Entergy 2008 Annual Report Download - page 101

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Notes to Consolidated Financial Statements continued
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OU A C H I T A
In September 2008, Entergy Arkansas purchased the Ouachita
Plant, a 789 MW three-train gas-fired combined cycle generating
turbine (CCGT) electric power plant located 20 miles south of the
Arkansas state line near Sterlington, Louisiana, for approximately
$210 million from a subsidiary of Cogentrix Energy, Inc. Entergy
Arkansas received the plant, materials and supplies, and related
real estate in the transaction. The FERC and the APSC approved
the acquisition. The APSC also approved the recovery of the
acquisition and ownership costs through a rate rider and the
planned sale of one-third of the capacity and energy to Entergy Gulf
States Louisiana. The LPSC also approved the purchase of one-
third of the capacity and energy by Entergy Gulf States Louisiana,
subject to certain conditions, including a study to determine the
costs and benefits of Entergy Gulf States Louisiana exercising an
option to purchase one-third of the plant (Unit 3) from Entergy
Arkansas. Entergy Gulf States Louisiana is scheduled to report the
results of that study by March 30, 2009.
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. The 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 first 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’ financial results since
April 2007 are included in Entergy’s Non-Utility Nuclear business
segment. The 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 defined in the Asset Sale Agreement.
The 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. The amount that will be
amortized each period is based upon the difference between the
present value calculated at the date of acquisition of each year’s
difference between revenue under the agreement and revenue
based on estimated market prices. Amounts amortized to revenue
were $76 million in 2008 and $50 million in 2007. The amounts to
be amortized to revenue for the next five years will be $53 million
for 2009, $46 million for 2010, $43 million for 2011, $17 million in
2012 and $18 million for 2013.
AT T A L A
In January 2006, Entergy Mississippi purchased the Attala power
plant, a 480 MW natural gas-fired, 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. The MPSC approved the acquisition and the investment cost
recovery of the plant.
NYPA VA L U E SH A R I N G AG R E E M E N TS
Non-Utility Nuclear’s purchase of the FitzPatrick and Indian Point
3 plants from NYPA included value sharing agreements with NYPA.
In October 2007, Non-Utility Nuclear and NYPA amended and
restated the value sharing agreements to clarify and amend certain
provisions of the original terms. Under the amended value sharing
agreements, Non-Utility Nuclear will make annual payments to
NYPA based on the generation output of the Indian Point 3 and
FitzPatrick plants from January 2007 through December 2014.
Non-Utility Nuclear will pay NYPA $6.59 per MWh for power sold
from Indian Point 3, up to an annual cap of $48 million, and
$3.91 per MWh for power sold from FitzPatrick, up to an annual
cap of $24 million. The annual payment for each year is due by
January 15 of the following year. Non-Utility Nuclear will record
its liability for payments to NYPA as power is generated and sold
by Indian Point 3 and FitzPatrick. An amount equal to the liability
will be recorded to the plant asset account as contingent purchase
price consideration for the plants. Non-Utility Nuclear recorded
$72 million as plant in both 2008 and 2007. This amount will be
depreciated over the expected remaining useful life of the plants.
In August 2008, Non-Utility Nuclear entered into a resolution
of a dispute with NYPA over the applicability of the value sharing
agreements to its FitzPatrick and Indian Point 3 nuclear power
plants after the planned spin-off of the Non-Utility Nuclear
business. Under the resolution, Non-Utility Nuclear agreed not to
treat the separation as a “Cessation Event” that would terminate
its obligation to make the payments under the value sharing
agreements. As a result, after the spin-off transaction, Enexus will
continue to be obligated to make payments to NYPA under the
amended and restated value sharing agreements.
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. The sales came after 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 after 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 distributions
upon liquidation of the partnership will be less than $35 million.