Entergy 2007 Annual Report Download - page 98

96
Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
NOTE 15. ACQUISITIONS AND DISPOSITIONS
PA L I S A D E S
In April 2007, Entergy’s Non-Utility Nuclear business purchased the 798
MW Palisades nuclear energy plant located near South Haven, Michigan
from Consumers Energy Company for a net cash payment of $336 million.
Entergy received the plant, nuclear fuel, inventories, and other assets. e
liability to decommission the plant, as well as related decommissioning
trust funds, was also transferred to Entergy’s Non-Utility Nuclear business.
Entergy’s Non-Utility Nuclear business executed a unit-contingent, 15-year
purchased power agreement (PPA) with Consumers Energy for 100% of
the plant’s output, excluding any future uprates. Prices under the PPA range
from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price
under the PPA is $51/MWh. In the rst quarter 2007, the NRC renewed
Palisades’ operating license until 2031. As part of the transaction, Entergy’s
Non-Utility Nuclear business assumed responsibility for spent fuel at the
decommissioned Big Rock Point nuclear plant, which is located near
Charlevoix, Michigan. Palisades’ nancial results since April 2007 are
included in Entergy’s Non-Utility Nuclear business segment. e following
table summarizes the assets acquired and liabilities assumed at the date of
acquisition (in millions):
Plant (including nuclear fuel) $ 727
Decommissioning trust funds 252
Other assets 41
Total assets acquired 1,020
Purchased power agreement (below market) 420
Decommissioning liability 220
Other liabilities 44
Total liabilities assumed 684
Net assets acquired $ 336
Subsequent to the closing, Entergy received approximately $6 million
from Consumers Energy Company as part of the Post-Closing
Adjustment dened in the Asset Sale Agreement. e Post-Closing
Adjustment amount resulted in an approximately $6 million reduction
in plant and a corresponding reduction in other liabilities.
For the PPA, which was at below-market prices at the time of the
acquisition, Non-Utility Nuclear will amortize a liability to revenue over
the life of the agreement. e amount that will be amortized each period
is based upon the dierence between the present value calculated at
the date of acquisition of each year’s dierence between revenue under
the agreement and revenue based on estimated market prices. In 2007,
$50 million was amortized to revenue. e amounts to be amortized to
revenue for the next ve years will be $76 million for 2008, $53 million for
2009, $46 million for 2010, $43 million for 2011, and $17 million in 2012.
Attala
In January 2006, Entergy Mississippi purchased the Attala power plant,
a 480 MW natural gas-red, combined-cycle generating facility in
central Mississippi, for $88 million from Central Mississippi Generating
Company. Entergy Mississippi received the plant, materials and supplies,
SO2 emission allowances, and related real estate. e MPSC approved
the acquisition and the investment cost recovery of the plant.
Perryville
In June 2005, Entergy Louisiana purchased the 718 MW Perryville
power plant located in northeast Louisiana for $162 million from a
subsidiary of Cleco Corporation. Entergy Louisiana received the plant,
materials and supplies, SO2 emission allowances, and related real
estate. e LPSC approved the acquisition and the long-term cost-of-
service purchased power agreement under which Entergy Gulf States
Louisiana will purchase 75 percent of the plant’s output.
AS S E T DI S P O S I T I O N S
Entergy-Koch Businesses
In the fourth quarter 2004, Entergy-Koch sold its energy trading and
pipeline businesses to third parties. e sales came aer a review of
strategic alternatives for enhancing the value of Entergy-Koch, LP.
Entergy received $862 million of cash distributions in 2004 from
Entergy-Koch aer the business sales. 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 recorded a gain related to its
Entergy-Koch investment of approximately $55 million, net-of-tax, in
the fourth quarter 2006 and received additional cash distributions of
approximately $163 million. Entergy expects future cash distributions
upon liquidation of the partnership will be less than $35 million.
Other
In the second quarter 2006, Entergy sold its remaining interest in a
power development project and realized a $14.1 million ($8.6 million
net-of-tax) gain on the sale.
In April 2006, Entergy sold the retail electric portion of the
Competitive Retail Services business operating in the ERCOT region
of Texas, realized an $11.1 million gain (net-of-tax) on the sale, and
now reports this portion of the business as a discontinued operation.
NOTE 16. RISK MANAGEMENT AND FAIR VALUES
MA R K E T A N D CO M M O D I T Y RI S K S
In the normal course of business, Entergy is exposed to a number of
market and commodity risks. Market risk is the potential loss that
Entergy may incur as a result of changes in the market or fair value of
a particular instrument or commodity. All nancial and commodity-
related instruments, including derivatives, are subject to market
risk. Entergy is subject to a number of commodity and market risks,
including:
Type of Risk Aected Businesses
Power price risk Utility, Non-Utility Nuclear,
Non-Nuclear Wholesale Assets
Fuel price risk Utility, Non-Utility Nuclear,
Non-Nuclear Wholesale Assets
Foreign currency exchange rate risk Utility, Non-Utility Nuclear,
Non-Nuclear Wholesale Assets
Equity price and interest rate risk – investments Utility, Non-Utility Nuclear
Entergy manages these risks through both contractual arrangements
and derivatives. Contractual risk management tools include long-term
power purchase and sales agreements and fuel purchase agreements,
capacity contracts, and tolling agreements. Commodity and nancial
derivative risk management tools can include natural gas and electricity
futures, forwards, swaps, and options; foreign currency forwards; and
interest rate swaps. Entergy enters into derivatives only to manage
natural risks inherent in its physical or nancial assets or liabilities.
Entergy manages fuel price risk for its Louisiana jurisdictions
(Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New
Orleans) and Entergy Mississippi primarily through the purchase of
short-term swaps. ese swaps are marked-to-market with osetting
regulatory assets or liabilities. e notional volumes of these swaps are
based on a portion of projected annual purchases of gas for electric
generation and projected winter purchases for gas distribution at
Entergy Gulf States Louisiana and Entergy New Orleans.
Entergy’s exposure to market risk is determined by a number of
factors, including the size, term, composition, and diversication
of positions held, as well as market volatility and liquidity. For
instruments such as options, the time period during which the option