Entergy 2003 Annual Report Download - page 29

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
international trading became equal. Profit allocations for
weather trading and international trading remain dispro-
portionate to the ownership interests. The weather trading
and international trading allocations are unequal only
within a specified range, such that the overall earnings
allocation should not materially differ from 50/50. Earnings
allocated under the terms of the partnership agreement
constitute equity, not subject to reallocation, for the partners.
2002 COMPARED TO 2001
The decrease in earnings for Energy Commodity Services in
2002 from $105.9 million to a $145.8 million loss was
primarily due to the charges to reflect the effect of
Entergy’s decision to discontinue additional greenfield
power plant development and to reflect asset impairments
resulting from the deteriorating economics of wholesale
power markets principally in the United States and the
United Kingdom. Entergy recorded net charges of
$428.5 million ($238.3 million net-of-tax) to operating
expenses. The net charges consist of the following:
The power development business obtained contracts in
October 1999 to acquire 36 turbines from General Electric.
Entergy’s rights and obligations under the contracts for
22 of the turbines were sold to an independent special-
purpose entity in May 2001. $178.0 million of the
charges, including an offsetting net-of-tax benefit
of $18.5 million related to the subsequent sale of four
turbines to a third party, is a provision for the net
costs resulting from cancellation or sale of the turbines
subject to purchase commitments with the special-
purpose entity;
$204.4 million of the charges results from the write-off
of Entergy Power Development Corporation’s equity
investment in the Damhead Creek project and the
impairment of the values of its Warren Power power
plant and its Crete and RS Cogen projects. This portion
of the charges reflects Entergy’s estimate of the effects
of reduced spark spreads in the United States and the
United Kingdom. Damhead Creek was sold in December
2002, resulting in net income of $31.4 million;
$39.1 million of the charges relates to the restructuring
of the non-nuclear wholesale assets business, which is
comprised of $22.5 million of impairments of adminis-
trative fixed assets, $10.7 million of estimated sublease
losses, and $5.9 million of employee-related costs;
$32.7 million of the charges results from the write-off of
capitalized project development costs for projects that
will not be completed; and
a gain of $25.7 million ($15.9 million net-of-tax) realized
on the sale in August 2002 of an interest in projects
under development in Spain.
Also, in the first quarter of 2002, Energy Commodity
Services sold its interests in projects in Argentina, Chile, and
Peru for net proceeds of $135.5 million. After impairment
provisions recorded for these Latin American interests in 2001,
the net loss realized on the sale in 2002 was insignificant.
Revenues and fuel and purchased power expenses
decreased for Energy Commodity Services by $1,075.8 million
and $876.9 million, respectively, in 2002 primarily due to:
a decrease of $542.9 million in revenues and $539.6 million
in fuel and purchased power expenses resulting from the
sale of Highland Energy in the fourth quarter of 2001;
a decrease of $161.7 million in revenues resulting from
the sale of the Saltend plant in August 2001; and
a decrease of $139.1 million in revenues and $133.5 million
in purchased power expenses due to the contribution
of substantially all of Entergy’s power marketing and
trading business to Entergy-Koch in February 2001.
Earnings from Entergy-Koch are reported as equity
in earnings of unconsolidated equity affiliates in the
financial statements. The net income effect of the lower
revenues was more than offset by the income from
Entergy’s investment in Entergy-Koch. The income from
Entergy’s investment in Entergy-Koch was $31.9 million
higher in 2002 primarily as a result of earnings at
Entergy-Koch Trading (EKT) and higher earnings at
Gulf South Pipeline due to more favorable transportation
contract pricing. Although the gain/loss days ratio
reported above declined in 2002, EKT made relatively
more money on the gain days than the loss days, and
thus had an increase in earnings for the year.
PARENT & OTHER
The loss from Parent & Other decreased in 2003 from
$38.6 million to $23.4 million primarily due to lower
income tax expense.
The loss from Parent & Other decreased in 2002 from
$57.9 million to $38.6 million primarily due to:
a decrease in income tax expense of $12.1 million
resulting from the allocation of intercompany tax
benefits; and
a decrease in interest charges of $6.0 million.
INCOME TAXES
The effective income tax rates for 2003, 2002, and 2001
were 37.9%, 32.1%, and 38.3%, respectively. See Note 3 to
the consolidated financial statements for a reconciliation of
the federal statutory rate of 35.0% to the effective income
tax rates.