Entergy 2012 Annual Report Download - page 90

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
and $1.7 million in 2012, $2.0 million in 2011, and $2.3 million in
2010 for Entergy Gulf States Louisiana. Oil tank facilities lease pay-
ments for Entergy Mississippi were $3.4 million in 2012, $3.4 million
in 2011, and $3.4 million in 2010.
Sale and Leaseback Transactions
WATERFORD 3 LEASE OBLIGATIONS
In 1989, in three separate but substantially identical transactions,
Entergy Louisiana sold and leased back undivided interests in Water-
ford 3 for the aggregate sum of $353.6 million. The leases expire in
July 2017. At the end of the lease terms, Entergy Louisiana has the
option to repurchase the leased interests in Waterford 3 at fair mar-
ket value or to renew the leases for either fair market value or, under
certain conditions, a fixed rate. In the event that Entergy Louisiana
does not renew or purchase the interests, Entergy Louisiana would
surrender such interests and their associated entitlement of Waterford
3’s capacity and energy.
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 leases.
Upon the occurrence of certain events, Entergy Louisiana may
be obligated to assume the outstanding bonds used to finance the
purchase of the interests in 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 membership interests) 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,
2012, Entergy Louisiana was in compliance with these provisions.
As of December 31, 2012, Entergy Louisiana had future minimum
lease payments (reflecting an overall implicit rate of 7.45%) in con-
nection with the Waterford 3 sale and leaseback transactions, which
are recorded as long-term debt, as follows (in thousands):
2013 $ 26,301
2014 31,036
2015 28,827
2016 16,938
2017 106,335
Years thereafter –
Total 209,437
Less: Amount representing interest 46,488
Present value of net minimum lease payments $162,949
GRAND GULF LEASE OBLIGATIONS
In 1988, in two separate but substantially identical transactions, Sys-
tem Energy sold and leased back undivided ownership interests in
Grand Gulf for the aggregate sum of $500 million. The leases expire
in July 2015. At the end of the lease terms, System Energy has the
option to repurchase the leased interests in Grand Gulf at fair market
value or to renew the leases for either fair market value or, under
certain conditions, a fixed rate. In the event that System Energy does
not renew or purchase the interests, System Energy would surrender
such interests and their associated entitlement of Grand Gulf’s capac-
ity and energy.
System Energy is required to report the sale-leaseback as a financ-
ing 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.
Consistent with a recommendation contained in a FERC audit report,
System Energy initially recorded as a net regulatory asset the differ-
ence between the recovery of the lease payments and the amounts
expensed for interest and depreciation and continues to record this
difference as a regulatory asset or liability on an ongoing basis, result-
ing in a zero net balance for the regulatory asset at the end of the lease
term. The amount was a net regulatory liability of $27.8 million and
$2.0 million as of December 31, 2012 and 2011, respectively.
As of December 31, 2012, System Energy had future minimum
lease payments (reflecting an implicit rate of 5.13%), which are
recorded as long-term debt, as follows (in thousands):
2013 $ 50,546
2014 51,637
2015 52,253
2016 –
2017 –
Years thereafter –
Total 154,436
Less: Amount representing interest 15,543
Present value of net minimum lease payments $138,893
NOTE 11. RETIREMENT, OTHER POSTRETIREMENT
BENEFITS AND DEFINED CONTRIBUTION PLANS
Qualified Pension Plans
Entergy has seven qualified pension plans covering substantially
all employees: “Entergy Corporation Retirement Plan for Non-Bar-
gaining 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,” “Entergy Corporation Retire-
ment Plan III,” “Entergy Corporation Retirement Plan IV for Non-
Bargaining Employees,” and “Entergy Corporation Retirement Plan
IV for Bargaining Employees.” The Registrant Subsidiaries partici-
pate in two of these plans: “Entergy Corporation Retirement Plan
for Non-Bargaining Employees” and “Entergy Corporation Retire-
ment Plan for Bargaining Employees.” Except for the Entergy Cor-
poration 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.
The assets of the seven qualified pension plans are held in a master
trust established by Entergy. Each pension plan has an undivided ben-
eficial interest in each of the investment accounts of the master trust
that is maintained by a trustee. Use of the master trust permits the
commingling of the trust assets of the pension plans of Entergy Cor-
poration and its Registrant Subsidiaries for investment and adminis-
trative purposes. Although assets are commingled in the master trust,
the trustee maintains supporting records for the purpose of allocating
the equity in net earnings (loss) and the administrative expenses of
the investment accounts to the various participating pension plans.
The fair value of the trust assets is determined by the trustee and
certain investment managers. The trustee calculates a daily earnings
factor, including realized and unrealized gains or losses, collected and
accrued income, and administrative expenses, and allocates earnings
to each plan in the master trust on a pro rata basis.
Further, within each pension plan, the record of each Registrant
Subsidiary’s beneficial interest in the plan assets is maintained by the
plan’s actuary and is updated quarterly. Assets for each Registrant
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