Entergy 2005 Annual Report Download - page 86

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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NOTES to CONSOLIDATED FINANCIAL STATEMENTS continuedNOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
Equity Awards and Incentive Awards
Entergy grants 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, per-
formance units will earn the cash equivalent of the dividends paid
during the performance period applicable to each plan. 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 2005, 2004, and 2003,
$36 million, $47 million, and $45 million, respectively, was charged
to compensation expense.
RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Provisions within the articles of incorporation or pertinent inden-
tures 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. As of December 31, 2005, Entergy
Arkansas and Entergy Mississippi had restricted retained earnings
unavailable for distribution to Entergy Corporation of $396.4 million
and $68.5 million, respectively. Entergy Corporation received dividend
payments from subsidiaries totaling $424 million in 2005, $825 million
in 2004, and $425 million in 2003.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Entergy is involved in a number of legal, tax, and regulatory
proceedings before various courts, regulatory commissions, and
governmental agencies in the ordinary course of its business. While
management is unable to predict the outcome of such proceedings,
management does not believe that the ultimate resolution of these
matters will have a material adverse effect on Entergy’s results of
operations, cash flows, or financial condition.
ENTERGY NEW ORLEANS BANKRUPTCY
See Note 16 to the consolidated financial statements for information
on the Entergy New Orleans bankruptcy proceeding.
VIDALIA PURCHASED POWER AGREEMENT
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 $115.1 million in 2005, $147.7 million in
2004, and $112.6 million in 2003. If the maximum percentage (94%)
of the energy is made available to Entergy Louisiana, current
production projections would require estimated payments of
approximately $130.4 million in 2006, and a total of $3.4 billion for
the years 2006 through 2031. Entergy Louisiana currently recovers
the costs of the purchased energy through its fuel adjustment clause.
In an LPSC-approved settlement related to tax benefits from the tax
treatment of the Vidalia contract, Entergy Louisiana agreed to cred-
it rates by $11 million each year for up to ten years, beginning in
October 2002. The provisions of the settlement also provide that
the LPSC shall not recognize or use Entergy Louisiana’s use of the
cash benefits from the tax treatment in setting any of Entergy
Louisiana’s rates. Therefore, to the extent Entergy Louisiana’s use
of the proceeds would ordinarily have reduced its rate base, no
change in rate base shall be reflected for ratemaking purposes.
NUCLEAR INSURANCE
Third Party Liability Insurance
The Price-Anderson Act provides insurance for the public in the
event of a nuclear power plant accident. The costs of this insurance
are borne by the nuclear power industry. Originally passed by
Congress in 1957 and most recently amended in 2005, the Price-
Anderson Act requires nuclear power plants to show evidence of
financial protection in the event of a nuclear accident. This protec-
tion must consist of two levels:
1. The primary level is private insurance underwritten by American
Nuclear Insurers and provides liability insurance coverage of
$300 million. If this amount is not sufficient to cover claims
arising from the accident, the second level, Secondary Financial
Protection, applies. An industry-wide aggregate limitation of
$300 million exists for domestically-sponsored terrorist acts.
There is no aggregate limitation for foreign-sponsored terrorist acts.
2. Within the Secondary Financial Protection level, each nuclear
plant must pay a retrospective premium, equal to its proportionate
share of the loss in excess of the primary level, up to a maximum
of $100.6 million per reactor per incident. This consists of a
$95.8 million maximum retrospective premium plus a five percent
surcharge that may be applied, if needed, at a rate that is presently
set at $15 million per year per nuclear power reactor. There are no
domestically or foreign-sponsored terrorism limitations.
Currently, 104 nuclear reactors are participating in the Secondary
Financial Protection program – 103 operating reactors and one
under construction. The product of the maximum retrospective
premium assessment to the nuclear power industry and the number
of nuclear power reactors provides over $10 billion in insurance
coverage to compensate the public in the event of a nuclear power
reactor accident.
Entergy owns and operates ten of the nuclear power reactors, and
owns the shutdown Indian Point 1 reactor (10% of Grand Gulf is
owned by a non-affiliated company which would share on a pro-rata
basis in any retrospective premium assessment under the Price-
Anderson Act).
An additional but temporary contingent liability exists for all
nuclear power reactor owners because of a previous Nuclear Worker
Tort (long-term bodily injury caused by exposure to nuclear radia-
tion while employed at a nuclear power plant) insurance program
that was in place from 1988 to 1998. The maximum premium
assessment exposure to each reactor is $3 million and will only be
applied if such claims exceed the program’s accumulated reserve
funds. This contingent premium assessment feature will expire with
the Nuclear Worker Tort program’s expiration, which is scheduled
for 2008.