Entergy 2007 Annual Report Download - page 89

87
Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
fuel lease arrangements have varying maturities through September
15, 2011. It is expected that additional nancing under the leases will
be arranged as needed to acquire additional fuel, to pay interest, and
to pay maturing debt. However, if such additional nancing cannot be
arranged, the lessee in each case must repurchase sucient nuclear
fuel to allow the lessor to meet its obligations in accordance with the
fuel lease.
Lease payments are based on nuclear fuel use. e table below
represents the total nuclear fuel lease payments (principal and interest),
as well as the separate interest component charged to operations, in
2007, 2006, and 2005 for the four Registrant Subsidiaries that own
nuclear power plants (in millions):
2007 2006 2005
Lease Lease Lease
Payments Interest Payments Interest Payments Interest
Entergy Arkansas $ 61.7 $ 5.8 $ 55.0 $ 5.0 $ 47.5 $ 3.9
Entergy Gulf
States Louisiana 31.5 2.8 28.1 3.6 27.2 3.5
Entergy Louisiana 44.2 4.0 35.5 2.4 30.9 2.6
System Energy 30.4 4.0 32.8 3.6 30.2 2.9
Total $167.8 $16.6 $151.4 $14.6 $135.8 $12.9
SA L E A N D LE A S E B A C K T R A N S A C T I O N S
Wat er ford 3 L ea se O bl igation s
In 1989, Entergy Louisiana sold and leased back 9.3% of its interest in
Waterford 3 for the aggregate sum of $353.6 million. e lease has an
approximate term of 28 years. e lessors nanced the sale-leaseback
through the issuance of Waterford 3 Secured Lease Obligation Bonds.
e lease payments made by Entergy Louisiana are sucient 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 rst mortgage bonds
as collateral for the equity portion of certain amounts payable under
the lease.
In 1997, the lessors renanced the outstanding bonds used to nance
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 nance
the purchase of the 9.3% interest in the unit and to pay an amount
sucient 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
applicable grace or cure period, to maintain (i) total equity capital
(including preferred membership interests) at least equal to 30% of
adjusted capitalization, or (ii) a xed charge coverage ratio of at least
1.50 computed on a rolling 12 month basis.
As of December 31, 2007, Entergy Louisiana’s total equity capital
(including preferred stock) was 57.0% of adjusted capitalization and
its xed charge coverage ratio for 2007 was 3.7.
As of December 31, 2007, Entergy Louisiana had future minimum
lease payments (reecting an overall implicit rate of 7.45%) in
connection with the Waterford 3 sale and leaseback transactions,
which are recorded as long-term debt, as follows (in thousands):
2008 $ 22,606
2009 32,452
2010 35,138
2011 50,421
2012 39,067
Years thereaer 164,158
Total 343,842
Less: Amount representing interest 96,117
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
million. 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 terminating the lease and repurchasing the 11.5% interest in the
unit at certain intervals during the lease. Furthermore, at the end of
the lease term, System Energy has the option of renewing the lease or
repurchasing the 11.5% interest in Grand Gulf.
In May 2004, System Energy caused the Grand Gulf lessors to
renance the outstanding bonds that they had issued to nance the
purchase of their undivided interest in Grand Gulf. e renancing is
at a lower interest rate, and System Energy’s lease payments have been
reduced to reect the lower interest costs.
System Energy is required to report the sale-leaseback as a nancing
transaction in its nancial statements. For nancial reporting purposes,
System Energy expenses the interest portion of the lease obligation
and the plant depreciation. However, operating revenues include the
recovery of the lease payments because the transactions are accounted
for as a sale and leaseback for ratemaking purposes. Consistent with
a recommendation contained in a FERC audit report, System Energy
initially recorded as a net regulatory asset the dierence between the
recovery of the lease payments and the amounts expensed for interest
and depreciation and continues to record this dierence as a regulatory
asset or liability on an ongoing basis, resulting in a zero net balance for
the regulatory asset at the end of the lease term. e amount of this net
regulatory asset was $36.6 million and $51.1 million as of December
31, 2007 and 2006, respectively.
As of December 31, 2007, System Energy had future minimum lease
payments (reecting an implicit rate of 5.13%), which are recorded as
long-term debt as follows (in thousands):
2008 $ 47,128
2009 47,760
2010 48,569
2011 49,437
2012 49,959
Years thereaer 154,436
Total 397,289
Less: Amount representing interest 75,284
Present value of net minimum lease payments $322,005