Entergy 2007 Annual Report Download - page 77

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Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
Signicant components of net deferred and noncurrent accrued tax
liabilities for Entergy Corporation and subsidiaries as of December 31,
2007 and 2006 are as follows (in thousands):
2007 2006
Deferred and noncurrent accrued tax liabilities:
Net regulatory assets/liabilities $ ( 838,507) $ (1,334,341)
Plant-related basis dierences (5,920,881) (5,992,434)
Power purchase agreements (935,876) (1,755,345)
Nuclear decommissioning trusts (885,411) (915,380)
Other (336,809) (615,371)
Total (8,917,484) (10,612,871)
Deferred tax assets:
Accumulated deferred investment
tax credit 130,609 118,990
Capital losses 161,793 256,089
Net operating loss carryforwards 405,640 2,002,541
Sale and leaseback 248,660 242,630
Unbilled/deferred revenues 24,567 39,566
Pension-related items 378,103 790,383
Reserve for regulatory adjustments 76,252 114,451
Customer deposits 76,317 77,166
Nuclear decommissioning liabilities 756,990 790,052
Other 391,603 405,490
Valuation allowance (74,612) (33,507)
Total 2,575,922- 4,803,851
Net deferred and noncurrent accrued
tax liability $(6,341,562) $ (5,809,020)
At December 31, 2007, Entergy had $453.6 million in net realized
federal capital loss carryforwards that will expire as follows: $122.7
million in 2008, $42.8 million in 2009, $263.1 million in 2011, and
$25.0 million in 2012.
At December 31, 2007, Entergy had estimated federal net operating
loss carryforwards of $798.8 million primarily resulting from changes
in tax accounting methods relating to (a) the Registrant Subsidiaries’
calculation of cost of goods sold, (b) Non-Utility Nuclear’s 2005 mark-
to-market tax accounting election, and (c) losses due to Hurricane
Rita. Both tax accounting method changes produce temporary book
tax dierences, which will reverse in the future. If the federal net
operating loss carryforwards are not utilized, they will expire in the
years 2023 through 2027.
At December 31, 2007, Entergy had estimated state net operating
loss carryforwards of $2.4 billion, primarily resulting from Entergy
Louisiana Holdings’ 2001 mark-to-market tax election, the Utility
companies’ change in method of accounting for tax purposes related
to cost of goods sold, and Non-Utility Nuclear’s 2005 mark-to-market
tax accounting election. If the state net operating loss carryforwards
are not utilized, they will expire in the years 2008 through 2022.
On March 13, 2007, the Vermont Department of Taxes issued
Technical Bulletin 35 explaining the Department of Taxes’
interpretation of the treatment of net operating losses under Vermont’s
2005, Act 207 (Act 207) which required unitary combined reporting
eective January 1, 2006. On January 7, 2008, the Vermont Department
of Taxes issued Technical Bulletin 40 explaining the Department of
Taxes’ interpretation of the conversion of federal net operating losses
to Vermont net operating losses under Act 207. e guidance in
Technical Bulletin 35 was utilized to determine that Entergy would
have approximately $272 million of Vermont net operating loss
available to oset future Vermont taxable income. Entergy believes
that its estimate determined under Technical Bulletin 35 is materially
accurate. With the issuance of Technical Bulletin 40, Entergy is
evaluating the impact of the Department of Taxes’ most recent
guidance on the estimate of the available Vermont net operating loss.
e conversion from separate entity reporting to unitary combined
reporting was a signicant change in Vermont tax law.
For 2007 and 2006, valuation allowances are provided against federal
and state capital loss carryforwards, and certain state net operating
loss carryforwards.
IN C O M E T A X AU D I T S A N D LITIGATION
Entergy or one of its subsidiaries les income tax returns in the U.S.
federal jurisdiction, and in various state and foreign jurisdictions.
With few exceptions, as discussed below, Entergy is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by
taxing authorities for years before 2004.
Entergy entered into an agreement with the IRS Appeals Division
in the second quarter 2007 to partially settle tax years 1999 - 2001.
Entergy will litigate the following issues that it is not settling:
n฀ ฀e ability to credit the U.K. Windfall Tax against U.S. tax as a
foreign tax credit - Entergy expects that the total tax to be included
in IRS Notices of Deciency already issued and to be issued in the
future on this issue will be $152 million. e U.K. Windfall Tax
relates to Entergy’s former investment in London Electricity. e
tax and interest associated with this issue total $216 million for all
open tax years.
n฀ ฀e validity of Entergy’s change in method of tax accounting
for street lighting assets and the related increase in depreciation
deductions - Entergy expects that the total tax to be included in
IRS Notices of Deciency already issued and to be issued in the
future on this issue will be $26 million. e federal and state tax
and interest associated with this issue total $42 million for all open
tax years.
n฀ ฀e allowance of depreciation deductions that resulted from Entergy’s
purchase price allocations on its acquisitions of its nuclear power
plants - Entergy expects that the total tax to be included in IRS Notices
of Deciency already issued and to be issued in the future on this issue
will be $34 million. e federal and state tax and interest associated
with this issue total $40 million for all open tax years.
On February 21, 2008, the IRS issued the Statutory Notice of
Deciency relative to the above issues. As stated above, Entergy will
pursue these issues in court.
e U.K. Windfall Tax and street lighting issues are already docketed
in U.S. Tax Court for tax years 1997 and 1998 with a trial date set in the
second quarter 2008.
e IRS completed its examination of the 2002 and 2003 tax returns
and issued an Examination Report on June 29, 2007. During the
examination, Entergy agreed to adjustments related to its method of
accounting for income tax purposes related to 1) its wholesale electric
power contracts and 2) the simplied method of allocating overhead
or “mixed service costs” provided for under IRS regulations, which
aects the amount of cost of goods sold related to the production of
electricity.
Entergy’s agreement with the IRS on electric power contracts
involved an adjustment to reduce Entergy Louisiana Holdings’
deduction related to its accounting for the contract to purchase power
from the Vidalia hydroelectric project. e adjustment did not have a
material impact on Entergy Louisiana Holdings’ earnings.
e agreement on overhead allocation methodology related to the
Registrant Subsidiaries’ 2003 ling of a change in tax accounting method
for the allocation of “mixed service costs” to self-produced assets.
Entergy reached a settlement agreement sustaining approximately
$700 million of the Registrant Subsidiaries’ deductions related to the
method change for the year ended December 31, 2003.