Entergy 2004 Annual Report Download - page 56

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Entergy Corporation and Subsidiaries 2004
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Entergy Corporation and its direct and indirect
subsidiaries. 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 Federal Energy Regulatory Commission (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 consolidated 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 disclosureof 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
futureto the extent that futureestimates or actual results are
different from the estimates used.
Revenuesand Fuel Costs
The domestic utilitycompanies generate, transmit, and distribute
electric power primarily to retail customers in Arkansas, Louisiana,
including the Cityof New Orleans, Mississippi, and Texas. Entergy
Gulf States distributes gas to retail customers in and around Baton
Rouge, Louisiana and Entergy New Orleans distributes gas to retail
customers in the Cityof New Orleans. Entergy’s 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.
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. Entergy calculates the estimate
based upon several factors including billings through the last billing
cycle in a month, actual generation in the month, historical line loss
factors, and prices in effect in the domestic utility companies’
various jurisdictions. Each month the estimated unbilled revenue
amounts are recorded as revenue and a receivable, and the prior
month’s estimate is reversed. Therefore, changes in price and
volume differences resulting from factors such as weather affect the
calculation of unbilled revenues from one period to the next, and
may result in variability in reported revenues from one period to the
next as prior estimates areso recorded and reversed.
The domestic utility companies’ rate schedules include either fuel
adjustment clauses or fixed fuel factors, 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. Entergy Mississippi’s fuel factor includes an energy cost
rider that is adjusted quarterly. As discussed in Note 2 to the
consolidated financial statements, the MPSC approved Entergy
Mississippi’s deferral of the refund of over-recoveries for the third
quarter of 2004 that would have been refunded in the first quarter
of 2005. The deferred amount plus carrying charges will be
refunded in the second and third quarters of 2005. In the case of
Entergy Arkansas and the Texas portion of Entergy Gulf States,
their fuel under-recoveries aretreated 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
carrying charge on the under-recovered balances.
System Energy’s operating revenues are intended to recover from
EntergyArkansas, EntergyLouisiana, Entergy Mississippi, and
Entergy New Orleans operating expenses and capital costs
attributable to Grand Gulf. The capital costs arecomputed by
allowing a return on System Energy’s common equity funds
allocable to its net investment in Grand Gulf, plus System Energy’s
effectiveinterest cost for its debt allocable to its investment
in Grand Gulf.
Property, Plant, and Equipment
Property, plant, and equipment is stated at original cost. For the
domestic utility companies and System Energy, the original cost of
plant retired or removed, 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 and
Waterford 3 that havebeen sold and leased back. For financial
reporting purposes, these sale and leasebackarrangements are
reflected as financing transactions.
NOTES to CONSOLIDATED FINANCIAL STATEMENTS