Entergy 2005 Annual Report Download - page 88

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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NOTES to CONSOLIDATED FINANCIAL STATEMENTS continuedNOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
These liabilities are recorded at their fair values (which are the
present values of the estimated future cash outflows) in the period in
which they are incurred, with an accompanying addition to the
recorded cost of the long-lived asset. The asset retirement obliga-
tion is accreted each year through a charge to expense, to reflect the
time value of money for this present value obligation. The amounts
added to the carrying amounts of the long-lived assets will be depre-
ciated over the useful lives of the assets.
In accordance with ratemaking treatment and as required by
SFAS 71, the depreciation provisions for the domestic utility com-
panies and System Energy include a component for removal costs
that are not asset retirement obligations under SFAS 143. In accor-
dance with regulatory accounting principles, Entergy has recorded
a regulatory asset for certain of its domestic utility companies and
System Energy of $162.9 million as of December 31, 2005 and
$86.9 million as of December 31, 2004 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 $22.8 million as of
December 31, 2005 and $34.6 million as of December 31, 2004 repre-
senting an estimate of collected but not yet incurred removal costs.
The cumulative decommissioning and retirement cost liabilities
and expenses recorded in 2005 by Entergy were as follows (in millions):
Liabilities Change in Liabilities
as of Implementation Cash Flow as of
Dec. 31, 2004 Accretion of FIN 47 Estimate Spending Dec. 31, 2005
U. S.
Utility $1,328.0 $88.2 $27.8 $(282.2) – $1,161.8
Non-Utility
Nuclear $ 738.3 $59.2 $ 0.9 $ (26.0) $(10.3) $ 762.1
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 decommis-
sioning costs may vary from the estimates because of regulatory
requirements, changes in technology, and increased costs of labor,
materials, and equipment. During 2004 and 2005, Entergy updated
decommissioning cost studies for ANO 1 and 2, River Bend, Grand
Gulf, Waterford, and a non-utility plant.
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 reflect-
ed an expected life extension for the plant. The revised estimate
resulted in a $166.4 million reduction in 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 retire-
ment 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
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 miscella-
neous income of $20.3 million ($11.9 million net-of-tax), reflecting
the excess of the reduction in the liability over the amount of unde-
preciated asset retirement cost recorded at the time of adoption of
SFAS 143.
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 assump-
tions 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 reflect-
ed an expected life extension for the plant. The revised estimate
resulted 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 accor-
dance 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 decommissioning cost lia-
bility for Grand Gulf, along with a $39.7 million reduction in utility
plant and a $1.7 million reduction in the related regulatory asset.
In December 2005, Entergy implemented FASB Interpretation
47, “Accounting for Conditional Asset Retirement Obligations – an
interpretation of FASB Statement No. 143”, (FIN 47), effective as
of that date, which required the recognition of additional asset
retirement obligations other than nuclear decommissioning which
are conditional in nature. The obligations recognized upon imple-
mentation primarily represent Entergy’s obligation to remove and
dispose of asbestos at many of its non-nuclear generating units if and
when those units are retired from commercial service and disman-
tled. For the U.S. Utility business, the implementation of FIN 47
for the rate-regulated business of the domestic utility companies was
recorded in regulatory assets, with no resulting effect on Entergy’s
net income. Entergy recorded these regulatory assets because exist-
ing rate mechanisms in each jurisdiction allow the recovery in rates
of the ultimate costs of asbestos removal, either through cost of
service or in rate base, from current and future customers. As a
result of this treatment, FIN 47 was earnings neutral to the rate-
regulated business of the domestic utility companies. Upon imple-
mentation of FIN 47 in December 2005, assets increased by $28.8
million and liabilities increased by $30.3 million for the U.S. Utility
segment as a result of recording the asset retirement obligations at
their fair values of $30.3 million as determined under FIN 47,