Entergy 2003 Annual Report Download - page 78

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
NUCLEAR DECOMMISSIONING COSTS
SFAS 143, “Accounting for Asset Retirement Obligations,”
which was implemented effective January 1, 2003, requires
the recording of liabilities for all legal obligations associated
with the retirement of long-lived assets that result from the
normal operation of those assets. For Entergy, these asset
retirement obligations consist of its liability for decommis-
sioning its nuclear power plants.
These liabilities are recorded at their fair values (which is
the present values of the estimated future cash outflows) in
the period in which they are incurred, with an accompanying
addition to the recorded cost of the long-lived asset. The
asset retirement obligation is accreted each year through a
charge to expense, to reflect the time value of money for this
present value obligation. The amounts added to the carrying
amounts of the long-lived assets will be depreciated over the
useful lives of the assets. The net effect of implementing
this standard for the rate-regulated business of the domestic
utility companies and System Energy was recorded as a
regulatory asset, with no resulting impact on Entergy’s net
income. Entergy recorded these regulatory assets because
existing rate mechanisms in each jurisdiction are based on
the principle that Entergy will recover all ultimate costs of
decommissioning from customers.
Assets and liabilities increased approximately $1.1 billion
for the domestic utility companies and System Energy as a
result of recording the asset retirement obligations at their
fair values of $1.1 billion as determined under SFAS 143,
increasing utility plant by $287 million, reducing accumu-
lated depreciation by $361 million and recording the
related regulatory assets of $422 million. The implementation
of SFAS 143 for the portion of River Bend not subject to
cost-based ratemaking decreased earnings by approximately
$21 million net-of-tax ($0.09 per share) as a result of a one-
time cumulative effect of accounting change. In accordance
with ratemaking treatment and as required by SFAS 71, the
depreciation provisions for the domestic utility companies
and System Energy include a component for removal costs
that are not asset retirement obligations under SFAS 143.
In accordance with regulatory accounting principles,
Entergy has recorded a regulatory asset for certain of its
domestic utility companies and System Energy of approxi-
mately $72.4 million as of December 31, 2003 and approxi-
mately $79.6 million as of December 31, 2002 to reflect an
estimate of incurred but uncollected removal costs previous-
ly recorded as a component of accumulated depreciation.
The decommissioning and retirement cost liability for cer-
tain of the domestic utility companies and System Energy
includes a regulatory liability of approximately $26.8 million
as of December 31, 2003 and approximately $25.5 million
as of December 31, 2002 representing an estimate of collected
but not yet incurred removal costs. For the Non-Utility
Nuclear business, the implementation of SFAS 143 resulted
in a decrease in liabilities of approximately $595 million due
to reductions in decommissioning liabilities, a decrease in
assets of approximately $340 million, including a decrease
in electric plant in service of $315 million, and an increase
in earnings in the first quarter of 2003 of approximately
$155 million net-of-tax ($0.67 per share) as a result of a
one-time cumulative effect of accounting change.
The cumulative decommissioning liabilities and expenses
recorded in 2003 by Entergy were as follows (in millions):
Liabilities Liabilities
as of SFAS 143 as of
Dec. 31, 2002 Adoption Accretion Spending Dec. 31, 2003
ANO 1 & ANO 2 $ 310.7 $ 221.0 $ 35.8 $ – $ 567.5
River Bend 237.0 41.2 20.6 – 298.8
Waterford 3 125.3 179.4 20.6 – 325.3
Grand Gulf 1 153.5 137.2 21.8 – 312.5
Pilgrim 490.2 (292.6) 15.8 – 213.4
Indian Point 1 & 2 456.9 (207.3) 19.9 11.8 257.7
Vermont Yankee 316.7 (95.1) 17.7 – 239.3
$2,090.3 $ (16.2) $152.2 $11.8 $2,214.5
In addition, an insignificant amount of removal costs
associated with non-nuclear power plants are also included
in the decommissioning line item on the balance sheet.
Entergy periodically reviews and updates estimated decom-
missioning costs. The actual decommissioning costs may
vary from the estimates because of regulatory require-
ments, changes in technology, and increased costs of labor,
materials, and equipment.
If Entergy had applied SFAS 143 during prior periods,
the following impacts would have resulted:
For the years ended December 31, 2002 2001
Asset retirement obligations
actually recorded $2,090,269 $1,679,738
Pro forma effect
of SFAS 143 $ (46,041) $ 28,512
Asset retirement obligations -
pro forma $2,044,228 $1,708,250
Earnings applicable to
common stock - as reported $ 599,360 $ 726,196
Pro forma effect
of SFAS 143 $ 14,119 $ 9,613
Earnings applicable to
common stock - pro forma $ 613,479 $ 735,809
Basic earnings per average
common share - as reported $2.69 $3.29
Pro forma effect
of SFAS 143 $0.06 $0.04
Basic earnings per average
common share - pro forma $2.75 $3.33
Diluted earnings per average
common share - as reported $2.64 $3.23
Pro forma effect
of SFAS 143 $0.06 $0.04
Diluted earnings per average
common share - pro forma $2.70 $3.27
For the Indian Point 3 and FitzPatrick plants purchased
in 2000, NYPA retained the decommissioning trusts and
the decommissioning liability. NYPA and Entergy executed
decommissioning agreements, which specify their decom-
missioning obligations. NYPA has the right to require
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued