Entergy 2006 Annual Report Download - page 94

ENTERGY CORPORATION AND SUBSIDIARIES 2
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NOTE 8. COMMITMENTS AND CONTINGENCIES
Entergy and the Registrant Subsidiaries are involved in a number of
legal, tax, and regulatory proceedings before various courts, regulatory
commissions, and governmental agencies in the ordinary course of
business. While management is unable to predict the outcome of such
proceedings, management does not believe that the ultimate resolu-
tion of these matters will have a material adverse effect on Entergy’s
results of operations, cash flows, or financial condition.
ENTERGY NEW ORLEANS BANKRUPTCY
See Note 18 to the financial statements for information on the
Entergy New Orleans bankruptcy proceeding.
VIDALIA PURCHASED POWER AGREEMENT
Entergy Louisiana has an agreement extending through the year 2031
to purchase energy generated by a hydroelectric facility known as the
Vidalia project. Entergy Louisiana made payments under the contract
of approximately $107.1 million in 2006, $115.1 million in 2005,
and $147.7 million in 2004. If the maximum percentage (94%) of the
energy is made available to Entergy Louisiana, current production
projections would require estimated payments of approximately
$138.9 million in 2007, and a total of $3.2 billion for the years 2008
through 2031. Entergy Louisiana currently recovers the costs of the
purchased energy through its fuel adjustment clause. In an LPSC-
approved settlement related to tax benefits from the tax treatment of
the Vidalia contract, Entergy Louisiana agreed to credit rates by $11
million each year for up to ten years, beginning in October 2002. The
provisions of the settlement also provide that the LPSC shall not rec-
ognize or use Entergy Louisiana’s use of the cash benefits from the tax
treatment in setting any of Entergy Louisiana’s rates. Therefore, to the
extent Entergy Louisiana’s use of the proceeds would ordinarily have
reduced its rate base, no change in rate base shall be reflected for
ratemaking purposes.
NUCLEAR INSURANCE
Third Party Liability Insurance
The Price-Anderson Act provides insurance for the public in the event of
a nuclear power plant accident. The costs of this insurance are borne by
the nuclear power industry. Originally passed by Congress in 1957 and
most recently amended in 2005, the Price-Anderson Act requires nuclear
power plants to show evidence of financial protection in the event of a
nuclear accident. This protection must consist of two levels:
1. The primary level is private insurance underwritten by American
Nuclear Insurers and provides liability insurance coverage of $300
million. If this amount is not sufficient to cover claims arising from
the accident, the second level, Secondary Financial Protection,
applies. An industry-wide aggregate limitation of $300 million
exists for domestically-sponsored terrorist acts. There is no aggre-
gate limitation for foreign-sponsored terrorist acts.
2. Within the Secondary Financial Protection level, each nuclear plant
must pay a retrospective premium, equal to its proportionate share
of the loss in excess of the primary level, up to a maximum of
$100.6 million per reactor per incident. This consists of a $95.8
million maximum retrospective premium plus a five percent sur-
charge that may be applied, if needed, at a rate that is presently set
at $15 million per year per nuclear power reactor. There are no
domestically- or foreign-sponsored terrorism limitations.
Currently, 104 nuclear reactors are participating in the Secondary
Financial Protection program - 103 operating reactors and one under
construction. The product of the maximum retrospective premium
assessment to the nuclear power industry and the number of nuclear
power reactors provides over $10 billion in insurance coverage to com-
pensate the public in the event of a nuclear power reactor accident.
Entergy Arkansas has two licensed reactors and Entergy Gulf States,
Entergy Louisiana, and System Energy each have one licensed reactor
(10% of Grand Gulf is owned by a non-affiliated company (SMEPA),
which would share on a pro-rata basis in any retrospective premium
assessment under the Price-Anderson Act). Entergy’s Non-Utility
Nuclear business owns and operates five nuclear power reactors and
owns the shutdown Indian Point 1 reactor.
An additional but temporary contingent liability exists for all
nuclear power reactor owners because of a previous Nuclear Worker
Tort (long-term bodily injury caused by exposure to nuclear radiation
while employed at a nuclear power plant) insurance program that was
in place from 1988 to 1998. The maximum premium assessment
exposure to each reactor is $3 million and will only be applied if such
claims exceed the program’s accumulated reserve funds. This contin-
gent premium assessment feature will expire with the Nuclear Worker
Tort program’s expiration, scheduled for 2008.
Property Insurance
Entergy’s nuclear owner/licensee subsidiaries are members of certain
mutual insurance companies that provide property damage coverage,
including decontamination and premature decommissioning expense,
to the members’ nuclear generating plants. These programs are under-
written by Nuclear Electric Insurance Limited (NEIL). As of
December 31, 2006, Entergy was insured against such losses per the
following structures:
Utility Plants (ANO 1 and 2, Grand Gulf, River Bend, and
Waterford 3)
■Primary Layer (per plant) – $500 million per occurrence
■Excess Layer (per plant) – $100 million per occurrence
■Blanket Layer (shared among the Utility plants) –
$1.0 billion per occurrence
■Total limit – $1.6 billion per occurrence
■Deductibles:
■$5.0 million per occurrence – Turbine/generator damage
■$5.0 million per occurrence – Other than turbine/
generator damage
Note: ANO 1 and 2 share in the Primary Layer with one policy in
common.
Non-Utility Nuclear Plants (Indian Point 2 and 3, FitzPatrick,
Pilgrim, and Vermont Yankee)
■Primary Layer (per plant) – $500 million per occurrence
■Blanket Layer (shared among all plants) – $615 million
per occurrence
■Total limit – $1.115 billion per occurrence
Deductibles:
■$2.5 million per occurrence – Turbine/generator damage
■$2.5 million per occurrence – Other than turbine/
generator damage
Note: Indian Point 2 and 3 share in the Primary Layer with one policy
in common.
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued