Entergy 2007 Annual Report Download - page 62

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Entergy Corporation and Subsidiaries 2007
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
e accompanying consolidated nancial statements include the
accounts of Entergy Corporation and its direct and indirect subsidiaries.
As required by generally accepted accounting principles, all signicant
intercompany transactions have been eliminated in the consolidated
nancial statements. e Registrant Subsidiaries and many other
Entergy subsidiaries maintain accounts in accordance with FERC and
other regulatory guidelines. Certain previously reported amounts have
been reclassied to conform to current classications, with no eect
on net income or shareholders’ equity.
US E O F ES T I M AT E S IN T H E PR E PA R AT I O N O F
FI N A N C I A L STAT E M E N T S
In conformity with generally accepted accounting principles, the
preparation of Entergy Corporation’s consolidated nancial statements
and the separate nancial statements of the Registrant Subsidiaries
requires management to make estimates and assumptions that aect
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 dierent
from the estimates used.
RE V E N U E S A N D FU E L CO S T S
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana,
Entergy Mississippi, and Entergy Texas generate, transmit, and
distribute electric power primarily to retail customers in Arkansas,
Louisiana, Louisiana, Mississippi, and Texas, respectively. Entergy
Gulf States Louisiana 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 revenue 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 operating
companies accrue an estimate of the revenues for energy delivered
since the latest billings. e 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 eect in Entergy’s Utility operating
companies’ various jurisdictions. Changes are made to the inputs in the
estimate as needed to reect 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. erefore, changes in price and volume dierences resulting
from factors such as weather aect 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 xed fuel factors, which allow either current
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 Entergy Gulf States
Louisiana include a component of fuel cost recovery in their unbilled
revenue calculations. Eective January 1, 2006, however, for Entergy
Louisiana and Entergy Gulf States Louisiana this fuel component of
unbilled accounts receivable was reclassied to a deferred fuel asset
and is no longer included in the unbilled revenue calculations, which
is in accordance with regulatory treatment. Where the fuel component
of revenues is billed based on a pre-determined fuel cost (xed fuel
factor), the fuel factor remains in eect until changed as part of a
general rate case, fuel reconciliation, or xed fuel factor ling. Entergy
Mississippi’s fuel factor includes an energy cost rider that is adjusted
quarterly. In the case of Entergy Arkansas and Entergy Texas, a portion
of their fuel under-recoveries is treated in the cash ow statements as
regulatory investments because those companies are allowed by their
regulatory jurisdictions to recover the fuel cost regulatory 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 attributable
to Grand Gulf. e 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 eective interest cost for its debt
allocable to its investment in Grand Gulf.
PR O P E R TY , PL A N T , A N D EQ U I P M E N T
Property, plant, and equipment is stated at original cost. Depreciation
is computed on the straight-line basis at rates based on the applicable
estimated service lives of the various classes of property. For the
Utility operating companies and System Energy, 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
Utility operating companies’ and System Energy’s 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 nancial reporting purposes,
these sale and leaseback arrangements are reected as nancing
transactions.
Notes to Consolidated Financial Statements