Entergy 2006 Annual Report Download - page 98

ENTERGY CORPORATION AND SUBSIDIARIES 2
2000066
82
The Energy Policy Act of 1992 contains a provision that assesses domes-
tic nuclear utilities with fees for the decontamination and
decommissioning (D&D) of the DOE’s past uranium enrichment oper-
ations. Annual assessments in 2006 were $4.7 million for Entergy
Arkansas, $1.2 million for Entergy Gulf States, $1.8 million for Entergy
Louisiana, and $2.0 million for System Energy. The Energy Policy Act
calls for cessation of annual D&D assessments not later than October
24, 2007. At December 31, 2006, no assessments were remaining. These
assessments are recovered through rates in the same manner as fuel costs.
NOTE 10. LEASES
GENERAL
As of December 31, 2006, Entergy Corporation and subsidiaries had
capital leases and non-cancelable operating leases for equipment,
buildings, vehicles, and fuel storage facilities (excluding nuclear fuel
leases and the Grand Gulf and Waterford 3 sale and leaseback trans-
actions) with minimum lease payments as follows (in thousands):
Operating Capital
Year Leases Leases
2007 $ 96,979 $3,439
2008 80,044 1,362
2009 77,759 237
2010 86,402 237
2011 38,022 237
Years thereafter 144,253 2,094
Minimum lease payments 523,459 7,606
Less: Amount representing interest – 2,336
Present value of net minimum lease payments $523,459 $5,270
Total rental expenses for all leases (excluding nuclear fuel leases and
the Grand Gulf and Waterford 3 sale and leaseback transactions)
amounted to $78.0 million in 2006, $71.2 million in 2005, and
$81.3 million in 2004.
NUCLEAR FUEL LEASES
As of December 31, 2006, arrangements to lease nuclear fuel existed
in an aggregate amount up to $155 million for Entergy Arkansas,
$100 million for Entergy Gulf States, $110 million for Entergy
Louisiana, and $135 million for System Energy. As of December 31,
2006, the unrecovered cost base of nuclear fuel leases amounted to
approximately $124.9 million for Entergy Arkansas, $73.4 million for
Entergy Gulf States, $82.5 million for Entergy Louisiana, and $55.3
million for System Energy. The lessors finance the acquisition and
ownership of nuclear fuel through loans made under revolving credit
agreements, the issuance of commercial paper, and the issuance of
intermediate-term notes. The credit agreements for Entergy Arkansas,
Entergy Gulf States, Entergy Louisiana, and System Energy each have
a termination date of August 12, 2010. The termination dates may be
extended from time to time with the consent of the lenders. The inter-
mediate-term notes issued pursuant to these fuel lease arrangements
have varying maturities through September 15, 2011. It is expected
that additional financing under the leases will be arranged as needed
to acquire additional fuel, to pay interest, and to pay maturing debt.
However, if such additional financing cannot be arranged, the lessee
in each case must repurchase sufficient nuclear fuel to allow the lessor
to meet its obligations in accordance with the fuel lease.
Lease payments are based on nuclear fuel use. The total nuclear fuel
lease payments (principal and interest), as well as the separate interest
component charged to operations, were $151.4 million (including
interest of $14.6 million) in 2006, $135.8 million (including interest
of $12.9 million) in 2005, and $146.6 million (including interest
of $12.8 million) in 2004. The table below represents the total nuclear
fuel lease payments (principal and interest), as well as the separate inter-
est component charged to operations, in 2006, 2005, and 2004 for the
four Registrant Subsidiaries that own nuclear power plants (in millions):
2006 2005 2004
Lease Lease Lease
Payments Interest Payments Interest Payments Interest
Entergy Arkansas $ 55.0 $ 5.0 $ 47.5 $ 3.9 $ 53.0 $ 4.3
Entergy Gulf States 28.1 3.6 27.2 3.5 29.7 3.2
Entergy Louisiana 35.5 2.4 30.9 2.6 36.1 2.5
System Energy 32.8 3.6 30.2 2.9 27.8 2.8
Total $151.4 $14.6 $135.8 $12.9 $146.6 $12.8
SALE AND LEASEBACK TRANSACTIONS
Waterford 3Lease Obligations
In 1989, Entergy Louisiana sold and leased back 9.3% of its interest
in Waterford 3 for the aggregate sum of $353.6 million. The lease has
an approximate term of 28 years. The lessors financed the sale-lease-
back through the issuance of Waterford 3 Secured Lease Obligation
Bonds. The lease payments made by Entergy Louisiana are sufficient
to service the debt.
In 1994, Entergy Louisiana did not exercise its option to repurchase
the 9.3% interest in Waterford 3. As a result, Entergy Louisiana issued
$208.2 million of non-interest bearing first mortgage bonds as collateral
for the equity portion of certain amounts payable under the lease.
In 1997, the lessors refinanced the outstanding bonds used to finance
the purchase of the 9.3% interest in Waterford 3 at lower interest rates,
which reduced Entergy Louisiana’s annual lease payments.
Upon the occurrence of certain events, Entergy Louisiana may be
obligated to assume the outstanding bonds used to finance the pur-
chase of the 9.3% interest in the unit and to pay an amount sufficient
to withdraw from the lease transaction. Such events include lease
events of default, events of loss, deemed loss events, or certain adverse
“Financial Events.” “Financial Events” include, among other things,
failure by Entergy Louisiana, following the expiration of any applica-
ble grace or cure period, to maintain (i) total equity capital (including
preferred membership interests) at least equal to 30% of adjusted cap-
italization, or (ii) a fixed charge coverage ratio of at least 1.50
computed on a rolling 12 month basis.
As of December 31, 2006, Entergy Louisiana’s total equity capital
(including preferred stock) was 54.0% of adjusted capitalization and
its fixed charge coverage ratio for 2006 was 3.5.
As of December 31, 2006, Entergy Louisiana had future minimum
lease payments (reflecting an overall implicit rate of 7.45%) in con-
nection with the Waterford 3 sale and leaseback transactions, which
are recorded as long-term debt, as follows (in thousands):
2007 $ 18,754
2008 22,606
2009 32,452
2010 35,138
2011 50,421
Years thereafter 203,255
Total 362,626
Less: Amount representing interest 114,901
Present value of net minimum lease payments $247,725
Grand Gulf Lease Obligations
In December 1988, System Energy sold 11.5% of its undivided
ownership interest in Grand Gulf for the aggregate sum of $500 mil-
lion. Subsequently, System Energy leased back the 11.5% interest in
the unit for a term of 26-1/2 years. System Energy has the option of
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued