Entergy 2003 Annual Report Download - page 58

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying consolidated financial statements
include the accounts of Entergy Corporation and its direct
and indirect subsidiaries. As required by generally accepted
accounting principles, all significant intercompany trans-
actions 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.
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.
Entergy calculates the estimate based upon several factors
including billings through the last billing cycle in a month,
actual generation in the month, historical line loss factors,
and prices in effect in the domestic utility companies’
various jurisdictions. Each month the estimated unbilled
revenue amounts are recorded as revenue and a receivable,
and the prior month’s estimate is reversed. Therefore,
changes in price and volume differences resulting from
factors such as weather affect the calculation of unbilled
revenues from one period to the next, and may result in
variability in reported revenues from one period to the next
as prior estimates are so recorded and 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. Entergy Mississippi’s fuel factor
includes an energy cost rider that is adjusted quarterly.
Entergy Mississippi has deferred until 2004 the collection
of fuel under-recoveries for the first and second quarters of
2003 that would have been collected in the third and fourth
quarters of 2003, respectively. The deferred amount plus
carrying charges will be collected over twelve months
beginning January 2004. 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.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS