Entergy 2008 Annual Report Download - page 31

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ENTERGY CORPORATION AND SUBSIDIARIES 2008ENTERGY CORPORATION AND SUBSIDIARIES 2008
agreement for Vermont Yankee. Several parties intervened in the
proceeding. Discovery has been completed in this proceeding, in
which parties could ask questions about or request the production
of documents related to the transaction.
In addition, the Vermont Department of Public Service (VDPS),
which is the public advocate in proceedings before the VPSB,
prefiled its initial and rebuttal testimony in the case in which the
VDPS takes the position that Entergy Nuclear Vermont Yankee
and Entergy Nuclear Operations, Inc. have not demonstrated that
the restructuring promotes the public good because its benefits
do not outweigh the risks, raising concerns that the target rating
for Enexus’ debt is below investment grade and that the company
may not have the financial capability to withstand adverse
financial developments, such as an extended outage. The VDPS
testimony also expresses concern about the EquaGen joint venture
structure and Enexus’ ability, under the operating agreement
between Entergy Nuclear Vermont Yankee and Entergy Nuclear
Operations, Inc., to ensure that Vermont Yankee is well-operated.
Two distribution utilities that buy Vermont Yankee power prefiled
testimony that also expresses concerns about the structure but
found that there was a small net benefit to the restructuring. The
VPSB conducted hearings on July 28-30, 2008, during which it
considered the testimony prefiled by Entergy Nuclear Vermont
Yankee, Entergy Nuclear Operations, Inc., the VDPS, and the
two distribution utilities. Post-hearing briefing is complete and a
decision from the VPSB is pending.
On January 28, 2008, Entergy Nuclear FitzPatrick, LLC, Entergy
Nuclear Indian Point 2, LLC, Entergy Nuclear Indian Point 3, LLC,
and Entergy Nuclear Operations, Inc., and Enexus filed a petition
with the New York Public Service Commission (NYPSC) requesting
a declaratory ruling regarding corporate reorganization or in
the alternative an order approving the transaction and an order
approving debt financing. Petitioners also requested confirmation
that the corporate reorganization will not have an effect on Entergy
Nuclear FitzPatrick’s, Entergy Nuclear Indian Point 2’s, Entergy
Nuclear Indian Point 3’s, and Entergy Nuclear Operations, Inc.’s
status as lightly regulated entities in New York, given that they
will continue to be competitive wholesale generators. The New
York State Attorney General’s Office, Westchester County, and
other intervenors have filed objections to the business separation
and to the transfer of the FitzPatrick and Indian Point Energy
Center nuclear power plants, arguing that the debt associated
with the spin-off could threaten access to adequate financial
resources for those nuclear power plants and because the New
York State Attorney General’s Office believes Entergy must file an
environmental impact statement assessing the proposed corporate
restructuring. In addition to the New York State Attorney General’s
Office, several other parties have also requested to be added to the
service list for this proceeding.
On May 23, 2008, the NYPSC issued its Order Establishing
Further Procedures in this matter. In the order, the NYPSC
determined that due to the nuclear power plants’ unique role in
supporting the reliability of electric service in New York, and their
large size and unique operational concerns, a more searching
inquiry of the transaction will be conducted than if other types of
lightly-regulated generation were at issue. Accordingly, the NYPSC
assigned an Administrative Law Judge (ALJ) to preside over this
proceeding and prescribed a sixty (60) day discovery period. The
order provided that after at least sixty (60) days, the ALJ would
establish when the discovery period would conclude. The NYPSC
stated that the scope of discovery will be tightly bounded by the
public interest inquiry relevant to this proceeding; namely, adequacy
and security of support for the decommissioning of the New York
nuclear facilities; financial sufficiency of the proposed capital
structure in supporting continued operation of the facilities;
and, arrangements for managing, operating and maintaining the
facilities. The NYPSC also stated that during the discovery period,
the NYPSC Staff may conduct technical conferences to assist in the
development of a full record in this proceeding.
On July 23, 2008, the ALJs issued a ruling concerning discovery
and seeking comments on a proposed process and schedule. In
the ruling, the ALJs proposed a process for completing a limited,
prescribed discovery process, to be followed three weeks later
by the filing of initial comments addressing defined issues, with
reply comments due two weeks after the initial comment deadline.
Following receipt of all comments, a ruling will be made on
whether, and to what extent, an evidentiary hearing is required.
The ALJs asked the parties to address three specific topic areas:
(1) the financial impacts related to the specific issues previously
outlined by the NYPSC; (2) other obligations associated with
the arrangement for managing, operating and maintaining the
facilities; and (3) the extent that New York Power Authority (NYPA)
revenues from value sharing payments under the value sharing
agreements between Entergy and NYPA would decrease. The ALJs
have indicated that the potential financial effect of the termination
of the value sharing payments on NYPA and New York electric
consumers are factors the ALJs believe should be considered by
the NYPSC in making its public interest determination.
In August 2008, Non-Utility Nuclear entered into a resolution
of a dispute with NYPA over the applicability of the value sharing
agreements to the FitzPatrick and Indian Point 3 nuclear power
plants after the separation. 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 separation,
Enexus would continue to be obligated to make payments to NYPA
due under the amended and restated value sharing agreements
described above. For further discussion of the value sharing
agreements, see Note 15 to the financial statements herein.
Entergy continues to seek regulatory approval from the
NYPSC in a timely manner. On October 23, 2008, the ALJs issued
notification to all parties that from their review of the submissions,
all issues of fact and policy material to the relief requested by
the petitioners have been thoroughly addressed by the parties,
an adequate record for decision is available to the NYPSC, and
no further formal proceedings are warranted. On December 11,
2008, notice was provided that the parties intended to conduct a
settlement discussion which to date has not yielded an agreement.
If the parties do not agree to a settlement, the ALJs will submit a
recommendation to the NYPSC with respect to the transaction.
In connection with the separation, Enexus is currently expected
to incur up to $4.5 billion of debt prior to completion of the
separation. Currently, the debt is expected to be incurred in the
following transactions:
n Enexus is expected to issue up to $3.0 billion of debt securities
in partial consideration of Entergy’s transfer to it of the Non-
Utility Nuclear business.
n These debt securities are expected to be exchanged for up
to $3.0 billion of debt securities that Entergy plans to issue
prior to the separation. If the exchange occurs, the holders
of the debt securities that Entergy plans to issue prior to the
separation would become holders of up to $3.0 billion of
Enexus debt securities.
n Enexus is expected to issue up to $1.5 billion of debt securities
to third parties.
Out of the proceeds Enexus would receive from the issuance of
debt securities to third parties, it expects to retain approximately
$500 million, which it intends to use for working capital and
Management’s Financial Discussion and Analysis continued
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