Entergy 2004 Annual Report Download - page 27

Entergy Corporation and Subsidiaries 2004
2003 Compared to 2002
Net revenue, which is Entergy’s measure of gross margin, consists of
operating revenues net of: 1) fuel, fuel-related, and purchased power
expenses and 2) other regulatory credits. Following is an analysis of
the change in net revenue comparing 2003 to 2002 (in millions):
2002 net revenue $4,209.6
Base rate increases 66.2
Base rate decreases (23.3)
Deferred fuel cost revisions 56.2
Asset retirement obligation 42.9
Net wholesale revenue 23.2
March 2002 Arkansas settlement agreement (154.0)
Other (6.3)
2003 net revenue $4,214.5
Base rates increased net revenue due to base rate increases at
Entergy Mississippi and Entergy New Orleans that became
effective in January 2003 and June 2003, respectively. Entergy Gulf
States implemented base rate decreases in its Louisiana jurisdiction
effectiveJune 2002 and January2003. The January 2003
base rate decrease of $22.1 million had a minimal impact on net
income due to a corresponding reduction in nuclear depreciation
and decommissioning expenses associated with the change in
accounting estimate to reflect an assumed extension of River
Bend’suseful life.
The deferred fuel cost revisions variance was due to a revised
unbilled sales pricing estimate made in December 2002 and further
revisionof that estimate in the first quarter of 2003 to more closely
align the fuel component of that pricing with expected recoverable
fuel costs at Entergy Louisiana.
The asset retirement obligationvariance was due to the
implementationof SFAS 143, “Accounting for Asset Retirement
Obligations,” adopted in January 2003. See “Critical Accounting
Estimates - Nuclear Decommissioning Costs” for more details on
SFAS 143. The increase was offset by increased depreciation
and decommissioning expenses and had an insignificant effect
onnet income.
The increase in net wholesale revenue was primarily due to an
increase in sales volume to municipal and cooperative customers.
The March 2002 settlement agreement variance reflects the
absence in 2003 of the effect of recording the ice storm settlement
approved by the Arkansas Public Service Commission (APSC) in
2002. This settlement resulted in previously deferred revenues at
Entergy Arkansas per the transition cost account mechanism being
recorded in net revenue in the second quarter of 2002. The decrease
was offset by a corresponding decrease in other operation and
maintenance expenses and had a minimal effect on net income.
Gross Operating Revenues and Regulatory Credits – Gross operating
revenues include an increase in fuel cost recovery revenues of
$682 million and $53 million in electric and gas sales, respectively,
primarily due to higher fuel rates in 2003 resulting from increases in
the market prices of purchased power and natural gas. As such, this
revenue increase was offset by increased fuel and purchased
power expenses.
Other regulatory credits decreased primarily due to the
APSC-approved March 2002 settlement agreement mentioned
above, which increased other regulatory credits in 2002 to offset
other operation and maintenance expenses of $159.9 million
related to the December 2000 ice storms. The decrease was
partially offset by the asset retirement obligation mentioned above,
which increased other regulatory credits in 2003 to offset the
increases in depreciation and decommissioning expenses.
Other Income Statement Variances
2004 Compared to 2003
Other operation and maintenance expenses decreased from $1.613
billion in 2003 to $1.569 billion in 2004 primarily due to voluntary
severance program accruals of $99.8 million in 2003 partially offset
by an increase of $30.5 million as a result of higher customer
service support costs in 2004 and an increase of approximately
$33 million as a result of higher benefits costs in 2004. Entergy
expects benefit costs to continue to increase in 2005. See “Critical
Accounting Estimates - Pension and Other Retirement Benefits”
and Note 10 to the consolidated financial statements for further
discussion of benefit costs.
Depreciationand amortization expenses increased from
$797.6 millionin 2003 to $823.7 millionin 2004 primarily due to
higher depreciation of Grand Gulf due to a higher scheduled
sale-leasebackprincipal payment in additionto an increase in plant
in service.
Other income (deductions) changed from ($36.0 million) in
2003 to $108.9 million in 2004 primarily due to the following:
•the $107.7 million accrual in the second quarter of 2003 for the
loss that would be associated with a final, non-appealable
decisiondisallowing abeyed River Bend plant costs. See Note 2
to the consolidated financial statements for moredetails
regarding the River Bend abeyed plant costs;
•a reductionin the decommissioning liabilityfor River Bend in
2004, as discussed in Note 8 to the consolidated financial
statements; and
•a$10 million reduction in the loss provision for an
environmental clean-up site.
Interest on long-term debt decreased from $433.5 million in
2003 to $390.7 million in 2004 primarily due to the net retirement
and refinancing of long-termdebt in 2003 and the first six months
of 2004. See Note 5 to the consolidated financial statements for
details on long-term debt.
2003 Compared to 2002
Other operation and maintenance expenses decreased from $1.679
billion in 2002 to $1.613 billion in 2003 primarily due to decreased
expenses at Entergy Arkansas. The March 2002 settlement
agreement that became final in the second quarter of 2002,
allowing EntergyArkansas to recover a large majority of 2000 and
2001 ice storm repair expenses through the previously-
collected transition cost account amounts, increased Entergy
Arkansas’ expenses by $159.9 million in 2002. This increase in
expenses in 2002 was offset by a regulatory credit resulting in no
effect on net income. The decrease was partially offset by an
increase of $99.8 million in benefit costs as a result of voluntary
severance program accruals in 2003.
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MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued