Entergy 2006 Annual Report Download - page 49

ENTERGY CORPORATION AND SUBSIDIARIES 2
2000066
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy Corporation
has agreed to supply System Energy with sufficient capital to:
■maintain System Energy’s equity capital at a minimum of 35% of
its total capitalization (excluding short-term debt);
■permit the continued commercial operation of Grand Gulf;
■pay in full all System Energy indebtedness for borrowed money
when due; and
■enable System Energy to make payments on specific System
Energy debt, under supplements to the agreement assigning
System Energy’s rights in the agreement as security for the
specific debt.
CAPITAL EXPENDITURE PLANS AND OTHER USES OF CAPITAL
Following are the amounts of Entergy’s planned construction and
other capital investments by operating segment for 2007 through
2009, excluding Entergy New Orleans (in millions):
2007 2008 2009
Maintenance Capital:
Utility $ 776 $ 763 $ 762
Non-Utility Nuclear 97 78 82
Parent and Other 12 3 1
885 844 845
Capital Commitments:
Utility 406 985 482
Non-Utility Nuclear 447 172 219
853 1,157 701
Total $1,738 $2,001 $1,546
Entergy New Orleans’ planned capital expenditures for the years
2007-2009 total $110 million, and in addition Entergy New Orleans
expects for the years 2007-2009 to pay $109 million for capital
investments related to Hurricane Katrina restoration and its gas
rebuild project, of which $55 million is expected to be spent in 2007.
Maintenance Capital refers to amounts Entergy plans to spend on
routine capital projects that are necessary to support reliability of its
service, equipment, or systems and to support normal customer growth.
Capital Commitments refers to non-routine capital investments for
which Entergy is either contractually obligated, has Board approval,
or otherwise expects to make to satisfy regulatory or legal require-
ments. Amounts reflected in this category include the following:
■The potential construction or purchase of additional generation
supply sources within the Utility’s service territory through
Entergy’s supply plan initiative.
■The pending Palisades acquisition, which is discussed below.
■The pending $66 million Entergy Gulf States purchase of and
investment in the Calcasieu plant, a 322 MW simple-cycle
gas-fired power plant.
■Transmission improvements and upgrades designed to provide
improved transmission flexibility in the Entergy System.
■Nuclear dry cask spent fuel storage and license renewal projects at
certain nuclear sites.
■Environmental compliance spending.
■NYPA value sharing costs.
The planned construction and capital investment amounts given
above include minimal amounts for initial development costs for
potential new nuclear development at the Grand Gulf and River Bend
sites in the Utility, including licensing and design activities. This proj-
ect is in the early stages, and several issues remain to be addressed over
time before significant capital would be committed to this project.
From time to time, Entergy considers other capital investments as
potentially being necessary or desirable in the future. Because no con-
tractual obligation, commitment, or Board approval exists to pursue
these investments, they are not included in Entergy’s planned con-
struction and capital investments. These potential investments are
also subject to evaluation and approval in accordance with Entergy’s
policies before amounts may be spent.
In July 2006, Entergy’s Non-Utility Nuclear business reached an
agreement to purchase Consumers Energy Company’s 798 MW
Palisades nuclear energy plant located near South Haven, Michigan
for $380 million. The NRC recently renewed until 2031 the
Palisades’ operating license. Entergy’s Non-Utility Nuclear business
will acquire the plant, nuclear fuel, and other assets. In the near-term,
Entergy intends to finance the acquisition through borrowings under
Entergy Corporation’s revolving credit facilities. As part of the pur-
chase, Entergy’s Non-Utility Nuclear business also executed a 15-year
purchased power agreement with Consumers Energy for 100% of the
plant’s output, excluding any future uprates. Entergy’s Non-Utility
Nuclear business will assume responsibility for eventual decommis-
sioning of the plant. Consumers Energy will retain $200 million of
the projected $566 million Palisades decommissioning trust fund bal-
ance, and Entergy may return approximately $100 million more of
the trust fund to Consumers Energy depending upon a pending tax
ruling. Also as part of the transaction, Consumers Energy will pay
Entergy’s Non-Utility Nuclear business $30 million to accept respon-
sibility for spent fuel at the decommissioned Big Rock nuclear plant,
which is located near Charlevoix, Michigan. Management expects to
close the transaction in the second quarter 2007, pending the
approvals of the NRC, the FERC, the Michigan Public Service
Commission, and other regulatory agencies.
Estimated capital expenditures are subject to periodic review and
modification and may vary based on the ongoing effects of business
restructuring, regulatory constraints, environmental regulations, busi-
ness opportunities, market volatility, economic trends, and the ability
to access capital.
The planned construction and capital investments given above do not
include the costs associated with the potential interconnection between
Entergy Gulf States and ERCOT that is discussed in Note 2 to the
financial statements. These potential costs are currently estimated to be
approximately $1 billion. The planned construction and capital
investments given above also do not include the potential replacement of
the Waterford 3 steam generators, which could be scheduled as early as
2011. Routine inspections of the Waterford 3 steam generators during
the fall 2006 refueling outage identified degradation of certain tube
spacer supports in the steam generators that required repair beyond that
anticipated prior to the refueling outage inspections. Corrective
measures were successfully implemented to permit continued operation
of the steam generators. Future inspections of the steam generators will
be scheduled to address this degradation mechanism and could result in
additional planned outages, pending discussions with the NRC
regarding this issue. Entergy will continue to manage steam generator
component life in accordance with industry standard practices.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
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