Entergy 2005 Annual Report Download - page 54

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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Mountain, Nevada. Until this site is available, however, nuclear
plant operators must provide for interim spent fuel storage on
the nuclear plant site, which can require the construction and
maintenance of dry cask storage sites or other facilities. The
costs of developing and maintaining these facilities can have a
significant effect (as much as 16% of estimated decommission-
ing costs). Entergy’s decommissioning studies include cost
estimates for spent fuel storage. However, these estimates could
change in the future based on the timing of the opening of
the Yucca Mountain facility, the schedule for shipments to that
facility when it is opened, or other factors.
■Technology and Regulation – To date, there is limited practical
experience in the United States with actual decommissioning of
large nuclear facilities. As experience is gained and technology
changes, cost estimates could also change. If regulations regard-
ing nuclear decommissioning were to change, this could have a
potentially significant effect on cost estimates. The effect of
these potential changes is not presently determinable. Entergy’s
decommissioning cost studies assume current technologies
and regulations.
SFAS 143
Entergy implemented SFAS 143, “Accounting for Asset Retirement
Obligations,” effective January 1, 2003. Nuclear decommissioning
costs comprise substantially all of Entergy’s asset retirement obliga-
tions. The following revisions were made to Entergy’s estimated
decommissioning cost liabilities in 2004 and 2005.
In the first quarter of 2004, Entergy Arkansas recorded a revision
to its estimated decommissioning cost liability in accordance with a
new decommissioning cost study for ANO 1 and 2 as a result of
revised decommissioning costs and changes in assumptions regard-
ing the timing of when the decommissioning of the plants will
begin. The revised estimate resulted in a $107.7 million reduction in
its decommissioning liability, along with a $19.5 million reduction
in utility plant and an $88.2 million reduction in the related regula-
tory asset.
In the third quarter of 2004, Entergy Gulf States recorded a revi-
sion to its estimated decommissioning cost liability in accordance
with a new decommissioning cost study for River Bend that reflected
an expected life extension for the plant. The revised estimate resulted
in a $116.8 million reduction in decommissioning liability, along
with a $31.3 million reduction in utility plant, 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 elimina-
tion 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 ($17 million net-of-tax).
In the third quarter of 2004, Entergy’s Non-Utility Nuclear busi-
ness recorded a reduction of $20.3 million in its decommissioning
cost liability to reflect changes in assumptions regarding the timing
of when the decommissioning of a plant will begin. Entergy consid-
ered 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 ($11.9 million
net-of-tax).
In the first quarter of 2005, Entergy’s Non-Utility Nuclear busi-
ness recorded a reduction of $26.0 million in its decommissioning
cost liability in conjunction with a new decommissioning cost
study as a result of revised decommissioning costs and changes in
assumptions regarding the timing of the decommissioning of a
plant. The revised estimate resulted in miscellaneous income of
$26.0 million ($15.8 million net-of-tax), reflecting the excess of the
reduction in the liability over the amount of undepreciated assets.
In the second quarter of 2005, Entergy Louisiana recorded a revi-
sion to its estimated decommissioning cost liability in accordance
with a new decommissioning cost study for Waterford 3 that reflected
an expected life extension for the plant. The revised estimate result-
ed in a $153.6 million reduction in its decommissioning liability,
along with a $49.2 million reduction in utility plant and a
$104.4 million reduction in the related regulatory asset.
In the third quarter of 2005, Entergy Arkansas recorded a revision
to its estimated decommissioning cost liability for ANO 2 in
accordance with the receipt of approval by the NRC of Entergy
Arkansas’ application for a life extension for the unit. The revised
estimate resulted in an $87.2 million reduction in its decommissioning
liability, along with a corresponding reduction in the related
regulatory asset.
In the third quarter of 2005, System Energy recorded a revision
to its estimated decommissioning cost liability in accordance with a
new decommissioning cost study for Grand Gulf. The revised
estimate resulted in a $41.4 million reduction in the decommission-
ing cost liability for Grand Gulf, along with a $39.7 million
reduction in utility plant and a $1.7 million reduction in the related
regulatory asset.
UNBILLED REVENUE
As discussed in Note 1 to the consolidated financial statements,
Entergy records an estimate of the revenues earned for energy deliv-
ered since the latest customer billing. Each month the estimated
unbilled revenue amounts are recorded as revenue and a receivable,
and the prior month’s estimate is reversed. The difference between
the estimate of the unbilled receivable at the beginning of the period
and the end of the period is the amount of unbilled revenue recog-
nized during the period. The estimate recorded is primarily based
upon an estimate of customer usage during the unbilled period and
the billed price to customers in that month, including fuel price.
Therefore, revenue recognized may be affected by the estimated
price and usage at the beginning and end of each period and fuel
price fluctuations, in addition to changes in certain components of
the calculation including changes to estimates such as line loss,
which affects the estimate of unbilled customer usage, and assump-
tions regarding price such as the fuel cost recovery mechanism.
IMPAIRMENT OF LONG-LIVED ASSETS
Entergy has significant investments in long-lived assets in all of its
segments, and Entergy evaluates these assets against the market eco-
nomics and under the accounting rules for impairment whenever
there are indications that impairments may exist. This evaluation
involves a significant degree of estimation and uncertainty, and these
estimates are particularly important in Entergy’s U.S. Utility and
Energy Commodity Services segments. In the U.S. Utility segment,
portions of River Bend and Grand Gulf are not included in rate
base, which could reduce the revenue that would otherwise be
recovered for the applicable portions of those units’ generation. In
the Energy Commodity Services segment, Entergy’s investments in
merchant generation assets are subject to impairment if adverse
market conditions arise.
In order to determine if Entergy should recognize an impairment
of a long-lived asset that is to be held and used, accounting standards
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued