Entergy 2007 Annual Report Download - page 34

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Entergy Corporation and Subsidiaries 2007
Parent & Other
Net revenue decreased for Parent & Other from $114 million for 2006
to $51 million for 2007 primarily due to the sale of the non-nuclear
wholesale asset business’ remaining interest in a power development
project in the second quarter 2006, which resulted in a $14.1 million
gain ($8.6 million net-of-tax). Also contributing to the decrease were
higher natural gas prices in 2007 compared to the same period in 2006
as well as lower production as a result of an additional plant outage in
2007 compared to the same period in 2006. A substantial portion of
the eect on net income of this decline is oset by a related decrease
in other operation and maintenance expenses.
Other Income Statement Items
Utility
Other operation and maintenance expenses increased from $1,749
million for 2006 to $1,855 million for 2007 primarily due to:
n฀ an increase of $34 million in nuclear expenses primarily due to
non-refueling outages, increased nuclear labor and contract costs,
and higher NRC fees;
n฀ an increase of $21 million related to expenses in the fourth quarter
2007 in connection with the nuclear operations eet alignment, as
discussed above;
n฀ an increase of $20 million in transmission expenses, including
independent coordinator of transmission expenses and
transmission line and substation maintenance;
n฀ an increase of $16 million as a result of higher insurance
premiums in addition to the timing of premium payments
compared to 2006;
n฀ an increase of $16 million in fossil plant expenses due to diering
outage schedules and scopes from 2006 to 2007 and the return to
normal operations work in 2007 versus storm restoration activities
in 2006 as a result of Hurricane Katrina;
n฀ an increase of $11 million due to a provision for storm-related bad
debts; and
n฀ an increase of $10 million in distribution expenses, including higher
contract labor costs, increases in vegetation maintenance costs,
and the return to normal operations work in 2007 versus storm
restoration activities in 2006 as a result of Hurricane Katrina and
Hurricane Rita. is increase is net of an environmental liability
credit of $8 million for resolution of a pollution loss provision.
e increase is partially oset by a decrease of $23 million in payroll,
payroll-related, and benets costs.
Depreciation and amortization expenses increased from $835
million for 2006 to $850 million for 2007 primarily due to an increase
in plant in service and a revision made in the rst quarter 2006 to
estimated depreciable lives involving certain intangible assets.
e increase was partially oset by a revision in the third quarter
2007 related to depreciation previously recorded on storm-related
assets. Recovery of the cost of those assets will now be through the
securitization of storm costs approved by the LPSC in the third
quarter 2007. e securitization approval is discussed in Note 2 to the
nancial statements.
Non-Utility Nuclear
Other operation and maintenance expenses increased from
$637 million for 2006 to $760 million for 2007 primarily due to
the acquisition of the Palisades plant in April 2007 and expenses of
$29 million in the fourth quarter 2007 in connection with the nuclear
operations eet alignment.
Other expenses increased due to increases of $14.4 million in nuclear
refueling outage expense and $15.7 million in decommissioning
expense that resulted almost entirely from the acquisition of Palisades
in April 2007.
Parent & Other
Interest charges increased from $101 million for 2006 to $183 million
for 2007 primarily due to additional borrowings under Entergy
Corporation’s revolving credit facilities.
Other income decreased from $93 million for 2006 to $3 million for
2007 primarily due to a gain of approximately $55 million (net-of-tax)
in the fourth quarter of 2006 related to the Entergy-Koch investment.
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 business, 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.
Income Taxes
e eective income tax rate for 2007 was 30.7%. e reduction in
the eective income tax rate versus the federal statutory rate of 35%
in 2007 is primarily due to:
n฀ a reduction in income tax expense due to a step-up in the tax basis
on the Indian Point 2 non-qualied decommissioning trust fund
resulting from restructuring of the trusts, which reduced deferred
taxes on the trust fund and reduced current tax expense;
n฀ the resolution of tax audit issues involving the 2002-2003
audit cycle;
n฀ an adjustment to state income taxes for Non-Utility Nuclear
to reect the eect of a change in the methodology of computing
New York state income taxes as required by that state’s
taxing authority;
n฀ book and tax dierences related to the allowance for equity funds
used during construction; and
n฀ the amortization of investment tax credits.
ese factors were partially oset by book and tax dierences for
utility plant items and state income taxes at the Utility operating
companies.
e eective income tax rate for 2006 was 27.6%. e reduction in
the eective income tax rate versus the federal statutory rate of 35%
in 2006 is primarily due to tax benets, 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. Also contributing to the lower rate for 2006 is an IRS
audit settlement that allowed Entergy to release from its tax reserves
settled issues relating to 1996-1998 audit cycle.
See Note 3 to the nancial statements for a reconciliation of the
federal statutory rate of 35.0% to the eective income tax rates, and
for additional discussion regarding income taxes.
Management’s Financial Discussion and Analysis conti nued