Entergy 2005 Annual Report Download - page 90

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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NOTES to CONSOLIDATED FINANCIAL STATEMENTS continuedNOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LEASES
GENERAL
As of December 31, 2005, Entergy had capital leases and non-can-
celable operating leases for equipment, buildings, vehicles, and fuel
storage facilities (excluding nuclear fuel leases and the Grand Gulf
and Waterford 3 sale and leaseback transactions) with minimum
lease payments as follows (in thousands):
Operating Capital
Year Leases Leases
2006 $ 94,533 $ 5,747
2007 77,026 3,495
2008 63,081 1,307
2009 51,692 237
2010 36,695 237
Years thereafter 196,312 2,331
Minimum lease payments 519,339 13,354
Less: Amount representing interest – 3,403
Present value of net
minimum lease payments $519,339 $ 9,951
Total rental expenses for all leases (excluding nuclear fuel leases
and the Grand Gulf and Waterford 3 sale and leaseback transac-
tions) amounted to $71.2 million in 2005, $81.3 million in 2004, and
$84.3 million in 2003.
NUCLEAR FUEL LEASES
As of December 31, 2005, arrangements to lease nuclear fuel existed
in an aggregate amount up to $150 million for Entergy Arkansas,
$105 million for Entergy Gulf States, $80 million for Entergy
Louisiana, and $110 million for System Energy. As of December 31,
2005, the unrecovered cost base of nuclear fuel leases amounted to
approximately $92.2 million for Entergy Arkansas, $55.2 million for
Entergy Gulf States, $58.5 million for Entergy Louisiana, and $87.5
million for System Energy. The lessors finance the acquisition and
ownership of nuclear fuel through loans made under revolving cred-
it agreements, the issuance of commercial paper, and the issuance of
intermediate-term notes. The credit agreements for Entergy
Arkansas, Entergy Gulf States, Entergy Louisiana, and System
Energy each have a termination date of October 30, 2006. The ter-
mination dates may be extended from time to time with the consent
of the lenders. The intermediate-term notes issued pursuant to
these fuel lease arrangements have varying maturities through
February 15, 2009. It is expected that additional financing under the
leases will be arranged as needed to acquire additional fuel, to pay
interest, and to pay maturing debt. However, if such additional
financing cannot be arranged, the lessee in each case must repurchase
sufficient nuclear fuel to allow the lessor to meet its obligations in
accordance with the fuel lease.
Lease payments are based on nuclear fuel use. The total nuclear fuel
lease payments (principal and interest) as well as the separate interest
component charged to operations by the domestic utility companies and
System Energy were $135.8 million (including interest of $12.9 million)
in 2005, $146.6 million (including interest of $12.8 million) in 2004, and
$142.0 million (including interest of $11.8 million) in 2003.
SALE AND LEASEBACK TRANSACTIONS
In 1988 and 1989, System Entergy and Entergy Louisiana, respec-
tively, sold and leased back portions of their ownership interests
in Grand Gulf and Waterford 3 for 26 1/2-year and 28-year lease
terms, respectively. Both companies have options to terminate the
leases, to repurchase the sold interests, or to renew the leases at
the end of their terms.
Under System Energy’s sale and leaseback arrangements, letters of
credit are required to be maintained to secure certain amounts payable
for the benefit of the equity investors by System Energy under the
leases. The current letters of credit are effective until May 2009.
Entergy Louisiana did not exercise its option to repurchase the
undivided interests in Waterford 3 in 1994. As a result, Entergy
Louisiana was required to provide collateral for the equity portion
of certain amounts payable by Entergy Louisiana under the leases.
Such collateral was in the form of a new series of non-interest bear-
ing first mortgage bonds in the aggregate principal amount of
$208.2 million issued by Entergy Louisiana in September 1994.
In July 1997, Entergy Louisiana caused the Waterford 3 lessors to
issue $307.6 million aggregate principle amount of Waterford 3
Secured Lease Obligation Bonds, 8.09% Series due 2017, to refinance
the outstanding bonds originally issued to finance the purchase of
the undivided interests by the lessors. In May 2004, System Energy
caused the Grand Gulf lessors to refinance the outstanding bonds
that they had issued to finance the purchase of their undivided
interest in Grand Gulf. Both refinancings are at lower interest rates,
and Entergy Louisiana’s and System Energy’s lease payments have
been reduced to reflect the lower interest costs.
As of December 31, 2005, Entergy Louisiana and System Energy
had future minimum lease payments, recorded as long-term debt
(reflecting an implicit rate of 7.45% and 5.02%, respectively) as follows
(in thousands):
Entergy System
Year Louisiana Energy
2006 $ 18,261 $ 46,019
2007 18,754 46,552
2008 22,606 47,128
2009 32,452 47,760
2010 35,138 48,569
Years thereafter 298,924 253,833
Minimum lease payments 426,135 489,861
Less: Amount representing interest 178,410 125,055
Present value of net
minimum lease payments $ 247,725 $364,806