Series 308,830 312,329 30,883 31,233 101.80 --------- --------- -------- -------- Total without sinking fund 473,268 476,767 $ 47,327 $ 47,677 ========= ========= ======== ======== With sinking fund: Adjustable Rate - A, 7.0%(b) 112,666 132,024 $ 11,267 $ 13,202 $100.00 Adjustable Rate - B, 7.0%(b) 149,182 175,562 14,918 17,556 100.00 --------- --------- -------- -------- Total with sinking fund 261,848 307,586 $ 26,185 $ 30,758 ========= ========= ======== ======== Fair Value of Preferred Stock with sinking fund (d) $ 26,160 $ 29,475 ======== ======== </TABLE> <TABLE> <CAPTION> Shares Call Price Per Authorized Share as of and Outstanding December 31, 2001 2000 2001 2000 2001 (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Entergy Louisiana Preferred Stock Without sinking fund: Cumulative, $100 par value 4.96% Series 60,000 60,000 $ 6,000 $ 6,000 $104.25 4.16% Series 70,000 70,000 7,000 7,000 104.21 4.44% Series 70,000 70,000 7,000 7,000 104.06 5.16% Series 75,000 75,000 7,500 7,500 104.18 5.40% Series 80,000 80,000 8,000 8,000 103.00 6.44% Series 80,000 80,000 8,000 8,000 102.92 7.84% Series 100,000 100,000 10,000 10,000 103.78 7.36% Series 100,000 100,000 10,000 10,000 103.36 Cumulative, $25 par value: 8.00% Series 1,480,000 1,480,000 37,000 37,000 25.00 --------- --------- -------- -------- Total without sinking fund 2,115,000 2,115,000 $100,500 $100,500 ========= ========= ======== ======== With sinking fund: 8.00% Series (c) - 350,000 $ - 35,000 - --------- --------- -------- -------- Total with sinking fund - 350,000 $ - $ 35,000 ========= ========= ======== ======== Fair Value of Preferred Stock with sinking fund (d) $ - $ 34,300 ======== ======== </TABLE> <TABLE> <CAPTION> Shares Call Price Per Authorized Share as of and Outstanding December 31, 2001 2000 2001 2000 2001 (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Entergy Mississippi Preferred Stock Without sinking fund: Cumulative, $100 par value 4.36% Series 59,920 59,920 $ 5,992 $ 5,992 $103.86 4.56% Series 43,887 43,887 4,389 4,389 107.00 4.92% Series 100,000 100,000 10,000 10,000 102.88 7.44% Series 100,000 100,000 10,000 10,000 102.81 8.36% Series 200,000 200,000 20,000 20,000 100.00 --------- --------- -------- -------- Total without sinking fund 503,807 503,807 $ 50,381 $ 50,381 ========= ========= ======== ======== </TABLE> <TABLE> <CAPTION> Shares Call Price Per Authorized Share as of and Outstanding December 31, 2001 2000 2001 2000 2001 (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Entergy New Orleans Preferred Stock Without sinking fund: Cumulative, $100 par value 4.75% Series 77,798 77,798 $ 7,780 $ 7,780 $105.00 4.36% Series 60,000 60,000 6,000 6,000 104.57 5.56% Series 60,000 60,000 6,000 6,000 102.59 --------- --------- -------- -------- Total without sinking fund 197,798 197,798 $ 19,780 $ 19,780 Entergy Corporation Subsidiaries' Preferred Stock: Without sinking fund: 4,903,373 4,906,872 $334,337 $334,688 ========= ========= ======== ======== With sinking fund: 261,848 657,586 $ 26,185 $ 65,758 ========= ========= ======== ======== Fair Value of Preferred Stock with sinking fund (d) $ 26,160 $ 63,775 ======== ======== </TABLE> (a) The total dollar value represents the liquidation value of $25 per share. (b) Represents weighted-average annualized rates for 2001. (c) This series was redeemed in August 2001. (d) Fair values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. There is additional disclosure of fair value of financial instruments in Note 15 to the financial statements. Changes in the preferred stock and preference stock of Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana during the last three years were: Number of Shares 2001 2000 1999 Preference stock retirements Entergy Gulf States - (6,000,000) - Preferred stock retirements Entergy Arkansas $100 par value - - (200,000) $25 par value - - (81,085) Entergy Gulf States $100 par value (49,237) (76,585) (258,471) Entergy Louisiana $100 par value (350,000) - (500,000) Entergy Gulf States has annual sinking fund requirements of $3.45 million through 2006 for its preferred stock outstanding. Entergy Gulf States has the annual non-cumulative option to redeem, at par, additional amounts of certain series of its outstanding preferred stock. Common Stock Entergy Corporation reissues treasury shares to meet the requirements of the Stock Plan for Outside Directors (Directors' Plan), the Equity Ownership Plan of Entergy Corporation and Subsidiaries (Equity Ownership Plan), the Equity Awards Plan, and certain other stock benefit plans. The Directors' Plan awards to non-employee directors a portion of their compensation in the form of a fixed number of shares of Entergy Corporation common stock. Treasury Cost Shares (In Thousands) Beginning Balance, January 1, 2001 28,490,031 $774,905 Repurchases 989,100 (36,895) Transfers 361,720 - Issuances: Equity Ownership/Equity Awards Plans 2,393,177 20,638 Directors' Plan 6,290 172 ---------- -------- Ending Balance, December 31, 2001 27,441,384 $758,820 ========== ======== Entergy Corporation may also issue newly registered shares to meet the requirements of these plans. Entergy Corporation received proceeds of $2.1 million from the issuance of 79,473 shares of common stock to satisfy stock option exercises during 2001. Entergy has two plans that grant stock options, equity awards, and incentive awards to key employees of the Entergy subsidiaries. The Equity Ownership Plan is a shareholder-approved stock-based compensation plan. The Equity Awards Plan is a non-shareholder, Board- approved stock-based compensation plan. The following table summarizes information about Entergy's stock options awarded under these plans. Securities Stock Other stock- remaining Current Options based plans under current Plan Authorization granted authorizations Equity Ownership Plan 15.0 million 3,563,793 123,714 11.3 million Equity Awards Plan 30.0 million 17,086,300 126,284 12.8 million Stock options are granted at exercise prices not less than market value on the date of grant. The majority of options granted in 2001, 2000, and 1999 will become exercisable in equal amounts on each of the first three anniversaries of the date of grant. Options are forfeited if they are not exercised within ten years from the date of the grant. Entergy does not recognize compensation expense for stock options granted with exercise prices at market value on the date of grant. The impact on Entergy's net income for each of the years 2001, 2000, and 1999 would have been reductions of $42.9 million, $19.0 million, and $15.5 million, respectively, had compensation cost for the stock options been recognized based on the fair value of options at the grant date for awards under the option plans. The impact on earnings per share for each of the years 2001, 2000, and 1999 would have been a reduction of $.19, $.08, and $.06, respectively. During 2001, Entergy began granting most of the equity awards and incentive awards earned under its stock benefit plans in the form of performance units, which are equal to the cash value of shares of Entergy Corporation common stock at the time of payment. In addition to the potential for equivalent share appreciation or depreciation, performance units will earn the cash equivalent of the dividends paid during the performance period applicable to each plan. The amount of performance units awarded will not reduce the amount of securities remaining under the current authorizations. The costs of equity and incentive awards, given either as company stock or performance units, are charged to income over the period of the grant or restricted period, as appropriate. In 2001 and 2000, $15 million and $14 million, respectively, were charged to compensation expense. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following stock option weighted-average assumptions: 2001 2000 1999 Stock price volatility 26.3% 24.4% 20.3% Expected term in years 5 5 5 Risk-free interest rate 4.9% 6.6% 4.7% Dividend yield 3.4% 5.2% 4.0% Dividend payment $1.26 $1.20 $1.20 Stock option transactions are summarized as follows: <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> 2001 2000 1999 ---------------------- ----------------------- -------------------- Average Average Average Number Option Number Option Number Option of Options Price of Options Price of Options Price Beginning-of-year balance 11,468,316 $ 25.52 5,493,882 $ 29.48 901,639 $ 26.21 Options granted 8,602,300 36.96 7,219,134 22.98 5,228,189 29.88 Options exercised (2,407,783) 25.85 (920,077) 28.26 (213,084) 23.69 Options forfeited (346,017) 30.35 (324,623) 28.29 (422,862) 30.38 ----------- ----------- ---------- End-of-year balance 17,316,816 $ 31.06 11,468,316 $ 25.52 5,493,882 $ 29.48 =========== =========== ========== Options exercisable at year-end 2,923,452 1,641,062 601,307 Weighted-average fair value of options at time of grant $ 8.14 $ 4.30 $ 4.72 </TABLE> The following table summarizes information about stock options outstanding as of December 31, 2001: <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> Options Outstanding Options Exercisable Weighted-Avg Range of Remaining Weighted- Number Weighted- Exercise As of Contractual Avg. Exercise Exercisable Avg. Exercise Prices 12/31/01 Life-Yrs. Price at 12/31/01 Price $18 - $30 8,532,058 8.2 $25.16 2,621,734 $ 26.62 $30 - $41 8,784,758 9.0 $ 36.80 301,718 $ 33.69 ---------- --------- $18 - $41 17,316,816 8.6 $ 31.06 2,923,452 $ 27.35 ========== ========= </TABLE> Near the end of January 2002, an additional 4,823,981 options became exercisable with a weighted-average exercise price of $30.84. Entergy sponsors the Savings Plan of Entergy Corporation and Subsidiaries (Savings Plan). The Savings Plan is a defined contribution plan covering eligible employees of Entergy and its subsidiaries. The Savings Plan provides that the employing Entergy subsidiary may: o make matching contributions to the plan in an amount equal to 75% of the participant's basic contribution, up to 6% of their salary, in shares of Entergy Corporation common stock if the employee directs their company-matching contribution to the purchase of Entergy Corporation's common stock; or o make matching contributions in the amount of 50% of the participant's basic contribution, up to 6% of their salary, if the employee directs their company-matching contribution to other investment funds. Entergy's subsidiaries contributed $25.4 million in 2001, $16.1 million in 2000, and $14.5 million in 1999 to the Savings Plan. NOTE 6. COMPANY-OBLIGATED REDEEMABLE PREFERRED SECURITIES (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana) Entergy Louisiana Capital I, Entergy Arkansas Capital I, and Entergy Gulf States Capital I (Trusts) were established as financing subsidiaries of Entergy Louisiana, Entergy Arkansas, and Entergy Gulf States, respectively, for the purpose of issuing common and preferred securities. The Trusts issue Cumulative Quarterly Income Preferred Securities (Preferred Securities) to the public and issue common securities to their parent companies. Proceeds from such issues are used to purchase junior subordinated deferrable interest debentures (Debentures) from the parent company. The Debentures held by each Trust are its only assets. Each Trust uses interest payments received on the Debentures owned by it to make cash distributions on the Preferred Securities. <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Fair Market Interest Trust's Value of Preferred Common Rate Investment Preferred Date Securities Securities Securities/ In Securities at Trusts Of Issue Issued Issued Debentures Debentures 12-31-01 (In Millions) (In Millions) Louisiana Capital I 7-16-96 $70.0 $2.2 9.00% $72.2 $70.5 Arkansas Capital I 8-14-96 $60.0 $1.9 8.50% $61.9 $59.8 Gulf States Capital I 1-28-97 $85.0 $2.6 8.75% $87.6 $85.3 </TABLE> The Preferred Securities of the Trusts mature in the years 2045 and 2046. The Preferred Securities are redeemable at 100% of their principal amount at the option of Entergy Arkansas, Entergy Louisiana, and Entergy Gulf States in 2002, including the loss of the tax deduction arising out of the interest paid on the Debentures. Entergy Louisiana, Entergy Arkansas, and Entergy Gulf States have, pursuant to certain agreements, fully and unconditionally guaranteed payment of distributions on the Preferred Securities issued by their respective trusts. Entergy Louisiana, Entergy Arkansas, and Entergy Gulf States are the owners of all of the common securities of their individual Trusts, which constitute 3% of each Trust's total capital. NOTE 7. LONG - TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) <TABLE> <CAPTION> Long-term debt as of December 31, 2001 was: Maturities Interest Rates Entergy Entergy Entergy Entergy Entergy System From To From To Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy (In Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Mortgage Bonds 2002 2006 5.800% 8.500% $2,716,579 $555,000 $1,176,920 $319,659 $470,000 $125,000 $70,000 2007 2011 6.450% 7.500% 325,000 100,000 115,000 80,000 30,000 2012 2026 7.000% 8.940% 954,950 260,000 444,950 115,000 60,000 75,000 Governmental Obligations (a) 2010 2020 5.450% 8.000% 298,300 214,200 84,100 2021 2030 4.850% 9.000% 1,392,080 119,000 395,330 415,120 46,030 416,600 Damhead Creek Project Credit Facilities, avg rate 6.53% 458,385 Note Payable to NYPA non-interest bearing, 4.8% implicit rate 756,914 Long-Term DOE Obligation (Note 9) 150,217 150,217 Waterford 3 Lease Obligation 7.45% (Note 10) 313,918 313,918 Grand Gulf Lease Obligation 7.02% (Note 10) 445,734 445,734 Other Long-Term Debt 206,855 621 9,371 Unamortized Premium and Discount - Net (15,133) (5,963) (3,853) (1,741) (1,268) (903) (1,405) --------------------------------------------------------------------------------- Total Long-Term Debt 8,003,799 1,393,075 2,106,818 1,276,956 654,762 229,097 930,929 Less Amount Due Within One Year 682,771 85,000 147,921 185,627 65,000 - 100,891 --------------------------------------------------------------------------------- Long-Term Debt Excluding Amount Due Within One Year $7,321,028 $1,308,075 $1,958,897 $1,091,329 $589,762 $229,097 $830,038 ================================================================================= Fair Value of Long-Term Debt (b) $6,764,419 $1,255,690 $2,173,994 $986,476 $668,526 $235,875 $463,352 ================================================================================= </TABLE> Long-term debt as of December 31, 2000 was: <TABLE> <CAPTION> Maturities Interest Rates Entergy Entergy Entergy Entergy Entergy System From To From To Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy (In Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Mortgage Bonds 2001 2005 5.800% 8.500% $2,455,109 $455,000 $1,001,750 $338,359 $400,000 $55,000 $205,000 2006 2010 6.450% 8.000% 365,000 100,000 115,000 80,000 70,000 2011 2026 7.000% 8.940% 954,950 260,000 444,950 115,000 60,000 75,000 Governmental Obligations (a) 2010 2020 5.450% 9.000% 591,635 214,200 377,435 2021 2030 4.850% 8.000% 1,051,750 72,000 102,000 415,120 46,030 416,600 Saltend Project Credit Facilities, avg rate 6.70% 581,938 Damhead Creek Project Credit Facilities, avg rate 6.55% 507,194 Note Payable to NYPA non-interest bearing, 4.8% implicit rate 744,405 Long-Term DOE Obligation (Note 9) 144,316 144,316 Waterford 3 Lease Obligation 7.45% (Note 10) 330,306 330,306 Grand Gulf Lease Obligation 7.02% (Note 10) 462,534 462,534 Other Long-Term Debt 23,596 621 9,581 Unamortized Premium and Discount - Net (16,425) (6,325) (4,087) (2,001) (1,563) (969) (1,480) ------------------------------------------------------------------------------------- Total Long-Term Debt 8,196,308 1,239,812 1,931,629 1,311,784 584,467 199,031 1,082,654 Less Amount Due Within One Year 464,215 100 122,750 35,088 - - 151,800 ------------------------------------------------------------------------------------- Long-Term Debt Excluding Amount Due Within One Year $7,732,093 $1,239,712 $1,808,879 $1,276,696 $584,467 $199,031 $930,854 ===================================================================================== Fair Value of Long-Term Debt (b) $7,342,810 $1,104,206 $2,013,249 $1,003,426 $592,697 $202,525 $593,170 ===================================================================================== </TABLE> (a) Consists of pollution control bonds, certain series of which are secured by non-interest bearing first mortgage bonds. (b) The fair value excludes lease obligations, long-term DOE obligations, and other long-term debt and includes debt due within one year. It is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. The annual long-term debt maturities (excluding lease obligations) and annual cash sinking fund requirements for debt outstanding as of December 31, 2001, for the next five years are as follows: <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> <C> Entergy Entergy Entergy Entergy Entergy System Entergy(a) Arkansas Gulf States(b) Louisiana(c) Mississippi New Orleans Energy (In Thousands) 2002 $ 637,993 $ 85,000 $148,000 $169,660 $ 65,000 - $70,000 2003 1,123,426 255,000 339,000 150,000 255,000 $25,000 - 2004 877,854 - 592,000 - 150,000 30,000 - 2005 457,174 215,000 98,000 - - 30,000 - 2006 159,276 - - - - 40,000 - </TABLE> (a) Not included are other sinking fund requirements of approximately $34.9 million annually, which may be satisfied by cash or by certification of property additions at the rate of 167% of such requirements. (b) Not included are other sinking fund requirements of approximately $34.2 million annually, which may be satisfied by cash or by certification of property additions at the rate of 167% of such requirements. (c) Not included are other sinking fund requirements of approximately $0.7 million annually, which may be satisfied by cash or by certification of property additions at the rate of 167% of such requirements. In December 2001, Entergy Arkansas issued $47 million of 5.05% Pollution Control Revenue Bonds due September 1, 2028. The proceeds of the issuance were used to refund $20 million and $27 million of 8.0% Series Pollution Control Revenue Bonds prior to maturity. In August 2001 when the Saltend plant was sold, EPDC repaid the outstanding Saltend credit facilities of approximately $555 million and terminated the Saltend interest rate swaps paying mark-to-market breakage costs of approximately $22 million. EPDC used proceeds from the sale of the plant for these payments. EPDC maintains a credit facility of BPS45 million ($67.2 million) to finance the Damhead Creek project and for general corporate purposes in connection with the acquisition and development of power generation, distribution, or transmission facilities. No cash advances were outstanding under this facility at December 31, 2001 and 2000. In February 2001, after the Damhead Creek project reached commercial operation, EPDC paid its equity commitment of BPS36.1 million ($53.9 million) on the project and a letter of credit facility under this credit facility was cancelled in July 2001. Damhead Finance LDC (DFLDC), an indirect wholly-owned subsidiary of EPDC, maintains a BPS483.4 million ($695.5 million) non-recourse senior credit facility. The facility finances the construction and operation of the Damhead Creek power plant. Borrowings under the senior credit facility are repayable over a fifteen-year period beginning December 31, 2001. In July 2001, the commitment of BPS20 million ($28.8 million) for a cost overrun facility was cancelled. DFLDC also maintains a BPS36.1 million ($53.9 million) subordinated credit facility, which was drawn in February 2001. DFLDC used the proceeds from the subordinated credit facility to repay a portion of the senior credit facility. The subordinated credit facility is payable over a ten-year period beginning December 31, 2001. After EPDC paid its equity commitment in February 2001, an equity bridge facility of BPS35.8 million ($53.5 million) under the senior credit facility was repaid. All of the assets of DFLDC are pledged as collateral under the senior credit facility and the subordinated credit facility. DFLDC's ability to make distributions of dividends, loans, or advances to EPDC is restricted by, among other things, the requirement to pay permitted project costs, make debt repayments, and maintain cash reserves. The Damhead Creek credit facility requires that the annual debt service coverage ratio be at least 1.05 to 1 for the previous 12 months at semi-annual dates commencing with June 30, 2002. Given the low electricity prices currently affecting the UK market, Damhead Creek may not meet the annual debt service coverage ratio test in respect of the 12 months to June 30, 2002, which could trigger an event of default. In the event the annual debt service coverage ratio is deficient at June 30, 2002, the power development business will seek a waiver of the default from the lenders. There is no requirement for EPDC to make capital contributions or provide credit support to Damhead Creek following the occurrence of an event of default. In 2000, a subsidiary of DFLDC entered into 10-year interest rate swap agreements with an average fixed rate of 6.52% for approximately 99% of the debt outstanding under the bridge and senior term loan portion of the senior credit facility. At December 31, 2001, the interest rate swap agreements outstanding totalled a notional amount of BPS275.8 million ($396.8 million). The mark-to-market valuation of the interest rate swap agreements at December 31, 2001, was a net liability of BPS15.9 million ($22.9 million). In November 2000, Entergy's domestic non-utility nuclear business purchased the FitzPatrick and Indian Point 3 power plants in a seller- financed transaction. Entergy issued notes to NYPA with seven annual installments of approximately $108 million commencing one year from the date of the closing, and eight annual installments of $20 million commencing eight years from the date of the closing. These notes do not have a stated interest rate. In accordance with the purchase agreement with NYPA, the purchase of Indian Point 2 resulted in Entergy's domestic non-utility nuclear business becoming liable to NYPA for an additional $10 million per year for 10 years, beginning in September 2003. This liability was recorded upon the purchase of Indian Point 2 in September 2001. NOTE 8. DIVIDEND RESTRICTIONS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy) Provisions within the Articles of Incorporation or pertinent indentures and various other agreements relating to the long-term debt and preferred stock of certain of Entergy Corporation's subsidiaries restrict the payment of cash dividends or other distributions on their common and preferred stock. Additionally, PUHCA prohibits Entergy Corporation's subsidiaries from making loans or advances to Entergy Corporation. As of December 31, 2001, Entergy Arkansas and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of $253.3 million and $15.8 million, respectively. In 2001, Entergy Corporation received dividend payments totaling $440.3 million from subsidiaries. NOTE 9. COMMITMENTS AND CONTINGENCIES Capital Requirements and Financing (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) Entergy plans to spend approximately $4.3 billion on construction and other capital investments during 2002-2004. This estimate includes $2.8 billion in spending by the domestic utility companies and System Energy, $0.8 billion in spending by energy commodity services, and $0.7 billion in spending by the domestic non-utility nuclear business. This plan reflects capital required to support existing business and Board- approved acquisitions. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints, business opportunities, market volatility, economic trends, and the ability to access capital. Entergy's firm estimated construction and other capital expenditures by year for 2002-2004 are as follows: 2002 2003 2004 Total (In Millions) Entergy Arkansas $239 $200 $194 $633 Entergy Gulf States 317 265 277 859 Entergy Louisiana 218 197 198 613 Entergy Mississippi 153 131 131 415 Entergy New Orleans 51 49 49 149 System Energy 25 20 20 65 Other entities 728 490 356 1,574 ------ ------ ------ ------ Entergy $1,731 $1,352 $1,225 $4,308 ====== ====== ====== ====== Additional capital investments are possible during these years, but they will be discretionary in nature and no commitments exist currently for additional spending. The domestic utility companies and System Energy will focus their planned spending on projects that will support continued reliability improvements and customer growth. Energy commodity services will focus its planned spending on merchant power plant projects currently under construction, including the purchase of gas turbines scheduled for delivery in 2002 through 2004, under an option to purchase obtained from General Electric Company that is now held by an independent special purpose entity established to finance the turbine acquisition program. The estimate does not include potential acquisitions of assets that may be offered for sale by third parties or additional capital investment in Entergy- Koch, which is an unconsolidated equity investment. Entergy is scheduled to make a $73 million cash contribution to Entergy-Koch in January 2004. The domestic non-utility nuclear business will focus its planned spending on routine construction projects and nuclear fuel acquisitions for the plants it owns, power uprates, and on the anticipated purchase in 2002 of the 510 MW Vermont Yankee nuclear power plant. Entergy will also require $2.8 billion during the period 2002-2004 to meet long-term debt and preferred stock maturities and cash sinking fund requirements. Entergy plans to meet these requirements primarily with internally generated funds and cash on hand, supplemented by proceeds from the issuance of debt, outstanding credit facilities, and project financing. Certain domestic utility companies and System Energy may also continue the reacquisition or refinancing of all or a portion of certain outstanding series of preferred stock and long-term debt. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" for additional discussion of Entergy's capital spending plans. Sales Warranties and Indemnities (Entergy Corporation) In the Entergy London and CitiPower sales transactions, Entergy or its subsidiaries made certain warranties to the purchasers. These warranties include representations regarding litigation, accuracy of financial accounts, and the adequacy of existing tax provisions. Notice of a claim on the CitiPower warranties had to be given by December 2000, and Entergy's potential liability is limited to A$100 million ($51 million). Notice of a claim on the Entergy London warranties had to be given for certain items by December 1999, and for the tax warranties, had to be given by June 30, 2001. Entergy's liability is limited to BPS1.4 billion ($2.0 billion) on certain tax warranties and BPS140 million ($203 million) on the remaining warranties relating to the Entergy London sale. For both of the sales, the notice period is extended if a taxing authority has begun a review before expiration of the notice period. Entergy received notice in June 2001 from both purchasers regarding issues that have not been resolved by the respective taxing authorities concerning reviews that commenced before the notice deadlines. Entergy responded to both purchasers and denies that valid claims by the purchasers have been made under the terms of the warranties. Management periodically reviews reserve levels for these warranties and as of December 31, 2001 believes it has adequately provided for the ultimate resolution of these matters. Fuel Purchase Agreements (Entergy Corporation) Entergy's energy commodity services segment has entered into a gas supply contract at the project level to supply up to 100% of the gas requirements for the Damhead Creek power plant located in the UK. This contract, which expires in 2016, includes a take-or-pay obligation for approximately 75% of the gas requirement for this plant. (Entergy Arkansas and Entergy Mississippi) Entergy Arkansas has long-term contracts for the supply of low- sulfur coal for White Bluff and Independence (which is also 25% owned by Entergy Mississippi). These contracts, which expire in 2002 and 2011, respectively, provide for approximately 70% of Entergy Arkansas' expected annual coal requirements. Additional requirements are satisfied by spot market purchases. (Entergy Gulf States) Entergy Gulf States has a contract for a supply of low-sulfur coal for Nelson Unit 6, which should be sufficient to satisfy the fuel requirements at Nelson Unit 6 through 2010. Effective April 1, 2000, Louisiana Generating LLC assumed ownership of Cajun's interest in the Big Cajun generating facilities, in which Entergy Gulf States owns a 42% interest. The management of Louisiana Generating LLC has advised Entergy Gulf States that it has executed coal supply and transportation contracts that should provide an adequate supply of coal for the operation of Big Cajun 2, Unit 3 for the foreseeable future. (Entergy Louisiana) In June 1992, Entergy Louisiana agreed to a 20-year natural gas supply contract, in which Entergy Louisiana agreed to purchase natural gas in annual amounts equal to approximately one-third of its projected annual fuel requirements for certain generating units. Annual demand charges associated with this contract are estimated to be $7.6 million. Such charges aggregate $84 million for the years 2002 through 2012. Power Purchase Agreements (Entergy Louisiana) Entergy Louisiana has an agreement extending through the year 2031 to purchase energy generated by a hydroelectric facility known as the Vidalia project. Entergy Louisiana made payments under the contract of approximately $86.0 million in 2001, $58.6 million in 2000, and $70.3 million in 1999. If the maximum percentage (94%) of the energy is made available to Entergy Louisiana, current production projections would require estimated payments of approximately $92.3 million in 2002, and a total of $3.3 billion for the years 2003 through 2031. Entergy Louisiana currently recovers the costs of the purchased energy through its fuel adjustment clause. System Fuels (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The domestic utility companies that are owners of System Fuels have made loans to System Fuels to finance its fuel procurement, delivery, and storage activities. The following loans outstanding to System Fuels as of December 31, 2001 mature in 2008: Owner Ownership Loan Outstanding at Percentage December 31, 2001 Entergy Arkansas 35% $11.0 million Entergy Louisiana 33% $14.2 million Entergy Mississippi 19% $5.5 million Entergy New Orleans 13% $3.3 million Nuclear Insurance (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The Price-Anderson Act, which is scheduled for renewal in August 2002, limits public liability of a nuclear plant owner for a single nuclear incident to approximately $9.5 billion. Protection for this liability is provided through a combination of private insurance underwritten by American Nuclear Insurers (ANI) (currently $200 million for each reactor) and an industry assessment program. Effective January 1, 2002, liability arising out of terrorist acts will be covered by ANI subject to one industry aggregate limit of $200 million, with a conditional option for one shared industry aggregate limit reinstatement of $200 million. Under the assessment program, the maximum payment requirement for each nuclear incident would be $88.1 million per reactor, payable at a rate of $10 million per licensed reactor per incident per year. Entergy has nine licensed reactors. As a co-licensee of Grand Gulf 1 with System Energy, SMEPA would share in 10% of this obligation. In addition, each owner/licensee of Entergy's nine nuclear units participates in a private insurance program that provides coverage for worker tort claims filed for bodily injury caused by radiation exposure. The program provides for a maximum assessment of approximately $27.9 million for the nine nuclear units in the event that losses exceed accumulated reserve funds. Entergy's nuclear owner/licensee subsidiaries are also members of certain insurance programs that provide coverage for property damage, including decontamination and premature decommissioning expense, to members' nuclear generating plants. These programs are underwritten by Nuclear Electric Insurance, Limited (NEIL). As of December 31, 2001, Entergy was insured against such losses up to $2.3 billion for each of its nuclear units, except for Pilgrim, which is insured for $1.115 billion in property damages. In addition, Entergy's nuclear owner/licensee subsidiaries are members of the NEIL insurance program that covers certain replacement power and business interruption costs incurred due to prolonged nuclear unit outages. Under the property damage and replacement power/business interruption insurance programs, these Entergy subsidiaries could be subject to assessments if losses exceed the accumulated funds available to the insurers. As of December 31, 2001, the maximum amounts of such possible assessments were: Entergy Arkansas - $24.9 million; Entergy Gulf States - $18.8 million; Entergy Louisiana - $21.1 million; Entergy Mississippi - $1.4 million; Entergy New Orleans - $0.7 million; System Energy - $16.1 million, and for Entergy's domestic non-utility nuclear business - $54.8 million. Effective November 15, 2001, in the event that one or more acts of terrorism cause accidental property damage under one or more of all nuclear insurance policies issued by NEIL (including, but not limited to those described above) within 12 months from the date the first accidental property damage occurs, the maximum recovery under all such nuclear insurance policies shall be an aggregate of $3.24 billion plus the additional amounts recovered for such losses from reinsurance, indemnity, and any other source applicable to such losses. Entergy maintains property insurance for each of its nuclear units in excess of the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per site. NRC regulations provide that the proceeds of this insurance must be used, first, to render the reactor safe and stable, and second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approval is secured would any remaining proceeds be made available for the benefit of plant owners or their creditors. Spent Nuclear Fuel and Decommissioning Costs (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) Spent Nuclear Fuel Entergy's nuclear owner/licensee subsidiaries provide for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE will furnish disposal service at a cost of one mill per net KWH generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and has a recorded liability as of December 31, 2001 of $150 million for the one- time fee. