Entergy 2004 Annual Report Download - page 77

Entergy Corporation and Subsidiaries 2004
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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 $86.9 million as of December 31,
2004 and $72.4 million as of December 31, 2003 to reflect an
estimate of incurred but uncollected removal costs previously
recorded as a component of accumulated depreciation. The
decommissioning and retirement cost liability for certain of the
domestic utility companies and System Energy includes a
regulatory liability of $34.6 million as of December 31, 2004 and
$26.8 million as of December 31, 2003 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 $595 million due to reductions in
decommissioning liabilities, a decrease in assets of $340 million,
including a decrease in electric plant in service of $315 million, and
an increase in earnings in 2003 of $155 millionnet-of-tax as a result
of a one-time cumulative effect of accounting change.
The cumulative decommissioning liabilities and expenses
recorded in 2004 by Entergywereas follows (in millions):
Liabilities Change in Liabilities
as of Cash Flow as of
Dec. 31, 2003 Accretion Estimate Spending Dec. 31, 2004
U. S. Utility $1,504.1 $98.0 $(274.1) – $1,328.0
Non-Utility Nuclear $ 710.4 $57.6 $ (20.3) $(9.4) $ 738.3
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 decommissioning costs.
The actual decommissioning costs may vary from the estimates
because of regulatory requirements, changes in technology, and
increased costs of labor, materials, and equipment. During 2004,
Entergyupdated decommissioning cost studies for ANO 1 and 2
and River Bend.
In the first quarter of 2004, Entergy Arkansas recorded a revision
to its estimated decommissioning cost liability in accordance with a
newdecommissioning cost study for ANO 1 and 2 as a result of
revised decommissioning costs and changes in assumptions
regarding the timing of when the decommissioning of the plants
willbegin. The revised estimate resulted in a $107.7 million
reductionin its decommissioning liability, along with a
$19.5 million reductionin utilityplant and an $88.2 million
reduction in the related regulatory asset.
In the thirdquarter of 2004, EntergyGulf States recorded a
revisionto its estimated decommissioning cost liabilityin
accordance with a new decommissioning cost study for River Bend
that reflected an expected lifeextensionfor the plant. The revised
estimate resulted in a $166.4 million reductionin decommissioning
liability, along with a $31.3 million reduction in utility plant, a
$49.6 million reduction in non-utility property, a $40.1 million
reduction in the related regulatory asset, and a regulatory liability of
$17.7 million. For the portion of River Bend not subject to
cost-based ratemaking, the revised estimate resulted in the
elimination of the asset retirement cost that had been recorded
at the time of adoption of SFAS 143 with the remainder recorded
as miscellaneous income of $27.7 million.
In the third quarter of 2004, Entergy’s Non-Utility Nuclear
business recorded a reduction of $20.3 million in decommissioning
liability to reflect changes in assumptions regarding the timing of
when decommissioning of a plant will begin. Entergy considered
the assumptions as part of recent studies evaluating the economic
effect of the plant in its region. The revised estimate resulted in
miscellaneous income of $20.3 million, reflecting the excess of the
reduction in the liability over the amount of undepreciated asset
retirement cost recorded at the time of adoption of SFAS 143.
If Entergy had applied SFAS 143 during prior periods, the
following impacts would have resulted:
For the year ended December 31, 2002
Earnings applicable to common stock - as reported $599,360
Proforma effect of SFAS 143 $ 14,119
Earnings applicable to common stock - pro forma $613,479
Basic earnings per average common share - as reported $2.69
Pro forma effect of SFAS 143 $0.06
Basic earnings per average common share - pro forma $2.75
Diluted earnings per average common share - as reported $2.64
Pro forma effect of SFAS 143 $0.06
Diluted earnings per average common share - pro forma $2.70
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 decommissioning
obligations. NYPA has the right to require Entergy to assume
the decommissioning liability provided that it assigns the
corresponding decommissioning trust, up to a specified level,
to Entergy. If the decommissioning liability is retained by NYPA,
Entergywillperform the decommissioning of the plants at a price
equal to the lesser of a pre-specified level or the amount in the
decommissioning trusts. Entergy believes that the amounts
available to it under either scenario aresufficient to cover the
futuredecommissioning costs without any additional contributions
to the trusts.
Entergymaintains decommissioning trust funds that are
committed to meeting the costs of decommissioning the nuclear
power plants. The fair values of the decommissioning trust funds
and asset retirement obligation-related regulatoryassets of Entergy
as of December 31, 2004 are as follows (in millions):
Regulatory
Decommissioning Trust Asset
U. S. Utility $1,052.0 $380.1
Non-Utility Nuclear $1,401.6 $–
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued