Entergy 2008 Annual Report Download - page 30

ENTERGY CORPORATION AND SUBSIDIARIES 2008
Management’s Financial Discussion and Analysis
Entergy operates primarily through two business segments:
Utility and Non-Utility Nuclear.
nUTILITY generates, transmits, distributes, and sells electric
power in a four-state service territory that includes portions
of Arkansas, Mississippi, Texas, and Louisiana, including
the City of New Orleans; and operates a small natural gas
distribution business.
nNON-UTILITY NUCLEAR owns and operates six nuclear power
plants located in the northern United States and sells the
electric power produced by those plants primarily to wholesale
customers. This business also provides services to other nuclear
power plant owners.
In addition to its two primary, reportable, operating segments,
Entergy also operates the non-nuclear wholesale assets business. The
non-nuclear wholesale assets business sells to wholesale customers the
electric power produced by power plants that it owns while it focuses
on improving performance and exploring sales or restructuring
opportunities for its power plants. Such opportunities are evaluated
consistent with Entergy’s market-based point-of-view.
Following are the percentages of Entergy’s consolidated revenues
and net income generated by its operating segments and the
percentage of total assets held by them:
% of Revenue
Segment 2008 2007 2006
Utility 79 80 84
Non-Utility Nuclear 19 18 14
Parent Company &
Other Business Segments 2 2 2
% of Net Income
Segment 2008 2007 2006
Utility 48 60 61
Non-Utility Nuclear 65 48 27
Parent Company &
Other Business Segments (13) (8) 12
% of Total Assets
Segment 2008 2007 2006
Utility 79 78 81
Non-Utility Nuclear 21 21 17
Parent Company &
Other Business Segments – 1 2
PLAN TO PURSUE SEPARATION OF NON-UTILITY NUCLEAR
In November 2007, the Board approved a plan to pursue a
separation of the Non-Utility Nuclear business from Entergy
through a tax-free spin-off of the Non-Utility Nuclear business to
Entergy shareholders. Upon completion of the Board-approved
spin-off plan, Enexus Energy Corporation, a wholly-owned
subsidiary of Entergy, would be a new, separate, and publicly-
traded company. In addition, under the plan, Enexus and Entergy
are expected to enter into a nuclear services business joint
venture, EquaGen LLC, with 50% ownership by Enexus and 50%
ownership by Entergy. The EquaGen board of managers would be
comprised of equal membership from both Entergy and Enexus.
Under the Board-approved plan, the spin-off would result in
Entergy Corporation’s shareholders owning 100% of the common
stock in both Enexus and Entergy. Also under the Board-approved
plan, Enexus’ business would be substantially comprised of Non-
Utility Nuclear’s assets, including its six nuclear power plants,
and Non-Utility Nuclear’s power marketing operation. Entergy
Corporation’s remaining business would primarily be comprised
of the Utility business. EquaGen would operate the nuclear assets
owned by Enexus under the Board-approved plan, and provide
certain services to the Utility’s nuclear operations. EquaGen
would also be expected to offer nuclear services to third parties,
including decommissioning, plant relicensing, plant operations,
and ancillary services.
Entergy Nuclear Operations, Inc., the current NRC-licensed
operator of the Non-Utility Nuclear plants, filed an application in
July 2007 with the NRC seeking indirect transfer of control of the
operating licenses for the six Non-Utility Nuclear power plants, and
supplemented that application in December 2007 to incorporate
the planned business separation. Entergy Nuclear Operations, Inc.,
which is expected to be wholly-owned by EquaGen, would remain
the operator of the plants after the separation. Entergy Operations,
Inc., the current NRC-licensed operator of Entergy’s five Utility
nuclear plants, would remain a wholly-owned subsidiary of Entergy
and would continue to be the operator of the Utility nuclear
plants. In the December 2007 supplement to the NRC application,
Entergy Nuclear Operations, Inc. provided additional information
regarding the spin-off transaction, organizational structure,
technical and financial qualifications, and general corporate
information. The NRC published a notice in the Federal Register
establishing a period for the public to submit a request for hearing
or petition to intervene in a hearing proceeding. The NRC notice
period expired on February 5, 2008 and two petitions to intervene
in the hearing proceeding were filed before the deadline. Each of
the petitions opposes the NRC’s approval of the license transfer on
various grounds, including contentions that the approval request
is not adequately supported regarding the basis for the proposed
structure, the adequacy of decommissioning funding, and the
adequacy of financial qualifications. Entergy submitted answers
to the petitions on March 31 and April 8. On August 22, 2008,
the NRC issued an order denying all of the petitions to intervene
based upon the petitioners’ failure to demonstrate the requisite
standing to pursue their hearing requests. One of the petitioner
groups filed a motion for reconsideration on September 4, 2008
and on September 15, 2008, Entergy filed a response opposing
the motion for reconsideration. On September 23, 2008, the NRC
issued an order denying the motion for reconsideration based
upon several procedural errors.
Because resolution of any hearing requests is not a prerequisite
to obtaining the required NRC approval, on July 28, 2008, the NRC
staff approved the license transfers associated with the proposed
new ownership structure of EquaGen, the proposed licensed
operator, as well as the transfers to Enexus of the ownership of Big
Rock Point, FitzPatrick, Indian Point Units 1, 2 and 3, Palisades,
Pilgrim, and Vermont Yankee. The approval for the proposed new
ownership structure is effective through July 28, 2009, and Entergy
Nuclear Operations, Inc. can ask to extend the effective period.
The review conducted by the NRC staff included matters such as
the financial and technical qualifications of the new organizations,
as well as decommissioning funding assurance. In connection with
the NRC approvals, Enexus agreed to enter into a financial support
agreement with the entities that own the nuclear power plants in the
total amount of $700 million to provide financial support, if needed,
for the operating costs of the six operating nuclear power plants.
Pursuant to Federal Power Act Section 203, on February 21, 2008,
an application was filed with the FERC requesting approval for the
indirect disposition and transfer of control of jurisdictional facilities
of a public utility. In June 2008 the FERC issued an order authorizing
the requested indirect disposition and transfer of control.
On January 28, 2008, Entergy Nuclear Vermont Yankee, LLC
and Entergy Nuclear Operations, Inc. requested approval from
the Vermont Public Service Board (VPSB) for the indirect transfer
of control, consent to pledge assets, issue guarantees and assign
material contracts, amendment to certificate of public good, and
replacement of guaranty and substitution of a credit support
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ENTERGY CORPORATION AND SUBSIDIARIES 2008