Entergy 2003 Annual Report Download - page 32

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
APSC that the investment in the replacement is in the
public interest analogous to the order received in 1998
prior to the replacement of the Arkansas Nuclear One
Unit 2 (ANO 2) steam generators. The APSC found that
the replacement is in the public interest in a declaratory
order issued in May 2003.
Purchase of the Perryville power plant in Louisiana. In
January 2004, Entergy Louisiana signed an agreement
to acquire the 718 MW Perryville power plant for
$170 million. The plant is owned by a subsidiary of
Cleco Corporation, which subsidiary submitted a bid in
response to Entergy’s Fall 2002 request for proposals
for supply-side resources. The signing of the agreement
followed a voluntary Chapter 11 bankruptcy filing by
the plant’s owner. Entergy expects that Entergy
Louisiana will own 100 percent of the Perryville plant,
and that Entergy Louisiana will sell 75 percent of the
output to Entergy Gulf States under a long-term cost-of-
service purchased power agreement. The purchase of
the plant, expected to be completed by December 2004,
is contingent upon obtaining necessary approvals from
the bankruptcy court and from state and federal
regulators, including approval of full cost recovery,
giving consideration to the need for the power and the
prudence of Entergy Louisiana and Entergy Gulf States
for engaging in the transaction. In addition, Entergy
Louisiana and Entergy Gulf States executed a purchased
power agreement with the plant’s owner through the
date of the acquisition’s closing (as long as that occurs
by September 2005) for 100 percent of the output of the
Perryville plant.
Nuclear power plant uprates.
Entergy’s obligation in the Energy Commodity Services
business to make a $72.7 million cash contribution to
Entergy-Koch in January 2004. Entergy made the
contribution on January 2, 2004.
From time to time, Entergy considers other capital invest-
ments as potentially being necessary or desirable in the
future, including additional nuclear plant power uprates,
generation supply assets, various transmission upgrades,
environmental compliance expenditures or investments in
new businesses or assets. Because no contractual obligation
or commitment exists to pursue these investments, they are
not included in Entergy’s planned construction and capital
investments. These potential investments are also subject
to evaluation and approval in accordance with Entergy’s
policies before amounts may be spent. In addition, Entergy’s
capital spending plans do not include spending for trans-
mission upgrades requested by merchant generators, other
than projects currently underway, because Entergy’s
contracts with the generators require the generators to
fund the upgrades, which Entergy then repays through
credits against billings to the generators.
Estimated capital expenditures are subject to periodic
review and modification and may vary based on the
ongoing effects of business restructuring, regulatory
constraints, environmental regulations, business opportu-
nities, market volatility, economic trends, and the ability to
access capital.
Dividends and Stock Repurchases
Declarations of dividends on Entergy’s common stock are
made at the discretion of the Board. Among other things,
the Board evaluates the level of Entergy’s common stock
dividends based upon Entergy’s earnings, financial
strength, and future investment opportunities. At its July
2003 meeting, the Board increased Entergy’s quarterly
dividend per share by 29%, to $0.45. Entergy expects the
next review of a potential dividend increase will occur
in October 2004. Given the current number of Entergy
common shares outstanding, Entergy expects the July
2003 dividend increase to result in an incremental annual
increase in cash used of approximately $90 million. In
2003, Entergy paid $363 million in cash dividends on its
common stock.
In accordance with Entergy’s stock option plans, Entergy
periodically grants stock options to its employees, which
may be exercised to obtain shares of Entergy’s common
stock. According to the plans, these shares can be newly
issued shares, treasury stock, or shares purchased on the
open market. Entergy’s management has been authorized
to repurchase on the open market shares up to an amount
sufficient to fund the exercise of grants under the plans. In
2003, Entergy repurchased 155,000 shares of common
stock for a total purchase price of $8.1 million.
Public Utility Holding Company Act (PUHCA)
Restrictions on Uses of Capital
Entergy’s ability to invest in electric wholesale generators
and foreign utility companies is subject to the SEC’s regula-
tions under PUHCA. As authorized by the SEC, Entergy is
allowed to invest earnings in electric wholesale generators
and foreign utility companies in an amount equal to 100%
of its average consolidated retained earnings. As of
December 31, 2003, Entergy’s investments subject to this
rule totaled $2.59 billion constituting 58.3% of Entergy’s
average consolidated retained earnings.
Entergy’s ability to guarantee obligations of Entergy’s
non-utility subsidiaries is also limited by Securities and
Exchange (SEC) regulations under PUHCA. In August
2000, the SEC issued an order, effective through December
31, 2005, that allows Entergy to issue up to $2 billion of
guarantees for the benefit of its non-utility companies.
Entergy currently has sufficient capacity under this order
for its foreseeable needs.
Under PUHCA, the SEC imposes a limit equal to 15% of
consolidated capitalization on the amount that may be
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued