Entergy 2006 Annual Report Download - page 45

MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
Non-Utility Nuclear
Net revenue increased for Non-Utility Nuclear primarily due to higher
pricing in its contracts to sell power. Also contributing to the increase
in revenues was increased generation in 2006 due to power uprates
completed in 2005 and 2006 at certain plants and fewer refueling
outages in 2006. Following are key performance measures for Non-
Utility Nuclear for 2006 and 2005:
2006 2005
Net MW in operation at December 31 4,200 4,105
Average realized price per MWh $44.59 $42.39
Generation in GWh for the period 34,655 33,539
Capacity factor for the period 95% 93%
Other Operation and Maintenance Expenses
Other operation and maintenance expenses increased for the Utility
from $1.471 billion in 2005 to $1.649 billion in 2006 primarily due
to the following:
■an increase of $52 million in payroll and benefits costs;
■an increase of $20 million in nuclear costs as a result of higher
NRC fees, security costs, labor-related costs, and a non-refueling
plant outage at Entergy Gulf States in February 2006;
■an increase of $16 million in customer service support costs due to
an increase in contract costs and an increase in customer write-offs;
■the receipt in 2005 of proceeds of $16 million from a settlement,
which is discussed further in “Significant Factors and Known
Trends - Central States Compact Claim;”
■an increase of $16 million in fossil operating costs due to the
purchase of the Attala plant in January 2006 and the Perryville
plant coming online in July 2005;
■an increase of $12 million related to storm reserves. This increase
does not include costs associated with Hurricanes Katrina and
Rita; and
■an increase of $12 million due to a return to normal expense
patterns in 2006 versus the deferral or capitalization of storm
costs in 2005.
Other operation and maintenance expenses increased for Non-
Utility Nuclear from $588 million in 2005 to $637 million in 2006
primarily due to the timing of refueling outages, increased benefit and
insurance costs, and increased NRC fees.
Taxes Other Than Income Taxes
Taxes other than income taxes increased for the Utility from $322
million in 2005 to $361 million in 2006 primarily due to an increase
in city franchise taxes in Arkansas due to a change in 2006 in the
accounting for city franchise tax revenues as directed by the APSC.
The change results in an increase in taxes other than income taxes
with a corresponding increase in rider revenue, resulting in no effect
on net income. Also contributing to the increase was higher franchise
tax expense at Entergy Gulf States as a result of higher gross revenues
in 2006 and a customer refund in 2005.
Other Income
Other income increased for the Utility from $111 million in 2005 to
$156 million in 2006 primarily due to carrying charges recorded on
storm restoration costs.
Other income increased for Non-Utility Nuclear primarily due to
miscellaneous income of $27 million ($16.6 million net-of-tax)
resulting from a reduction in the decommissioning liability for a plant
as a result of a revised decommissioning cost study and changes in
assumptions regarding the timing of when decommissioning of a
plant will begin.
Other income increased for Parent & Other primarily due to a gain
related to its Entergy-Koch investment of approximately $55 million
(net-of-tax) in the fourth quarter of 2006. In 2004, Entergy-Koch
sold its energy trading and pipeline businesses to third parties. At that
time, Entergy received $862 million of the sales proceeds in the form
of a cash distribution by Entergy-Koch. 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 received additional cash distributions of
approximately $163 million during the fourth quarter of 2006 and
recorded a gain of approximately $55 million (net-of-tax). Entergy
expects future cash distributions upon liquidation of the partnership
will be less than $35 million.
Interest Charges
Interest charges increased for the Utility and Parent & Other
primarily due to additional borrowing to fund the significant storm
restoration costs associated with Hurricanes Katrina and Rita.
Discontinued Operations
In April 2006, Entergy sold the retail electric portion of the
Competitive Retail Services business operating in the ERCOT region
of Texas, and now reports this portion of the business as a discontin-
ued operation. Earnings for 2005 were negatively affected by $44.8
million (net-of-tax) of discontinued operations due to the planned
sale. This amount includes a net charge of $25.8 million (net-of-tax)
related to the impairment reserve for the remaining net book value of
the Competitive Retail Services business’ information technology sys-
tems. Results for 2006 include an $11.1 million gain (net-of-tax) on
the sale of the retail electric portion of the Competitive Retail Services
business operating in the ERCOT region of Texas.
Income Taxes
The effective income tax rates for 2006 and 2005 were 28.1% and
37.3%, respectively. The lower effective income tax rate in 2006 is pri-
marily due to tax benefits, net of reserves, resulting from the tax
capital loss recognized in connection with the liquidation of Entergy
Power International Holdings, Entergy’s holding company for
Entergy-Koch, LP. Also contributing to the lower rate for 2006 is an
IRS audit settlement that allowed Entergy to release from its tax
reserves all settled issues from 1996-1998. See Note 3 to the financial
statements for a reconciliation of the federal statutory rate of 35.0%
to the effective income tax rates, and for additional discussion regard-
ing income taxes.
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