Entergy 2006 Annual Report Download - page 108

ENTERGY CORPORATION AND SUBSIDIARIES 2
2000066
92
The following is a summary of combined financial information
reported by Entergy’s equity method investees (in thousands):
2006 2005 2004
Income Statement Items:
Operating revenues $ 632,820 $ 721,410 $ 270,177
Operating income $27,452 $ 9,526 $(111,535)
Net income $ 212,210(1) $ 1,592 $739,858(1)
Balance Sheet Items:
Current assets $ 262,506 $ 415,586
Non-current assets $1,163,392 $1,498,465
Current liabilities $ 389,526 $ 544,030
Non-current liabilities $ 722,524 $ 999,346
(1) Includes gains recorded by Entergy-Koch on the sales of its energy trading and
pipeline businesses.
RELATED-PARTY TRANSACTIONS AND GUARANTEES
See Note 18 to the financial statements for a discussion of the Entergy
New Orleans bankruptcy proceedings and activity between Entergy
and Entergy New Orleans.
During 2004, Entergy procured various services from Entergy-
Koch consisting primarily of pipeline transportation services for
natural gas and risk management services for electricity and natural
gas. The total cost of such services in 2004 was approximately $9.5
million. There were no related party transactions between Entergy-
Koch and Entergy in 2006 or 2005.
Entergy Louisiana and Entergy New Orleans entered into purchase
power agreements with RS Cogen that expired in April 2006, and
purchased a total of $15.8 million, $61.2 million, and $43.6 million
of capacity and energy from RS Cogen in 2006, 2005, and 2004,
respectively. Entergy Gulf States purchased approximately $64.3 mil-
lion, $12.4 million, and $17.5 million of electricity generated from
Entergy’s share of RS Cogen in 2006, 2005, and 2004, respectively.
Entergy’s operating transactions with its other equity method
investees were not significant in 2006, 2005, or 2004.
In the purchase agreements for its energy trading and the pipeline
business sales, Entergy-Koch agreed to indemnify the respective pur-
chasers for certain potential losses relating to any breaches of the
seller’s representations, warranties, and obligations under each of the
purchase agreements. Entergy Corporation has guaranteed up to 50%
of Entergy-Koch’s indemnification obligations to the purchasers.
Entergy does not expect any material claims under these indemnifica-
tion obligations.
NOTE 15. ACQUISITIONS AND DISPOSITIONS
ASSET ACQUISITIONS
Attala
In January 2006, Entergy Mississippi purchased the Attala power plant,
a 480 MW natural gas-fired, combined-cycle generating facility in cen-
tral Mississippi, for $88 million from Central Mississippi Generating
Company. Entergy Mississippi received the plant, materials and supplies,
SO2emission allowances, and related real estate. The MPSC approved
the acquisition and the investment cost recovery of the plant.
Perryville
In June 2005, Entergy Louisiana purchased the 718 MW Perryville
power plant located in northeast Louisiana for $162 million from a
subsidiary of Cleco Corporation. Entergy Louisiana received the
plant, materials and supplies, SO2emission allowances, and related
real estate. The LPSC approved the acquisition and the long-term
cost-of-service purchased power agreement under which Entergy Gulf
States will purchase 75 percent of the plant’s output.
ASSET DISPOSITIONS
Entergy-Koch Businesses
In the fourth quarter of 2004, Entergy-Koch sold its energy trading
and pipeline businesses to third parties. The sales came after a review
of strategic alternatives for enhancing the value of Entergy-Koch, LP.
Entergy received $862 million of cash distributions in 2004 from
Entergy-Koch after the business sales. Due to the November 2006
expiration of contingencies on the sale of Entergy-Koch’s trading busi-
ness, and the corresponding release to Entergy-Koch of sales proceeds
held in escrow, Entergy recorded a gain related to its Entergy-Koch
investment of approximately $55 million, net-of-tax, in the fourth
quarter of 2006 and received additional cash distributions of approx-
imately $163 million. Entergy expects future cash distributions upon
liquidation of the partnership will be less than $35 million.
Other
In the second quarter of 2006, Entergy sold its remaining interest in
a power development project and realized a $14.1 million ($8.6 mil-
lion net-of-tax) gain on the sale.
In April 2006, Entergy sold the retail electric portion of the
Competitive Retail Services business operating in the ERCOT region
of Texas, realized an $11.1 million gain (net-of-tax) on the sale, and
now reports this portion of the business as a discontinued operation.
In January 2004, Entergy sold its 50% interest in the Crete project,
which is a 320MW power plant located in Illinois, and realized an
insignificant gain on the sale.
In the fourth quarter of 2004, Entergy sold undivided interests in
the Warren Power and the Harrison County plants at a price that
approximated book value.
NOTE 16. RISK MANAGEMENT AND FAIR VALUES
MARKET AND COMMODITY RISKS
In the normal course of business, Entergy is exposed to a number of mar-
ket and commodity risks. Market risk is the potential loss that Entergy
may incur as a result of changes in the market or fair value of a particu-
lar instrument or commodity. All financial and commodity-related
instruments, including derivatives, are subject to market risk. Entergy is
subject to a number of commodity and market risks, including:
Type of Risk Affected Businesses
Power price risk Utility, Non-Utility Nuclear
Non-Nuclear Wholesale Assets
Fuel price risk Utility, Non-Utility Nuclear
Non-Nuclear Wholesale Assets
Foreign currency exchange rate risk Utility, Non-Utility Nuclear
Non-Nuclear Wholesale Assets
Equity price and interest Utility, Non-Utility Nuclear
rate risk – investments
Entergy manages these risks through both contractual arrange-
ments and derivatives. Contractual risk management tools include
long-term power and fuel purchase agreements, capacity contracts,
and tolling agreements. Entergy also uses a variety of commodity and
financial derivatives, including natural gas and electricity futures, for-
wards, swaps, and options; foreign currency forwards; and interest
rate swaps as a part of its overall risk management strategy. Except for
the energy trading activities conducted through December 2004 by
Entergy-Koch, Entergy enters into derivatives only to manage natural
risks inherent in its physical or financial assets or liabilities.
Entergy manages fuel price risk for its Louisiana jurisdictions
(Entergy Louisiana, Entergy New Orleans, and the Louisiana portion
of Entergy Gulf States) and Entergy Mississippi primarily through the
purchase of short-term swaps. These swaps are marked-to-market
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued