Entergy 2005 Annual Report Download - page 38

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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RESULTS OF OPERATIONS
Earnings applicable to common stock for the years ended December
31, 2005, 2004, and 2003 by operating segment are as follows
(in thousands):
Operating Segment 2005 2004 2003
U.S. Utility $659,760 $643,408 $469,050
Non-Utility Nuclear 282,623 245,029 300,799
Parent Company &
Other Business Segments (44,052) 21,087 157,094
Total $898,331 $909,524 $926,943
Following is a discussion of Entergy’s income before taxes accord-
ing to the business segments listed above. Earnings for 2005 were
negatively affected by $44.8 million net-of-tax of discontinued oper-
ations due to the planned sale of the retail electric portion of
Entergy’s Competitive Retail Services business operating in the
ERCOT region of Texas. This amount includes a net charge of
$25.8 million, net-of-tax, related to the impairment reserve for the
remaining net book value of the Competitive Retail Services
business’ information technology systems.
Earnings for 2004 include a $97 million tax benefit that resulted
from the sale of preferred stock and less than 1% of the common
stock in a subsidiary in the non-nuclear wholesale assets business;
and a $36 million net-of-tax impairment charge in the non-nuclear
wholesale assets business, both of which are discussed below.
Earnings for 2003 include the $137.1 million net-of-tax cumula-
tive effect of changes in accounting principle that increased earnings
in the first quarter of 2003, almost entirely resulting from the imple-
mentation of Statement of Financial Accounting Standards (SFAS)
143. Earnings were negatively affected in the fourth quarter of 2003
by voluntary severance program expenses of $122.8 million net-of-
tax. As part of an initiative to achieve productivity improvements
with a goal of reducing costs, primarily in the Non-Utility Nuclear
and U.S. Utility businesses, in the second half of 2003 Entergy
offered a voluntary severance program to employees in various
departments. Approximately 1,100 employees, including 650
employees in nuclear operations from the Non-Utility Nuclear and
U.S. Utility businesses, accepted the offers.
U.S. UTILITY
The increase in earnings for the U.S. Utility from $643 million in
2004 to $660 million in 2005 was primarily due to higher net rev-
enue and lower depreciation and amortization expenses, partially
offset by lower other income, including equity in earnings of uncon-
solidated equity affiliates related to Entergy New Orleans, and higher
taxes other than income taxes.
The increase in earnings for the U.S. Utility from $469 million in
2003 to $643 million in 2004 was primarily due to the following:
■the $107.7 million ($65.6 million net-of-tax) accrual in 2003 of
the loss that would be associated with a final, non-appealable
decision disallowing abeyed River Bend plant costs. Refer to
Note 2 to the consolidated financial statements for more details
regarding the River Bend abeyed plant costs;
■lower other operation and maintenance expenses primarily due
to $99.8 million ($70.1 million net-of-tax) of charges recorded
in 2003 in connection with the voluntary severance program;
■the $21.3 million net-of-tax cumulative effect of a change in
accounting principle that reduced earnings at Entergy Gulf
States in the first quarter of 2003 upon implementation of
SFAS 143. See “Critical Accounting Estimates – Nuclear
Decommissioning Costs” below for discussion of the implemen-
tation of SFAS 143;
■miscellaneous other income of $27.7 million (pre-tax) in 2004
resulting from a revision of the decommissioning liability for
River Bend, as discussed in Note 8 to the consolidated financial
statements;
■higher net revenue; and
■lower interest charges.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy’s measure of gross margin, consists of
operating revenues net of: 1) fuel, fuel-related expenses and gas
purchased for resale, 2) purchased power expenses, and 3) other
regulatory credits. Following is an analysis of the change in net
revenue comparing 2005 to 2004 (in millions):
2004 net revenue $4,010.3
Price applied to unbilled sales 40.8
Rate refund provisions 36.4
Volume/weather 3.6
2004 deferrals (15.2)
Other (0.5)
2005 net revenue $4,075.4
The price applied to unbilled sales variance resulted from an
increase in the fuel cost component included in the price applied to
unbilled sales. The increase in the fuel cost component is attributable
to an increase in the market prices of natural gas and purchased
power. See “Critical Accounting Estimates – Unbilled Revenue” and
Note 1 to the consolidated financial statements for further discus-
sion of the accounting for unbilled revenues.
The rate refund provisions variance is due primarily to accruals
recorded in 2004 for potential rate action at Entergy Gulf States and
Entergy Louisiana.
The volume/weather variance includes the effect of more favor-
able weather in 2005 compared to 2004, substantially offset by a
decrease in weather-adjusted usage and a decrease in usage during
the unbilled sales period, both due to the effects of Hurricanes
Katrina and Rita. See “Critical Accounting Estimates – Unbilled
Revenue” and Note 1 to the consolidated financial statements for
further discussion of the accounting for unbilled revenues.
The 2004 deferrals variance is due to the deferrals related to
Entergy’s voluntary severance program, in accordance with a stipu-
lation with the Louisiana Public Service Commission (LPSC) staff.
The deferrals are being amortized over a four-year period effective
January 2004.
Gross operating revenues, fuel and purchased power expenses, and
other regulatory credits – Gross operating revenues include an
increase in fuel cost recovery revenues of $586.3 million resulting
from increases in the market prices of purchased power and natural
gas. As such, this revenue increase is offset by increased fuel and
purchased power expenses. The price applied to unbilled sales
and the rate refund provisions variances, discussed above, and an
increase in gross wholesale revenue also contributed to the increase
in gross operating revenues. Gross wholesale revenues increased
$84.2 million primarily due to an increase in the average price of
energy available for resale.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued