Entergy 2005 Annual Report Download - page 79

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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Mark-to-Market of Certain Power Contracts
In 2001, Entergy Louisiana changed its method of accounting for
income tax purposes related to its wholesale electric power con-
tracts. The most significant of these is the contract to purchase
power from the Vidalia hydroelectric project. On audit of Entergy
Louisiana’s 2001 tax return, the IRS made an adjustment reducing
the amount of the deduction associated with this method change.
The adjustment had no material impact on Entergy Louisiana’s
earnings and required no additional cash payment of 2001 income
tax. The Vidalia contract method change has resulted in estimated
cumulative cash flow benefits of approximately $664 million
through December 31, 2005. This benefit could reverse in the years
2006 through 2031 depending on several variables, including the
price of power. The tax accounting election has had no effect on
book income tax expense.
NOTE 4. LINES OF CREDIT AND
SHORT-TERM BORROWINGS
Entergy Corporation has in place two separate revolving credit
facilities, a five-year credit facility and a three-year credit facility.
The five-year credit facility, which expires in May 2010, has
a borrowing capacity of $2 billion, of which $785 million was
outstanding as of December 31, 2005. The three-year facility, which
expires in December 2008, has the borrowing capacity of $1.5 billion,
none of which was outstanding at December 31, 2005. Entergy also
has the ability to issue letters of credit against the total borrowing
capacity of both credit facilities, and letters of credit totaling
$239.5 million had been issued against the five-year facility at
December 31, 2005. The total unused capacity for these facilities
as of December 31, 2005 was approximately $2.2 billion. The
commitment fee for these facilities is currently 0.13% per annum of
the unused amount. Commitment fees and interest rates on loans
under the credit facility can fluctuate depending on the senior debt
ratings of the domestic utility companies.
Entergy Corporation’s facilities require it to maintain a consoli-
dated debt ratio of 65% or less of its total capitalization. If Entergy
fails to meet this ratio, or if Entergy or the domestic utility compa-
nies (except Entergy New Orleans) default on other indebtedness or
are in bankruptcy or insolvency proceedings, an acceleration of the
facilities’ maturity dates may occur.
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi
each have 364-day credit facilities available as follows:
Amount Drawn as
Company Expiration Date Amount of Facility of Dec. 31, 2005
Entergy Arkansas April 2006 $85 million(a) –
Entergy Louisiana April 2006 $85 million(a) $40 million
Entergy Louisiana May 2006 $15 million(b) –
Entergy Mississippi May 2006 $25 million –
(a) The combined amount borrowed by Entergy Arkansas and Entergy Louisiana under
these facilities at any one time cannot exceed $85 million. Entergy Louisiana granted
a security interest in its receivables to secure its $85 million facility.
(b) The combined amount borrowed by Entergy Louisiana under its $15 million facility
and by Entergy New Orleans under a $15 million facility that it has with the same
lender cannot exceed $15 million at any one time. Because Entergy New Orleans’
facility is fully drawn, no capacity is currently available on Entergy Louisiana’s facility.
The 364-day credit facilities have variable interest rates and
the average commitment fee is 0.13%. The $85 million Entergy
Arkansas and Entergy Louisiana credit facilities each require the
respective company to maintain total shareholders’ equity of at least
25% of its total assets.
After the repeal of the Public Utility Holding Company Act of
1935 (PUHCA 1935), effective February 8, 2006, the FERC, under
the Federal Power Act, and not the SEC, has jurisdiction over
authorizing securities issuances by the domestic utility companies
and System Energy (except securities with maturities longer than
one year issued by (a) Entergy Arkansas which are subject to the
jurisdiction of the APSC and (b) Entergy New Orleans which are
currently subject to the jurisdiction of the bankruptcy court). Under
the Public Utility Holding Company Act of 2005 (PUHCA 2005)
and the Federal Power Act, no approvals are necessary for Entergy
Corporation to issue securities. Under a savings provision in
PUHCA 2005, each of the domestic utility companies and System
Energy may rely on the financing authority in its existing PUHCA
1935 Securities and Exchange Commission (SEC) order or orders
through December 31, 2007 or until the SEC authority is superceded
by FERC authorization. The FERC has issued an order (FERC
Short-Term Order) approving the short-term borrowing limits of
the domestic utility companies (except Entergy New Orleans) and
System Energy through March 31, 2008. Entergy New Orleans
may rely on existing SEC PUHCA 1935 orders for its short-term
financing authority, subject to bankruptcy court approval. In addi-
tion to borrowings from commercial banks, the FERC Short-Term
Order authorized the domestic utility companies (except Entergy
New Orleans which is authorized by an SEC PUHCA 1935 order)
and System Energy to continue as participants in the Entergy
System money pool through February 8, 2007. The money pool is
an inter-company borrowing arrangement designed to reduce
Entergy’s subsidiaries’ dependence on external short-term borrowings.
Borrowings from the money pool and external short-term borrowings
combined may not exceed authorized limits. As of December 31,
2005, Entergy’s subsidiaries’ aggregate money pool and external
short-term borrowings authorized limit was $2.0 billion, the
aggregate outstanding borrowing from the money pool was $379.7
million, and Entergy’s subsidiaries’ outstanding short-term borrow-
ing from external sources was $40 million. To the extent that the
domestic utility companies and System Energy wish to rely on SEC
financing orders under PUHCA 1935, there are capitalization and
investment grade ratings conditions that must be satisfied in con-
nection with security issuances, other than money pool borrowings.
There is further discussion of commitments for long-term financing
arrangements in Note 5 to the consolidated financial statements.
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued