Entergy 2005 Annual Report Download - page 37

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
plants, substations, facilities, inventories, and gas distribution-related
properties. Excluded property generally includes above-ground
transmission and distribution lines, poles, and towers. The primary
property program (excess of the deductible) is placed through Oil
Insurance Limited ($250 million layer) with the excess program
($150 million layer) placed on a quota share basis through
Underwriters at Lloyds (50%) and Hartford Steam Boiler
Inspection and Insurance Company (50%). Coverage is in place for
Entergy Corporation, Entergy Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
There is an aggregation limit of $1 billion for all parties insured by
OIL for any one occurrence, and Entergy has been notified by OIL
that it expects claims for Hurricane Katrina to materially exceed this
limit. Entergy is currently evaluating the amount of the covered
losses for each of the affected domestic utility companies, working
with insurance adjusters, and preparing proofs of loss for Hurricanes
Katrina and Rita. Entergy currently estimates that its net insurance
recoveries for the losses caused by the hurricanes, including the
effect of the OIL aggregation limit being exceeded, will be approx-
imately $382 million.
In December 2005, the U.S. Congress passed and the President
signed the Katrina Relief Bill, a hurricane aid package that includes
$11.5 billion in Community Development Block Grants (for the
states affected by Hurricanes Katrina, Rita, and Wilma) that allows
state and local leaders to fund individual recovery priorities. The bill
includes language that permits funding for infrastructure restora-
tion. It is uncertain how much funding, if any, will be designated for
utility reconstruction and the timing of such decisions is also uncer-
tain. Entergy is currently preparing applications to seek Community
Development Block Grant funding.
ENTERGY NEW ORLEANS BANKRUPTCY
Because of the effects of Hurricane Katrina, on September 23, 2005,
Entergy New Orleans filed a voluntary petition in the United States
Bankruptcy Court for the Eastern District of Louisiana seeking
reorganization relief under the provisions of Chapter 11 of the
United States Bankruptcy Code (Case No. 05-17697). Entergy
Corporation owns 100 percent of the common stock of Entergy
New Orleans, has continued to supply general and administrative
services, and has provided debtor-in-possession financing to
Entergy New Orleans. Uncertainties surrounding the nature, tim-
ing, and specifics of the bankruptcy proceedings, however, have
caused Entergy to deconsolidate Entergy New Orleans and reflect
Entergy New Orleans’ financial results under the equity method of
accounting retroactive to January 1, 2005. Because Entergy owns all
of the common stock of Entergy New Orleans, this change did not
affect the amount of net income Entergy records resulting from
Entergy New Orleans’ operations for any current or prior period,
but did result in Entergy New Orleans’ net income for 2005 being
presented as “Equity in earnings (loss) of unconsolidated equity
affiliates” rather than its results being included in each individual
income statement line item, as is the case for periods prior to 2005.
Entergy reviewed the carrying value of its equity investment in
Entergy New Orleans ($149.9 million as of December 31, 2005) to
determine if an impairment had occurred as a result of the storm,
the flood, the power outages, restoration costs, and changes in cus-
tomer load. Entergy determined that as of December 31, 2005, no
impairment had occurred because, as discussed above, management
believes that recovery is probable. In addition to Entergy’s equity
investment in Entergy New Orleans, as of December 31, 2005,
Entergy New Orleans owed Entergy and its subsidiaries a total of
approximately $47 million in prepetition accounts payable. Entergy
will continue to assess the carrying value of its investment in
Entergy New Orleans as developments occur in Entergy New
Orleans’ recovery efforts.
Entergy continues to work with the federal, state, and local
authorities to resolve the bankruptcy in a manner that allows
Entergy New Orleans’ customers to be served by a financially viable
entity as required by law. Key factors that will influence the timing
and outcome of the Entergy New Orleans bankruptcy include:
■The amount of insurance recovery, if any, and the timing of
receipt of proceeds;
■The amount of assistance funding, if any, from the federal and
state government, and the timing of that funding, including
Entergy’s intended application for Community Development
Block Grant funding;
■The level of economic recovery of New Orleans;
■The number of customers that return to New Orleans, and the
timing of their return; and
■The amount and timing of any regulatory recovery approved by
the Council of the City of New Orleans (Council or City Council).
The exclusivity period for filing a final plan of reorganization by
Entergy New Orleans is currently scheduled to end on April 21,
2006, with solicitation of acceptances of the plan scheduled to be
complete by June 20, 2006. If a party to the bankruptcy proceeding,
including Entergy New Orleans, requests it, the bankruptcy court
has the authority to extend these deadlines. In addition, the bank-
ruptcy judge has set a date of April 19, 2006 by which creditors with
prepetition claims against Entergy New Orleans must, with certain
exceptions, file their proofs of claim in the bankruptcy case.
The deconsolidation of Entergy New Orleans is retroactive to
January 1, 2005, and its 2005 results of operations are presented as a
component of “Equity in earnings (loss) of unconsolidated equity affil-
iates.” Transactions in 2005 between Entergy New Orleans and other
Entergy subsidiaries are not eliminated in consolidation as they were in
periods prior to 2005. The variance explanations for 2005 compared to
2004 in “Results of Operations” below reflect the 2004 results of oper-
ations of Entergy New Orleans as if it were deconsolidated in 2004,
consistent with the 2005 presentation as “Equity in earnings (loss) of
unconsolidated equity affiliates.” The variance explanations for 2004
compared to 2003 are based on as-reported amounts. Entergy’s
as-reported consolidated results for 2004 and the amounts included in
those consolidated results for Entergy New Orleans, which exclude
inter-company items, are set forth in the table below (in thousands):
For the Year Ended
December 31, 2004
Amounts
Entergy required to
Corporation deconsolidate
and Entergy
Subsidiaries New Orleans
(as-reported) in 2004*
Operating Revenues $9,685,521 $(435,194)
Operating Expenses:
Fuel, fuel-related expenses, and gas purchased
for resale and purchased power 4,189,818 (206,240)
Other operation and maintenance 2,268,332 (102,451)
Taxes other than income taxes 403,635 (43,577)
Depreciation and amortization 893,574 (29,657)
Other regulatory credits – net (90,611) 4,670
Other operating expenses 370,601 –
Total operating expenses 8,035,349 (377,255)
Other Income 125,999 (2,044)
Interest and Other Charges 477,776 (15,043)
Income from Continuing Operations
Before Income Taxes and Cumulative
Effect of Accounting Changes 1,298,395 (17,833)
Income Taxes 365,305 (16,868)
Consolidated Net Income $ 933,049 $ (965)
Preferred Dividend Requirements
and Other $ 23,525 $ (965)
* Reflects the entry necessary to deconsolidate Entergy New Orleans for 2004.
The column includes intercompany eliminations.