Entergy 2007 Annual Report Download - page 76

74
Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
Entergy Texas led a motion for reconsideration, in which it asked
the PUCT to also allow for an update to the ERCOT cost study. In a
November 2007 order clarifying its order that abated the docket, the
PUCT approved the SPP’s work plan, ordered Entergy Texas to provide
an updated analysis of the costs and benets of remaining in the SERC
Reliability Corporation, but deferred Entergy Texas’ request to allow
for an update to the ERCOT cost study.
In December 2006, the PUCT asked for parties to brief the eects
of the 2005 legislation on the competition dockets of Entergy Texas,
most notably, the settlement that the parties entered with respect to
the unbundling of Entergy Texas for retail open access. Finding that
the 2005 legislation now provides the mechanism by which Entergy
Texas will transition to competition, the PUCT, on February 1, 2007,
dismissed Entergy Texas’ unbundled cost of service proceeding. Aer
analyzing the PUCT’s decision, Entergy Texas recorded a provision for
its estimated exposure related to certain past fuel cost recoveries that
may be credited to customers.
CO-OW N E R -IN I T I AT E D PR O C E E D I N G A T T H E FERC
In October 2004, Arkansas Electric Cooperative (AECC) led
a complaint at the FERC against Entergy Arkansas relating to a
contract dispute over the pricing of substitute energy at the co-owned
Independence and White Blu coal plants. e main issue in the case
related to the consequences under the governing contracts when
the dispatch of the coal units is constrained due to system operating
conditions. A hearing was held on the AECC complaint and an ALJ
Initial Decision was issued in January 2006 in which the ALJ found
AECC’s claims to be without merit. On October 25, 2006, the FERC
issued its order in the proceeding. In the order, the FERC reversed
the ALJ’s ndings. Specically, the FERC found that the governing
contracts do not recognize the eects of dispatch constraints on the
co-owned units. e FERC explained that for over twenty-three years
the course of conduct of the parties was such that AECC received its
full entitlement to the two coal units, regardless of any reduced output
caused by system operating constraints. Based on the order, Entergy
Arkansas is required to refund to AECC all excess amounts billed
to AECC as a result of the system operating constraints. e FERC
denied Entergy Arkansas’ request for rehearing and Entergy Arkansas
refunded $22.1 million (including interest) to AECC in September
2007. Entergy Arkansas had previously recorded a provision for the
estimated eect of this refund. AECC has led a protest at the FERC
claiming that Entergy Arkansas owes an additional $2.5 million plus
interest. Entergy Arkansas has appealed the FERC’s decision to the
D.C. Circuit.
NOTE 3. INCOME TAXES
Income tax expenses from continuing operations for 2007, 2006, and
2005 for Entergy Corporation and subsidiaries consist of the following
(in thousands):
2007 2006 2005
Current:
Federal $(1,379,288) $(266,464) $(306,524)
Foreign 316 64 13,290
State 27,174 (74,319) (27,212)
Total (1,351,798) (340,719) (320,446)
Deferred – net 1,884,383 801,745 898,384
Investment tax credit
adjustments – net (18,168) (17,982) (18,654)
Income tax expense from
continuing operations $ 514,417 $ 443,044 $ 559,284
Total income taxes from continuing operations for Entergy
Corporation and subsidiaries dier from the amounts computed
by applying the statutory income tax rate to income before taxes.
e reasons for the dierences for the years 2007, 2006, and 2005 are
(in thousands):
2007 2006 2005
Consolidated net income $1,134,849 $1,132,602 $ 898,331
Discontinued operations (net of
income tax of $67 and
$(24,051) in 2006 and 2005,
respectively – 496 44,794
Preferred dividend requirements 25,105 27,783 25,427
Income before preferred stock
dividends of subsidiaries 1,159,954 1,160,881 968,552
Income taxes before
discontinued operations 514,417 443,044 559,284
Pretax income $1,674,371 $1,603,925 $1,527,836
Computed at statutory
rate (35%) $ 586,030 $ 561,374| $ 534,743
Increases (reductions) in tax
resulting from:
State income taxes net of
federal income tax eect 31,066 44,230| 44,282
Regulatory dierences –
utility plant items 50,070 50,211| 28,983
Amortization of investment
tax credits (17,612) (17,460) (18,691)
Decommissioning
trust fund basis (35,684) – –
Capital gain (losses) 7,126| (79,427) (792)
Flow-through/permanent
dierences (49,609) (52,866) (23,618)
Tax reserves (25,821) (53,610) –
Valuation allowance (8,676) 22,300| –|
Other – net (22,473) (31,708) (5,623)
Total income taxes as reported
from continuing operations $ 514,417 $ 443,044| $ 559,284
Eective income tax rate 30.7%| 27.6%| 36.6%
e capital loss for 2006 includes a loss for tax purposes recorded in the
fourth quarter 2006 resulting from the liquidation of Entergy Power
International Holdings, Entergy’s holding company for Entergy-Koch,
LP. e $79.4 million tax benet is net of other capital gains.