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities. Entergy's domestic non-utility nuclear business has accepted assignment of the Pilgrim, FitzPatrick, Indian Point 3, and Indian Point 2 spent fuel disposal contracts with the DOE previously held by Boston Edison, NYPA, and Consolidated Edison. Boston Edison, NYPA, and Consolidated Edison have paid or retained liability for the fees for all generation prior to the purchase dates of those plants. Delays have occurred in the DOE's program for the acceptance and disposal of spent nuclear fuel at a permanent repository. After twenty years of study, the DOE, in February 2002, formally recommended, and President Bush approved, Yucca Mountain, Nevada as the permanent spent fuel repository. The State of Nevada may veto the site subject to override by simple majority of both houses of Congress. If Yucca Mountain is sustained as the repository site, DOE will proceed with the licensing and eventual construction of the repository and may begin receipt of spent fuel as early as approximately 2010. Otherwise, DOE may not accept spent fuel for a significantly longer period of time. Considerable uncertainty exists regarding the time frame under which the DOE will begin to accept spent fuel from Entergy facilities for storage or disposal. As a result, future expenditures will be required to increase spent fuel storage capacity at Entergy's nuclear plant sites. Pending DOE acceptance and disposal of spent nuclear fuel, the owners of nuclear plants are responsible for their own spent fuel storage. Current on-site spent fuel storage capacity at Grand Gulf 1 and River Bend is estimated to be sufficient until approximately 2005 and 2004, respectively, at which time dry cask storage facilities will be placed into service. The spent fuel pool at Waterford 3 was recently expanded through the replacement of the existing storage racks with higher density storage racks. This expansion should provide sufficient storage for Waterford 3 until after 2010. An ANO storage facility using dry casks began operation in 1996 and has been expanded since and will be further expanded as needed. The spent fuel storage facility at Pilgrim is licensed to provide enough storage capacity until approximately 2012. FitzPatrick has sufficient spent fuel storage capacity through 2002, and additional dry cask storage capacity is being constructed that will provide sufficient storage capacity through 2004 and will be expanded as needed. Indian Point 2 and Indian Point 3 currently have sufficient spent fuel storage capacity until approximately 2004 and 2010, respectively. Nuclear Decommissioning Costs Total approved decommissioning costs for rate recovery purposes as of December 31, 2001, for Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants, excluding SMEPA's share of Grand Gulf 1, are as follows: Total Approved Estimated Decommissioning Costs (In Millions) ANO 1 and ANO 2 (based on a 1998 cost study $813.1 reflecting 1997 dollars) River Bend - Louisiana (based on a 1996 cost study 419.0 reflecting 1996 dollars) River Bend - Texas (based on a 1996 cost study 385.2 reflecting 1996 dollars) Waterford 3 (based on a 1994 updated study in 1993 320.1 dollars) Grand Gulf 1 (based on a 1994 cost study using 1993 341.1 dollars) -------- $2,278.5 ======== Entergy records decommissioning liabilities for these plants as the estimated decommissioning costs are collected from customers or as earnings on the trust funds are realized. The decommissioning liabilities recorded are discussed below. Entergy periodically reviews and updates estimated decommissioning costs. Although Entergy is presently under-recovering for Grand Gulf 1, Waterford 3, and River Bend based on more recent estimates, applications have been and will continue to be made to the appropriate regulatory authorities to reflect projected decommissioning costs in rates. Decommissioning costs recovered in rates are deposited in trust funds and reported at market value based upon market quotes or as determined by widely used pricing services. These trust fund assets largely offset the accumulated decommissioning liability that is recorded as accumulated depreciation for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana, and are recorded as deferred credits for System Energy and Entergy's domestic non-utility nuclear business. The liability associated with the trust funds received from Cajun with the transfer of Cajun's 30% share of River Bend is also recorded as a deferred credit by Entergy Gulf States. The actual decommissioning costs may vary from the estimates because of regulatory requirements, changes in technology, and increased costs of labor, materials, and equipment. In June 2001, Entergy Arkansas received notification from the NRC of approval for a renewed operating license authorizing operations at ANO 1 through May 2034. In November 2001, the APSC ordered Entergy Arkansas to reflect 20-year license extensions in its determination of the ANO 1 and ANO 2 decommissioning revenue requirements for rates to be effective January 1, 2002. Entergy Arkansas will not recover decommissioning costs in 2002 for ANO 1 and 2 based on the extension of the ANO 1 license and the assumption that the ANO 2 license will be extended and that the existing decommissioning trust funds, together with their expected future earnings, will meet the estimated decommissioning costs. Entergy Louisiana prepared a decommissioning cost update for Waterford 3 in 1999 and produced a revised decommissioning cost update of $481.5 million. This cost update was filed with the LPSC in the third quarter of 2000. In the Texas retail jurisdiction in a case filed with the PUCT in March 2000, Entergy Gulf States included River Bend decommissioning costs of $481.5 million based on a 1999 cost update amount of $525.8 million. PUCT substantive rules for rate requests for decommissioning limit the allowance for contingencies to ten percent, although the actual estimate employs greater contingency amounts. In LPSC rate reviews filed in May 1999 and 2000, Entergy Gulf States included decommissioning costs based on a 1998 update of $562.7 million and a 1999 update of $525.8 million, respectively. The decommissioning liability for the 30 percent share of River Bend formerly owned by Cajun was funded by a transfer of $132 million to the River Bend Decommissioning Trust at the completion of Cajun's bankruptcy proceedings. System Energy included updated decommissioning costs (based on the updated 1994 study) in its 1995 rate increase filing with FERC. Rates requested in this proceeding were placed into effect in December 1995, subject to refund. In July 2000, FERC issued an order approving a lower decommissioning cost than what was requested by System Energy. System Energy filed a motion for rehearing, which was granted, and FERC affirmed its previous decision. System Energy adjusted its collection to the FERC-approved level of $341 million in the third quarter of 2001. A 1999 decommissioning cost update of $540.8 million for Grand Gulf has not yet been filed with FERC. As part of the Pilgrim purchase, Boston Edison funded a $471.3 million decommissioning trust fund, which was transferred to Entergy. After a favorable tax determination regarding the trust fund, Entergy returned $43 million of the trust fund to Boston Edison. Entergy believes that Pilgrim's decommissioning fund will be adequate to cover future decommissioning costs for the Pilgrim plant without any additional deposits to the trust. As part of the Indian Point 1 and 2 purchase, Consolidated Edison transferred a $430 million decommissioning trust fund, along with the liability to decommission Indian Point 1 and Indian Point 2, to Entergy. Entergy also funded an additional $25 million resulting in a total fund of $455 million. Entergy believes that Indian Point 1 and 2's decommissioning trust fund will be adequate to cover future decommissioning costs for these plants without any additional deposits to the trust. For the Indian Point 3 and FitzPatrick plants purchased in 2000, NYPA retained the decommissioning trusts and the decommissioning liability. NYPA and Entergy executed decommissioning agreements, which specify their decommissioning obligations. NYPA has the right to require Entergy to assume the decommissioning liability provided that it assigns the corresponding decommissioning trust, up to a specified level, to Entergy. If the decommissioning liability is retained by NYPA, Entergy will perform the decommissioning of the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trusts. Entergy believes that the amounts available to it under either scenario are sufficient to cover the future decommissioning costs without any additional contributions to the trusts. The cumulative liabilities and decommissioning expenses recorded in 2001 by Entergy were as follows: Cumulative 2001 Cumulative Liabilities as of 2001 Trust Decommissioning Liabilities as December 31, Earnings Expenses of December 31, 2000 2001 (In Millions) ANO 1 and ANO 2 $283.3 $9.5 $- $292.8 River Bend 215.5 5.1 6.2 226.8 Waterford 3 97.9 3.2 10.4 111.5 Grand Gulf 1 153.0 5.1 (23.8) (a) 134.3 Pilgrim 454.0 - (b) 20.1 474.1 Indian Point 1 & 2 430.0 (c) - (b) 5.3 435.3 -------- ----- ----- -------- $1,633.7 $22.9 $18.2 $1,674.8 ======== ===== ===== ======== (a) Totals for Grand Gulf 1 include the effect of the FERC-ordered refund. (b) Trust earnings on the decommissioning trust funds for Pilgrim and Indian Point 1 & 2 are recorded as income and do not increase the decommissioning liability. (c) Added in third quarter of 2001, when the units were acquired. In 2000 and 1999, ANO's decommissioning expense was $3.8 million and $10.7 million, respectively; River Bend's decommissioning expense was $6.2 million and $7.6 million, respectively; Waterford 3's decommissioning expense was $10.4 and $8.8 million, respectively; Grand Gulf 1's decommissioning expense was $18.9 million in both years; and Pilgrim's decommissioning expense was $19.2 and $6.8 million, respectively. The EPAct contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning of the DOE's past uranium enrichment operations. Annual assessments (in 2001 dollars), which will be adjusted annually for inflation, are for 15 years and are approximately $4.1 million for Entergy Arkansas, $1.0 million for Entergy Gulf States, $1.6 million for Entergy Louisiana, and $1.5 million for System Energy. At December 31, 2001, five years of assessments were remaining. DOE fees are included in other current liabilities and other non-current liabilities and, as of December 31, 2001, recorded liabilities were $20.5 million for Entergy Arkansas, $3.6 million for Entergy Gulf States, $7.8 million for Entergy Louisiana, and $7.7 million for System Energy. Regulatory assets in the financial statements offset these liabilities. FERC requires that utilities treat these assessments as costs of fuel as they are amortized and recover these costs through rates in the same manner as other fuel costs. Environmental Issues (Entergy Arkansas) Entergy Arkansas has received notices from the EPA and the Arkansas Department of Environmental Quality alleging that Entergy Arkansas, along with others, may be a PRP for clean-up costs associated with a site in Arkansas. As of December 31, 2001, Entergy Arkansas does not expect the remaining clean-up costs to exceed its recorded liability of approximately $5 million. (Entergy Gulf States) Entergy Gulf States has been designated as a PRP for the cleanup of certain hazardous waste disposal sites. Entergy Gulf States is currently negotiating with the EPA and state authorities regarding the cleanup of these sites. As of December 31, 2001, Entergy Gulf States does not expect the remaining clean-up costs to exceed its recorded liability of $15.1 million for the remaining sites at which the EPA has designated Entergy Gulf States as a PRP. (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. As a result, a remaining recorded liability in the amount of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at December 31, 2001 for wastewater upgrades and closures. Completion of this work is pending LDEQ approval. Entergy Louisiana and Entergy New Orleans do not expect the remaining costs for work at these sites to exceed the recorded provisions. 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 to purchase Entergy New Orleans' electric and gas utility properties. A resolution to study the advantages for ratepayers that might result from an acquisition of these properties was filed in a committee of the Council in January 2001. The committee has deferred consideration of and has taken no further action regarding that resolution. The full Council must approve the resolution to commence such a study before it can become effective. Waterford 3 Lease Obligations (Entergy Louisiana) On September 28, 1989, Entergy Louisiana entered into three identical transactions for the sale and leaseback of undivided interests (aggregating approximately 9.3%) in Waterford 3. In July 1997, Entergy Louisiana caused the lessors to issue $307.6 million aggregate principal amount of Waterford 3 Secured Lease Obligation Bonds, 8.76% Series due 2017, to refinance the outstanding bonds originally issued to finance the purchase of the undivided interests by the lessors. The lease payments were reduced to reflect the lower interest costs. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the termination of the lease transactions and may be required to assume the outstanding bonds issued to finance, in part, the lessors' acquisition of the undivided interests in Waterford 3. Off Balance Sheet Turbine Financing Arrangement (Entergy Corporation) EWO obtained contracts in October 1999 to acquire 36 turbines from General Electric. Entergy's rights and obligations under the contracts for 22 of the turbines were sold to a third party in May 2001. Entergy has certain rights to reacquire the turbines from the third party, whether pursuant to an interim lease commencing when a turbine is ready for shipment or pursuant to certain purchase rights. If Entergy does not take title to the turbines prior to certain specified dates, the third party has certain rights to sell the turbines and Entergy may be held liable for specific defined shortfalls, if any. Entergy's maximum projected exposure under this arrangement is approximately $250 million. This exposure, however, does not take into account Entergy's ongoing efforts to develop sites for the turbines. Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans 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, and/or sex. Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans are vigorously defending these suits and deny any liability to the plaintiffs. Nevertheless, no assurance can be given as to the outcome of these cases. Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy New Orleans) Numerous lawsuits have been filed in federal and state courts in Texas and Louisiana primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well. Since 1992, the Entergy companies have resolved over 3 thousand claims for nominal amounts that in the aggregate total less than $13 million, including defense costs. Some of this loss has been offset by reimbursement from insurers. Presently there are over 3 thousand claims pending and 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 its financial position or results of operation. Grand Gulf 1-Related Agreements Capital Funds Agreement (Entergy Corporation and System Energy) Entergy Corporation has agreed to supply System Energy with sufficient capital to (i) maintain System Energy's equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt), and (ii) permit the continued commercial operation of Grand Gulf 1 and pay in full all indebtedness for borrowed money of System Energy when due. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights as security for specific debt of System Energy, Entergy Corporation has agreed to make cash capital contributions to enable System Energy to make payments on such debt when due. System Energy has entered into agreements with Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans whereby they are obligated to purchase their respective entitlements of capacity and energy from System Energy's 90% interest in Grand Gulf 1, and to make payments that, together with other available funds, are adequate to cover System Energy's operating expenses. System Energy would have to secure funds from other sources, including Entergy Corporation's obligations under the Capital Funds Agreement, to cover any shortfalls from payments received from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under these agreements. Unit Power Sales Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) System Energy has agreed to sell all of its 90% share of capacity and energy from Grand Gulf 1 to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans in accordance with specified percentages (Entergy Arkansas-36%, Entergy Louisiana-14%, Entergy Mississippi-33%, and Entergy New Orleans-17%) as ordered by FERC. Charges under this agreement are paid in consideration for the purchasing companies' respective entitlement to receive capacity and energy and are payable irrespective of the quantity of energy delivered so long as the unit remains in commercial operation. The agreement will remain in effect until terminated by the parties and the termination is approved by FERC, most likely upon Grand Gulf 1's retirement from service. Monthly obligations for payments under the agreement are approximately $20 million for Entergy Arkansas, $7 million for Entergy Louisiana, $20 million for Entergy Mississippi, and $9 million for Entergy New Orleans. Availability Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are individually obligated to make payments or subordinated advances to System Energy in accordance with stated percentages (Entergy Arkansas-17.1%, Entergy Louisiana-26.9%, Entergy Mississippi-31.3%, and Entergy New Orleans-24.7%) in amounts that, when added to amounts received under the Unit Power Sales Agreement or otherwise, are adequate to cover all of System Energy's operating expenses as defined, including an amount sufficient to amortize the cost of Grand Gulf 2 over 27 years. (See Reallocation Agreement terms below.) System Energy has assigned its rights to payments and advances to certain creditors as security for certain obligations. Since commercial operation of Grand Gulf 1, payments under the Unit Power Sales Agreement have exceeded the amounts payable under the Availability Agreement. Accordingly, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments. Reallocation Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans entered into the Reallocation Agreement relating to the sale of capacity and energy from Grand Gulf and the related costs, in which Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans agreed to assume all of Entergy Arkansas' responsibilities and obligations with respect to Grand Gulf under the Availability Agreement. FERC's decision allocating a portion of Grand Gulf 1 capacity and energy to Entergy Arkansas supersedes the Reallocation Agreement as it relates to Grand Gulf 1. Responsibility for any Grand Gulf 2 amortization amounts has been individually allocated (Entergy Louisiana-26.23%, Entergy Mississippi-43.97%, and Entergy New Orleans-29.80%) under the terms of the Reallocation Agreement. However, the Reallocation Agreement does not affect Entergy Arkansas' obligation to System Energy's lenders under the assignments referred to in the preceding paragraph. Entergy Arkansas would be liable for its share of such amounts if Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans were unable to meet their contractual obligations. No payments of any amortization amounts will be required so long as amounts paid to System Energy under the Unit Power Sales Agreement, including other funds available to System Energy, exceed amounts required under the Availability Agreement, which is expected to be the case for the foreseeable future. Reimbursement Agreement (System Energy) In December 1988, System Energy entered into two separate, but identical, arrangements for the sale and leaseback of an approximate aggregate 11.5% ownership interest in Grand Gulf 1. In connection with the equity funding of the sale and leaseback arrangements, letters of credit are required to be maintained to secure certain amounts payable for the benefit of the equity investors by System Energy under the leases. The current letters of credit are effective until March 20, 2003. Under the provisions of a bank letter of credit reimbursement agreement, System Energy has agreed to a number of covenants relating to the maintenance of certain capitalization and fixed charge coverage ratios. System Energy agreed, during the term of the reimbursement agreement, to maintain its equity at not less than 33% of its adjusted capitalization (defined in the reimbursement agreement to include certain amounts not included in capitalization for financial statement purposes). In addition, System Energy must maintain, with respect to each fiscal quarter during the term of the reimbursement agreement, a ratio of adjusted net income to interest expense (calculated, in each case, as specified in the reimbursement agreement) of at least 1.60 times earnings. As of December 31, 2001, System Energy's equity approximated 46.35% of its adjusted capitalization, and its fixed charge coverage ratio for 2001 was 2.17. Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) In addition to those discussed above, Entergy and the domestic utility companies are involved in a number of legal proceedings and claims in the ordinary course of their business. While management is unable to predict the outcome of such litigation, it is not expected that the ultimate resolution of these matters will have a material adverse effect on results of operations, cash flows, or financial condition of these entities. NOTE 10. LEASES General As of December 31, 2001, Entergy had capital leases and non- cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities (excluding nuclear fuel leases and the sale and leaseback transactions) with minimum lease payments as follows: Capital Leases Entergy Entergy Year Entergy Arkansas Gulf States (In Thousands) 2002 $18,695 $9,646 $9,000 2003 18,695 9,646 9,000 2004 18,695 9,646 9,000 2005 9,660 9,611 - 2006 5,724 5,683 - Years thereafter 7,997 7,986 - ------- ------- ------- Minimum lease payments 79,466 52,218 27,000 Less: Amount representing interest 20,197 16,075 4,082 ------- ------- ------- Present value of net minimum lease payments $59,269 $36,143 $22,918 ======= ======= ======= Operating Leases Entergy Entergy Entergy Year Entergy Arkansas Gulf States Louisiana (In Thousands) 2002 $89,517 $25,411 $19,671 $13,209 2003 74,521 15,820 18,545 12,062 2004 67,880 14,808 17,517 10,555 2005 53,970 12,607 15,356 7,139 2006 43,964 9,607 14,118 4,192 Years thereafter 65,435 6,318 11,256 2,145 -------- ------- ------- ------- Minimum lease payments $395,287 $84,571 $96,463 $49,302 ======== ======= ======= ======= Rental expense for Entergy's leases (excluding nuclear fuel leases and the Grand Gulf 1 and Waterford 3 sale and leaseback transactions) amounted to $65.1 million, $53.3 million, and $65.2 million, in 2001, 2000, and 1999, respectively. These amounts include $21.1 million, $18.9 million, and $23.9 million for Entergy Arkansas; $22.0 million, $18.9 million, and $19.2 million for Entergy Gulf States; and $11.7 million, $7.9 million, and $13.1 million for Entergy Louisiana. In addition to the above rental expense, railcar operating lease payments, which are recorded in fuel expense, were $12.2 million in 2001, $12.5 million in 2000, and $12.6 million in 1999 for Entergy Arkansas and $2.8 million in 2001 and 2000 and $4.1 million in 1999 for Entergy Gulf States. The railcar lease payments are recorded as fuel expense in accordance with regulatory treatment. Nuclear Fuel Leases (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) As of December 31, 2001, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy each had arrangements to lease nuclear fuel in an aggregate amount up to $135 million, $90 million, $90 million, and $95 million, respectively. As of December 31, 2001, the unrecovered cost base of Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear fuel leases amounted to approximately $65.6 million, $67.7 million, $70.3 million, and $61.9 million, respectively. The lessors finance the acquisition and ownership of nuclear fuel through loans made under revolving credit agreements, the issuance of commercial paper, and the issuance of intermediate-term notes. The credit agreements for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy have termination dates of November 2003, November 2003, December 2004, and November 2003, respectively. Such termination dates may be extended from time to time with the consent of the lenders. The intermediate- term notes issued pursuant to these fuel lease arrangements have varying maturities through March 15, 2005. It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. However, if such additional financing cannot be arranged, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. Lease payments are based on nuclear fuel use. The table below represents the total nuclear fuel lease payments (principal and interest) as well as the separate interest component charged to operations by the domestic utility companies and System Energy in 2001, 2000, and 1999: 2001 2000 1999 Lease Lease Lease Payments Interest Payments Interest Payments Interest (In Millions) Entergy Arkansas $54.1 $5.7 $42.7 $5.5 $48.6 $5.6 Entergy Gulf States 31.5 4.1 54.3 6.1 31.4 1.8 Entergy Louisiana 37.2 3.8 30.5 3.1 29.7 3.7 System Energy 26.5 3.6 31.2 5.2 28.1 3.4 ------ ----- ------ ----- ------ ----- Total $149.3 $17.2 $158.7 $19.9 $137.8 $14.5 ====== ===== ====== ===== ====== ===== Sale and Leaseback Transactions Waterford 3 Lease Obligations (Entergy Louisiana) In 1989, Entergy Louisiana sold and leased back 9.3% of its interest in Waterford 3 for the aggregate sum of $353.6 million. The lease has an approximate term of 28 years. The lessors financed the sale-leaseback through the issuance of Waterford 3 Secured Lease Obligation Bonds. The lease payments made by Entergy Louisiana are sufficient to service the debt. In 1994, Entergy Louisiana did not exercise its option to repurchase the 9.3% interest in Waterford 3. As a result, Entergy Louisiana issued $208.2 million of non-interest bearing first mortgage bonds as collateral for the equity portion of certain amounts payable under the lease. In 1997, the lessors refinanced the outstanding bonds used to finance the purchase of Waterford 3 at lower interest rates, which reduced the annual lease payments. Upon the occurrence of certain events, Entergy Louisiana may be obligated to assume the outstanding bonds used to finance the purchase of the unit and to pay an amount sufficient to withdraw from the lease transaction. Such events include lease events of default, events of loss, deemed loss events, or certain adverse "Financial Events." "Financial Events" include, among other things, failure by Entergy Louisiana, following the expiration of any applicable grace or cure period, to maintain (i) total equity capital (including preferred stock) at least equal to 30% of adjusted capitalization, or (ii) a fixed charge coverage ratio of at least 1.50 computed on a rolling 12 month basis. As of December 31, 2001, Entergy Louisiana's total equity capital (including preferred stock) was 48.37% of adjusted capitalization and its fixed charge coverage ratio for 2001 was 2.75. As of December 31, 2001, Entergy Louisiana had future minimum lease payments (reflecting an overall implicit rate of 7.45%) in connection with the Waterford 3 sale and leaseback transactions, which are recorded as long-term debt, as follows (in thousands): 2002 $39,246 2003 59,709 2004 31,739 2005 14,554 2006 18,261 Years thereafter 407,874 -------- Total 571,383 Less: Amount representing interest 257,465 -------- Present value of net minimum lease payments $313,918 ======== Grand Gulf 1 Lease Obligations (System Energy) In December 1988, System Energy sold 11.5% of its undivided ownership interest in Grand Gulf 1 for the aggregate sum of $500 million. Subsequently, System Energy leased back its interest in the unit for a term of 26-1/2 years. System Energy has the option of terminating the lease and repurchasing the 11.5% interest in the unit at certain intervals during the lease. Furthermore, at the end of the lease term, System Energy has the option of renewing the lease or repurchasing the 11.5% interest in Grand Gulf 1. System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Until 2004, the total of interest and depreciation expense exceeds the corresponding revenues realized. Consistent with a recommendation contained in a FERC audit report, System Energy recorded as a net deferred asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and is recording this difference as a deferred asset or liability on an ongoing basis. The amount of this net deferred asset was $88.7 million and $100.8 million as of December 31, 2001 and 2000, respectively. As of December 31, 2001, System Energy had future minimum lease payments (reflecting an implicit rate of 7.02%), which are recorded as long-term debt as follows (in thousands): 2002 $53,827 2003 48,524 2004 36,133 2005 52,253 2006 52,253 Years thereafter 470,276 -------- Total 713,266 Less: Amount representing interest 267,532 -------- Present value of net minimum lease payments $445,734 ======== NOTE 11. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) Pension Plans Entergy has five postretirement benefit plans, "Entergy Corporation Retirement Plan for Non-Bargaining Employees," "Entergy Corporation Retirement Plan for Bargaining Employees," "Entergy Corporation Retirement Plan II for Non-Bargaining Employees," "Entergy Corporation Retirement Plan II for Bargaining Employees," and "Entergy Corporation Retirement Plan III" covering substantially all of its domestic employees. Except for the Entergy Corporation Retirement Plan III, the pension plans are noncontributory and provide pension benefits that are based on employees' credited service and compensation during the final years before retirement. The Entergy Corporation Retirement Plan III includes a mandatory employee contribution of 3% of earnings during the first 10 years of plan participation, and allows voluntary contributions from 1% to 10% of earnings for a limited group of employees. Entergy Corporation and its subsidiaries fund pension costs in accordance with contribution guidelines established by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plans include common and preferred stocks, fixed-income securities, interest in a money market fund, and insurance contracts. Total 2001, 2000, and 1999 pension cost of Entergy Corporation and its subsidiaries, including amounts capitalized, included the following components (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $49,166 $9,207 $6,645 $5,358 $2,659 $1,280 $2,423 Interest cost on projected benefit obligation 118,448 30,746 26,292 19,114 10,602 3,643 3,366 Expected return on assets (157,889) (41,308) (44,511) (31,089) (16,547) (2,712) (3,865) Amortization of transition asset (7,142) (2,336) - (2,792) (1,250) - (319) Amortization of prior service cost 5,735 1,697 1,896 759 694 262 59 Recognized net (gain)/loss (6,573) (2,228) (7,266) (2,398) (1,406) 172 (52) -------------------------------------------------------------------------- Net pension cost (income) $1,745 ($4,222) ($16,944) ($11,048) ($5,248) $2,645 $1,612 ========================================================================== </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $37,130 $8,125 $6,051 $4,710 $2,314 $1,138 $2,140 Interest cost on projected benefit obligation 108,782 31,128 25,135 18,287 11,268 3,591 2,430 Expected return on assets (145,717) (38,571) (41,322) (28,588) (15,341) (2,710) (3,014) Amortization of transition asset (9,740) (2,336) (2,387) (2,823) (1,250) (180) (319) Amortization of prior service cost 12,953 1,701 1,896 805 669 262 59 Recognized net (gain)/loss (8,576) (200) (7,204) (1,849) (292) 247 (96) ------------------------------------------------------------------------- Net pension cost (income) ($5,168) ($153) ($17,831) ($9,458) ($2,632) $2,348 $1,200 ========================================================================= </TABLE> <TABLE> <CAPTION> 1999 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $39,327 $8,723 $6,531 $4,948 $2,278 $997 $2,334 Interest cost on projected benefit obligation 104,591 29,457 24,757 17,950 10,810 3,296 3,017 Expected return on assets (130,535) (34,784) (37,170) (25,629) (13,815) (2,601) (3,738) Amortization of transition asset (9,740) (2,336) (2,387) (2,808) (1,250) (195) (482) Amortization of prior service cost 11,362 1,227 1,434 558 480 165 64 --------------------------------------------------------------------------- Net pension cost (income) $15,005 $2,287 ($6,835) ($4,981) ($1,497) $1,662 $1,195 =========================================================================== </TABLE> The funded status of Entergy's various pension plans as of December 31, 2001 and 2000 was (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Change in Projected Benefit Obligation (PBO) Balance at 12/31/00 $1,602,673 $441,108 $352,815 $259,365 $158,166 $51,491 $36,895 Service cost 49,166 9,207 6,645 5,358 2,659 1,280 2,423 Interest cost 118,448 30,746 26,292 19,114 10,602 3,643 3,366 Amendment 212 (48) - - 260 - - Actuarial (gain)/loss 16,369 (18,323) 10,753 6,911 (11,759) (1,880) 8,002 Benefits paid (88,476) (25,137) (25,598) (18,296) (10,120) (2,140) (122) Acquisition 22,100 - - - - - - ---------------------------------------------------------------------------- Balance at 12/31/01 $1,720,492 $437,553 $370,907 $272,452 $149,808 $52,394 $50,564 ---------------------------------------------------------------------------- Change in Plan Assets Fair value of assets at 12/31/00 $1,843,115 $484,060 $522,257 $362,427 $193,788 $31,707 $36,915 Actual return on plan assets (80,335) (15,056) (28,201) (20,566) (9,052) 2,243 3,756 Employer contributions 10,532 - - - - - - Employee contributions 2,000 - - - - - - Benefits paid (88,476) (25,137) (25,598) (18,296) (10,120) (2,140) (122) ---------------------------------------------------------------------------- Fair value of assets at 12/31/01 $1,686,836 $443,867 $468,458 $323,565 $174,616 $31,810 $40,549 ---------------------------------------------------------------------------- Funded status ($33,656) $6,314 $97,551 $51,113 $24,808 ($20,584)($10,015) Unrecognized transition asset (3,202) - - - (222) - (1,262) Unrecognized prior service cost 40,330 13,299 11,516 5,813 4,334 1,979 364 Unrecognized net (gain)/loss (70,934) (37,662) (101,785) (27,798) (19,620) 7,819 1,205 ---------------------------------------------------------------------------- Prepaid/(accrued) pension cost ($67,462) ($18,049) $7,282 $29,128 $9,300 ($10,786) ($9,708) ============================================================================ </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Change in Projected Benefit Obligation (PBO) Balance at 12/31/99 $1,499,601 $424,554 $348,217 $256,949 $153,262 $46,042 $43,262 Service cost 37,130 8,125 6,051 4,710 2,314 1,138 2,140 Interest cost 108,782 31,128 25,135 18,287 11,268 3,591 2,430 Amendment 18,376 5,321 5,166 3,139 2,129 1,220 11 Actuarial (gain)/loss (32,916) (3,455) (6,134) (7,077) (901) 1,739 (10,810) Benefits paid (85,185) (24,565) (25,620) (16,643) (9,906) (2,239) (138) Acquisitions 56,884 - - - - - - ---------------------------------------------------------------------------- Balance at 12/31/00 $1,602,672 $441,108 $352,815 $259,365 $158,166 $51,491 $36,895 ---------------------------------------------------------------------------- Change in Plan Assets Fair value of assets at 12/31/99 $1,965,178 $518,262 $563,597 $389,755 $207,475 $31,370 $56,442 Actual return on plan assets (40,047) (9,637) (15,720) (10,685) (3,781) 2,576 (19,389) Employer contributions 3,083 - - - - - - Employee contributions 86 - - - - - - Benefits paid (85,185) (24,565) (25,620) (16,643) (9,906) (2,239) (138) ---------------------------------------------------------------------------- Fair value of assets at 12/31/00 $1,843,115 $484,060 $522,257 $362,427 $193,788 $31,707 $36,915 ---------------------------------------------------------------------------- Funded status $240,443 $42,952 $169,442 $103,062 $35,622 ($19,784) $20 Unrecognized transition asset (10,094) (2,336) - (2,792) (1,250) - (1,262) Unrecognized prior service cost 44,223 14,822 13,050 6,572 4,915 2,241 364 Unrecognized net (gain)/loss (328,642) (77,710) (192,154) (88,761) (35,234) 9,402 (7,219) ---------------------------------------------------------------------------- Prepaid/(accrued) pension cost ($54,070) ($22,272) ($9,662) $18,081 $4,053 ($8,141) ($8,097) ============================================================================ </TABLE> Other Postretirement Benefits Entergy also provides health care and life insurance benefits for retired employees. Substantially all domestic employees may become eligible for these benefits if they reach retirement age while still working for Entergy. Effective January 1, 1993, Entergy adopted SFAS 106, which required a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. At January 1, 1993, the actuarially determined accumulated postretirement benefit obligation (APBO) earned by retirees and active employees was estimated to be approximately $241.4 million for Entergy (other than Entergy Gulf States) and $128 million for Entergy Gulf States. Such obligations are being amortized over a 20-year period that began in 1993. Entergy Arkansas, the portion of Entergy Gulf States regulated by the PUCT, Entergy Mississippi, and Entergy New Orleans have received regulatory approval to recover SFAS 106 costs through rates. Entergy Arkansas began recovery in 1998, pursuant to an APSC order. This order also allowed Entergy Arkansas to amortize a regulatory asset (representing the difference between SFAS 106 costs and cash expenditures for other postretirement benefits incurred for a five-year period that began January 1, 1993) over a 15-year period that began in January 1998. The LPSC ordered the portion of Entergy Gulf States regulated by the LPSC and Entergy Louisiana to continue the use of the pay-as-you-go method for ratemaking purposes for postretirement benefits other than pensions. However, the LPSC retains the flexibility to examine individual companies' accounting for postretirement benefits to determine if special exceptions to this order are warranted. Pursuant to regulatory directives, Entergy Arkansas, Entergy Mississippi, Entergy New Orleans, the portion of Entergy Gulf States regulated by the PUCT, and System Energy fund postretirement benefit obligations collected in rates. System Energy is funding on behalf of Entergy Operations postretirement benefits associated with Grand Gulf 1. Entergy Louisiana and Entergy Gulf States continue to recover a portion of these benefits regulated by the LPSC and FERC on a pay-as- you-go basis. The assets of the various postretirement benefit plans other than pensions include common stocks, fixed-income securities, and a money market fund. Total 2001, 2000, and 1999 postretirement benefit costs of Entergy Corporation and its subsidiaries, including amounts capitalized and deferred, included the following components (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $24,225 $4,969 $3,606 $2,707 $1,302 $739 $1,094 Interest cost on APBO 38,811 8,551 8,911 5,527 2,816 3,158 907 Expected return on assets (12,578) (3,218) (4,104) - (1,933) (1,832) (959) Amortization of transition obligation 17,874 3,954 5,803 2,971 1,502 2,678 220 Amortization of prior service cost 992 245 278 141 87 89 24 Recognized net (gain)/loss (1,506) 173 (1,028) 45 - (180) - ------------------------------------------------------------------------- Net postretirement benefit cost $67,818 $14,674 $13,466 $11,391 $3,774 $4,652 $1,286 ========================================================================= </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $18,252 $4,395 $3,147 $2,405 $1,236 $667 $998 Interest cost on APBO 34,022 7,945 8,346 5,073 2,714 3,012 788 Expected return on assets (10,566) (2,196) (3,682) - (1,696) (1,661) (811) Amortization of transition obligation 17,874 3,954 5,803 2,971 1,502 2,678 220 Amortization of prior service cost 520 123 161 71 44 45 12 Recognized net (gain) (3,070) - (1,803) (30) - (561) (8) ------------------------------------------------------------------------- Net postretirement benefit cost $57,032 $14,221 $11,972 $10,490 $3,800 $4,180 $1,199 ========================================================================= </TABLE> <TABLE> <CAPTION> 1999 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Service cost - benefits earned during the period $16,950 $3,952 $3,227 $2,140 $1,009 $512 $982 Interest cost on APBO 29,467 6,596 8,206 4,234 2,167 2,699 631 Expected return on assets (8,208) (1,309) (2,980) - (1,634) (1,425) (522) Amortization of transition obligation 17,874 3,954 5,803 2,971 1,502 2,678 222 Amortization of prior service cost 44 - 44 - - - - Recognized net (gain) (1,452) - (393) (227) (69) (616) (8) ------------------------------------------------------------------------- Net postretirement benefit cost $54,675 $13,193 $13,907 $9,118 $2,975 $3,848 $1,305 ========================================================================= </TABLE> The funded status of Entergy's postretirement plans as of December 31, 2001 and 2000 was (in thousands): <TABLE> <CAPTION> 2001 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Change in APBO Balance at 12/31/00 $507,756 $114,667 $118,824 $72,721 $38,994 $42,133 $11,990 Service cost 24,225 4,969 3,606 2,707 1,302 739 1,094 Interest cost 38,811 8,551 8,911 5,527 2,816 3,158 907 Actuarial loss 44,289 8,573 9,203 7,182 1,680 4,406 1,536 Benefits paid (37,403) (8,825) (9,293) (6,438) (2,996) (4,452) (524) Acquisitions 13,053 - - - - -------------------------------------------------------------------------- Balance at 12/31/01 $590,731 $127,935 $131,251 $81,699 $41,796 $45,984 $15,003 -------------------------------------------------------------------------- Change in Plan Assets Fair value of assets at 12/31/00 $143,038 $32,843 $44,408 $ - $21,657 $26,217 $11,655 Actual return on plan assets 663 160 222 - 43 327 (163) Employer contributions 51,892 16,155 13,106 6,438 4,151 5,668 1,583 Benefits paid (37,403) (8,825) (9,293) (6,438) (2,996) (4,452) (524) -------------------------------------------------------------------------- Fair value of assets at 12/31/01 $158,190 $40,333 $48,443 $ - $22,855 $27,760 $12,551 -------------------------------------------------------------------------- Funded status ($432,541) ($87,602) ($82,808) ($81,699) ($18,941) ($18,224) ($2,452) Unrecognized transition obligation 126,196 43,482 63,838 32,691 16,521 29,471 2,453 Unrecognized prior service cost 4,514 1,103 1,302 636 393 402 103 Unrecognized net (gain)/loss 70,208 19,391 (10,198) 3,670 5,787 (2,250) 640 --------------------------------------------------------------------------- Prepaid/(accrued) postretirement ($231,623) ($23,626) ($27,866) ($44,702) $3,760 $9,399 $744 benefit asset/(liability) =========================================================================== </TABLE> <TABLE> <CAPTION> 2000 Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy <S> <C> <C> <C> <C> <C> <C> <C> Change in APBO Balance at 12/31/99 $429,772 $95,656 $118,295 $61,156 $31,133 $38,363 $9,546 Service cost 18,252 4,395 3,147 2,405 1,236 667 998 Interest cost 34,022 7,945 8,346 5,073 2,714 3,012 788 Amendment 5,691 1,471 1,406 848 524 536 139 Actuarial (gain)/loss 34,759 13,486 (3,845) 8,551 6,060 3,891 1,104 Benefits paid (33,238) (8,286) (8,525) (5,312) (2,673) (4,336) (585) Acquisitions 18,498 - - - - - - ----------------------------------------------------------------------------- Balance at 12/31/00 $507,756 $114,667 $118,824 $72,721 $38,994 $42,133 $11,990 ----------------------------------------------------------------------------- Change in Plan Assets Fair value of assets at 12/31/99 $120,208 $22,205 $39,045 $ - $19,614 $23,716 $9,549 Actual return on plan assets 3,719 808 1,448 - 422 584 288 Employer contributions 52,339 18,116 12,440 5,312 4,294 6,253 2,403 Benefits paid (33,238) (8,286) (8,525) (5,312) (2,673) (4,336) (585) Acquisitions 10 - - - - - - ----------------------------------------------------------------------------- Fair value of assets at 12/31/00 $143,038 $32,843 $44,408 $ - $21,657 $26,217 $11,655 ----------------------------------------------------------------------------- Funded status ($364,718) ($81,824) ($74,416) ($72,721) ($17,337) ($15,916) ($335) Unrecognized transition obligation 137,669 47,436 69,641 35,662 18,023 32,149 2,673 Unrecognized prior service cost 5,506 1,348 1,580 777 480 491 127 Unrecognized net (gain)/loss 18,900 7,933 (24,311) (3,467) 2,217 (8,341) (2,018) ----------------------------------------------------------------------------- Prepaid/(accrued) postretirement ($202,643) ($25,107) ($27,506) ($39,749) $3,383 $8,383 $447 benefit asset/(liability) ============================================================================== </TABLE> The assumed health care cost trend rate used in measuring the APBO of Entergy was 8% for 2002, gradually decreasing each successive year until it reaches 5% in 2009 and beyond. A one percentage-point change in the assumed health care cost trend rate for 2001 would have the following effects (in thousands): 1 Percentage Point 1 Percentage Point Increase Decrease 2001 Increase Increase Decrease in Decrease in the in the sum the APBO in the sum APBO of service of service cost and cost and interest interest cost cost Entergy $61,321 $8,651 $51,408 $7,077 Entergy Arkansas $12,480 $1,767 $10,509 $1,451 Entergy Gulf States $12,975 $1,624 $10,951 $1,337 Entergy Louisiana $7,512 $1,014 $6,356 $839 Entergy Mississippi $3,834 $494 $3,240 $408 Entergy New Orleans $3,383 $376 $2,914 $315 System Energy $1,938 $328 $1,599 $265 The significant actuarial assumptions used in determining the pension PBO and the SFAS 106 APBO for 2001, 2000, and 1999 were as follows: 2001 2000 1999 Weighted-average discount rate 7.50% 7.50% 7.50% Weighted-average rate of increase in future compensation levels 4.60% 4.60% 4.60% Expected long-term rate of return on plan assets: Taxable assets 5.50% 5.50% 5.50% Non-taxable assets 9.00% 9.00% 9.00% Entergy's remaining pension transition assets are being amortized over the greater of the remaining service period of active participants or 15 years and its SFAS 106 transition obligations are being amortized over 20 years. NOTE 12. BUSINESS SEGMENT INFORMATION (Entergy Corporation and Entergy New Orleans) Entergy's reportable segments as of December 31, 2001 are domestic utility, domestic non-utility nuclear, and energy commodity services. Domestic utility provides retail electric service in portions of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana. Entergy's domestic non- utility nuclear segment is focused on acquiring, owning, operating, and selling power from nuclear power plants and providing operations and management services to nuclear power plants owned by other utilities in the United States. Energy commodity services includes the: 1) Entergy- Koch joint venture, engaged in the marketing of wholesale electricity, gas, other generating fuels, electric capacity, and financial instruments, and also transports and stores natural gas; and 2) Entergy Wholesale Operations, focused on acquiring or developing power generation projects in North America and Europe. Entergy's operating segments are strategic business units managed separately due to their different operating and regulatory environments. Entergy's chief operating decision maker is its Office of the Chief Executive, which consists of its highest-ranking officers. During the third quarter of 2001, Entergy began integration of Entergy-Koch and Entergy Wholesale Operations into the energy commodity services segment. Prior to the third quarter of 2001, Entergy-Koch and Entergy Wholesale Operations were reported as separate segments. Prior to the first quarter of 2001, Entergy reported its power marketing and trading segment separately. On January 31, 2001, Entergy contributed substantially all of its power marketing and trading business to Entergy-Koch, which is now a part of the energy commodity services segment. Results from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. See Note 13 to the financial statements for further discussion of the investment in Entergy-Koch, L.P. The segment financial information for 1999 and 2000 has been restated to conform with the 2001 presentation. "All other" includes the parent company, Entergy Corporation, and other business activity, which is principally gains or losses on the sales of businesses and the earnings on the proceeds of those sales. Entergy's segment financial information is as follows (in thousands): <TABLE> <CAPTION> Domestic Domestic Energy All Other* Eliminations Consolidated Utility Non-Utility Commodity Nuclear* Services* 2001 <S> <C> <C> <C> <C> <C> <C> Operating revenues $7,432,920 $789,244 $1,370,485 $34,603 ($6,353) $9,620,899 Deprec, amort. & decomm. 667,333 17,706 34,667 4,516 - 724,222 Amort. of rate deferrals 16,583 - - - - 16,583 Interest income 79,702 54,053 23,169 37,235 (34,354) 159,805 Equity in earnings of unconsolidated equity affiliates - - 180,956 - - 180,956 Interest charges 576,705 81,114 74,953 41,558 (34,353) 739,977 Income taxes 300,284 80,053 74,493 863 - 455,693 Cumulative effect of accounting change - - 23,482 - - 23,482 Net income (loss) 574,554 127,880 105,939 (57,866) - 750,507 Total assets 20,309,695 3,449,156 2,377,733 863,906 (1,090,179) 25,910,311 Investment in affiliates - at equity 214 - 765,889 - - 766,103 Cash paid for long-lived asset additions 1,110,484 705,216 199,387 21,550 - 2,036,637 </TABLE> <TABLE> <CAPTION> Domestic Domestic Non- Energy All Other* Eliminations Consolidated Utility Utility Commodity Nuclear* Services* <S> <C> <C> <C> <C> <C> <C> 2000 Operating revenues $7,401,598 $298,147 $2,353,792 $32,450 ($63,858) $10,022,129 Deprec, amort. & decomm. 770,144 1,191 10,996 3,278 - 785,609 Amort. of rate deferrals 30,392 - - - - 30,392 Interest income 57,795 29,534 5,838 78,390 (8,507) 163,050 Equity in earnings of unconsolidated equity affiliates - - 13,715 - - 13,715 Interest charges 515,156 33,213 (3,725) 22,103 (9,317) 557,430 Income taxes 435,667 31,492 24,689 (12,927) - 478,921 Net income 618,263 49,158 54,908 (11,414) - 710,915 Total assets 20,567,433 2,227,177 2,590,678 620,104 (553,496) 25,451,896 Investment in affiliates - at equity 214 - 136,273 - - 136,487 Cash paid for long-lived asset additions 1,080,055 63,593 390,298 9,771 - 1,543,717 </TABLE> <TABLE> <CAPTION> Domestic Domestic Energy All Other* Eliminations Consolidated Utility Non-Utility Commodity Nuclear* Services* <S> <C> <C> <C> <C> <C> <C> 1999 Operating revenues $6,414,623 $109,699 $2,292,158 ($17,030) ($33,815) $8,765,635 Deprec, amort. & decomm. 732,182 131 6,934 5,622 - 744,869 Amort. of rate deferrals 115,627 - - - - 115,627 Interest income 49,556 8,673 15,459 73,453 (3,540) 143,601 Equity in earnings of unconsolidated equity affiliates - - 7,593 - - 7,593 Interest charges 536,543 7,527 9,392 5,679 (3,540) 555,601 Income taxes 351,448 10,525 (28,998) 23,692 - 356,667 Net income (loss) 553,525 15,705 (39,940) 65,736 - 595,026 Total assets 18,941,603 573,330 1,832,316 1,816,532 (193,841) 22,969,940 Investment in affiliates - at equity 214 - 117,164 - - 117,378 Cash paid for long-lived asset additions 761,356 92,625 420,024 2,709 - 1,276,714 </TABLE> Businesses marked with * are referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation, which is also included in the "All Other" column. Eliminations are primarily intersegment activity. Products and Services In addition to retail electric service, Entergy New Orleans supplies natural gas services in the City of New Orleans. Revenue from these two services is separately reported in Entergy New Orleans' Income Statements. Geographic Areas For the year ended December 31, 2001, Entergy derived approximately 6% of its revenue from outside of the United States. For the years ended 2000 and 1999, Entergy derived less than 1% of its operating revenue from outside of the United States. Long-lived assets as of December 31 were as follows (in thousands): 2001 2000 1999 Domestic $16,842,158 $15,425,915 $14,751,166 Foreign 421,870 1,019,831 749,590 ----------- ----------- ----------- Consolidated $17,264,028 $16,445,746 $15,500,756 =========== =========== =========== NOTE 13. EQUITY METHOD INVESTMENTS (Entergy Corporation) In January 2001, subsidiaries of Entergy and Koch Industries, Inc. formed a limited partnership, Entergy-Koch, L.P. Entergy-Koch engages in the gathering, transmission, and storage of natural gas in the Gulf Coast region of the United States through its Gulf South Pipeline subsidiary. Entergy-Koch engages in physical and financial natural gas and power trading, and weather derivatives trading, in the United States, the United Kingdom, Western Europe, and Canada through its Entergy-Koch Trading subsidiaries. In the formation of the partnership, Entergy contributed most of the assets and trading contracts of its power marketing and trading business and $414 million of cash. Koch Industries contributed its 8,800-mile Koch Gateway Pipeline (which has been renamed the Gulf South Pipeline), gas storage facilities including the 65.8 BCF Bistineau storage facility located near Shreveport, Louisiana, and Koch Energy Trading, which marketed and traded electricity, gas, weather derivatives, and other energy-related commodities and services. Entergy and Koch have equal ownership interests in Entergy-Koch, L.P., which is governed by an eight-member board of directors. Each partner appointed four members of the board. Although the ownership interests are equal, the partnership agreement allocates Entergy-Koch's profits differently through 2003 based upon the source of the earnings. Losses and distributions from operations are allocated to the partners equally. These significantly disproportionate profit allocations were favorable to Entergy in the aggregate in 2001. In 2004, a revaluation of Entergy-Koch's assets for capital account purposes will occur, and future profit allocations will change after the revaluation. The profit allocations other than for weather trading and international trading are expected to become equal, unless special allocations are necessary to equalize the partners' capital accounts. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners. Entergy also owns investments in the following companies that it accounts for under the equity method of accounting: Generandes Peru S.A. (in which Entergy owns 34% of the voting power), a privatized generation company that provides a significant portion of electricity for Lima, Peru; Compania Electrica San Isidro S.A. (in which Entergy owns 25% of the voting power), a power plant that provides power to the Chilean market with a portion under contract and the remainder on a merchant basis; RS Cogen LLC (in which Entergy holds a 50% member interest), a co-generation project that will provide power on an industrial and merchant basis in the Lake Charles, Louisiana area; EntergyShaw LLC (in which Entergy holds a 50% member interest), a company which provides management, engineering, procurement, construction, and commissioning services for electric power plants; and Crete Energy Ventures, LLC (in which Entergy holds a 50% member interest), a merchant power plant under construction in Crete, Illinois. Following is a reconciliation of Entergy's investments in equity affiliates (in thousands): 2001 2000 1999 Beginning of year $136,487 $117,378 $139,064 Additional investments 471,102 25,943 296 Equity in net income 180,956 13,715 7,593 Dividends received (21,191) (20,468) (9,389) Currency translation adjustments 138 (891) (20,186) Dispositions and other adjustments (1,389) 810 - -------- -------- -------- End of year $766,103 $136,487 $117,378 ======== ======== ======== The following is a summary of combined financial information reported by Entergy's equity method investees (in thousands): 2001 2000 1999 Income Statement Items Operating revenues $693,400 $200,026 $188,617 Operating income 309,752 90,694 82,336 Net income 226,039 74,042 49,473 Balance Sheet Items Current assets $2,969,132 $82,044 Noncurrent assets 3,309,752 1,554,022 Current liabilities 2,729,769 163,063 Noncurrent liabilities 1,491,957 489,544 Related-party transactions During 2001, Entergy procured various services from Entergy-Koch consisting primarily of pipeline transportation services for natural gas and risk management services for electricity and natural gas. The total cost of such services in 2001 was approximately $7.8 million. Entergy's operating transactions with its other equity method investees were not material in 2001, 2000, or 1999. EntergyShaw is currently constructing two projects for Entergy or its affiliates, the Crete and Harrison County projects. Entergy has guaranteed the obligations of EntergyShaw to construct the Harrison County plant, and Entergy's maximum liability on the guarantee is $232.5 million. NOTE 14. ACQUISITIONS AND DISPOSITIONS (Entergy Corporation) Asset Acquisitions Indian Point 2 In September 2001, Entergy's domestic non-utility nuclear business acquired the 970 MW Indian Point 2 nuclear power plant located in Westchester County, New York from Consolidated Edison. Entergy paid approximately $600 million in cash at the closing of the purchase and received the plant, nuclear fuel, materials and supplies, a purchase power agreement (PPA), and assumed certain liabilities. On the second anniversary of the Indian Point 2 acquisition, Entergy's nuclear business will also begin to pay NYPA $10 million per year for up to 10 years in accordance with the Indian Point 3 purchase agreement. Under the PPA, Consolidated Edison will purchase 100% of Indian Point 2's output for an average price of $39/MWh through 2004. Consolidated Edison transferred a $430 million decommissioning trust fund, along with the liability to decommission Indian Point 2 and Indian Point 1, to Entergy. Entergy acquired Indian Point 1 in the transaction, a plant that has been shut down and in safe storage since the 1970s. The acquisition was accounted for using the purchase method. The results of operations of Indian Point 2 subsequent to the purchase date have been included in Entergy's consolidated results of operations. The Indian Point 2 purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values on the purchase date. The allocation was based on preliminary information and amounts recorded may change, primarily as a result of additional expected information on the fair value of the plant facility. Indian Point 3 and FitzPatrick In November 2000, Entergy's domestic non-utility nuclear business acquired from NYPA the 825 MW James A. FitzPatrick nuclear power plant near Oswego, New York, and the 980 MW Indian Point 3 nuclear power plant located in Westchester County, New York, in exchange for $50 million at closing and notes to NYPA with payments totaling $906 million. Entergy will also be required to make certain additional payments to NYPA in the event that the plants' license lives are extended. The acquisition encompassed the nuclear plants, materials and supplies, and nuclear fuel, as well as the assumption of $124 million in liabilities. The purchase agreement provides that NYPA will purchase a substantial majority of the output of the units at specified prices through 2004. The purchase agreement also provides that NYPA will retain the decommissioning obligations and related trust funds through the original license expiration date (approximately 2015). At that time, NYPA is required either to transfer the decommissioning liability to Entergy along with a specified amount in the decommissioning trust funds, or to retain Entergy to perform decommissioning services for a specified price that may be limited by the amount in the trust. In the purchase price allocation, Entergy recorded an asset representing its estimate of the net present value of the decommissioning contract obtained in the acquisition, based on an independent decommissioning cost study and other projections. The asset increases by monthly accretion based on the discount rate used to determine the original net present value. Entergy records the monthly accretion as interest income. The acquisition was accounted for using the purchase method. The results of operations of Indian Point 3 and FitzPatrick subsequent to November 21, 2000 have been included in Entergy's consolidated statements of income. The purchase price has been allocated to the acquired assets, including identifiable intangible assets, and liabilities assumed based on their estimated fair values on the purchase date. Intangible assets are being amortized straight-line over the remaining lives of the plants. Pilgrim Nuclear Station In July 1999, Entergy's domestic non-utility nuclear business acquired the 670 MW Pilgrim Nuclear Station located in Plymouth, Massachusetts, from Boston Edison. The acquisition included the plant, real estate, materials and supplies, and nuclear fuel, for a total purchase price of $81 million. As part of the Pilgrim purchase, Boston Edison funded a $471 million decommissioning trust fund, which was transferred to an Entergy subsidiary. Based on a favorable tax determination regarding the trust fund, Entergy returned $43 million of the trust fund to Boston Edison. Asset Dispositions In August 2001, Entergy's EWO business sold the Saltend plant to Calpine Corporation for a cash payment of approximately $800 million. Entergy's gain on the sale was approximately $88.1 million ($57.2 million after tax). The results of operations of the Saltend plant are included in Entergy's consolidated statements of income through the date of sale. The gain arising from the sale is included in operating revenues in that statement. EWO actively manages its assets as an investment portfolio, and attempts to maximize flexibility to respond to different market environments. Active management of the portfolio is expected to result in: the commercial operation of projects by EWO; the sale of projects at various stages in their planning, development, or operation; or the abandonment of projects. In the sales transaction, Entergy or its subsidiaries made certain warranties to the purchasers relating primarily to the performance of certain remedial work on the facility and the assumption of responsibility for certain contingent liabilities. The warranties are backed by an Entergy Corporation guarantee, and Entergy believes that it has provided adequate reserves for the warranties as of December 31, 2001. In January 1999, Entergy disposed of its security monitoring subsidiary, Entergy Security, Inc. at a minimal gain. Several telecommunication businesses were sold in June 1999, also at small gains. The results of operations of these businesses are included in Entergy's consolidated statements of income through their respective dates of sale. Gains and losses arising from these sales are included in "Other Income, Gain (loss) on sale of assets - net" in that statement. NOTE 15. RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation) Market and Commodity Risks In the normal course of business, Entergy is exposed to a number of market and commodity risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular instrument or commodity. All financial and commodity- related instruments, including derivatives, are subject to market risk. Entergy is subject to a number of commodity and market risks, including: Type of risk Primary Affected Segments Power price risk All reportable segments Fuel price risk All reportable segments Interest rate risk - variable rate debt Energy Commodity Services Foreign currency exchange rate risk All reportable segments Equity price and interest rate risk - Domestic Utility, Domestic investments Non-utility Nuclear Entergy manages these risks through both contractual arrangements and derivatives. Contractual risk management tools include long-term power and fuel purchase agreements, capacity contracts, and tolling agreements. Entergy also uses a variety of commodity and financial derivatives, including natural gas and electricity futures, forwards and options, foreign currency forwards, and interest rate swaps as a part of its overall risk management strategy. Additionally, certain fuel supply contracts with volumetric optionality are required to be classified as derivatives under interpretations of SFAS 133. Except for the energy trading activities conducted by the energy commodity services segment, Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. Entergy's exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option's contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy's risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy's objectives. Hedging Derivatives Entergy classifies substantially all of the following types of derivative instruments as cash flow hedges: Instrument Business Segment Interest rate swaps Energy Commodity Services Natural gas and electricity futures Energy Commodity Services and forwards Foreign currency forwards Domestic Utility, Domestic Non- utility Nuclear The scheduled maturity of futures, forwards, and swaps that are classified as cash flow hedges will result in the reclassification into earnings during 2002 of approximately $5.2 million of net losses that are recorded in accumulated other comprehensive income at December 31, 2001. During 2001, net losses on cash flow hedges of approximately $22.2 million were reclassified into earnings. The maximum length of time over which Entergy is currently hedging the variability in future cash flows for forecasted transactions (excluding interest rate swaps) at December 31, 2001 is approximately 25 months. The ineffective portion of the change in the value of Entergy's cash flow hedges during 2001 was insignificant. Other Derivatives Entergy also holds derivative instruments such as natural gas and electricity options and forwards that are not accounted for as hedges. These instruments are entered into to optimize asset values or limit risks. Additionally, fuel supply contracts that are required to be classified as derivatives under SFAS 133 are not accounted for as hedges. These contracts are entered into in order to secure long term supplies of fuel for certain of Entergy's independent power generation plants. Fair Values Commodity Instruments Fair value estimates of energy commodity services' commodity instruments are made at discrete points in time based on relevant market information. Market quotes are used in determining fair value whenever they are available. When market quotes are not available (e.g. in the case of a long-dated commodity contract), other information is used, including transactional data and internally developed models. Fair value estimates based on these other methodologies are necessarily subjective in nature and involve uncertainties and matters of significant judgment. Therefore, actual results may differ from these estimates. At December 31, 2001 and 2000, the fair values of energy commodity services' energy-related commodity contracts accounted for on a mark-to-market basis were as follows: 2001 2000 Assets Liabilities Assets Liabilities (In Thousands) Consolidated subsidiaries $59,996 $18,882 $623,190 $563,447 Equity method investees $2,088,953 $1,982,196 - - (1) (1) As required by equity method accounting principles, only Entergy's net investment in these investees is reflected in its balance sheet, and these assets and liabilities are not reflected in Entergy's balance sheet. See Note 13 to the financial statements for more information on Entergy's equity method investees. Following are the cumulative periods in which the net mark-to-market assets would be realized in cash if they are held to maturity and market prices are unchanged: 2002 2003 2004-2005 Consolidated subsidiaries 55% 98% 100% Equity method investees 10% 83% 100% Financial Instruments The estimated fair value of Entergy's financial instruments is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. The estimated fair value of derivative financial instruments is based on market quotes of the applicable interest rates. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. In addition, gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not accrue to the benefit or detriment of stockholders. Entergy considers the carrying amounts of most of its financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Additional information regarding financial instruments and their fair values is included in Notes 5, 6, and 7 to the financial statements. NOTE 16. TRANSACTIONS WITH AFFILIATES (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) Each domestic utility company purchases electricity from and sells electricity to the other domestic utility companies, System Energy, and Entergy Power (in the case of Entergy Arkansas) under rate schedules filed with FERC. In addition, the domestic utility companies and System Energy purchase fuel from System Fuels; receive management, technical, advisory, operating, and administrative services from Entergy Services; and receive management, technical, and operating services from Entergy Operations. Pursuant to SEC rules under PUHCA, these transactions are on an "at cost" basis, and are eliminated in the consolidated financial statements of Entergy. As described in Note 1 to the financial statements, all of System Energy's operating revenues consist of billings to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The tables below contain the various affiliate transactions among the domestic utility companies and System Energy (in millions). Intercompany Revenues Entergy Entergy Entergy Entergy Entergy System Arkansas Gulf States Louisiana Mississippi New Orleans Energy 2001 $250.2 $75.2 $26.1 $118.3 $10.0 $535.0 2000 $255.3 $93.7 $20.8 $88.1 $31.6 $656.7 1999 $189.2 $38.4 $27.3 $68.3 $14.2 $620.0 Intercompany Operating Expenses Entergy Entergy Entergy Entergy Entergy System Arkansas Gulf States Louisiana Mississippi New Orleans Energy (1) 2001 $262.9 $274.8 $298.1 $535.2 $231.7 $ 9.5 2000 $387.9 $239.4 $388.5 $388.2 $177.0 $10.1 1999 $357.5 $223.9 $294.3 $315.6 $182.5 $ 9.8 (1) Includes $3.5 million in 2001, $47.3 million in 2000, and $15.8 million in 1999 for power purchased from Entergy Power. Operating Expenses Paid or Reimbursed to Entergy Operations Entergy Entergy Entergy System Arkansas Gulf States Louisiana Energy 2001 $141.4 $102.7 $104.6 $75.8 2000 $163.0 $116.0 $113.2 $92.6 1999 $179.2 $110.9 $113.8 $91.3 NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The business of the domestic utility companies and System Energy is subject to seasonal fluctuations with the peak periods occurring during the third quarter. Operating results for the four quarters of 2001 and 2000 were: <TABLE> <CAPTION> Operating Revenue Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy (In Thousands) <S> <C> <C> <C> <C> <C> <C> <C> 2001: First Quarter $2,652,427 $393,800 $734,476 $548,914 $256,158 $204,015 $151,166 Second Quarter 2,507,430 453,108 730,893 547,784 274,148 160,309 152,902 Third Quarter 2,575,736 541,556 714,488 473,342 354,518 167,137 66,276 Fourth Quarter 1,885,306 388,312 468,703 331,873 208,917 99,389 164,683 2000: First Quarter $1,804,661 $346,877 $483,231 $346,820 $182,775 $119,742 $157,089 Second Quarter 2,153,487 447,823 586,386 448,067 215,606 136,651 159,389 Third Quarter 3,429,651 548,156 817,152 722,175 297,966 200,861 169,114 Fourth Quarter 2,634,330 419,779 624,471 545,375 241,024 183,036 171,157 </TABLE> <TABLE> <CAPTION> Operating Income (Loss) Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy (In Thousands) <S> <C> <C> <C> <C> <C> <C> <C> 2001: First Quarter $360,967 $71,647 $126,182 $39,267 $14,524 $4,218 $60,594 Second Quarter 481,704 104,118 111,562 88,913 31,647 9,373 61,281 Third Quarter 606,503 163,538 118,201 192,528 34,302 2,653 83,906 Fourth Quarter 124,168 40,387 41,247 3,922 9,839 (9,194) 64,673 2000: First Quarter $279,773 $76,759 $50,435 $46,513 $13,214 $6,372 $74,440 Second Quarter 449,237 82,931 125,033 102,587 28,784 15,087 66,895 Third Quarter 591,933 93,917 190,136 178,889 36,295 32,136 67,580 Fourth Quarter 188,119 56,413 47,685 44,371 15,470 (14,209) 61,830 </TABLE> <TABLE> <CAPTION> Net Income (Loss) Entergy Entergy Entergy Entergy Entergy System Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy (In Thousands) <S> <C> <C> <C> <C> <C> <C> <C> 2001: First Quarter $160,871 $28,978 $59,046 $6,859 $4,535 $474 $20,798 Second Quarter 245,583 47,038 51,382 37,034 15,673 3,369 21,202 Third Quarter 317,454 82,401 52,353 101,515 18,748 (308) 37,793 Fourth Quarter 26,599(a) 19,768 16,663 (12,858) 664 (5,730) 36,562 2000: First Quarter $108,410 $35,314 $10,757 $11,191 $4,295 $1,817 $25,786 Second Quarter 245,773 38,978 60,815 46,687 13,503 7,217 21,786 Third Quarter 306,689 43,922 97,325 94,167 17,611 17,593 23,709 Fourth Quarter 50,043 18,833 11,446 10,634 3,564 (10,109) 22,464 </TABLE> (a) Net income before cumulative effect of accounting change for the fourth quarter of 2001 was $3,117. Earnings per Average Common Share (Entergy Corporation) 2001 2000 Basic Diluted Basic Diluted First Quarter $0.70 $0.69 $0.42 $0.42 Second Quarter $1.08 $1.06 $1.04 $1.04 Third Quarter $1.41 $1.39 $1.35 $1.34 Fourth Quarter $0.10 (b) $0.09 (b) $0.19 $0.17 (b) Basic and diluted earnings per average common share before the cumulative effect of accounting change for the fourth quarter of 2001 was ($0.01).
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure. On the recommendation of the Audit Committee of the Board, the Executive Committee of the Board (acting between board meetings) has appointed Deloitte & Touche as independent accountants for Entergy Corporation, effective August 13, 2001. The Boards of Directors of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy also appointed Deloitte & Touche as independent accountants for each of those corporations effective August 13, 2001. Entergy's former independent accountants, PricewaterhouseCoopers, were dismissed effective August 13, 2001. The reports issued by PricewaterhouseCoopers on Entergy's financial statements for either of the two most recent fiscal years did not contain any adverse opinion or a disclaimer of opinion, or any qualification or modification as to uncertainty, audit scope or accounting principles. During Entergy's two most recent fiscal years and through August 13, 2001, there were no disagreements with PricewaterhouseCoopers on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of PricewaterhouseCoopers, would have caused PricewaterhouseCoopers to make reference to the subject matter of the disagreement in connection with its reports. Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy initially reported the change in accountants on Form 8-K on August 13, 2001. The Form 8-K contained a letter from PricewaterhouseCoopers to the Securities and Exchange Commission stating that it agreed with the statements concerning their firm made therein. PART III Item 10. Directors and Executive Officers of the Registrants (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) All officers and directors listed below held the specified positions with their respective companies as of the date of filing this report. <TABLE> <CAPTION> Name Age Position Period <S> <C> <C> <C> ENTERGY ARKANSAS, INC. Directors Hugh T. McDonald 43 President and Chief Executive Officer of 2000-Present Entergy Arkansas Director of Entergy Arkansas 2000-Present Senior Vice President, Retail of Entergy 1999-2000 Services, Inc. Director, Regulatory Affairs - TX of 1995-1999 Entergy Gulf States Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers William E. Madison 55 Senior Vice President - Human Resources 2001-Present and Administration of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans Senior Vice President & Chief Human 2000-2001 Resources Officer, Avis Group Holdings, Inc. - Garden City, New York President, US Region and Vice President, 1997-2000 Global Human Resource Strategy, E.I. DuPont de Nemours, Wilmington, Delaware John Thomas Kennedy 42 Vice President - State Governmental 2000-Present Affairs of Entergy Arkansas Attorney at Law, Russellville, Arkansas 1985-2000 Frank F. Gallaher See information under the Entergy Corporation Officers Section in Part I. Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. Hugh T. McDonald See information under the Entergy Arkansas Directors Section above. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. Michael G. Thompson See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. ENTERGY GULF STATES, INC. Directors E. Renae Conley 44 Director of Entergy Gulf States and 2000-Present Entergy Louisiana President and Chief Executive Officer - 2000-Present LA of Entergy Gulf States and Entergy Louisiana Vice President, Investor Relations of 1999-2000 Entergy Services President of Cincinnati Gas & Electric, 1998-1999 (a subsidiary of Cinergy Corp.) Chief Executive Officer of Cadence LLC 1997-1998 (a subsidiary of Cinergy Corp.) Vice President of Sales of Cinergy Corp. 1996-1997 Joseph F. Domino 53 Director of Entergy Gulf States 1999-Present President and Chief Executive Officer - 1998-Present TX of Entergy Gulf States Director - Southwest Franchise of 1997-1998 Entergy Gulf States Director - Eastern Region of Entergy 1995-1997 Services Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers James D. Bruno 62 Vice President - Region of Entergy Gulf 1999-Present States and Entergy Louisiana Vice President of Customer Service of 1998-1999 Entergy Louisiana and Entergy Gulf States Vice President of Customer Service of 1994-1998 Entergy Louisiana and Entergy New Orleans Murphy A. Dreher 49 Vice President - State Governmental 1999-Present Affairs - LA of Entergy Gulf States and Entergy Louisiana Legislative Executive - Governmental 1995-1998 Affairs of Entergy Gulf States Randall W. Helmick 47 Vice President - Operations - LA of 1998-Present Entergy Gulf States and Entergy Louisiana Director of Special Projects of London 1997-1998 Electricity Director of Reliability of Entergy 1997 Services Director of Operations and Engineering 1994-1997 of Entergy Services Eduardo Melendreras 44 Vice President, Customer Service and 2001-Present Commercial and Industrial Accounts of Entergy Gulf States and Entergy Louisiana Director - Jurisdictional Accounts of 2000-2001 Entergy Services Director - Large Industrial Sales & 1996-2000 Service of Entergy Gulf States J. Parker McCollough 50 Vice President - State Governmental 1996-Present Affairs - TX of Entergy Gulf States Wade H. Stewart 56 Vice President, Regulatory Affairs - LA 2000-Present of Entergy Gulf States and Entergy Louisiana Director, Regulatory Affairs - LA of 1995-2000 Entergy Gulf States and Entergy Louisiana E. Renae Conley See information under the Entergy Gulf States Directors Section above. Joseph F. Domino See information under the Entergy Gulf States Directors Section above. Frank F. Gallaher See information under the Entergy Corporation Officers Section in Part I. Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. William E. Madison See information under the Entergy Arkansas Officers Section above. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. Michael G. Thompson See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. ENTERGY LOUISIANA, INC. Directors E. Renae Conley See information under the Entergy Gulf States Directors Section above. Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers James D. Bruno See information under the Entergy Gulf States Officers Section above. E. Renae Conley See information under the Entergy Gulf States Directors Section above. Murphy A. Dreher See information under the Entergy Gulf States Officers Section above. Frank F. Gallaher See information under the Entergy Corporation Officers Section in Part I. Randall W. Helmick See information under the Entergy Gulf States Officers Section above. Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. William E. Madison See information under the Entergy Arkansas Officers Section above. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. Eduardo Melendreras See information under the Entergy Gulf States Officers Section above. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. Michael G. Thompson See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Wade H. Stewart See information under the Entergy Gulf States Officers Section above. ENTERGY MISSISSIPPI, INC. Directors Carolyn C. Shanks 40 President and Chief Executive Officer of 1999-Present Entergy Mississippi Director of Entergy Mississippi 1999-Present Vice President of Finance and 1997-1999 Administration of Entergy Mississippi Director of Business Services of Entergy 1994-1997 Operations Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers Bill F. Cossar 63 Vice President - State Governmental 1987-Present Affairs of Entergy Mississippi Frank F. Gallaher See information under the Entergy Corporation Officers Section in Part I. Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. William E. Madison See information under the Entergy Arkansas Officers Section above. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. Carolyn C. Shanks See information under the Entergy Mississippi Directors Section above. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. Michael G. Thompson See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. ENTERGY NEW ORLEANS, INC. Directors Daniel F. Packer 54 Chief Executive Officer Entergy New 1998-Present Orleans President and Director of Entergy New 1997-Present Orleans State President - City of New Orleans 1996-1997 Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers Elaine Coleman 52 Vice President, External Affairs of 1998-Present Entergy New Orleans Director of Customer Service of Entergy 1998 Services Lead Customer Service Manager of Entergy 1995-1998 Services Frank F. Gallaher See information under the Entergy Corporation Officers Section in Part I. Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. William E. Madison See information under the Entergy Arkansas Officers Section above. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. Daniel F. Packer See information under the Entergy New Orleans Directors Section above. Richard J. Smith See information under the Entergy Corporation Officers Section in Part I. Michael G. Thompson See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. SYSTEM ENERGY RESOURCES, INC. Directors Jerry W. Yelverton 57 Director, President and Chief Executive 1999-Present Officer of System Energy Senior Vice President of Nuclear of 1997-1998 Entergy Services Executive Vice President and Chief 1996-1998 Operating Officer of Entergy Operations In addition, Mr. Yelverton is an executive officer and/or director of various other wholly owned subsidiaries of Entergy Corporation and its operating companies. Donald C. Hintz See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Officers Joseph L. Blount 55 Secretary of System Energy and Entergy 1991-Present Operations Joseph T. Henderson See information under the Entergy Corporation Officers Section in Part I. Nathan E. Langston See information under the Entergy Corporation Officers Section in Part I. Steven C. McNeal See information under the Entergy Corporation Officers Section in Part I. C. John Wilder See information under the Entergy Corporation Officers Section in Part I. Jerry W. Yelverton See information under the System Energy Directors Section above. </TABLE> Each director and officer of the applicable Entergy company is elected yearly to serve by the unanimous consent of the sole stockholder, Entergy Corporation, at its annual meeting. Section 16(a) Beneficial Ownership Reporting Compliance Information called for by this item concerning the directors and officers of Entergy Corporation is set forth in the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders to be held on May 10, 2002, under the heading "Section 16(a) Beneficial Ownership Reporting Compliance", which information is incorporated herein by reference. Item 11. Executive Compensation ENTERGY CORPORATION Information called for by this item concerning the directors and officers of Entergy Corporation is set forth in the Proxy Statement under the headings "Executive Compensation Tables", "General Information About Nominees", "Director Compensation", and "Comparison of Five Year Cumulative Total Return", all of which information is incorporated herein by reference. ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY Summary Compensation Table The following table includes the Chief Executive Officer and the four other most highly compensated executive officers in office as of December 31, 2001 at Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy (collectively, the "Named Executive Officers"). This determination was based on total annual base salary and bonuses from all Entergy sources earned by each officer for the year 2001. See Item 10, "Directors and Executive Officers of the Registrants," for information on the principal positions of the Named Executive Officers in the table below. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy As shown in Item 10, most Named Executive Officers are employed by several Entergy companies. Because it would be impracticable to allocate such officers' salaries among the various companies, the table below includes the aggregate compensation paid by all Entergy companies. <TABLE> <CAPTION> Long-Term Compensation Annual Compensation Awards Payouts Other Restricted Securities (a) (b) All Annual Stock Underlying LTIP Other Name Year Salary Bonus Comp. Awards Options Payouts Comp. <S> <C> <C> <C> <C> <C> <C> <C> <C> E. Renae Conley 2001 $308,769 $486,186 $46,240 (c) 34,600 shares $ - $10,742 CEO-Entergy Louisiana 2000 282,642 280,000 41,573 (c) 20,000 181,109 8,559 CEO-LA-Entergy Gulf States 1999 215,000 344,934 29,662 $84,188(c)(d) 7,500 - 7,747 Joseph F. Domino 2001 $245,384 $292,583 $48,254 (c) 14,800 shares $ - $7,150 CEO-TX-Entergy Gulf States 2000 235,358 180,732 51,399 (c) 20,000 142,314 7,084 1999 223,569 200,210 7,072 (c) 13,487 - 6,838 Donald C. Hintz 2001 $599,423 $779,000 $198,321 (c) 160,000 shares $ - $21,605 2000 570,096 743,000 104,399 (c) 175,000 1,181,837 26,516 1999 535,713 495,000 76,188 (c) 272,000 - 22,156 Jerry D. Jackson 2001 $475,345 $576,382 $19,646 (c) 80,000 shares $ - $17,378 2000 458,223 554,214 58,758 (c) 58,500 1,181,575 15,162 1999 442,809 403,554 39,670 (c) 94,000 - 15,497 J. Wayne Leonard 2001 $897,500 $1,684,800 $3,709 $7,400,000(c)(d) 330,600 shares $ - $ - 2000 836,538 1,190,000 11,646 (c) 330,600 2,410,413 - 1999 771,938 840,000 2,570 (c) 255,000 - - Hugh T. McDonald 2001 $231,335 $333,078 $118,502 (c) 14,800 shares $ - $18,664 CEO-Entergy Arkansas 2000 209,400 165,000 53,808 (c) 34,600 172,773 54,878 1999 181,704 176,267 438 (c) 14,700 - 5,429 Daniel F. Packer 2001 $228,209 $262,881 $15,410 (c) 14,800 shares $ - $7,055 CEO-Entergy New Orleans 2000 219,432 167,382 16,433 (c) 20,000 196,929 6,658 1999 211,055 127,920 10,517 (c) 16,750 - 6,583 Carolyn C. Shanks 2001 $241,085 $287,672 $17,140 (c) 14,800 shares $ - $7,206 CEO-Entergy Mississippi 2000 231,193 182,530 2,594 (c) 20,000 104,241 4,858 1999 208,931 133,950 2,549 (c) 11,050 - 4,800 C. John Wilder 2001 $493,128 $600,000 $158,059 (c) 87,700 shares $ - $16,284 2000 468,392 619,370 148,540 (c) 87,700 953,006 13,919 1999 445,191 406,693 119,878 (c) 52,500 - 20,035 Jerry W. Yelverton 2001 $443,269 $540,000 $145,389 (c) 65,000 shares $ - $14,697 CEO-System Energy 2000 408,846 510,000 4,197 $201,875(c)(d) 58,900 503,482 12,732 1999 363,997 328,500 8,036 (c) 49,400 - 11,286 </TABLE> (a) Amounts include the value of restricted shares that vested in 2000 (see note (c) below) under Entergy's Equity Ownership Plan. (b) Includes the following: (1) 2001 benefit accruals under the Defined Contribution Restoration Plan as follows: Ms. Conley $3,392; Mr. Domino $1,600; Mr. Hintz $14,415; Mr. Jackson $11,272; Mr. McDonald $1,666; Mr. Packer $1,473; Ms. Shanks $2,003; Mr. Wilder $8,367; and Mr. Yelverton $8,732. (2) 2001 employer contributions to the System Savings Plan as follows: Ms. Conley $6,269; Mr. Domino $5,550; Mr. Hintz $6,681; Mr. Jackson $6,106; Mr. McDonald $5,527; Mr. Packer $5,582; Ms. Shanks $5,203; Mr. Wilder $7,917; and Mr. Yelverton $5,965. (3) 2001 reimbursements for moving expenses as follows: Ms. Conley $1,081; Mr. Hintz $509; and Mr. McDonald $11,471. (c) Restricted unit awards (equivalent to shares of Entergy Corporation common stock) in 2001 are reported under the "Long-Term Incentive Plan Awards" table, and reference is made to this table for information on the aggregate number of restricted units awarded during 2001 and the vesting schedule for such units. At December 31, 2001, the number and value of the aggregate restricted unit holdings were as follows: Ms. Conley 15,200 units, $594,472; Mr. Domino 6,200 units, $242,482; Mr. Hintz 57,000 units, $2,229,270; Mr. Jackson 25,400 units, $993,394; Mr. Leonard 246,000 units, $9,621,060; Mr. McDonald 6,800 units, $265,948; Mr. Packer 6,200 units, $242,482; Ms. Shanks 6,200 units, $242,482; Mr. Wilder 25,400 units, $993,394; and Mr. Yelverton 32,400 units, $1,267,164. Accumulated dividends are paid on restricted units when vested. The value of restricted unit holdings as of December 31, 2001 is determined by multiplying the total number of units held by the closing market price of Entergy Corporation common stock on the New York Stock Exchange Composite Transactions on December 31, 2001 ($39.11 per share). The value of stock for which restrictions were lifted in 2000, and the applicable portion of accumulated cash dividends, are reported in the LTIP payouts column in the above table. (d) Restricted units were granted to the following individuals in addition to those granted under the Long Term Incentive Plan. Ms. Conley was granted 3,000 units in 1999. The units will vest incrementally over a three-year period that began in 2000, based on continued service with Entergy Corporation. Accumulated dividends will be paid. In January 2001, Mr. Leonard was granted 200,000 restricted units. 50,000 of the restricted stock units will vest on each of December 31, 2001, December 31, 2002, December 31, 2003 and December 31, 2004, based on continued service with Entergy Corporation. Accumulated dividends will not be paid on Mr. Leonard's restricted units when vested. Mr. Yelverton was granted 10,000 units in 2000. Restrictions will be lifted on 3,000 units in 2001 and 2002, and the remaining 4,000 units in 2003. Accumulated dividends will not be paid. The value these individuals may realize is dependent upon both the number of units that vest and the future market price of Entergy Corporation common stock. Option Grants in 2001 The following table summarizes option grants during 2001 to the Named Executive Officers. The absence, in the table below, of any Named Executive Officer indicates that no options were granted to such officer. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy <TABLE> <CAPTION> Individual Grants Potential Realizable % of Total Value Number of Options at Assumed Annual Securities Granted to Exercise Rates of Stock Underlying Employees Price Price Appreciation Options in (per Expiration for Option Term(b) Name Granted (a) 2001 share) (a) Date 5% 10% <S> <C> <C> <C> <C> <C> <C> E. Renae Conley 34,600 0.4% $ 37.00 1/25/11 $ 805,111 $2,040,309 Joseph F. Domino 14,800 0.2% 37.00 1/25/11 344,383 872,733 Donald C. Hintz 160,000 1.9% 37.00 1/25/11 3,723,056 9,434,955 Jerry D. Jackson 80,000 0.9% 37.00 1/25/11 1,861,528 4,717,478 J. Wayne Leonard 330,600 3.8% 37.00 1/25/11 7,692,765 19,494,977 Hugh T. McDonald 14,800 0.2% 37.00 1/25/11 344,383 872,733 Daniel F. Packer 14,800 0.2% 37.00 1/25/11 344,383 872,733 Carolyn C. Shanks 14,800 0.2% 37.00 1/25/11 344,383 872,733 C. John Wilder 87,700 1.0% 37.00 1/25/11 2,040,700 5,171,535 Jerry W. Yelverton 65,000 0.8% 37.00 1/25/11 1,512,492 3,832,951 </TABLE> (a) Options were granted on January 25, 2001, pursuant to the Equity Ownership Plan. All options granted on this date have an exercise price equal to the closing price of Entergy Corporation common stock on the New York Stock Exchange Composite Transactions on January 25, 2001. These options will vest in equal increments, annually, over a three-year period beginning in 2002. (b) Calculation based on the market price of the underlying securities assuming the market price increases over a ten-year option period and assuming annual compounding. The column presents estimates of potential values based on simple mathematical assumptions. The actual value, if any, a Named Executive Officer may realize is dependent upon the market price on the date of option exercise. Aggregated Option Exercises in 2001 and December 31, 2001 Option Values The following table summarizes the number and value of all unexercised options held by the Named Executive Officers. The absence, in the table below, of any Named Executive Officer indicates that no options are held by such officer. <TABLE> <CAPTION> Number of Securities Value of Unexercised Underlying Unexercised Options In-the-Money Options Shares Acquired Value as of December 31, 2001 as of December 31, 2001(b) Name on Exercise Realized (a) Exercisable Unexercisable Exercisable Unexercisable <S> <C> <C> <C> <C> <C> <C> E. Renae Conley - $ - 11,666 50,434 $162,627 $315,436 Joseph F. Domino - - 17,156 32,631 213,265 287,288 Donald C. Hintz 2,500 22,916 238,833 420,667 2,778,663 3,477,946 Jerry D. Jackson - - 60,833 150,334 633,897 1,084,501 J. Wayne Leonard - - 280,200 636,000 3,334,647 5,027,873 Hugh T. McDonald 18,199 293,945 3,133 42,768 28,738 455,918 Daniel F. Packer - - 17,832 33,718 209,809 297,258 Carolyn C. Shanks 10,349 185,632 - 31,818 - 279,831 C. John Wilder - - 64,233 163,667 791,892 1,287,469 Jerry W. Yelverton 60,816 893,685 - 120,734 - 920,785 </TABLE> (a) Based on the difference between the closing price of Entergy Corporation's common stock on the New York Stock Exchange Composite Transactions on the exercise date and the option exercise price. (b) Based on the difference between the closing price of Entergy Corporation's common stock on the New York Stock Exchange Composite Transactions on December 31, 2001, and the option exercise price. Long-Term Incentive Plan Awards in 2001 The following Table summarizes the awards of restricted units (equivalent to shares of Entergy Corporation common stock) granted under the Equity Ownership Plan in 2000 to the Named Executive Officers. <TABLE> <CAPTION> Estimated Future Payouts Under Non-Stock Price-Based Plans (# of units) (a) (b) Number of Performance Period Until Name Units Maturation or Payout Threshold Target Maximum <S> <C> <C> <C> <C> <C> E. Renae Conley 7,500 1/1/01-12/31/03 2,500 5,000 7,500 Joseph F. Domino 3,100 1/1/01-12/31/03 1,100 2,100 3,100 Donald C. Hintz 28,500 1/1/01-12/31/03 9,500 19,000 28,500 Jerry D. Jackson 12,700 1/1/01-12/31/03 4,300 8,500 12,700 J. Wayne Leonard 48,000 1/1/01-12/31/03 16,000 32,000 48,000 Hugh T. McDonald 3,100 1/1/01-12/31/03 1,100 2,100 3,100 Daniel F. Packer 3,100 1/1/01-12/31/03 1,100 2,100 3,100 Carolyn C. Shanks 3,100 1/1/01-12/31/03 1,100 2,100 3,100 C. John Wilder 12,700 1/1/01-12/31/03 4,300 8,500 12,700 Jerry W. Yelverton 12,700 1/1/01-12/31/03 4,300 8,500 12,700 </TABLE> (a) Restricted units awarded will vest at the end of a three-year period, subject to the attainment of approved performance goals for Entergy. Restrictions are lifted based upon the achievement of the cumulative result of these goals for the performance period. The value any Named Executive Officer may realize is dependent upon both the number of units that vest and the future market price of Entergy Corporation common stock. (b) The threshold, target, and maximum levels correspond to the achievement of 50%, 100%, and 150%, respectively, of Equity Ownership Plan goals. Achievement of a threshold, target, or maximum level would result in the award of the number of units indicated in the respective column. Achievement of a level between these three specified levels would result in the award of a number of units calculated by means of interpolation. Pension Plan Tables Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Retirement Income Plan Table Annual Covered Years of Service Compensation 15 20 25 30 35 $100,000 $22,500 $30,000 $37,500 $45,000 $52,500 200,000 45,000 60,000 75,000 90,000 105,000 300,000 67,500 90,000 112,500 135,000 157,500 400,000 90,000 120,000 150,000 180,000 210,000 500,000 112,500 150,000 187,500 225,000 262,500 650,000 146,250 195,000 243,750 292,500 341,250 950,000 213,750 285,000 356,250 427,500 498,750 All of the Named Executive Officers participate in a Retirement Income Plan, a defined benefit plan, that provides a benefit for employees at retirement from Entergy based upon (1) generally all years of service beginning at age 21 through termination, with a forty-year maximum, multiplied by (2) 1.5%, multiplied by (3) the final average compensation. Final average compensation is based on the highest consecutive 60 months of covered compensation in the last 120 months of service. The normal form of benefit for a single employee is a lifetime annuity and for a married employee is a 50% joint and survivor annuity. Other actuarially equivalent options are available to each retiree. Retirement benefits are not subject to any deduction for Social Security or other offset amounts. The amount of the Named Executive Officers' annual compensation covered by the plan as of December 31, 2001, is represented by the salary column in the Summary Compensation Table above. The credited years of service under the Retirement Income Plan, as of December 31, 2001, for the following Named Executive Officers is as follows: Mr. Domino 31; Mr. Jackson 22; Mr. Leonard 3; Mr. McDonald 19; Mr. Packer 19; Ms. Shanks 18; and Mr. Yelverton 22. The credited years of service under the Retirement Income Plan, as of December 31, 2001 for the following Named Executive Officers, as a result of entering into supplemental retirement agreements, is as follows: Ms. Conley 19; Mr. Hintz 30; and Mr. Wilder 18. The maximum benefit under the Retirement Income Plan is limited by Sections 401 and 415 of the Internal Revenue Code of 1986, as amended; however, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy have elected to participate in the Pension Equalization Plan sponsored by Entergy Corporation. Under this plan, certain executives, including the Named Executive Officers, would receive an additional amount equal to the benefit that would have been payable under the Retirement Income Plan, except for the Sections 401 and 415 limitations discussed above. In addition to the Retirement Income Plan discussed above, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy participate in the Supplemental Retirement Plan of Entergy Corporation and Subsidiaries and the Post-Retirement Plan of Entergy Corporation and Subsidiaries. Participation is limited to one of these two plans and is at the invitation of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy. The participant may receive from the appropriate Entergy company a monthly benefit payment not in excess of .025 (under the Supplemental Retirement Plan) or .0333 (under the Post-Retirement Plan) times the participant's average basic annual salary (as defined in the plans) for a maximum of 120 months. Mr. Hintz, Mr. Packer and Mr. Yelverton have entered into a Supplemental Retirement Plan participation contract, and Mr. Jackson has entered into a Post- Retirement Plan participation contract. Current estimates indicate that the annual payments to each Named Executive Officer under the above plans would be less than the payments to that officer under the System Executive Retirement Plan discussed below. System Executive Retirement Plan Table (1) Annual Covered Years of Service Compensation 10 15 20 25 30+ $ 200,000 $60,000 $90,000 $100,000 $110,000 $120,000 300,000 90,000 135,000 150,000 165,000 180,000 400,000 120,000 180,000 200,000 220,000 240,000 500,000 150,000 225,000 250,000 275,000 300,000 600,000 180,000 270,000 300,000 330,000 360,000 700,000 210,000 315,000 350,000 385,000 420,000 1,000,000 300,000 450,000 500,000 550,000 600,000 (1) Covered pay includes the average of the highest three years of annual base pay and incentive awards earned by the executive during the ten years immediately preceding his retirement. Benefits shown are based on a target replacement ratio of 50% based on the years of service and covered compensation shown. The benefits for 10, 15, and 20 or more years of service at the 45% and 55% replacement levels would decrease (in the case of 45%) or increase (in the case of 55%) by the following percentages: 3.0%, 4.5%, and 5.0%, respectively. In 1993, Entergy Corporation adopted the System Executive Retirement Plan (SERP). This plan was amended in 1998. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are participating employers in the SERP. The SERP is an unfunded defined benefit plan offered at retirement to certain senior executives, which would currently include all the Named Executive Officers. Participating executives choose, at retirement, between the retirement benefits paid under provisions of the SERP or those payable under the Supplemental Retirement Plan or the Post-Retirement Plan discussed above. The plan was amended in 1998 to provide that covered pay is the average of the highest three years annual base pay and incentive awards earned by the executive during the ten years immediately preceding his retirement. Benefits paid under the SERP are calculated by multiplying the covered pay times target pay replacement ratios (45%, 50%, or 55%, dependent on job rating at retirement) that are attained, according to plan design, at 20 years of credited service. The target ratios are increased by 1% for each year of service over 20 years, up to a maximum of 30 years of service. In accordance with the SERP formula, the target ratios are reduced for each year of service below 20 years. The credited years of service under this plan are identical to the years of service for Named Executive Officers (other than Ms. Conley, Mr. Jackson, Mr. Wilder and Mr. Yelverton) disclosed above in the section entitled "Pension Plan Tables-Retirement Income Plan Table". Ms. Conley, Mr. Jackson, Mr. Wilder, and Mr. Yelverton have 2 years, 28 years, 3 years, and 32 years, respectively, of credited service under this plan. The amended plan provides that a single employee receives a lifetime annuity and a married employee receives the reduced benefit with a 50% surviving spouse annuity. Other actuarially equivalent options are available to each retiree. SERP benefits are offset by any and all defined benefit plan payments from Entergy. SERP benefits are not subject to Social Security offsets. Eligibility for and receipt of benefits under any of the executive plans described above are contingent upon several factors. The participant must agree, without the specific consent of the Entergy company for which such participant was last employed, not to take employment after retirement with any entity that is in competition with, or similar in nature to, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy or any affiliate thereof. Eligibility for benefits is forfeitable for various reasons, including violation of an agreement with Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, certain resignations of employment, or certain terminations of employment without Company permission. In addition to the Retirement Income Plan discussed above, Entergy Gulf States provides, among other benefits to officers, an Executive Income Security Plan for key managerial personnel. The plan provides participants with certain retirement, disability, termination, and survivors' benefits. To the extent that such benefits are not funded by the employee benefit plans of Entergy Gulf States or by vested benefits payable by the participants' former employers, Entergy Gulf States is obligated to make supplemental payments to participants or their survivors. The plan provides that upon the death or disability of a participant during his employment, he or his designated survivors will receive (i) during the first year following his death or disability an amount not to exceed his annual base salary, and (ii) thereafter for a number of years until the participant attains or would have attained age 65, but not less than nine years, an amount equal to one-half of the participant's annual base salary. The plan also provides supplemental retirement benefits for life for participants retiring after reaching age 65 equal to one- half of the participant's average final compensation rate, with one- half of such benefit upon the death of the participant being payable to a surviving spouse for life. Entergy Gulf States amended and restated the plan effective March 1, 1991, to provide such benefits for life upon termination of employment of a participating officer or key managerial employee without cause (as defined in the plan) or if the participant separates from employment for good reason (as defined in the plan), with 1/2 of such benefits to be payable to a surviving spouse for life. Further, the plan was amended to provide medical benefits for a participant and his family when the participant separates from service. These medical benefits generally continue until the participant is eligible to receive medical benefits from a subsequent employer; but in the case of a participant who is over 50 at the time of separation and was participating in the plan on March 1, 1991, medical benefits continue for life. By virtue of the 1991 amendment and restatement, benefits for a participant under such plan cannot be modified once he becomes eligible to participate in the plan. Mr. Domino is a participant in this plan. Compensation of Directors For information regarding compensation of the directors of Entergy Corporation, see the Proxy Statement under the heading "Director Compensation", which information is incorporated herein by reference. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy currently have no non-employee directors, and none of the current directors of these companies are compensated for their responsibilities as director. Retired non-employee directors of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans with a minimum of five years of service on the respective Boards of Directors are paid $200 a month for a term of years corresponding to the number of years of active service as directors. Retired non-employee directors with over ten years of service receive a lifetime benefit of $200 a month. Years of service as an advisory director are included in calculating this benefit. System Energy has no retired non-employee directors. Retired non-employee directors of Entergy Gulf States receive retirement benefits under a plan in which all directors who served continuously for a period of years will receive a percentage of their retainer fee in effect at the time of their retirement for life. The retirement benefit is 30 percent of the retainer fee for service of not less than five nor more than nine years, 40 percent for service of not less than ten nor more than fourteen years, and 50 percent for fifteen or more years of service. For those directors who retired prior to the retirement age, their benefits are reduced. The plan also provides disability retirement and optional hospital and medical coverage if the director has served at least five years prior to the disability. The retired director pays one-third of the premium for such optional hospital and medical coverage and Entergy Gulf States pays the remaining two-thirds. Years of service as an advisory director are included in calculating this benefit. Executive Retention and Employment Agreements and Change-in-Control Arrangements Entergy Gulf States As a result of the merger between Entergy and Entergy Gulf States, Entergy Gulf States is obligated to pay benefits under the Executive Income Security Plan to those persons who were participants at the time of the merger and who later terminated their employment under circumstances described in the plan. For additional description of the benefits under the Executive Income Security Plan, see the "Pension Plan Tables-System Executive Retirement Plan Table" section noted above. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Upon completion of a transaction resulting in a change-in-control of Entergy (a "Merger"), benefits already accrued under Entergy's System Executive Retirement Plan, Post-Retirement Plan, Supplemental Retirement Plan and Pension Equalization Plan will become fully vested if the participant is involuntarily terminated without "cause" or terminates employment for "good reason" (as such terms are defined in such plans). Retention Agreement with Mr. Leonard - The retention agreement with Mr. Leonard provides that upon a termination of employment while a Merger is pending (a) by Entergy without "cause" or by Mr. Leonard for "good reason", as such terms are defined in the agreement, other than a termination of employment described in the next paragraph, or (b) by reason of Mr. Leonard's death or disability: o Entergy will pay to him a lump sum cash severance payment equal to three times (in limited circumstances, five times) the sum of Mr. Leonard's base salary and target annual incentive award; o Entergy will pay to him a pro rata annual incentive award, based on an assumed maximum annual achievement of applicable performance goals; o his supplemental retirement benefit will fully vest, will be determined as if he had remained employed with Entergy until the attainment of age 55, and will commence upon his attainment of age 55; o he will be entitled to immediate payment of performance awards, based upon an assumed target achievement of applicable performance goals; o all of his stock options will become fully vested and will remain outstanding for their full ten-year term; and o Entergy will pay to him a "gross-up" payment in respect of any excise taxes he might incur. If Mr. Leonard's employment is terminated by Entergy for "cause" at any time, or by Mr. Leonard without "good reason" and without Entergy's permission prior to his attainment of age 55, Mr. Leonard will forfeit his supplemental retirement benefit. If Mr. Leonard's employment is terminated by Mr. Leonard without "good reason" with Entergy's permission prior to his attainment of age 55, Mr. Leonard will be entitled to a supplemental retirement benefit, reduced by 6.5% for each year that the termination date precedes his attainment of age 55, payable commencing upon Mr. Leonard's attainment of age 62. If Mr. Leonard's employment is terminated by Mr. Leonard without "good reason" following his attainment of age 55, Mr. Leonard will be entitled to his full supplemental retirement benefit. The amounts payable under the agreement will be funded in a rabbi trust. Retention agreement with Mr. Hintz - The retention agreement with Mr. Hintz provides that Mr. Hintz will be paid an initial retention payment of approximately $2.8 million on the date on which a Merger is completed and an additional retention payment of approximately $2.3 million on the second anniversary of the completion of a Merger if he remains employed on each of those dates. The agreement also provides that upon termination of employment while a Merger is pending and for two years after completion (a) by Mr. Hintz for "good reason" or by Entergy without "cause", as such terms are defined in the agreement or (b) by reason of Mr. Hintz's death or disability: o Entergy will pay to him a lump sum cash severance payment equal to $2.8 million if such termination occurs prior to completion of a Merger or equal to $2.3 million if such termination occurs following completion of a Merger; o Entergy will pay to him a pro rata annual incentive award, based on an assumed maximum achievement of applicable performance goals, if such termination occurs following completion of a Merger; o he will be entitled to immediate payment of performance awards based upon an assumed target achievement of applicable performance goals, if such termination occurs prior to completion of a Merger, or based upon an assumed maximum achievement of applicable performance goals, if such termination occurs following completion of a Merger; o all of his stock options will become fully vested and will remain outstanding for their full ten-year term; o he will be entitled to receive a supplemental retirement benefit that, when combined with Mr. Hintz's SERP benefit, equals the benefit he would have earned under the terms of the SERP as in effect immediately prior to March 25, 1998; and o Entergy will pay to him a "gross-up" payment in respect of any excise taxes he might incur. Retention Agreement with Mr. Jackson - The retention agreement with Mr. Jackson provides that upon retirement in accordance with the agreement, Mr. Jackson: (a) will be entitled to a subsidized retirement benefit equal to the applicable nonqualified retirement benefit payable to Mr. Jackson without reduction for early retirement ("Subsidized Retirement Benefit"); and (b) may enter into a consulting arrangement with Entergy through March 31, 2005, under terms and conditions set forth in the agreement. Pursuant to the agreement, should Mr. Jackson experience a Qualifying Event (as defined in the agreement) after the Successor Placement Date (as defined in the agreement) but before March 31, 2003, he shall not be entitled to benefits under the System Executive Continuity Plan but shall instead be entitled to the following: o a lump sum amount equal to any unpaid base salary that would otherwise have been paid through March 31, 2003; o the Subsidized Retirement Benefit; and o all other benefits to which he may be entitled under the terms and conditions of those Entergy plans and programs in which he participates in accordance with the agreement. Additionally, Mr. Jackson is entitled to certain benefits, as described in the agreement, in the event of a change in control (as defined in the System Executive Continuity Plan) after which Entergy or its successor company fails to honor Mr. Mr. Jackson's consulting arrangement. Retention Agreement with Mr. Wilder - The retention agreement with Mr. Wilder provides the following: if Mr. Wilder terminates his employment for any reason following shareholder approval of the merger with FPL Group, or, alternatively, following shareholder approval of any other Merger, but prior to completion of a Merger, Entergy will pay to him a lump sum cash severance payment equal to three times the sum of his base salary and target annual incentive award and a "gross-up" payment in respect of any excise taxes he might incur. The agreement also provides that, as a substitute for the above entitlement, upon termination of employment (a) by Mr. Wilder for "good reason" or by Entergy without "cause", as such terms are defined in the agreement, in each case prior to the termination of a Merger or prior to the second anniversary of the completion of a Merger, (b) by reason of Mr. Wilder's death or disability while a Merger is pending and for two years after completion of a Merger or (c) for any reason following the second anniversary of a Merger: o Mr. Wilder will be entitled to a lump sum cash severance payment equal to four times (in limited circumstances, three times) the sum of the his base salary and maximum annual incentive award; o Mr. Wilder will be entitled to a pro rata annual incentive award, based on an assumed maximum achievement of applicable performance goals; o except in the case of a termination by reason of death or disability, he will continue to be employed as a Special Project Coordinator at an annual base salary of $200,000, and will continue to participate in all of Entergy's benefit plans, until the earliest of (a) his attainment of age 55 (at which time he will be deemed eligible to retire under Entergy's plans then in effect), (b) his employment with a company listed in the Fortune Global 500 Index or (c) his employment with any company that has a conflict of interest policy that would prohibit his continued employment with Entergy; o Entergy will credit him with 15 additional years of service under Entergy's supplemental retirement plan and he may elect to receive either (a) approximately $1.9 million in a cash lump sum in full settlement of all nonqualified retirement benefits or (b) the benefit that he would have earned under the terms of the SERP applicable to individuals who became participants on or after March 25, 1998 (which amount he may elect to receive upon completion of a Merger); o he will be entitled to immediate vesting of performance awards, based upon an assumed maximum achievement of applicable performance goals; o all of his stock options will become fully vested and will remain outstanding for their full ten-year term; and o he will be entitled to a "gross-up" payment in respect of any excise taxes he might incur. If Mr. Wilder terminates employment without good reason and other than on account of death or disability, on or after the completion of a Merger and before the second anniversary of the completion of a Merger: o Mr. Wilder is entitled to a lump sum cash severance payment equal to three times the sum of his base salary and target annual incentive award; o Mr. Wilder is entitled to a pro rata annual incentive award, based on an assumed maximum achievement of applicable performance goals; o he will continue to be employed as a Special Project Coordinator at an annual base salary of $200,000, and will continue to participate in all of Entergy's benefit plans, until the earliest of (a) his attainment of age 55 (at which time he will be deemed eligible to retire under Entergy's plans then in effect), (b) his employment with a company listed in the Fortune Global 500 Index or (c) his employment with any company that has a conflict of interest policy that would prohibit his continued employment with Entergy; o Entergy will credit him with 15 additional years of service under Entergy's supplemental retirement plan and he may elect either (a) approximately $1.9 million in a cash lump sum in full settlement of all nonqualified retirement benefits or (b) the benefit that he would have earned under the terms of the SERP applicable to individuals who became participants on or after March 25, 1998 (which amount he may elect to receive upon completion of a Merger); o he will be entitled to immediate vesting of performance awards, based upon an assumed target achievement of applicable performance goals; o all of his stock options will become fully vested and will remain outstanding for their full ten-year term; and o he will be entitled to a "gross-up" payment in respect of any excise taxes he might incur. Retention Agreement with Mr. Yelverton - The retention agreement with Mr. Yelverton provides that he will be paid cash retention payments of $680,000 on each of the first three anniversaries of the completion of a Merger if he remains employed on each of those dates. The agreement also provides that upon termination of employment while a Merger is pending and for three years after completion (a) by Mr. Yelverton for "good reason" or by Entergy without "cause", as such terms are defined in the agreement or (b) by reason of Mr. Yelverton's death or disability: o Entergy will pay him a lump sum cash severance payment equal to the remaining unpaid portion of the cash retention payments; o he will be entitled to immediate payment of performance awards, based upon an assumed target achievement of applicable performance goals; o all of his stock options will become fully vested and will remain outstanding for their full ten-year term; and o Entergy will pay to him a "gross-up" payment in respect of any excise taxes he might incur. System Executive Continuity Plan - Ms. Conley, Mr. Domino, Mr. McDonald, Mr. Packer and Ms. Shanks are participants in Entergy's System Executive Continuity Plan, which provides severance pay and benefits under specified circumstances following a change in control. In the event a participant's employment is involuntarily terminated without cause or if a participant terminates for good reason during the change in control period, the participant will be entitled to: o a cash severance payment equal to 1-3 times (depending on the participant's System Management Level) base annual salary and target award payable over a continuation period of 1-3 years (depending on the participant's System Management Level); o continued medical and dental insurance coverage for the continuation period (subject to offset for any similar coverage provided by the participant's new employer); o immediate vesting of performance awards, based upon an assumed achievement of applicable performance targets; and o payment of a "gross-up" payment in respect of any excise taxes the participant might incur. Participants in the Continuity Plan are subject to post- employment restrictive covenants, including noncompetition provisions, which run for two years for executive officers, but extend to three years if permissible under applicable law. Personnel Committee Interlocks and Insider Participation The compensation of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy executive officers was set by the Personnel Committee of Entergy Corporation's Board of Directors, composed solely of Directors of Entergy Corporation. Item 12. Security Ownership of Certain Beneficial Owners and Management Entergy Corporation owns 100% of the outstanding common stock of registrants Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy. The information with respect to persons known by Entergy Corporation to be beneficial owners of more than 5% of Entergy Corporation's outstanding common stock is included under the heading "Stockholders Who Own at Least Five Percent" in the Proxy Statement, which information is incorporated herein by reference. The registrants know of no contractual arrangements that may, at a subsequent date, result in a change in control of any of the registrants. As of December 31, 2001, the directors, the Named Executive Officers, and the directors and officers as a group for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, respectively, beneficially owned directly or indirectly common stock of Entergy Corporation as indicated: Entergy Corporation Entergy Corporation Common Stock Stock Equivalent Units (e) Amount and Nature of Beneficial Ownership(a) Sole Voting and Other Investment Beneficial Name Power Ownership(d) Entergy Corporation Maureen S. Bateman* 900 - 800 W. Frank Blount* 7,434 - 8,000 George W. Davis* 2,100 - 2,400 Simon D. deBree* 140 - - Claiborne P. Deming* (c) - - Norman C. Francis* 3,100 - 5,600 Frank F. Gallaher** 8,091 54,667 47,041 Donald C. Hintz** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard*** 13,065 585,600 - Robert v.d. Luft* 22,672 214,166 7,200 Kathleen A. Murphy* 1,900 (b) - 800 Paul W. Murrill* 2,722 - 8,000 James R. Nichols* 9,757 - 8,000 William A. Percy, II* 1,150 - 800 Dennis H. Reilley* 600 - 1,600 Wm. Clifford Smith* 10,400 - 8,000 Bismark A. Steinhagen* 10,247 - 8,000 C. John Wilder** 9,234 140,199 53,693 All directors and executive officers 153,136 1,776,548 265,462
Entergy Corporation Entergy Corporation Common Stock Stock Equivalent Units (e) Amount and Nature of Beneficial Ownership(a) Sole Voting and Other Investment Beneficial Name Power Ownership(d) Entergy Arkansas Donald C Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - Hugh T. McDonald*** 3,728 21,166 877 Richard J. Smith* 307 66,665 229 C. John Wilder*** 9,234 140,199 53,693 All directors and executive officers 84,065 1,587,548 207,142 Entergy Gulf States E. Renae Conley*** 1,148 29,866 10,299 Joseph F. Domino*** 10,142 33,253 6,043 Donald C. Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - Richard J. Smith* 307 66,665 229 C. John Wilder*** 9,234 140,199 53,693 All directors and executive officers 112,560 1,698,119 231,160 Entergy Louisiana E. Renae Conley*** 1,148 29,866 10,299 Donald C. Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - Richard J. Smith* 307 66,665 229 C. John Wilder*** 9,234 140,199 53,693 All directors and executive officers 102,296 1,658,733 224,852 Entergy Mississippi Donald C. Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - Carolyn C. Shanks*** 3,960 15,284 1,556 Richard J. Smith* 307 66,665 229 C. John Wilder*** 9,234 140,199 53,693 All directors and executive officers 89,380 1,587,566 210,308
Entergy Corporation Entergy Corporation Common Stock Stock Equivalent Units (e) Amount and Nature of Beneficial Ownership(a) Sole Voting and Other Investment Beneficial Name Power Ownership(d) Entergy New Orleans Donald C. Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - Daniel F. Packer*** 3,423 35,016 3,007 Richard J. Smith* 307 66,665 229 C. John Wilder*** 9,234 140,199 53,693 All directors and executive officers 86,428 1,610,289 209,269 System Energy Donald C. Hintz*** 3,715 414,499 26,861 Jerry D. Jackson** 23,447 138,333 25,721 J. Wayne Leonard** 13,065 585,600 - C. John Wilder*** 9,234 140,199 53,693 Jerry W. Yelverton*** 8,779 57,766 987 All directors and executive officers 75,073 1,435,639 136,299 * Director of the respective Company ** Named Executive Officer of the respective Company *** Director and Named Executive Officer of the respective Company (a) Based on information furnished by the respective individuals. Except as noted, each individual has sole voting and investment power. The number of shares of Entergy Corporation common stock owned by each individual and by all directors and executive officers as a group does not exceed one percent of the outstanding Entergy Corporation common stock. (b) Includes 1,000 shares for Ms. Murphy in which she has joint ownership. (c) Mr. Deming was elected to the Board on January 25, 2002 and now owns 50 shares. (d) Other Beneficial Ownership includes, for the Named Executive Officers, shares of Entergy Corporation common stock that may be acquired within 60 days after December 31, 2001, in the form of unexercised stock options awarded pursuant to the Equity Ownership Plan. (e) Represents the balances of stock equivalent units each executive holds under the Executive Annual Incentive Plan Deferral Program and the Defined Contribution Restoration Plan. These units will be paid out in a combination of Entergy Corporation Common Stock and cash based on the value of Entergy Corporation Common Stock on the date of payout. The deferral period is determined by the individual and is at least two years from the award of the bonus up until retirement for the Executive Annual Incentive Plan and at retirement for the Defined Contribution Restoration Plan. For Directors of Entergy Corporation the units are part of the Service Award for Directors. All non- employee directors are credited with 800 units for each year of service on the Board up to a maximum of 10 years. Item 13. Certain Relationships and Related Transactions During 2001, T. Baker Smith & Son, Inc. performed land-surveying services for, and received payments of approximately $105,229 from Entergy companies. Mr. Wm. Clifford Smith, a director of Entergy Corporation, is President of T. Baker Smith & Son, Inc. Mr. Smith's children own 100% of the voting stock of T. Baker Smith & Son, Inc. See Item 10, "Directors and Executive Officers of the Registrants," for information on certain relationships and transactions required to be reported under this item. Other than as provided under applicable corporate laws, Entergy does not have policies whereby transactions involving executive officers and directors are approved by a majority of disinterested directors. However, pursuant to the Entergy Corporation Code of Conduct, transactions involving an Entergy company and its executive officers must have prior approval by the next higher reporting level of that individual, and transactions involving an Entergy company and its directors must be reported to the secretary of the appropriate Entergy company.
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)1. Financial Statements and Independent Auditors' Reports for Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are listed in the Index to Financial Statements (see pages 50 and 51) (a)2. Financial Statement Schedules Reports of Independent Accountants on Financial Statement Schedules (see page 257) Financial Statement Schedules are listed in the Index to Financial Statement Schedules (see page S-1) (a)3. Exhibits Exhibits for Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are listed in the Exhibit Index (see page E- 1). Each management contract or compensatory plan or arrangement required to be filed as an exhibit hereto is identified as such by footnote in the Exhibit Index. (b) 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 August 13, 2001, was filed with the SEC on August 13, 2001, reporting information under Item 4. "Changes in Registrant's Certifying Accountant" and Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits". Entergy Corporation and Entergy Arkansas A Current Report on Form 8-K, dated December 10, 2001, was filed with the SEC on December 10, 2001, reporting information under Item 5. "Other Information". Entergy Corporation A Current Report on Form 8-K, dated January 8, 2002, was filed with the SEC on January 8, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated January 31, 2002, was filed with the SEC on January 31, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".
ENTERGY CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY CORPORATION By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) J. Wayne Leonard (Chief Executive Officer and Director; Principal Executive Officer); Robert v.d. Luft (Chairman of the Board and Director); C. John Wilder (Executive Vice President and Chief Financial Officer; Principal Financial Officer); Maureen S. Bateman, W. Frank Blount, George W. Davis, Simon deBee, Norman C. Francis, Kathleen A. Murphy, Paul W. Murrill, James R. Nichols, William A. Percy, II, Dennis H. Reilley, Wm. Clifford Smith, and Bismark A. Steinhagen (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
ENTERGY ARKANSAS, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY ARKANSAS, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) Hugh T. McDonald (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Donald C. Hintz and Richard J. Smith (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
ENTERGY GULF STATES, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY GULF STATES, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) Joseph F. Domino (Chairman of the Board, President, Chief Executive Officer-Texas, and Director; Principal Executive Officer); E. Renae Conley (President, Chief Executive Officer-Louisiana, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Donald C. Hintz and Richard J. Smith (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
ENTERGY LOUISIANA, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY LOUISIANA, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) E. Renae Conley (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Donald C. Hintz and Richard J. Smith (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
ENTERGY MISSISSIPPI, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY MISSISSIPPI, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) Carolyn C. Shanks (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Donald C. Hintz and Richard J. Smith (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
ENTERGY NEW ORLEANS, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ENTERGY NEW ORLEANS, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) Daniel F. Packer (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); Donald C. Hintz and Richard J. Smith (Directors). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
SYSTEM ENERGY RESOURCES, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SYSTEM ENERGY RESOURCES, INC. By /s/ Nathan E. Langston Nathan E. Langston, Senior Vice President and Chief Accounting Officer Date: March 14, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Signature Title Date /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and March 14, 2002 Chief Accounting Officer (Principal Accounting Officer) Jerry W. Yelverton (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); C. John Wilder (Executive Vice President, Chief Financial Officer, and Director; Principal Financial Officer); and Donald C. Hintz (Director). By: /s/ Nathan E. Langston March 14, 2002 (Nathan E. Langston, Attorney-in-fact)
EXHIBIT 23(a) INDEPENDENT AUDITORS' CONSENTS We consent to the incorporation by reference in Post-Effective Amendments No. 3 and 5A on Form S-8 and their related prospectuses to Registration Statement No. 33-54298 on Form S-4, Registration Statements No. 333-02503 and 333-22007 of Entergy Corporation on Form S- 3 and Registration Statements No. 333-75097, 333-55692, and 333-68950 of Entergy Corporation on Form S-8 of our report dated January 31, 2002, which report includes an explanatory paragraph regarding the Corporation's change in 2001 in the method of accounting for derivative instruments, appearing in this Annual Report on Form 10-K of Entergy Corporation for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-50289, 333-00103, 333-05045 and 333-39018 of Entergy Arkansas, Inc. on Form S-3 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of Entergy Arkansas, Inc. for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-49739, 33-51181 and 333-60957 of Entergy Gulf States, Inc. on Form S-3 and Registration Statement No. 333-17911 on Form S-2 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of Entergy Gulf States, Inc. for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-46085, 33-39221, 33-50937, 333-00105, 333-01329, 333-03567 and 333-93683 of Entergy Louisiana, Inc. on Form S-3 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of Entergy Louisiana, Inc. for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-53004, 33-55826, 33-50507, 333-64023 and 333-53554 of Entergy Mississippi, Inc. on Form S-3 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of Entergy Mississippi, Inc. for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-57926, 333-00255 and 333-95599 of Entergy New Orleans, Inc. on Form S-3 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of Entergy New Orleans, Inc. for the year ended December 31, 2001. We consent to the incorporation by reference in Registration Statements No. 33-47662, 33-61189, and 333-06717 of System Energy Resources, Inc. on Form S-3 of our report dated January 31, 2002, appearing in this Annual Report on Form 10-K of System Energy Resources, Inc. for the year ended December 31, 2001. DELOITTE & TOUCHE LLP New Orleans, Louisiana March 14, 2002
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Entergy Corporation: We have audited the consolidated financial statements of Entergy Corporation and the financial statements of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc., as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our reports thereon dated January 31, 2002, our report on the consolidated financial statements of the Corporation includes an explanatory paragraph regarding the Corporation's change in 2001 in the method of accounting for derivative instruments; such financial statements and reports are included in your 2001 Annual Report to Shareholders and are included herein. Our audits also included the consolidated financial statement schedules of Entergy Corporation and financial statement schedules of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc, listed in Item 14. These financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP New Orleans, Louisiana January 31, 2002
INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule Page I Financial Statements of Entergy Corporation: Statements of Income - For the Years Ended December 31, 2001, 2000, and 1999 S-2 Statements of Cash Flows - For the Years Ended December 31, 2001, 2000, and 1999 S-3 Balance Sheets, December 31, 2001 and 2000 S-4 Statements of Retained Earnings, Comprehensive Income, and Paid-In Capital for the Years Ended December 31, 2001, 2000, and 1999 S-5 II Valuation and Qualifying Accounts 2001, 2000 and 1999: Entergy Corporation and Subsidiaries S-6 Entergy Arkansas, Inc. S-7 Entergy Gulf States, Inc. S-8 Entergy Louisiana, Inc. S-9 Entergy Mississippi, Inc. S-10 Entergy New Orleans, Inc. S-11 Schedules other than those listed above are omitted because they are not required, not applicable, or the required information is shown in the financial statements or notes thereto. Columns have been omitted from schedules filed because the information is not applicable.
ENTERGY CORPORATION SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION STATEMENTS OF INCOME For the Years Ended December 31, 2001 2000 1999 (In Thousands) Income: Equity in income of subsidiaries $801,155 $698,243 $651,977 Interest on temporary investments 18,889 12,273 5,703 -------- -------- -------- Total 820,044 710,516 657,680 -------- -------- -------- Expenses and Other Deductions: Administrative and general expenses 45,525 25,146 85,815 Income taxes (credit) 9,787 (15,212) 12,524 Taxes other than income 825 661 739 Interest 37,711 20,627 6,143 -------- -------- -------- Total 93,848 31,222 105,221 -------- -------- -------- Net Income $726,196 $679,294 $552,459 ======== ======== ======== See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8.
<TABLE> <CAPTION> ENTERGY CORPORATION SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION STATEMENTS OF CASH FLOWS Year to Date December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> Operating Activities: Net income $726,196 $679,294 $552,459 Noncash items included in net income: Equity in earnings of subsidiaries (801,155) (698,243) (651,977) Deferred income taxes 11,005 (9,014) (15,237) Depreciation 1,391 962 1,438 Changes in working capital: Receivables (1,804) 2,013 198 Payables 1,140 (13,822) 17,256 Other working capital accounts 489,997 98,489 (83,711) Common stock dividends received from subsidiaries 440,300 314,300 532,300 Other (19,418) (11,694) 68,276 -------- -------- -------- Net cash flow provided by operating activities 847,652 362,285 421,002 -------- -------- -------- Investing Activities: Investment in subsidiaries (239,180) 194,665 237,121 Capital expenditures (103) (360) (604) Changes in other temporary investments (4,782) - - Other 897 (1,000) 9,328 -------- -------- -------- Net cash flow provided by (used in) investing activities (243,168) 193,305 245,845 -------- -------- -------- Financing Activities: Changes in short-term borrowings (36,999) 267,000 (165,500) Advances to subsidiaries 27,067 (32,833) (32,261) Common stock dividends paid (269,122) (271,019) (291,483) Repurchase of common stock (36,895) (550,206) (245,004) Notes receivable to/from associated companies (368,992) - - Issuance of common stock 64,345 41,908 15,320 -------- -------- -------- Net cash flow used in financing activities (620,596) (545,150) (718,928) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (16,112) 10,440 (52,081) Cash and cash equivalents at beginning of period 26,933 16,493 68,574 -------- -------- -------- Cash and cash equivalents at end of period $10,821 $26,933 $16,493 ======== ======== ======== See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION BALANCE SHEETS December 31, 2001 2000 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Temporary cash investments - at cost, which approximates market $10,821 $26,933 ---------- ---------- Total cash and cash equivalents 10,821 26,933 Other temporary investments 4,782 - Notes receivable - associated companies 368,992 - Accounts receivable - associated companies 4,915 20,932 Other 2,517 2,012 ---------- ---------- Total 392,027 49,877 ---------- ---------- Investment in Wholly-owned Subsidiaries 7,860,109 7,310,589 Deferred Debits and Other Assets 98,488 154,658 ---------- ---------- Total $8,350,624 $7,515,124 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $350,001 $387,000 Accounts payable: Associated companies 13,618 2,206 Other 5,105 3,964 Taxes accrued 215,368 13,123 Other current liabilities 7,861 10,542 ---------- ---------- Total 591,953 416,835 ---------- ---------- Deferred Credits and Noncurrent Liabilities 302,651 93,588 ---------- ---------- Shareholders' Equity: Common stock, $.01 par value, authorized 500,000,000 shares; issued 248,174,087 shares in 2001 and 248,094,614 shares in 2000 2,482 2,481 Paid-in capital 4,662,704 4,660,483 Retained earnings 3,638,448 3,190,640 Accumulated other comprehensive loss (88,794) (73,998) Less cost of treasury stock (27,441,384 shares in 2001 and 28,490,031 shares in 2000 758,820 774,905 ---------- ---------- Total common shareholders' equity 7,456,020 7,004,701 ---------- ---------- Total $8,350,624 $7,515,124 ========== ========== See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL For the Years Ended December 31, 2001 2000 1999 (In Thousands) <S> <C> <C> <C> <C> <C> <C> RETAINED EARNINGS Retained Earnings - Beginning of period $3,190,639 $2,786,467 $2,526,888 Add - Earnings applicable to common stock 726,196 $726,196 679,294 $679,294 552,459 $552,459 Deduct: Dividends declared on common stock 278,342 275,929 294,352 Capital stock and other expenses 45 (807) (1,472) ---------- ---------- ---------- Total 278,387 275,122 292,880 ---------- ---------- ---------- Retained Earnings - End of period $3,638,448 $3,190,639 $2,786,467 ========== ========== ========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Net of tax): Balance at beginning of period ($75,033) ($73,805) ($46,739) Cumulative effect to January 1, 2001 of accounting change regarding fair value of derivative instruments (18,021) - - Net derivative instrument fair value changes arising during the period 48 48 - - - - Foreign currency translation adjustments 4,615 4,615 (5,216) (5,216) (22,043) (22,043) Net unrealized investment gains (losses) (403) (403) 3,988 3,988 (5,023) (5,023) -------- -------- -------- Balance at end of period: Accumulated derivative instrument fair value changes (17,973) - - Other accumulated comprehensive income (loss) items (70,821) (75,033) (73,805) -------- -------- -------- Total ($88,794) ($75,033) ($73,805) ======== -------- ======== -------- ======== -------- Comprehensive Income $730,456 $678,066 $525,393 ======== ======== ======== PAID-IN CAPITAL Paid-in Capital - Beginning of period $4,660,483 $4,636,163 $4,630,609 Add: Common stock issuances related to stock plans 2,221 24,320 5,554 ---------- ---------- ---------- Paid-in Capital - End of period $4,662,704 $4,660,483 $4,636,163 ========== ========== ========== See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $9,947 $12,762 $3,454 $19,255 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(108,351) $45,714 $140,900 $(203,537) Injuries and damages (Note 2) 35,135 20,334 26,084 29,385 Environmental 37,183 7,442 9,823 34,802 -------- ------- -------- --------- Total $(36,033) $73,490 $176,807 $(139,350) ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $9,507 $17,550 $17,110 $9,947 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(33,267) $66,866 $141,950 $(108,351) Injuries and damages (Note 2) 34,309 16,785 15,959 35,135 Environmental 37,793 9,084 9,694 37,183 -------- ------- -------- --------- Total $38,835 $92,735 $167,603 $(36,033) ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $10,300 $19,349 $20,142 $9,507 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(14,846) $35,208 $53,629 $(33,267) Injuries and damages (Note 2) 28,162 25,162 19,015 34,309 Environmental 35,857 11,344 9,408 37,793 -------- ------- -------- --------- Total $49,173 $71,714 $82,052 $38,835 ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,667 $- $- $1,667 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(80,297) $16,155 $114,573 $(178,715) Injuries and damages (Note 2) 3,152 2,367 2,629 2,890 Environmental 7,136 2,181 2,407 6,910 -------- ------- -------- --------- Total $(70,009) $20,703 $119,609 $(168,915) ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,768 $3,840 $3,941 $1,667 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $858 $35,521 $116,676 $(80,297) Injuries and damages (Note 2) 3,253 1,322 1,423 3,152 Environmental 4,934 4,082 1,880 7,136 -------- ------- -------- --------- Total $9,045 $40,925 $119,979 $(70,009) ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,753 $4,175 $4,160 $1,768 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $7,600 $18,306 $25,048 $858 Injuries and damages (Note 2) 4,618 2,502 3,867 3,253 Environmental 4,894 3,132 3,092 4,934 -------- ------- -------- --------- Total $17,112 $23,940 $32,007 $9,045 ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $2,131 $- $- $2,131 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets-- Property insurance $(5,698) $4,485 $7,508 $(8,721) Injuries and damages (Note 2) 9,406 5,266 7,899 6,773 Environmental 20,671 2,306 4,261 18,716 -------- ------- -------- --------- Total $24,379 $12,057 $19,668 $16,768 ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,828 $4,757 $4,454 $2,131 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets-- Property insurance $(3,452) $4,486 $6,732 $(5,698) Injuries and damages (Note 2) 8,684 6,538 5,816 9,406 Environmental 24,445 1,844 5,618 20,671 -------- ------- -------- --------- Total $29,677 $12,868 $18,166 $24,379 ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,735 $4,271 $4,178 $1,828 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets-- Property insurance $(4,184) $4,486 $3,754 $(3,452) Injuries and damages (Note 2) 4,759 9,810 5,885 8,684 Environmental 22,309 4,187 2,051 24,445 -------- ------- -------- --------- Total $22,884 $18,483 $11,690 $29,677 ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,771 $- $- $1,771 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(27,040) $11,900 $11,435 $(26,575) Injuries and damages (Note 2) 11,583 3,674 5,428 9,829 Environmental 7,793 2,051 1,717 8,127 -------- ------- -------- --------- Total $(7,664) $17,625 $18,580 $(8,619) ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,615 $4,603 $4,447 $1,771 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(24,089) $11,900 $14,851 $(27,040) Injuries and damages (Note 2) 12,452 3,889 4,758 11,583 Environmental 7,022 2,132 1,361 7,793 -------- ------- -------- --------- Total $(4,615) $17,921 $20,970 $(7,664) ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,164 $4,797 $4,346 $1,615 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(17,825) $6,680 $12,944 $(24,089) Injuries and damages (Note 2) 13,124 7,038 7,710 12,452 Environmental 7,236 1,059 1,273 7,022 -------- ------- -------- --------- Total $2,535 $14,777 $21,927 $(4,615) ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,044 $- $- $1,044 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(4,765) $13,124 $7,080 $1,279 Injuries and damages (Note 2) 6,694 8,196 8,584 6,306 Environmental 511 581 605 487 -------- ------- -------- --------- Total $2,440 $21,901 $16,269 $8,072 ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $886 $2,635 $2,477 $1,044 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(16,356) $14,956 $3,365 $(4,765) Injuries and damages (Note 2) 6,849 1,579 1,734 6,694 Environmental 594 418 501 511 -------- ------- -------- --------- Total $(8,913) $16,953 $5,600 $2,440 ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $1,217 $2,106 $2,437 $886 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $(11,543) $5,736 $10,549 $(16,356) Injuries and damages (Note 2) 3,796 2,950 (103) 6,849 Environmental 704 895 1,005 594 -------- ------- -------- --------- Total $(7,043) $9,581 $11,451 $(8,913) ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000, and 1999 (In Thousands) Column A Column B Column C Column D Column E Other Additions Changes Deductions Balance at from Balance Beginning Charged to Provisions at End Description of Period Income (Note 1) of Period <S> <C> <C> <C> <C> Year ended December 31, 2001 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $770 $4,918 $3,454 $2,234 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $9,449 $50 $304 $9,195 Injuries and damages (Note 2) 4,300 831 1,544 3,587 Environmental 1,072 323 833 562 -------- ------- -------- --------- Total $14,821 $1,204 $2,681 $13,344 ======== ======= ======== ========= Year ended December 31, 2000 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $846 $1,715 $1,791 $770 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $9,772 $3 $326 $9,449 Injuries and damages (Note 2) 3,071 3,457 2,228 4,300 Environmental 798 608 334 1,072 -------- ------- -------- --------- Total $13,641 $4,068 $2,888 $14,821 ======== ======= ======== ========= Year ended December 31, 1999 Accumulated Provisions Deducted from Assets-- Doubtful Accounts $761 $1,936 $1,851 $846 ======== ======= ======== ========= Accumulated Provisions Not Deducted from Assets: Property insurance $11,106 $- $1,334 $9,772 Injuries and damages (Note 2) 1,865 2,862 1,656 3,071 Environmental 714 2,071 1,987 798 -------- ------- -------- --------- Total $13,685 $4,933 $4,977 $13,641 ======== ======= ======== ========= ___________ Notes: (1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. (2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. </TABLE>
EXHIBIT INDEX The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC, respectively, as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a (+) are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 14 of Form 10-K. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K. (3) (i) Articles of Incorporation Entergy Corporation (a) 1 -- Certificate of Incorporation of Entergy Corporation dated December 31, 1993 (A-1(a) to Rule 24 Certificate in 70-8059). System Energy (b) 1 -- Amended and Restated Articles of Incorporation of System Energy and amendments thereto through April 28, 1989 (A-1(a) to Form U-1 in 70-5399). Entergy Arkansas (c) 1 -- Amended and Restated Articles of Incorporation of Entergy Arkansas effective November 12, 1999 (3(i)(c)1 to Form 10-K for the year ended December 31, 1999 in 1- 10764). Entergy Gulf States (d) 1 -- Restated Articles of Incorporation of Entergy Gulf States effective November 17, 1999 (3(i)(d)1 to Form 10-K for the year ended December 31, 1999 in 1-27031). Entergy Louisiana (e) 1 -- Amended and Restated Articles of Incorporation of Entergy Louisiana effective November 15, 1999 (3(a) to Form S-3 in 333-93683). Entergy Mississippi (f) 1 -- Amended and Restated Articles of Incorporation of Entergy Mississippi effective November 12, 1999 (3(i)(f)1 to Form 10-K for the year ended December 31, 1999 in 0- 320). Entergy New Orleans (g) 1 -- Amended and Restated Articles of Incorporation of Entergy New Orleans effective November 15, 1999 (3(a) to Form S-3 in 333-95599). (3) (ii) By-Laws (a) -- By-Laws of Entergy Corporation as amended January 29, 1999, and as presently in effect (4.2 to Form S-8 in File No. 333-75097). (b) -- By-Laws of System Energy effective July 6, 1998, and as presently in effect (3(f) to Form 10-Q for the quarter ended June 30, 1998 in 1-9067). (c) -- By-Laws of Entergy Arkansas effective November 26, 1999, and as presently in effect (3(ii)(c) to Form 10-K for the year ended December 31, 1999 in 1-10764). (d) -- By-Laws of Entergy Gulf States effective November 26, 1999, and as presently in effect (3(ii)(d) to Form 10- K for the year ended December 31, 19991-27031). (e) -- By-Laws of Entergy Louisiana effective November 26, 1999, and as presently in effect (3(b) to Form S-3 in File No. 333-93683). (f) -- By-Laws of Entergy Mississippi effective November 26, 1999, and as presently in effect (3(ii)(f) to Form 10- K for the year ended December 31, 1999 in 0-320). (g) -- By-Laws of Entergy New Orleans effective November 30, 1999, and as presently in effect (3(b) to Form S-3 in File No. 333-95599). (4) Instruments Defining Rights of Security Holders, Including Indentures Entergy Corporation (a) 1 -- See (4)(b) through (4)(g) below for instruments defining the rights of holders of long-term debt of System Energy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans. (a) 2 -- Third Amended and Restated Credit Agreement, dated as of May 17, 2001, among Entergy, the Banks (Citibank, N.A., ABN AMRO Bank N.V., The Bank of New York, Bayerische Hypo-und Vereinsbank AG (New York Branch), The Industrial Bank of Japan, Ltd., The Fuji Bank, Limited, Bayerische Landesbank Girozentrale, The Chase Manhattan Bank, The Royal Bank of Scotland PLC, The Bank of Nova Scotia, Bank One, N.A., Barclays Bank PLC, Mellon Bank, N.A., Royal Bank of Canada, Union Bank of California, N.A., IntesaBCI (Los Angeles Foreign Branch), KBC Bank N.V., and Westdeutsche Landesbank Girozentrale), and Citibank, N.A., as Agent (4(a) to Form 10-Q for the quarter ended June 30, 2001 in 1-11299). (a) 3 -- Assumption Agreement, dated July 12, 2001, among First Union National Bank, as Additional Lender, Entergy and Citibank N.A., as Agent (5(a) to Rule 24 Certificate dated November 6, 2001 in 70-9749). System Energy (b) 1 -- Mortgage and Deed of Trust, dated as of June 15, 1977, as amended by twenty-one Supplemental Indentures (A-1 in 70-5890 (Mortgage); B and C to Rule 24 Certificate in 70-5890 (First); B to Rule 24 Certificate in 70-6259 (Second); 20(a)-5 to Form 10-Q for the quarter ended June 30, 1981 in 1-3517 (Third); A-1(e)-1 to Rule 24 Certificate in 70-6985 (Fourth); B to Rule 24 Certificate in 70-7021 (Fifth); B to Rule 24 Certificate in 70-7021 (Sixth); A-3(b) to Rule 24 Certificate in 70-7026 (Seventh); A-3(b) to Rule 24 Certificate in 70-7158 (Eighth); B to Rule 24 Certificate in 70-7123 (Ninth); B-1 to Rule 24 Certificate in 70-7272 (Tenth); B-2 to Rule 24 Certificate in 70-7272 (Eleventh); B-3 to Rule 24 Certificate in 70-7272 (Twelfth); B-1 to Rule 24 Certificate in 70-7382 (Thirteenth); B-2 to Rule 24 Certificate in 70-7382 (Fourteenth); A-2(c) to Rule 24 Certificate in 70-7946 (Fifteenth); A-2(c) to Rule 24 Certificate in 70-7946 (Sixteenth); A-2(d) to Rule 24 Certificate in 70-7946 (Seventeenth); A-2(e) to Rule 24 Certificate dated May 4, 1993 in 70-7946 (Eighteenth); A- 2(g) to Rule 24 Certificate dated May 6, 1994 in 70-7946 (Nineteenth); A-2(a)(1) to Rule 24 Certificate dated August 8, 1996 in 70-8511 (Twentieth); and A-2(a)(2) to Rule 24 Certificate dated August 8, 1996 in 70-8511 (Twenty-first)). (b) 2 -- Facility Lease No. 1, dated as of December 1, 1988, between Meridian Trust Company and Stephen M. Carta (Steven Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (1) to Rule 24 Certificate dated April 21, 1989 in 70-7561) and Lease Supplement No. 2 dated as of January 1, 1994 (B-3(d) to Rule 24 Certificate dated January 31, 1994 in 70-8215). (b) 3 -- Facility Lease No. 2, dated as of December 1, 1988 between Meridian Trust Company and Stephen M. Carta (Steven Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (2) to Rule 24 Certificate dated April 21, 1989 in 70-7561) and Lease Supplement No. 2 dated as of January 1, 1994 (B-4(d) Rule 24 Certificate dated January 31, 1994 in 70-8215). Entergy Arkansas (c) 1 -- Mortgage and Deed of Trust, dated as of October 1, 1944, as amended by fifty-six Supplemental Indentures (7(d) in 2-5463 (Mortgage); 7(b) in 2-7121 (First); 7(c) in 2-7605 (Second); 7(d) in 2-8100 (Third); 7(a)-4 in 2-8482 (Fourth); 7(a)-5 in 2-9149 (Fifth); 4(a)-6 in 2-9789 (Sixth); 4(a)-7 in 2-10261 (Seventh); 4(a)-8 in 2-11043 (Eighth); 2(b)-9 in 2-11468 (Ninth); 2(b)-10 in 2-15767 (Tenth); D in 70-3952 (Eleventh); D in 70-4099 (Twelfth); 4(d) in 2-23185 (Thirteenth); 2(c) in 2-24414 (Fourteenth); 2(c) in 2-25913 (Fifteenth); 2(c) in 2-28869 (Sixteenth); 2(d) in 2-28869 (Seventeenth); 2(c) in 2-35107 (Eighteenth); 2(d) in 2-36646 (Nineteenth); 2(c) in 2-39253 (Twentieth); 2(c) in 2-41080 (Twenty-first); C-1 to Rule 24 Certificate in 70-5151 (Twenty-second); C-1 to Rule 24 Certificate in 70-5257 (Twenty-third); C to Rule 24 Certificate in 70-5343 (Twenty-fourth); C-1 to Rule 24 Certificate in 70-5404 (Twenty-fifth); C to Rule 24 Certificate in 70-5502 (Twenty-sixth); C-1 to Rule 24 Certificate in 70-5556 (Twenty-seventh); C-1 to Rule 24 Certificate in 70-5693 (Twenty-eighth); C-1 to Rule 24 Certificate in 70-6078 (Twenty-ninth); C-1 to Rule 24 Certificate in 70-6174 (Thirtieth); C-1 to Rule 24 Certificate in 70-6246 (Thirty-first); C-1 to Rule 24 Certificate in 70-6498 (Thirty-second); A-4b-2 to Rule 24 Certificate in 70-6326 (Thirty-third); C-1 to Rule 24 Certificate in 70-6607 (Thirty-fourth); C-1 to Rule 24 Certificate in 70-6650 (Thirty-fifth); C-1 to Rule 24 Certificate dated December 1, 1982 in 70-6774 (Thirty-sixth); C-1 to Rule 24 Certificate dated February 17, 1983 in 70-6774 (Thirty-seventh); A-2(a) to Rule 24 Certificate dated December 5, 1984 in 70-6858 (Thirty-eighth); A-3(a) to Rule 24 Certificate in 70-7127 (Thirty-ninth); A-7 to Rule 24 Certificate in 70-7068 (Fortieth); A-8(b) to Rule 24 Certificate dated July 6, 1989 in 70-7346 (Forty-first); A-8(c) to Rule 24 Certificate dated February 1, 1990 in 70-7346 (Forty-second); 4 to Form 10-Q for the quarter ended September 30, 1990 in 1-10764 (Forty-third); A-2(a) to Rule 24 Certificate dated November 30, 1990 in 70-7802 (Forty-fourth); A-2(b) to Rule 24 Certificate dated January 24, 1991 in 70-7802 (Forty-fifth); 4(d)(2) in 33-54298 (Forty-sixth); 4(c)(2) to Form 10-K for the year ended December 31, 1992 in 1- 10764 (Forty-seventh); 4(b) to Form 10-Q for the quarter ended June 30, 1993 in 1-10764 (Forty-eighth); 4(c) to Form 10-Q for the quarter ended June 30, 1993 in 1-10764 (Forty-ninth); 4(b) to Form 10-Q for the quarter ended September 30, 1993 in 1-10764 (Fiftieth); 4(c) to Form 10- Q for the quarter ended September 30, 1993 in 1-10764 (Fifty-first); 4(a) to Form 10-Q for the quarter ended June 30, 1994 in 1-10764 (Fifty-second); C-2 to Form U5S for the year ended December 31, 1995 (Fifty-third); C- 2(a) to Form U5S for the year ended December 31, 1996 (Fifty-fourth); 4(a) to Form 10-Q for the quarter ended March 31, 2000 in 1-10764 (Fifty-fifth); and 4(a) to Form 10-Q for the quarter ended September 30, 2001 in 1-10764 (Fifty-sixth)). (c) 2 -- Indenture for Unsecured Subordinated Debt Securities relating to Trust Securities between Entergy Arkansas and Bank of New York (as Trustee), dated as of August 1, 1996 (filed as Exhibit A-1(a) to Rule 24 Certificate dated August 26, 1996 in 70-8723). (c) 3 -- Amended and Restated Trust Agreement of Entergy Arkansas Capital I, dated as of August 14, 1996 (filed as Exhibit A-3(a) to Rule 24 Certificate dated August 26, 1996 in 70-8723). (c) 4 -- Guarantee Agreement between Entergy Arkansas (as Guarantor) and The Bank of New York (as Trustee), dated as of August 14, 1996, with respect to Entergy Arkansas Capital I's obligations on its 8 1/2% Cumulative Quarterly Income Preferred Securities, Series A (filed as Exhibit A-4(a) to Rule 24 Certificate dated August 26, 1996 in 70-8723). Entergy Gulf States (d) 1 -- Indenture of Mortgage, dated September 1, 1926, as amended by certain Supplemental Indentures (B-a-I-1 in Registration No. 2-2449 (Mortgage); 7-A-9 in Registration No. 2-6893 (Seventh); B to Form 8-K dated September 1, 1959 (Eighteenth); B to Form 8-K dated February 1, 1966 (Twenty-second); B to Form 8-K dated March 1, 1967 (Twenty-third); C to Form 8-K dated March 1, 1968 (Twenty- fourth); B to Form 8-K dated November 1, 1968 (Twenty- fifth); B to Form 8-K dated April 1, 1969 (Twenty-sixth); 2-A-8 in Registration No. 2-66612 (Thirty-eighth); 4-2 to Form 10-K for the year ended December 31, 1984 in 1-27031 (Forty-eighth); 4-2 to Form 10-K for the year ended December 31, 1988 in 1-27031 (Fifty-second); 4 to Form 10- K for the year ended December 31, 1991 in 1-27031 (Fifty- third); 4 to Form 8-K dated July 29, 1992 in 1-27031 (Fifth-fourth); 4 to Form 10-K dated December 31, 1992 in 1-27031 (Fifty-fifth); 4 to Form 10-Q for the quarter ended March 31, 1993 in 1-27031 (Fifty-sixth); 4-2 to Amendment No. 9 to Registration No. 2-76551 (Fifty- seventh); 4(b) to Form 10-Q for the quarter ended March 31,1999 in 1-27031 (Fifty-eighth); A-2(a) to Rule 24 Certificate dated June 23, 2000 in 70-8721 (Fifty-ninth); and A-2(a) to Rule 24 Certificate dated September 10, 2001 in 70-9751 (Sixtieth)). (d) 2 -- Indenture, dated March 21, 1939, accepting resignation of The Chase National Bank of the City of New York as trustee and appointing Central Hanover Bank and Trust Company as successor trustee (B-a-1-6 in Registration No. 2-4076). (d) 3 -- Indenture for Unsecured Subordinated Debt Securities relating to Trust Securities, dated as of January 15, 1997 (A-11(a) to Rule 24 Certificate dated February 6, 1997 in 70-8721). (d) 4 -- Amended and Restated Trust Agreement of Entergy Gulf States Capital I dated January 28, 1997 of Series A Preferred Securities (A-13(a) to Rule 24 Certificate dated February 6, 1997 in 70-8721). (d) 5 -- Guarantee Agreement between Entergy Gulf States, Inc. (as Guarantor) and The Bank of New York (as Trustee) dated as of January 28, 1997 with respect to Entergy Gulf States Capital I's obligation on its 8.75% Cumulative Quarterly Income Preferred Securities, Series A (A-14(a) to Rule 24 Certificate dated February 6, 1997 in 70- 8721). Entergy Louisiana (e) 1 -- Mortgage and Deed of Trust, dated as of April 1, 1944, as amended by fifty-five Supplemental Indentures (7(d) in 2-5317 (Mortgage); 7(b) in 2-7408 (First); 7(c) in 2-8636 (Second); 4(b)-3 in 2-10412 (Third); 4(b)-4 in 2-12264 (Fourth); 2(b)-5 in 2-12936 (Fifth); D in 70-3862 (Sixth); 2(b)-7 in 2-22340 (Seventh); 2(c) in 2-24429 (Eighth); 4(c)-9 in 2-25801 (Ninth); 4(c)-10 in 2-26911 (Tenth); 2(c) in 2-28123 (Eleventh); 2(c) in 2-34659 (Twelfth); C to Rule 24 Certificate in 70-4793 (Thirteenth); 2(b)-2 in 2-38378 (Fourteenth); 2(b)-2 in 2-39437 (Fifteenth); 2(b)-2 in 2-42523 (Sixteenth); C to Rule 24 Certificate in 70-5242 (Seventeenth); C to Rule 24 Certificate in 70-5330 (Eighteenth); C-1 to Rule 24 Certificate in 70-5449 (Nineteenth); C-1 to Rule 24 Certificate in 70-5550 (Twentieth); A-6(a) to Rule 24 Certificate in 70-5598 (Twenty-first); C-1 to Rule 24 Certificate in 70-5711 (Twenty-second); C-1 to Rule 24 Certificate in 70-5919 (Twenty-third); C-1 to Rule 24 Certificate in 70-6102 (Twenty-fourth); C-1 to Rule 24 Certificate in 70-6169 (Twenty-fifth); C-1 to Rule 24 Certificate in 70-6278 (Twenty-sixth); C-1 to Rule 24 Certificate in 70-6355 (Twenty-seventh); C-1 to Rule 24 Certificate in 70-6508 (Twenty-eighth); C-1 to Rule 24 Certificate in 70-6556 (Twenty-ninth); C-1 to Rule 24 Certificate in 70-6635 (Thirtieth); C-1 to Rule 24 Certificate in 70-6834 (Thirty-first); C-1 to Rule 24 Certificate in 70-6886 (Thirty-second); C-1 to Rule 24 Certificate in 70-6993 (Thirty-third); C-2 to Rule 24 Certificate in 70-6993 (Thirty-fourth); C-3 to Rule 24 Certificate in 70-6993 (Thirty-fifth); A-2(a) to Rule 24 Certificate in 70-7166 (Thirty-sixth); A-2(a) in 70-7226 (Thirty-seventh); C-1 to Rule 24 Certificate in 70-7270 (Thirty-eighth); 4(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 in 1-8474 (Thirty-ninth); A-2(b) to Rule 24 Certificate in 70-7553 (Fortieth); A-2(d) to Rule 24 Certificate in 70-7553 (Forty-first); A-3(a) to Rule 24 Certificate in 70-7822 (Forty-second); A-3(b) to Rule 24 Certificate in 70-7822 (Forty-third); A-2(b) to Rule 24 Certificate in 70-7822 (Forty-fourth); A-3(c) to Rule 24 Certificate in 70-7822 (Forty-fifth); A-2(c) to Rule 24 Certificate dated April 7, 1993 in 70-7822 (Forty-sixth); A-3(d) to Rule 24 Certificate dated June 4, 1993 in 70-7822 (Forth- seventh); A-3(e) to Rule 24 Certificate dated December 21, 1993 in 70-7822 (Forty-eighth); A-3(f) to Rule 24 Certificate dated August 1, 1994 in 70-7822 (Forty- ninth); A-4(c) to Rule 24 Certificate dated September 28, 1994 in 70-7653 (Fiftieth); A-2(a) to Rule 24 Certificate dated April 4, 1996 in 70-8487 (Fifty-first); A-2(a) to Rule 24 Certificate dated April 3, 1998 in 70-9141 (Fifty- second); A-2(b) to Rule 24 Certificate dated April 9, 1999 in 70-9141 (Fifty-third); A-3(a) to Rule 24 Certificate dated July 6, 1999 in 70-9141 (Fifty-fourth); and A-2(c) to Rule 24 Certificate dated June 2, 2000 in 70-9141 (Fifty-fifth)). (e) 2 -- Facility Lease No. 1, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-1 in Registration No. 33-30660). (e) 3 -- Facility Lease No. 2, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-2 in Registration No. 33-30660). (e) 4 -- Facility Lease No. 3, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-3 in Registration No. 33-30660). (e) 5 -- Indenture for Unsecured Subordinated Debt Securities relating to Trust Securities, dated as of July 1, 1996 (A-14(a) to Rule 24 Certificate dated July 25, 1996 in 70-8487). (e) 6 -- Amended and Restated Trust Agreement of Entergy Louisiana Capital I dated July 16, 1996 of Series A Preferred Securities (A-16(a) to Rule 24 Certificate dated July 25, 1996 in 70-8487). (e) 7 -- Guarantee Agreement between Entergy Louisiana, Inc. (as Guarantor) and The Bank of New York (as Trustee) dated as of July 16, 1996 with respect to Entergy Louisiana Capital I's obligation on its 9% Cumulative Quarterly Income Preferred Securities, Series A (A-19(a) to Rule 24 Certificate dated July 25, 1996 in 70-8487). Entergy Mississippi (f) 1 -- Mortgage and Deed of Trust, dated as of February 1, 1988, as amended by sixteen Supplemental Indentures (A-2(a)-2 to Rule 24 Certificate in 70-7461 (Mortgage); A-2(b)-2 in 70-7461 (First); A-5(b) to Rule 24 Certificate in 70-7419 (Second); A-4(b) to Rule 24 Certificate in 70-7554 (Third); A-1(b)-1 to Rule 24 Certificate in 70-7737 (Fourth); A-2(b) to Rule 24 Certificate dated November 24, 1992 in 70-7914 (Fifth); A-2(e) to Rule 24 Certificate dated January 22, 1993 in 70-7914 (Sixth); A-2(g) to Form U-1 in 70-7914 (Seventh); A-2(i) to Rule 24 Certificate dated November 10, 1993 in 70-7914 (Eighth); A-2(j) to Rule 24 Certificate dated July 22, 1994 in 70-7914 (Ninth); (A-2(l) to Rule 24 Certificate dated April 21, 1995 in 70-7914 (Tenth); A- 2(a) to Rule 24 Certificate dated June 27, 1997 in 70- 8719 (Eleventh); A-2(b) to Rule 24 Certificate dated April 16, 1998 in 70-8719 (Twelfth); A-2(c) to Rule 24 Certificate dated May 12, 1999 in 70-8719 (Thirteenth); A- 3(a) to Rule 24 Certificate dated June 8, 1999 in 70-8719 (Fourteenth); A-2(d) to Rule 24 Certificate dated February 24, 2000 in 70-8719 (Fifteenth); and A-2(a) to Rule 24 Certificate dated February 9, 2001 in 70-9757 (Sixteenth)). Entergy New Orleans (g) 1 -- Mortgage and Deed of Trust, dated as of May 1, 1987, as amended by nine Supplemental Indentures (A-2(c) to Rule 24 Certificate in 70-7350 (Mortgage); A-5(b) to Rule 24 Certificate in 70-7350 (First); A-4(b) to Rule 24 Certificate in 70-7448 (Second); 4(f)4 to Form 10-K for the year ended December 31, 1992 in 0-5807 (Third); 4(a) to Form 10-Q for the quarter ended September 30, 1993 in 0-5807 (Fourth); 4(a) to Form 8-K dated April 26, 1995 in 0-5807 (Fifth); 4(a) to Form 8-K dated March 22, 1996 in 0-5807 (Sixth); 4(b) to Form 10-Q for the quarter ended June 30, 1998 in 0-5807 (Seventh); 4(d) to Form 10-Q for the quarter ended June 30, 2000 in 0-5807 (Eighth); and C- 5(a) to Form U5S for the year ended December 31, 2000 (Ninth)). (10) Material Contracts Entergy Corporation (a) 1 -- Agreement, dated April 23, 1982, among certain System companies, relating to System Planning and Development and Intra-System Transactions (10(a)1 to Form 10-K for the year ended December 31, 1982 in 1-3517). (a) 2 -- Middle South Utilities (now Entergy Corporation) System Agency Agreement, dated December 11, 1970 (5(a)-2 in 2-41080). (a) 3 -- Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-4 in 2-41080). (a) 4 -- Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-4 in 2-41080). (a) 5 -- Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)-3 in 2-41080). (a) 6 -- Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)-5 in 2-41080). (a) 7 -- Amendment, dated January 1, 1972, to Service Agreement with Entergy Services (5(a)-6 in 2-43175). (a) 8 -- Amendment, dated April 27, 1984, to Service Agreement with Entergy Services (10(a)-7 to Form 10-K for the year ended December 31, 1984, in 1-3517). (a) 9 -- Amendment, dated August 1, 1988, to Service Agreement with Entergy Services (10(a)-8 to Form 10-K for the year ended December 31, 1988, in 1-3517). (a) 10-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(a)-9 to Form 10-K for the year ended December 31, 1990, in 1-3517). (a) 11-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a)-11 for the year ended December 31, 1994 in 1-3517). *(a) 12-- Amendment, dated January 1, 2000, to Service Agreement with Entergy Services. *(a) 13-- Amendment, dated January 1, 2001, to Service Agreement with Entergy Services. (a) 14-- Availability Agreement, dated June 21, 1974, among System Energy and certain other System companies (B to Rule 24 Certificate dated June 24, 1974 in 70-5399). (a) 15-- First Amendment to Availability Agreement, dated as of June 30, 1977 (B to Rule 24 Certificate dated June 24, 1977 in 70-5399). (a) 16-- Second Amendment to Availability Agreement, dated as of June 15, 1981 (E to Rule 24 Certificate dated July 1, 1981 in 70-6592). (a) 17-- Third Amendment to Availability Agreement, dated as of June 28, 1984 (B-13(a) to Rule 24 Certificate dated July 6, 1984 in 70-6985). (a) 18-- Fourth Amendment to Availability Agreement, dated as of June 1, 1989 (A to Rule 24 Certificate dated June 8, 1989 in 70-5399). (a) 19-- Eighteenth Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (C-2 to Rule 24 Certificate dated October 1, 1986 in 70-7272). (a) 20-- Nineteenth Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (C-3 to Rule 24 Certificate dated October 1, 1986 in 70-7272). (a) 21-- Twenty-sixth Assignment of Availability Agreement, Consent and Agreement, dated as of October 1, 1992, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(c) to Rule 24 Certificate dated November 2, 1992 in 70-7946). (a) 22-- Twenty-seventh Assignment of Availability Agreement, Consent and Agreement, dated as of April 1, 1993, with United States Trust Company of New York and Gerard F. Ganey as Trustees (B-2(d) to Rule 24 Certificate dated May 4, 1993 in 70-7946). (a) 23-- Twenty-ninth Assignment of Availability Agreement, Consent and Agreement, dated as of April 1, 1994, with United States Trust Company of New York and Gerard F. Ganey as Trustees (B-2(f) to Rule 24 Certificate dated May 6, 1994 in 70-7946). (a) 24-- Thirtieth Assignment of Availability Agreement, Consent and Agreement, dated as of August 1, 1996, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans, and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(a) to Rule 24 Certificate dated August 8, 1996 in 70-8511). (a) 25-- Thirty-first Assignment of Availability Agreement, Consent and Agreement, dated as of August 1, 1996, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(b) to Rule 24 Certificate dated August 8, 1996 in 70-8511). (a) 26-- Thirty-second Assignment of Availability Agreement, Consent and Agreement, dated as of December 27, 1996, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and The Chase Manhattan Bank (B-2(a) to Rule 24 Certificate dated January 13, 1997 in 70-7561). (a) 27-- Thirty-third Assignment of Availability Agreement, Consent and Agreement, dated as of December 20, 1999, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and The Chase Manhattan Bank (B-2(b) to Rule 24 Certificate dated March 3, 2000 in 70-7561). (a) 28-- Capital Funds Agreement, dated June 21, 1974, between Entergy Corporation and System Energy (C to Rule 24 Certificate dated June 24, 1974 in 70-5399). (a) 29-- First Amendment to Capital Funds Agreement, dated as of June 1, 1989 (B to Rule 24 Certificate dated June 8, 1989 in 70-5399). (a) 30-- Eighteenth Supplementary Capital Funds Agreement and Assignment, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (D-2 to Rule 24 Certificate dated October 1, 1986 in 70-7272). (a) 31-- Nineteenth Supplementary Capital Funds Agreement and Assignment, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (D-3 to Rule 24 Certificate dated October 1, 1986 in 70-7272). (a) 32-- Twenty-sixth Supplementary Capital Funds Agreement and Assignment, dated as of October 1, 1992, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(c) to Rule 24 Certificate dated November 2, 1992 in 70-7946). (a) 33-- Twenty-seventh Supplementary Capital Funds Agreement and Assignment, dated as of April 1, 1993, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(d) to Rule 24 Certificate dated May 4, 1993 in 70-7946). (a) 34-- Twenty-ninth Supplementary Capital Funds Agreement and Assignment, dated as of April 1, 1994, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(f) to Rule 24 Certificate dated May 6, 1994 in 70-7946). (a) 35-- Thirtieth Supplementary Capital Funds Agreement and Assignment, dated as of August 1, 1996, among Entergy Corporation, System Energy and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B- 3(a) to Rule 24 Certificate dated August 8, 1996 in 70- 8511). (a) 36-- Thirty-first Supplementary Capital Funds Agreement and Assignment, dated as of August 1, 1996, among Entergy Corporation, System Energy and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B- 3(b) to Rule 24 Certificate dated August 8, 1996 in 70- 8511). (a) 37-- Thirty-second Supplementary Capital Funds Agreement and Assignment, dated as of December 27, 1996, among Entergy Corporation, System Energy and The Chase Manhattan Bank (B-1(a) to Rule 24 Certificate dated January 13, 1997 in 70-7561). (a) 38-- Thirty-third Supplementary Capital Funds Agreement and Assignment, dated as of December 20, 1999, among Entergy Corporation, System Energy and The Chase Manhattan Bank (B-3(b) to Rule 24 Certificate dated March 3, 2000 in 70-7561). (a) 39-- First Amendment to Supplementary Capital Funds Agreements and Assignments, dated as of June 1, 1989, by and between Entergy Corporation, System Energy, Deposit Guaranty National Bank, United States Trust Company of New York and Gerard F. Ganey (C to Rule 24 Certificate dated June 8, 1989 in 70-7026). (a) 40-- First Amendment to Supplementary Capital Funds Agreements and Assignments, dated as of June 1, 1989, by and between Entergy Corporation, System Energy, United States Trust Company of New York and Gerard F. Ganey (C to Rule 24 Certificate dated June 8, 1989 in 70-7123). (a) 41-- First Amendment to Supplementary Capital Funds Agreement and Assignment, dated as of June 1, 1989, by and between Entergy Corporation, System Energy and Chemical Bank (C to Rule 24 Certificate dated June 8, 1989 in 70-7561). (a) 42-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). (a) 43-- Joint Construction, Acquisition and Ownership Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B-1(a) in 70-6337), as amended by Amendment No. 1, dated as of May 1, 1980 (B-1(c) in 70-6337) and Amendment No. 2, dated as of October 31, 1980 (1 to Rule 24 Certificate dated October 30, 1981 in 70-6337). (a) 44-- Operating Agreement dated as of May 1, 1980, between System Energy and SMEPA (B(2)(a) in 70-6337). (a) 45-- Assignment, Assumption and Further Agreement No. 1, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561). (a) 46-- Assignment, Assumption and Further Agreement No. 2, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561). (a) 47-- Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B(3)(a) in 70-6337). (a) 48-- Grand Gulf Unit No. 2 Supplementary Agreement, dated as of February 7, 1986, between System Energy and SMEPA (10(aaa) in 33-4033). (a) 49-- Compromise and Settlement Agreement, dated June 4, 1982, between Texaco, Inc. and Entergy Louisiana (28(a) to Form 8-K dated June 4, 1982 in 1-3517). (a) 50-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)-39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (a) 51-- First Amendment to Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (a) 52-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (a) 53-- Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (a) 54-- First Amendment, dated January 1, 1990, to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). (a) 55-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (a) 56-- Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (a) 57-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). (a) 58-- Guaranty Agreement between Entergy Corporation and Entergy Arkansas, dated as of September 20, 1990 (B-1(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). (a) 59-- Guarantee Agreement between Entergy Corporation and Entergy Louisiana, dated as of September 20, 1990 (B-2(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). (a) 60-- Guarantee Agreement between Entergy Corporation and System Energy, dated as of September 20, 1990 (B-3(a) to Rule 24 Certificate dated September 27, 1990 in 70- 7757). (a) 61-- Loan Agreement between Entergy Operations and Entergy Corporation, dated as of September 20, 1990 (B-12(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). (a) 62-- Loan Agreement between Entergy Power and Entergy Corporation, dated as of August 28, 1990 (A-4(b) to Rule 24 Certificate dated September 6, 1990 in 70-7684). (a) 63-- Loan Agreement between Entergy Corporation and Entergy Systems and Service, Inc., dated as of December 29, 1992 (A-4(b) to Rule 24 Certificate in 70-7947). *+(a)64--Executive Financial Counseling Program of Entergy Corporation and Subsidiaries. *+(a)65--Entergy Corporation Executive Annual Incentive Plan. +(a) 66-- Equity Ownership Plan of Entergy Corporation and Subsidiaries (A-4(a) to Rule 24 Certificate dated May 24, 1991 in 70-7831). +(a) 67-- Amendment No. 1 to the Equity Ownership Plan of Entergy Corporation and Subsidiaries (10(a) 71 to Form 10- K for the year ended December 31, 1992 in 1-3517). +(a) 68-- 1998 Equity Ownership Plan of Entergy Corporation and Subsidiaries (Filed with the Proxy Statement dated March 30, 1998). *+(a)69--Amendments, effective June 13, 2000 and December 7, 2001, to the 1998 Equity Ownership Plan of Entergy Corporation and Subsidiaries. *+(a)70--Supplemental Retirement Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000. *+(a)71--Amendment, effective December 28, 2001, to the Supplemental Retirement Plan of Entergy Corporation and Subsidiaries. *+(a)72--Defined Contribution Restoration Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000. *+(a)73--Amendment, effective December 28, 2001, to the Defined Contribution Restoration Plan of Entergy Corporation and Subsidiaries. *+(a)74--Executive Disability Plan of Entergy Corporation and Subsidiaries. *+(a)75--Executive Deferred Compensation Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000. *+(a)76--Amendment, effective December 7, 2001, to the Executive Deferred Compensation Plan of Entergy Corporation and Subsidiaries. *+(a)77--Equity Awards Plan of Entergy Corporation and Subsidiaries, effective as of August 31, 2000. *+(a)78--Amendment, effective December 7, 2001, to the Equity Awards Plan of Entergy Corporation and Subsidiaries. *+(a)79--System Executive Continuity Plan of Entergy Corporation and Subsidiaries, effective as of March 1, 2000. *+(a)80--Post-Retirement Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000. *+(a)81--Amendment, effective December 28, 2001, to the Post- Retirement Plan of Entergy Corporation and Subsidiaries. *+(a)82--Pension Equalization Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000. *+(a)83- Amendment, effective December 28, 2001, to the Pension Equalization Plan of Entergy Corporation and Subsidiaries. *+(a)84--Service Recognition Program for Non-Employee Outside Directors of Entergy Corporation and Subsidiaries, effective January 1, 2000. +(a) 85-- Stock Plan for Outside Directors of Entergy Corporation and Subsidiaries, as amended (10(a) 74 to Form 10-K for the year ended December 31, 1992 in 1- 3517). *+(a)86--Executive Income Security Plan of Gulf States Utilities Company, as amended effective March 1, 1991. *+(a)87--System Executive Retirement Plan of Entergy Corporation and Subsidiaries, effective January 1, 2000. *+(a)88--Amendment, effective December 28,. 2001, to the System Executive Retirement Plan of Entergy Corporation and Subsidiaries. +(a)89 -- Retention Agreement effective October 27, 2000 between J. Wayne Leonard and Entergy Corporation (10(a)81 to Form 10-K for the year ended December 31, 2000 in 1-11299). +(a)90 -- Retention Agreement effective July 29, 2000 between Frank F. Gallaher and Entergy Corporation (10(a)82 to Form 10-K for the year ended December 31, 2000 in 1- 11299). *+(a)91 -- Letter Agreement effective July 25, 2001 between Jerry D. Jackson and Entergy Corporation. +(a)92 -- Retention Agreement effective July 29, 2000 between Donald C. Hintz and Entergy Corporation (10(a)85 to Form 10-K for the year ended December 31, 2000 in 1-11299). +(a)93 -- Retention Agreement effective July 29, 2000 between Michael G. Thompson and Entergy Corporation (10(a)86 to Form 10-K for the year ended December 31, 2000 in 1- 11299). +(a)94 -- Retention Agreement effective January 22, 2001 between Richard J. Smith and Entergy Services, Inc (10(a)87 to Form 10-K for the year ended December 31, 2000 in 1-11299). +(a)95 -- Retention Agreement effective July 29, 2000 between Jerry W. Yelverton and Entergy Corporation (10(a)89 to Form 10-K for the year ended December 31, 2000 in 1- 11299). +(a)96 -- Retention Agreement effective July 29, 2000 between C. John Wilder and Entergy Corporation (10(a)90 to Form 10-K for the year ended December 31, 2000 in 1-11299). *+(a)97--Employment Agreement effective August 7, 2001 between Curt L. Hebert and Entergy Corporation. (a) 98-- Agreement of Limited Partnership of Entergy-Koch, LP among EKLP, LLC, EK Holding I, LLC, EK Holding II, LLC and Koch Energy, Inc. dated January 31, 2001 (10(a)94 to Form 10-K/A for the year ended December 31, 2000 in 1- 11299). System Energy (b) 1 through (b) 14-- See 10(a)-12 through 10(a)-25 above. (b) 15 through (b) 28-- See 10(a)-26 through 10(a)-39 above. (b) 29-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). (b) 30-- Joint Construction, Acquisition and Ownership Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B-1(a) in 70-6337), as amended by Amendment No. 1, dated as of May 1, 1980 (B-1(c) in 70-6337) and Amendment No. 2, dated as of October 31, 1980 (1 to Rule 24 Certificate dated October 30, 1981 in 70-6337). (b) 31-- Operating Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B(2)(a) in 70-6337). (b) 32- Amended and Restated Installment Sale Agreement, dated as of February 15, 1996, between System Energy and Claiborne County, Mississippi (B-6(a) to Rule 24 Certificate dated March 4, 1996 in 70-8511). (b) 33-- Loan Agreement, dated as of October 15, 1998, between System Energy and Mississippi Business Finance Corporation (B-6(b) to Rule 24 Certificate dated November 12, 1998 in 70-8511). (b) 34-- Loan Agreement, dated as of May 15, 1999, between System Energy and Mississippi Business Finance Corporation (B-6(c) to Rule 24 Certificate dated June 8, 1999 in 70-8511). (b) 35-- Facility Lease No. 1, dated as of December 1, 1988, between Meridian Trust Company and Stephen M. Carta (Stephen J. Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (1) to Rule 24 Certificate dated April 21, 1989 in 70-7561) and Lease Supplement No. 2 dated as of January 1, 1994 (B- 3(d) to Rule 24 Certificate dated January 31, 1994 in 70- 8215). (b) 36-- Facility Lease No. 2, dated as of December 1, 1988 between Meridian Trust Company and Stephen M. Carta (Stephen J. Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (2) to Rule 24 Certificate dated April 21, 1989 in 70-7561) and Lease Supplement No. 2 dated as of January 1, 1994 (B- 4(d) Rule 24 Certificate dated January 31, 1994 in 70- 8215). (b) 37-- Assignment, Assumption and Further Agreement No. 1, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561). (b) 38-- Assignment, Assumption and Further Agreement No. 2, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561). (b) 39-- Collateral Trust Indenture, dated as of January 1, 1994, among System Energy, GG1B Funding Corporation and Bankers Trust Company, as Trustee (A-3(e) to Rule 24 Certificate dated January 31, 1994 in 70-8215), as supplemented by Supplemental Indenture No. 1 dated January 1, 1994, (A-3(f) to Rule 24 Certificate dated January 31, 1994 in 70-8215). (b) 40-- Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B(3)(a) in 70-6337). (b) 41-- Grand Gulf Unit No. 2 Supplementary Agreement, dated as of February 7, 1986, between System Energy and SMEPA (10(aaa) in 33-4033). (b) 42-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)-39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (b) 43-- First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (b) 44-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (b) 45-- Fuel Lease, dated as of February 24, 1989, between River Fuel Funding Company #3, Inc. and System Energy (B-1(b) to Rule 24 Certificate dated March 3, 1989 in 70-7604). (b) 46-- System Energy's Consent, dated January 31, 1995, pursuant to Fuel Lease, dated as of February 24, 1989, between River Fuel Funding Company #3, Inc. and System Energy (B-1(c) to Rule 24 Certificate dated February 13, 1995 in 70-7604). (b) 47-- Sales Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (D to Rule 24 Certificate dated June 26, 1974 in 70-5399). (b) 48-- Service Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (E to Rule 24 Certificate dated June 26, 1974 in 70-5399). (b) 49-- Partial Termination Agreement, dated as of December 1, 1986, between System Energy and Entergy Mississippi (A-2 to Rule 24 Certificate dated January 8, 1987 in 70-5399). (b) 50-- Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (b) 51-- First Amendment, dated January 1, 1990 to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). (b) 52-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (b) 53-- Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (b) 54-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). (b) 55-- Service Agreement with Entergy Services, dated as of July 16, 1974, as amended (10(b)-43 to Form 10-K for the year ended December 31, 1988 in 1-9067). (b) 56-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(b)-45 to Form 10-K for the year ended December 31, 1990 in 1-9067). (b) 57-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a) -11 to Form 10-K for the year ended December 31, 1994 in 1-3517). (b) 58-- Operating Agreement between Entergy Operations and System Energy, dated as of June 6, 1990 (B-3(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). (b) 59-- Guarantee Agreement between Entergy Corporation and System Energy, dated as of September 20, 1990 (B-3(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). (b) 60-- Amended and Restated Reimbursement Agreement, dated as of December 1, 1988 as amended and restated as of December 20, 1999, among System Energy Resources, Inc., The Bank of Tokyo-Mitsubishi, Ltd., as Funding Bank and The Chase Manhattan Bank, as administrating bank, Union Bank of California, N.A., as documentation agent, and the Banks named therein, as Participating Banks (B- 1(b) to Rule 24 Certificate dated March 3, 2000 in 70- 7561). Entergy Arkansas (c) 1 -- Agreement, dated April 23, 1982, among Entergy Arkansas and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a) 1 to Form 10-K for the year ended December 31, 1982 in 1-3517). (c) 2 -- Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). (c) 3 -- Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-4 in 2-41080). (c) 4 -- Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a) 4 in 2-41080). (c) 5 -- Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)-3 in 2-41080). (c) 6 -- Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)-5 in 2-41080). (c) 7 -- Amendment, dated January 1, 1972, to Service Agreement with Entergy Services (5(a)- 6 in 2-43175). (c) 8 -- Amendment, dated April 27, 1984, to Service Agreement, with Entergy Services (10(a)- 7 to Form 10-K for the year ended December 31, 1984 in 1-3517). (c) 9 -- Amendment, dated August 1, 1988, to Service Agreement with Entergy Services (10(c)- 8 to Form 10-K for the year ended December 31, 1988 in 1-10764). (c) 10-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(c)-9 to Form 10-K for the year ended December 31, 1990 in 1-10764). (c) 11-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a)-11 to Form 10-K for the year ended December 31, 1994 in 1-3517). (c) 12 through (c) 25-- See 10(a)-12 through 10(a)-25 above. (c) 26-- Agreement, dated August 20, 1954, between Entergy Arkansas and the United States of America (SPA)(13(h) in 2-11467). (c) 27-- Amendment, dated April 19, 1955, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-2 in 2-41080). (c) 28-- Amendment, dated January 3, 1964, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-3 in 2-41080). (c) 29-- Amendment, dated September 5, 1968, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-4 in 2-41080). (c) 30-- Amendment, dated November 19, 1970, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-5 in 2-41080). (c) 31-- Amendment, dated July 18, 1961, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-6 in 2-41080). (c) 32-- Amendment, dated December 27, 1961, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-7 in 2-41080). (c) 33-- Amendment, dated January 25, 1968, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-8 in 2-41080). (c) 34-- Amendment, dated October 14, 1971, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-9 in 2-43175). (c) 35-- Amendment, dated January 10, 1977, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)-10 in 2-60233). (c) 36-- Agreement, dated May 14, 1971, between Entergy Arkansas and the United States of America (SPA) (5(e) in 2-41080). (c) 37-- Amendment, dated January 10, 1977, to the United States of America (SPA) Contract, dated May 14, 1971 (5(e)-1 in 2-60233). (c) 38-- Contract, dated May 28, 1943, Amendment to Contract, dated July 21, 1949, and Supplement to Amendment to Contract, dated December 30, 1949, between Entergy Arkansas and McKamie Gas Cleaning Company; Agreements, dated as of September 30, 1965, between Entergy Arkansas and former stockholders of McKamie Gas Cleaning Company; and Letter Agreement, dated June 22, 1966, by Humble Oil & Refining Company accepted by Entergy Arkansas on June 24, 1966 (5(k)-7 in 2-41080). (c) 39-- Agreement, dated April 3, 1972, between Entergy Services and Gulf United Nuclear Fuels Corporation (5(l)-3 in 2-46152). (c) 40-- Fuel Lease, dated as of December 22, 1988, between River Fuel Trust #1 and Entergy Arkansas (B-1(b) to Rule 24 Certificate in 70-7571). (c) 41-- White Bluff Operating Agreement, dated June 27, 1977, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas (B-2(a) to Rule 24 Certificate dated June 30, 1977 in 70-6009). (c) 42-- White Bluff Ownership Agreement, dated June 27, 1977, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas (B-1(a) to Rule 24 Certificate dated June 30, 1977 in 70-6009). (c) 43-- Agreement, dated June 29, 1979, between Entergy Arkansas and City of Conway, Arkansas (5(r)-3 in 2-66235). (c) 44-- Transmission Agreement, dated August 2, 1977, between Entergy Arkansas and City Water and Light Plant of the City of Jonesboro, Arkansas (5(r)-3 in 2-60233). (c) 45-- Power Coordination, Interchange and Transmission Service Agreement, dated as of June 27, 1977, between Arkansas Electric Cooperative Corporation and Entergy Arkansas (5(r)-4 in 2-60233). (c) 46-- Independence Steam Electric Station Operating Agreement, dated July 31, 1979, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas and City of Conway, Arkansas (5(r)-6 in 2-66235). (c) 47-- Amendment, dated December 4, 1984, to the Independence Steam Electric Station Operating Agreement (10(c) 51 to Form 10-K for the year ended December 31, 1984 in 1-10764). (c) 48-- Independence Steam Electric Station Ownership Agreement, dated July 31, 1979, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas and City of Conway, Arkansas (5(r)-7 in 2-66235). (c) 49-- Amendment, dated December 28, 1979, to the Independence Steam Electric Station Ownership Agreement (5(r)-7(a) in 2-66235). (c) 50-- Amendment, dated December 4, 1984, to the Independence Steam Electric Station Ownership Agreement (10(c) 54 to Form 10-K for the year ended December 31, 1984 in 1-10764). (c) 51-- Owner's Agreement, dated November 28, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station (10(c) 55 to Form 10-K for the year ended December 31, 1984 in 1-10764). (c) 52-- Consent, Agreement and Assumption, dated December 4, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station and United States Trust Company of New York, as Trustee (10(c) 56 to Form 10-K for the year ended December 31, 1984 in 1-10764). (c) 53-- Power Coordination, Interchange and Transmission Service Agreement, dated as of July 31, 1979, between Entergy Arkansas and City Water and Light Plant of the City of Jonesboro, Arkansas (5(r)-8 in 2-66235). (c) 54-- Power Coordination, Interchange and Transmission Agreement, dated as of June 29, 1979, between City of Conway, Arkansas and Entergy Arkansas (5(r)-9 in 2-66235). (c) 55-- Agreement, dated June 21, 1979, between Entergy Arkansas and Reeves E. Ritchie ((10)(b)-90 to Form 10-K for the year ended December 31, 1980 in 1-10764). (c) 56-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). (c) 57-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (10(a) 39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (c) 58-- First Amendment to Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (c) 59-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (c) 60-- Contract For Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, dated June 30, 1983, among the DOE, System Fuels and Entergy Arkansas (10(b)-57 to Form 10-K for the year ended December 31, 1983 in 1-10764). (c) 61-- Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (c) 62-- First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). (c) 63-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (c) 64-- Third Amendment dated January 1, 1994, to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (c) 65-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). (c) 66-- Assignment of Coal Supply Agreement, dated December 1, 1987, between System Fuels and Entergy Arkansas (B to Rule 24 letter filing dated November 10, 1987 in 70-5964). (c) 67-- Coal Supply Agreement, dated December 22, 1976, between System Fuels and Antelope Coal Company (B-1 in 70-5964), as amended by First Amendment (A to Rule 24 Certificate in 70-5964); Second Amendment (A to Rule 24 letter filing dated December 16, 1983 in 70-5964); and Third Amendment (A to Rule 24 letter filing dated November 10, 1987 in 70-5964). (c) 68-- Operating Agreement between Entergy Operations and Entergy Arkansas, dated as of June 6, 1990 (B-1(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). (c) 69-- Guaranty Agreement between Entergy Corporation and Entergy Arkansas, dated as of September 20, 1990 (B-1(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). (c) 70-- Agreement for Purchase and Sale of Independence Unit 2 between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-3(c) to Rule 24 Certificate dated September 6, 1990 in 70-7684). (c) 71-- Agreement for Purchase and Sale of Ritchie Unit 2 between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-4(d) to Rule 24 Certificate dated September 6, 1990 in 70-7684). (c) 72-- Ritchie Steam Electric Station Unit No. 2 Operating Agreement between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-5(a) to Rule 24 Certificate dated September 6, 1990 in 70-7684). (c) 73-- Ritchie Steam Electric Station Unit No. 2 Ownership Agreement between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-6(a) to Rule 24 Certificate dated September 6, 1990 in 70-7684). (c) 74-- Power Coordination, Interchange and Transmission Service Agreement between Entergy Power and Entergy Arkansas, dated as of August 28, 1990 (10(c)-71 to Form 10-K for the year ended December 31, 1990 in 1-10764). (c) 75-- Loan Agreement dated June 15, 1993, between Entergy Arkansas and Independence Country, Arkansas (B-1 (a) to Rule 24 Certificate dated July 9, 1993 in 70- 8171). (c) 76-- Loan Agreement dated June 15, 1994, between Entergy Arkansas and Jefferson County, Arkansas (B-1(a) to Rule 24 Certificate dated June 30, 1994 in 70-8405). (c) 77-- Loan Agreement dated June 15, 1994, between Entergy Arkansas and Pope County, Arkansas (B-1(b) to Rule 24 Certificate in 70-8405). (c) 78-- Loan Agreement dated November 15, 1995, between Entergy Arkansas and Pope County, Arkansas (10(c) 96 to Form 10-K for the year ended December 31, 1995 in 1- 10764). (c) 79-- Agreement as to Expenses and Liabilities between Entergy Arkansas and Entergy Arkansas Capital I, dated as of August 14, 1996 (4(j) to Form 10-Q for the quarter ended September 30, 1996 in 1-10764). (c) 80-- Loan Agreement dated December 1, 1997, between Entergy Arkansas and Jefferson County, Arkansas (10(c)100 to Form 10-K for the year ended December 31, 1997 in 1-10764). *(c) 81-- Refunding Agreement, dated December 1, 2001, between Entergy Arkansas and Pope Country, Arkansas. Entergy Gulf States (d) 1 -- Guaranty Agreement, dated July 1, 1976, between Entergy Gulf States and American Bank and Trust Company (C and D to Form 8-K dated August 6, 1976 in 1-27031). (d) 2 -- Guaranty Agreement, dated August 1, 1992, between Entergy Gulf States and Hibernia National Bank, relating to Pollution Control Revenue Refunding Bonds of the Industrial Development Board of the Parish of Calcasieu, Inc. (Louisiana) (10-1 to Form 10-K for the year ended December 31, 1992 in 1-27031). (d) 3 -- Guaranty Agreement, dated January 1, 1993, between Entergy Gulf States and Hancock Bank of Louisiana, relating to Pollution Control Revenue Refunding Bonds of the Parish of Pointe Coupee (Louisiana) (10-2 to Form 10- K for the year ended December 31, 1992 in 1-27031). (d) 4 -- Deposit Agreement, dated as of December 1, 1983 between Entergy Gulf States, Morgan Guaranty Trust Co. as Depositary and the Holders of Depository Receipts, relating to the Issue of 900,000 Depositary Preferred Shares, each representing 1/2 share of Adjustable Rate Cumulative Preferred Stock, Series E-$100 Par Value (4-17 to Form 10-K for the year ended December 31, 1983 in 1- 27031). (d) 5 -- Agreement effective February 1, 1964, between Sabine River Authority, State of Louisiana, and Sabine River Authority of Texas, and Entergy Gulf States, Central Louisiana Electric Company, Inc., and Louisiana Power & Light Company, as supplemented (B to Form 8-K dated May 6, 1964, A to Form 8-K dated October 5, 1967, A to Form 8-K dated May 5, 1969, and A to Form 8-K dated December 1, 1969 in 1-27031). (d) 6 -- Joint Ownership Participation and Operating Agreement regarding River Bend Unit 1 Nuclear Plant, dated August 20, 1979, between Entergy Gulf States, Cajun, and SRG&T; Power Interconnection Agreement with Cajun, dated June 26, 1978, and approved by the REA on August 16, 1979, between Entergy Gulf States and Cajun; and Letter Agreement regarding CEPCO buybacks, dated August 28, 1979, between Entergy Gulf States and Cajun (2, 3, and 4, respectively, to Form 8-K dated September 7, 1979 in 1-27031). (d) 7 -- Ground Lease, dated August 15, 1980, between Statmont Associates Limited Partnership (Statmont) and Entergy Gulf States, as amended (3 to Form 8-K dated August 19, 1980 and A-3-b to Form 10-Q for the quarter ended September 30, 1983 in 1-27031). (d) 8 -- Lease and Sublease Agreement, dated August 15, 1980, between Statmont and Entergy Gulf States, as amended (4 to Form 8-K dated August 19, 1980 and A-3-c to Form 10-Q for the quarter ended September 30, 1983 in 1- 27031). (d) 9 -- Lease Agreement, dated September 18, 1980, between BLC Corporation and Entergy Gulf States (1 to Form 8-K dated October 6, 1980 in 1-27031). (d) 10-- Joint Ownership Participation and Operating Agreement for Big Cajun, between Entergy Gulf States, Cajun Electric Power Cooperative, Inc., and Sam Rayburn G&T, Inc, dated November 14, 1980 (6 to Form 8-K dated January 29, 1981 in 1-27031); Amendment No. 1, dated December 12, 1980 (7 to Form 8-K dated January 29, 1981 in 1-27031); Amendment No. 2, dated December 29, 1980 (8 to Form 8-K dated January 29, 1981 in 1-27031). (d) 11-- Agreement of Joint Ownership Participation between SRMPA, SRG&T and Entergy Gulf States, dated June 6, 1980, for Nelson Station, Coal Unit #6, as amended (8 to Form 8- K dated June 11, 1980, A-2-b to Form 10-Q for the quarter ended June 30, 1982; and 10-1 to Form 8-K dated February 19, 1988 in 1-27031). (d) 12-- Agreements between Southern Company and Entergy Gulf States, dated February 25, 1982, which cover the construction of a 140-mile transmission line to connect the two systems, purchase of power and use of transmission facilities (10-31 to Form 10-K for the year ended December 31, 1981 in 1-27031). (d) 13-- Transmission Facilities Agreement between Entergy Gulf States and Mississippi Power Company, dated February 28, 1982, and Amendment, dated May 12, 1982 (A-2-c to Form 10-Q for the quarter ended March 31, 1982 in 1- 27031) and Amendment, dated December 6, 1983 (10-43 to Form 10-K for the year ended December 31, 1983 in 1- 27031). (d) 14-- First Amended Power Sales Agreement, dated December 1, 1985 between Sabine River Authority, State of Louisiana, and Sabine River Authority, State of Texas, and Entergy Gulf States, Central Louisiana Electric Co., Inc., and Louisiana Power and Light Company (10-72 to Form 10-K for the year ended December 31, 1985 in 1- 27031). +(d) 15-- Deferred Compensation Plan for Directors of Entergy Gulf States and Varibus Corporation, as amended January 8, 1987, and effective January 1, 1987 (10-77 to Form 10-K for the year ended December 31, 1986 in 1- 27031). Amendment dated December 4, 1991 (10-3 to Amendment No. 8 in Registration No. 2-76551). +(d) 16-- Trust Agreement for Deferred Payments to be made by Entergy Gulf States pursuant to the Executive Income Security Plan, by and between Entergy Gulf States and Bankers Trust Company, effective November 1, 1986 (10-78 to Form 10-K for the year ended December 31, 1986 in 1- 27031). +(d) 17-- Trust Agreement for Deferred Installments under Entergy Gulf States' Management Incentive Compensation Plan and Administrative Guidelines by and between Entergy Gulf States and Bankers Trust Company, effective June 1, 1986 (10-79 to Form 10-K for the year ended December 31, 1986 in 1-27031). +(d) 18-- Nonqualified Deferred Compensation Plan for Officers, Nonemployee Directors and Designated Key Employees, effective December 1, 1985, as amended, continued and completely restated effective as of March 1, 1991 (10-3 to Amendment No. 8 in Registration No. 2- 76551). +(d) 19-- Trust Agreement for Entergy Gulf States' Nonqualified Directors and Designated Key Employees by and between Entergy Gulf States and First City Bank, Texas-Beaumont, N.A. (now Texas Commerce Bank), effective July 1, 1991 (10-4 to Form 10-K for the year ended December 31, 1992 in 1-27031). (d) 20-- Lease Agreement, dated as of June 29, 1987, among GSG&T, Inc., and Entergy Gulf States related to the leaseback of the Lewis Creek generating station (10-83 to Form 10-K for the year ended December 31, 1988 in 1- 27031). (d) 21-- Nuclear Fuel Lease Agreement between Entergy Gulf States and River Bend Fuel Services, Inc. to lease the fuel for River Bend Unit 1, dated February 7, 1989 (10-64 to Form 10-K for the year ended December 31, 1988 in 1- 27031). (d) 22-- Trust and Investment Management Agreement between Entergy Gulf States and Morgan Guaranty and Trust Company of New York (the "Decommissioning Trust Agreement) with respect to decommissioning funds authorized to be collected by Entergy Gulf States, dated March 15, 1989 (10-66 to Form 10-K for the year ended December 31, 1988 in 1-27031). (d) 23-- Amendment No. 2 dated November 1, 1995 between Entergy Gulf States and Mellon Bank to Decommissioning Trust Agreement (10(d) 31 to Form 10-K for the year ended December 31, 1995 in 1-27031). (d) 24-- Partnership Agreement by and among Conoco Inc., and Entergy Gulf States, CITGO Petroleum Corporation and Vista Chemical Company, dated April 28, 1988 (10-67 to Form 10-K for the year ended December 31, 1988 in 1- 27031). +(d) 25-- Gulf States Utilities Company Executive Continuity Plan, dated January 18, 1991 (10-6 to Form 10-K for the year ended December 31, 1990 in 1-27031). +(d) 26-- Trust Agreement for Entergy Gulf States' Executive Continuity Plan, by and between Entergy Gulf States and First City Bank, Texas-Beaumont, N.A. (now Texas Commerce Bank), effective May 20, 1991 (10-5 to Form 10-K for the year ended December 31, 1992 in 1-27031). +(d) 27-- Gulf States Utilities Board of Directors' Retirement Plan, dated February 15, 1991 (10-8 to Form 10- K for the year ended December 31, 1990 in 1-27031). (d) 28-- Operating Agreement between Entergy Operations and Entergy Gulf States, dated as of December 31, 1993 (B- 2(f) to Rule 24 Certificate in 70-8059). (d) 29-- Guarantee Agreement between Entergy Corporation and Entergy Gulf States, dated as of December 31, 1993 (B- 5(a) to Rule 24 Certificate in 70-8059). (d) 30-- Service Agreement with Entergy Services, dated as of December 31, 1993 (B-6(c) to Rule 24 Certificate in 70-8059). (d) 31-- Third Amendment, dated January 1, 1994, to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (d) 32-- Agreement as to Expenses and Liabilities between Entergy Gulf States and Entergy Gulf States Capital I, dated as of January 28, 1997 (10(d)52 to Form 10-K for the year ended December 31, 1996 in 1-27031). (d) 33-- Refunding Agreement dated as of May 1, 1998 between Entergy Gulf States and Parish of Iberville, State of Louisiana (B-3(a) to Rule 24 Certificate dated May 29, 1998 in 70-8721). (d) 34-- Refunding Agreement dated as of May 1, 1998 between Entergy Gulf States and Industrial Development Board of the Parish of Calcasieu, Inc. (B-3(b) to Rule 24 Certificate dated January 29, 1999 in 70-8721). (d) 35-- Refunding Agreement (Series 1999-A) dated as of September 1, 1999 between Entergy Gulf States and Parish of West Feliciana, State of Louisiana (B-3(c) to Rule 24 Certificate dated October 8, 1999 in 70-8721). (d) 36-- Refunding Agreement (Series 1999-B) dated as of September 1, 1999 between Entergy Gulf States and Parish of West Feliciana, State of Louisiana (B-3(d) to Rule 24 Certificate dated October 8, 1999 in 70-8721). Entergy Louisiana (e) 1 -- Agreement, dated April 23, 1982, among Entergy Louisiana and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a) 1 to Form 10-K for the year ended December 31, 1982, in 1-3517). (e) 2 -- Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-2 in 2-41080). (e) 3 -- Amendment, dated as of February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-4 in 2-41080). (e) 4 -- Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a) 4 in 2-41080). (e) 5 -- Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)-3 in 2-41080). (e) 6 -- Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)-5 in 2-42523). (e) 7 -- Amendment, dated as of January 1, 1972, to Service Agreement with Entergy Services (4(a)-6 in 2-45916). (e) 8 -- Amendment, dated as of April 27, 1984, to Service Agreement with Entergy Services (10(a) 7 to Form 10-K for the year ended December 31, 1984 in 1-3517). (e) 9 -- Amendment, dated as of August 1, 1988, to Service Agreement with Entergy Services (10(d)-8 to Form 10-K for the year ended December 31, 1988 in 1-8474). (e) 10-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(d)-9 to Form 10-K for the year ended December 31, 1990 in 1-8474). (e) 11-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a)-11 to Form 10-K for the year ended December 31, 1994 in 1-3517). (e) 12 through (e) 25-- See 10(a)-12 through 10(a)-25 above. (e) 26-- Fuel Lease, dated as of January 31, 1989, between River Fuel Company #2, Inc., and Entergy Louisiana (B-1(b) to Rule 24 Certificate in 70-7580). (e) 27-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). (e) 28-- Compromise and Settlement Agreement, dated June 4, 1982, between Texaco, Inc. and Entergy Louisiana (28(a) to Form 8-K dated June 4, 1982 in 1-8474). (e) 29-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a) 39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (e) 30-- First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (e) 31-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (e) 32-- Middle South Utilities, Inc. and Subsidiary Companies Intercompany Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (e) 33-- First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated January 1, 1990 (D-2 to Form U5S for the year ended December 31, 1989). (e) 34-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (e) 35-- Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (e) 36-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). (e) 37-- Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, dated February 2, 1984, among DOE, System Fuels and Entergy Louisiana (10(d)33 to Form 10-K for the year ended December 31, 1984 in 1-8474). (e) 38-- Operating Agreement between Entergy Operations and Entergy Louisiana, dated as of June 6, 1990 (B-2(c) to Rule 24 Certificate dated June 15, 1990 in 70-7679). (e) 39-- Guarantee Agreement between Entergy Corporation and Entergy Louisiana, dated as of September 20, 1990 (B-2(a), to Rule 24 Certificate dated September 27, 1990 in 70-7757). (e) 40-- Installment Sale Agreement, dated July 20, 1994, between Entergy Louisiana and St. Charles Parish, Louisiana (B-6(e) to Rule 24 Certificate dated August 1, 1994 in 70-7822). (e) 41-- Installment Sale Agreement, dated November 1, 1995, between Entergy Louisiana and St. Charles Parish, Louisiana (B-6(a) to Rule 24 Certificate dated December 19, 1995 in 70-8487). (e) 42-- Refunding Agreement (Series 1999-A), dated as of June 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-6(a) to Rule 24 Certificate dated July 6, 1999 in 70-9141). (e) 43-- Refunding Agreement (Series 1999-B), dated as of June 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-6(b) to Rule 24 Certificate dated July 6, 1999 in 70-9141). (e) 44-- Refunding Agreement (Series 1999-C), dated as of October 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-11(a) to Rule 24 Certificate dated October 15, 1999 in 70-9141). (e) 45-- Agreement as to Expenses and Liabilities between Entergy Louisiana, Inc. and Entergy Louisiana Capital I dated July 16, 1996 (4(d) to Form 10-Q for the quarter ended June 30, 1996 in 1-8474). Entergy Mississippi (f) 1 -- Agreement dated April 23, 1982, among Entergy Mississippi and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a) 1 to Form 10-K for the year ended December 31, 1982 in 1-3517). (f) 2 -- Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-2 in 2-41080). (f) 3 -- Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a) 4 in 2-41080). (f) 4 -- Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a) 4 in 2-41080). (f) 5 -- Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)-3 in 2-41080). (f) 6 -- Service Agreement with Entergy Services, dated as of April 1, 1963 (D in 37-63). (f) 7 -- Amendment, dated January 1, 1972, to Service Agreement with Entergy Services (A to Notice, dated October 14, 1971 in 37-63). (f) 8 -- Amendment, dated April 27, 1984, to Service Agreement with Entergy Services (10(a) 7 to Form 10-K for the year ended December 31, 1984 in 1-3517). (f) 9 -- Amendment, dated as of August 1, 1988, to Service Agreement with Entergy Services (10(e) 8 to Form 10-K for the year ended December 31, 1988 in 0-320). (f) 10-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(e) 9 to Form 10-K for the year ended December 31, 1990 in 0-320). (f) 11-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a)-11 to Form 10-K for the year ended December 31, 1994 in 1-3517). (f) 12 through (f) 25-- See 10(a)-12 - 10(a)-25above. (f) 26-- Installment Sale Agreement, dated as of June 1, 1974, between Entergy Mississippi and Washington County, Mississippi (B-2(a) to Rule 24 Certificate dated August 1, 1974 in 70-5504). (f) 27-- Amended and Restated Installment Sale Agreement, dated as of April 1, 1994, between Entergy Mississippi and Warren County, Mississippi (B-6(a) to Rule 24 Certificate dated May 4, 1994 in 70-7914). (f) 28-- Amended and Restated Installment Sale Agreement, dated as of April 1, 1994, between Entergy Mississippi and Washington County, Mississippi, (B-6(b) to Rule 24 Certificate dated May 4, 1994 in 70-7914). (f) 29-- Refunding Agreement, dated as of May 1, 1999, between Entergy Mississippi and Independence County, Arkansas (B-6(a) to Rule 24 Certificate dated June 8, 1999 in 70-8719). (f) 30-- Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B-3(a) in 70-6337). (f) 31-- Amendment, dated December 4, 1984, to the Independence Steam Electric Station Operating Agreement (10(c) 51 to Form 10-K for the year ended December 31, 1984 in 0-375). (f) 32-- Amendment, dated December 4, 1984, to the Independence Steam Electric Station Ownership Agreement (10(c) 54 to Form 10-K for the year ended December 31, 1984 in 0-375). (f) 33-- Owners Agreement, dated November 28, 1984, among Entergy Arkansas, Entergy Mississippi and other co-owners of the Independence Station (10(c) 55 to Form 10-K for the year ended December 31, 1984 in 0-375). (f) 34-- Consent, Agreement and Assumption, dated December 4, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station and United States Trust Company of New York, as Trustee (10(c) 56 to Form 10-K for the year ended December 31, 1984 in 0-375). (f) 35-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). +(f) 36-- Post-Retirement Plan (10(d) 24 to Form 10-K for the year ended December 31, 1983 in 0-320). (f) 37-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (10(a) 39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (f) 38-- First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (f) 39-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (f) 40-- Sales Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (D to Rule 24 Certificate dated June 26, 1974 in 70-5399). (f) 41-- Service Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (E to Rule 24 Certificate dated June 26, 1974 in 70-5399). (f) 42-- Partial Termination Agreement, dated as of December 1, 1986, between System Energy and Entergy Mississippi (A-2 to Rule 24 Certificate dated January 8, 1987 in 70-5399). (f) 43-- Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (f) 44-- First Amendment dated January 1, 1990 to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). (f) 45-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (f) 46-- Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (f) 47-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). Entergy New Orleans (g) 1 -- Agreement, dated April 23, 1982, among Entergy New Orleans and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a)-1 to Form 10-K for the year ended December 31, 1982 in 1-3517). (g) 2 -- Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-2 in 2-41080). (g) 3 -- Amendment dated as of February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)-4 in 2-41080). (g) 4 -- Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a) 4 in 2-41080). (g) 5 -- Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)-3 in 2-41080). (g) 6 -- Service Agreement with Entergy Services dated as of April 1, 1963 (5(a)-5 in 2-42523). (g) 7 -- Amendment, dated as of January 1, 1972, to Service Agreement with Entergy Services (4(a)-6 in 2-45916). (g) 8 -- Amendment, dated as of April 27, 1984, to Service Agreement with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). (g) 9 -- Amendment, dated as of August 1, 1988, to Service Agreement with Entergy Services (10(f)-8 to Form 10-K for the year ended December 31, 1988 in 0-5807). (g) 10-- Amendment, dated January 1, 1991, to Service Agreement with Entergy Services (10(f)-9 to Form 10-K for the year ended December 31, 1990 in 0-5807). (g) 11-- Amendment, dated January 1, 1992, to Service Agreement with Entergy Services (10(a)-11 to Form 10-K for year ended December 31, 1994 in 1-3517). (g) 12 through (g) 25-- See 10(a)-12 - 10(a)-25 above. (g) 26-- Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). (g) 27-- Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a) 39 to Form 10-K for the year ended December 31, 1982 in 1-3517). (g) 28-- First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). (g) 29-- Revised Unit Power Sales Agreement (10(ss) in 33-4033). (g) 30-- Transfer Agreement, dated as of June 28, 1983, among the City of New Orleans, Entergy New Orleans and Regional Transit Authority (2(a) to Form 8-K dated June 24, 1983 in 1-1319). (g) 31-- Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). (g) 32-- First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). (g) 33-- Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). (g) 34-- Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). (g) 35-- Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). (12) Statement Re Computation of Ratios *(a) Entergy Arkansas's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. *(b) Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. *(c) Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. *(d) Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. *(e) Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. *(f) System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. *(21) Subsidiaries of the Registrants (23) Consents of Experts and Counsel *(a) The consent of Deloitte & Touche LLP is contained herein at page 256. *(24) Powers of Attorney _________________ * Filed herewith. + Management contracts or compensatory plans or arrangements.