Entergy 2006 Annual Report Download - page 72

ENTERGY CORPORATION AND SUBSIDIARIES 2
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Entergy Corporation and its direct and indirect subsidiaries.
As required by generally accepted accounting principles, all significant
intercompany transactions have been eliminated in the consolidated
financial statements. The Registrant Subsidiaries and many other
Entergy subsidiaries maintain accounts in accordance with FERC and
other regulatory guidelines. Certain previously reported amounts have
been reclassified to conform to current classifications, with no effect on
net income or shareholders’ equity.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In conformity with generally accepted accounting principles, the
preparation of Entergy Corporation’s consolidated financial state-
ments and the separate financial statements of the Registrant
Subsidiaries requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and
expenses and the disclosure of contingent assets and liabilities.
Adjustments to the reported amounts of assets and liabilities may be
necessary in the future to the extent that future estimates or actual
results are different from the estimates used.
REVENUES AND FUEL COSTS
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi gener-
ate, transmit, and distribute electric power primarily to retail
customers in Arkansas, Louisiana, and Mississippi, respectively.
Entergy Gulf States generates, transmits, and distributes electric
power primarily to retail customers in Texas and Louisiana. Entergy
Gulf States also distributes gas to retail customers in and around
Baton Rouge, Louisiana. Entergy New Orleans sells both electric
power and gas to retail customers in the City of New Orleans, except
for Algiers, where Entergy Louisiana is the electric power supplier.
Entergy’s Non-Utility Nuclear segment derives almost all of its rev-
enue from sales of electric power generated by plants owned by the
Non-Utility Nuclear segment.
Entergy recognizes revenue from electric power and gas sales when
power or gas is delivered to customers. To the extent that deliveries
have occurred but a bill has not been issued, Entergy’s Utility operat-
ing companies accrue an estimate of the revenues for energy delivered
since the latest billings. The Utility operating companies
calculate the estimate based upon several factors including billings
through the last billing cycle in a month, actual generation in the
month, historical line loss factors, and prices in effect in Entergy’s
Utility operating companies’ various jurisdictions. Changes are made
to the inputs in the estimate as needed to reflect changes in billing
practices. Each month the estimated unbilled revenue amounts are
recorded as revenue and unbilled accounts receivable, and the prior
month’s estimate is reversed. Therefore, changes in price and volume
differences resulting from factors such as weather affect the calculation
of unbilled revenues from one period to the next, and may result in
variability in reported revenues from one period to the next as prior
estimates are reversed and new estimates recorded.
Entergy’s Utility operating companies’ rate schedules include either
fuel adjustment clauses or fixed fuel factors, which allow either cur-
rent recovery in billings to customers or deferral of fuel costs until the
costs are billed to customers. Because the fuel adjustment clause
mechanism allows monthly adjustments to recover fuel costs, Entergy
New Orleans and, prior to 2006, Entergy Louisiana and the Louisiana
portion of Entergy Gulf States include a component of fuel cost
recovery in their unbilled revenue calculations. Effective January 1,
2006, however, for Entergy Louisiana and the Louisiana portion of
Entergy Gulf States this fuel component of unbilled accounts receiv-
able was reclassified to a deferred fuel asset and is no longer included
in the unbilled revenue calculations, which is in accordance with reg-
ulatory treatment. Where the fuel component of revenues is billed
based on a pre-determined fuel cost (fixed fuel factor), the fuel factor
remains in effect until changed as part of a general rate case, fuel rec-
onciliation, or fixed fuel factor filing. Entergy Mississippi’s fuel factor
includes an energy cost rider that is adjusted quarterly. In the case of
Entergy Arkansas and the Texas portion of Entergy Gulf States, a por-
tion of their fuel under-recoveries are treated in the cash flow
statements as regulatory investments because those companies are
allowed by their regulatory jurisdictions to recover the fuel cost regu-
latory asset over longer than a twelve-month period, and the
companies earn a carrying charge on the under-recovered balances.
System Energy’s operating revenues are intended to recover from
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and
Entergy New Orleans operating expenses and capital costs attributa-
ble to Grand Gulf. The capital costs are computed by allowing a
return on System Energy’s common equity funds allocable to its net
investment in Grand Gulf, plus System Energy’s effective interest cost
for its debt allocable to its investment in Grand Gulf.
PROPERTY,PLANT,AND EQUIPMENT
Property, plant, and equipment is stated at original cost. Depreciation
is computed on the straight-line basis at rates based on the estimated
service lives of the various classes of property. For the Registrant
Subsidiaries, the original cost of plant retired or removed, less salvage,
is charged to accumulated depreciation. Normal maintenance, repairs,
and minor replacement costs are charged to operating expenses.
Substantially all of the Registrant Subsidiaries’ plant is subject to
mortgage liens.
Electric plant includes the portions of Grand Gulf and Waterford 3
that have been sold and leased back. For financial reporting purposes,
these sale and leaseback arrangements are reflected as financing
transactions.
NOTESto CONSOLIDATED FINANCIAL STATEMENTS