Entergy 2004 Annual Report Download - page 32

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Entergy Corporation and Subsidiaries 2004
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 power purchase agreement. In addition, Entergy
Louisiana and Entergy Gulf States executed an interim power
purchase agreement with the plant’s owner through the date of
the acquisition’s closing (as long as that occurs by December
2005) for 100 percent of the output of the Perryville power
plant. In April 2004, the bankruptcy court approved Entergy
Louisiana’s agreement to acquire the plant. In March 2004,
Entergy Gulf States and Entergy Louisiana filed with the
LPSC for its approval of the acquisition and long-term cost-of-
service power purchase agreement. Entergy is seeking approval
from the LPSC of cost recovery for the acquisition, giving
consideration to the need for the power and the prudence of
Entergy Louisiana and Entergy Gulf States in engaging in the
transaction. Hearings are scheduled for March 2005. Assuming
regulatory approval by the LPSC, Entergy Louisiana expects
the Perryville acquisition to close in mid-2005.
•Transmissionexpansiondesigned to address immediate load
growth needs and to provide improved transmission flexibility
for the southeastern Louisiana and Texas regions of Entergy’s
service territory. Entergy expects to spend $170 million on high
voltage transmission infrastructure to be completed in phases
between mid-2005 to mid-2007.
•Purchase of additional generationsupply sources within the
U.S. Utility’s service territory.
•Nuclear power plant uprates, dry cask spent fuel storage, and
license renewals.
From time to time, Entergy considers other capital investments
as potentially being necessary or desirable in the future, including
additional nuclear plant power uprates, generation supply assets,
various transmissionupgrades, environmental compliance
expenditures, or investments in new businesses or assets. Because no
contractual obligation, commitment, or Board-approval exists to
pursue these investments, they are not included in Entergy’s
planned constructionand capital investments. These potential
investments arealso 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 transmission upgrades requested by merchant generators, other
than projects currently underway.
Estimated capital expenditures aresubject to periodic review and
modification and may vary based on the ongoing effects of business
restructuring, regulatory constraints, environmental regulations,
business opportunities, market volatility, economic trends, and the
abilityto 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 October 2004 meeting, the Board increased
Entergy’s quarterly dividend per share by 20%, to $0.54. In 2004,
Entergy paid approximately $428 million in cash dividends on its
common stock.
In accordance with Entergy’s stock-based compensation plan,
Entergy periodically grants stock options to its employees, which
may be exercised to obtain shares of Entergy’s common stock.
According to the plan, 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 addition to this authority, the Board has
approved a program under which Entergy will repurchase up to
$1.5 billion of its common stock through 2006. The amount of
repurchases under the program may vary as a result of material
changes in business results or capital spending, or as a result of
material new investment opportunities. In 2004, Entergy
repurchased 16,631,800 shares of common stock under both
programs for a total purchase price of $1.018 billion.
Public Utility Holding Company Act (PUHCA)
Restrictions on Uses of Capital
Entergy’sabilityto invest in electric wholesale generators and
foreign utility companies is subject to the Securities and Exchange
Commission’s (SEC) regulations under PUHCA. As authorized by
the SEC, Entergyis 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, 2004, Entergy’s investments subject to this rule totaled
$2.7 billion constituting 55.9% of Entergy’s average consolidated
retained earnings.
Entergy’s ability to guarantee obligations of Entergy’s
non-utility subsidiaries is also limited by 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 billionof guarantees for the benefit of its non-utility companies.
In February 2005, Entergy requested that the SEC increase this
limit to $4 billion.
Under PUHCA, the SEC imposes a limit equal to 15% of
consolidated capitalization on the amount that maybe invested in
“energy-related” businesses without specific SEC approval. Entergy
has made investments in energy-related businesses, including
power marketing and trading.Entergy’savailable capacity to
make additional investments at December 31, 2004 was
approximately$1.9 billion.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued