Entergy 2002 Annual Report Download - page 52

NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying consolidated financial statements include
the accounts of Entergy Corporation and its direct and indi-
rect subsidiaries. As required by generally accepted accounting
principles, certain significant intercompany transactions have
been eliminated in the consolidated financial statements. The
domestic utility companies (Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi, and Entergy
New Orleans, collectively) 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 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
The domestic utility companies generate, transmit, and
distribute electric power primarily to retail customers in
Arkansas, Louisiana, including the City of 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
City of 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.
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
1995 rate proceeding that was resolved in 2001 is discussed in
Note 2 to the consolidated 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. Each
month the estimated unbilled revenue amounts are recorded
as revenue and a receivable, and the prior month’s estimate
is reversed.
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 carrying
charge on the under-recovered balances.
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, 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS