Entergy 2006 Annual Report Download - page 44

ENTERGY CORPORATION AND SUBSIDIARIES 2
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Entergy New Orleans’ plan of reorganization proposes to pay inter-
est from September 23, 2005 on the third-party and affiliate accounts
payable at the Louisiana judicial rate of interest in 2005 (6%) and 2006
(8%), and at the Louisiana judicial rate of interest plus 1% thereafter.
The Louisiana judicial rate of interest is 9.5% for 2007. Pursuant to an
agreement with the first mortgage bondholders, Entergy New Orleans’
plan of reorganization also proposes to pay the first mortgage bondhold-
ers an amount equal to the one year of interest from the bankruptcy
petition date that the bondholders had waived previously in the bank-
ruptcy proceeding. As approved by the bankruptcy court, Entergy New
Orleans has begun paying interest accruing after September 23, 2006 on
its first mortgage bonds. In the fourth quarter 2006 Entergy New
Orleans accrued for the interest from September 23, 2005 through
December 2006 and for the proposed payment to the bondholders in
the amount of the one year of waived interest.
Municipalization is one potential outcome of Entergy New Orleans’
recovery effort that may be pursued by a stakeholder or stakeholders, even
after Entergy New Orleans exits from bankruptcy. In June 2006, the
Louisiana Legislature passed a law that establishes a governance structure
for a public power authority, if municipalization of Entergy New Orleans’
utility business is pursued. Entergy New Orleans’ October 2006 settle-
ment approved by the City Council allowing phased-in rate increases
through 2008, discussed in “Significant Factors and Known Trends”, pro-
vides that Entergy New Orleans will work with the City Council to seek
an exception to the Stafford Act that will afford Stafford Act protections
to Entergy New Orleans if another catastrophic event affects Entergy
New Orleans. The Stafford Act provides for restoration funding from the
federal government for municipal and cooperative utilities, but does not
allow such funding for investor-owned utilities like Entergy New Orleans.
RESULTS OF OPERATIONS
2006 COMPARED TO 2005
Following are income statement variances for Utility, Non-Utility
Nuclear, Parent & Other business segments, and Entergy comparing
2006 to 2005 showing how much the line item increased or
(decreased) in comparison to the prior period (in thousands):
Non-Utility Parent &
Utility Nuclear Other Entergy
2005 Consolidated
Net Income (Loss) $659,760 $282,623 $ (44,052) $ 898,331
Net revenue (operating revenue
less fuel expense,
purchased power, and
other regulatory charges
(credits) – net) 195,681 114,028 3,952 313,661
Other operation and
maintenance expenses 177,725 49,264 (13,831) 213,158
Taxes other than
income taxes 38,662 8,489 (1,111) 46,040
Depreciation 19,780 13,215 (1,580) 31,415
Other income 44,465 27,622 65,049 137,136
Interest charges 41,990 (3,450) 38,234 76,774
Other expenses 3,146 6,465 66 9,677
Discontinued operations
(net-of-tax) – – 44,298 44,298
Income taxes (72,557) 40,794 (84,477) (116,240)
2006 Consolidated
Net Income $691,160 $309,496 $131,946 $1,132,602
Refer to “Selected Financial Data - Five-Year Comparison Of Entergy
Corporation And Subsidiaries” which accompanies Entergy Corporation’s
financial statements in this report for further information with respect to
operating statistics.
Net Revenue
Utility
Following is an analysis of the change in net revenue, which is Entergy’s
measure of gross margin, comparing 2006 to 2005 (in millions):
2005 Net Revenue $4,075.4
Base revenues/Attala cost deferral 143.2
Fuel recovery 39.6
Pass-through rider revenue 35.5
Transmission revenue 20.8
Storm cost recovery 12.3
Volume/weather 10.6
Price applied to unbilled electric sales (43.7)
Purchased power capacity (34.5)
Other 11.9
2006 Net Revenue $4,271.1
The base revenues variance resulted primarily from increases effective
October 2005 in the Louisiana jurisdiction of Entergy Gulf States for
the 2004 formula rate plan filing and the annual revenue requirement
related to the purchase of power from the Perryville generating sta-
tion, and increases in the Texas jurisdiction of Entergy Gulf States
related to an incremental purchased capacity recovery rider that began
in December 2005 and a transition to competition rider that began in
March 2006. The Attala costs variance is due to the recovery of Attala
power plant costs at Entergy Mississippi through the power manage-
ment rider. The net income effect of the Attala cost recovery is
partially offset by Attala costs in other operation and maintenance
expenses, depreciation expense, and taxes other than income taxes.
The fuel recovery variance resulted primarily from adjustments of
fuel clause recoveries at Entergy Gulf States – Louisiana and increased
recovery in 2006 of fuel costs from retail and special rate customers.
The pass-through rider revenue variance is due to a change in 2006
in the accounting for city franchise tax revenues in Arkansas as direct-
ed by the APSC. The change results in an increase in rider revenue
with a corresponding increase in taxes other than income taxes, result-
ing in no effect on net income.
The transmission revenue variance is primarily due to new trans-
mission customers in 2006. Also contributing to the increase was an
increase in rates effective June 2006.
The storm cost recovery variance is due to the return earned on the
interim recovery of storm-related costs at Entergy Louisiana and Entergy
Gulf States - Louisiana in 2006 as allowed by the LPSC. The storm cost
recovery filings are discussed in Note 2 to the financial statements.
The volume/weather variance resulted from an increase of 1.7% in
electricity usage primarily in the industrial sector. The increase was
partially offset by the effect of less favorable weather on billed sales in
the residential sector, compared to the same period in 2005, and a
decrease in usage during the unbilled period.
The price applied to unbilled sales variance is due to the exclusion
in 2006 of the fuel cost component in the calculation of the price
applied to unbilled sales. Effective January 1, 2006, the fuel cost com-
ponent is no longer included in the unbilled revenue calculation at
Entergy Louisiana and the Louisiana jurisdiction of Entergy
Gulf States, which is in accordance with regulatory treatment. See
“Management’s Financial Discussion And Analysis - Critical
Accounting Estimates” herein.
The purchased power capacity variance is primarily due to higher
capacity charges and new purchased power contracts in 2006. A por-
tion of the variance is due to the amortization of deferred capacity
costs and is offset in base revenues due to base rate increases imple-
mented to recover incremental deferred and ongoing purchased power
capacity charges, as discussed above.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued