Entergy 2008 Annual Report Download - page 64

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include
the accounts of Entergy Corporation and its direct and indirect
subsidiaries. As required by generally accepted accounting
principles, all significant intercompany transactions have been
eliminated in the consolidated financial statements. The Utility
operating companies and many other Entergy subsidiaries
maintain accounts in accordance with FERC and other regulatory
guidelines. Certain previously reported amounts have been
reclassified to conform to current classifications, with no effect on
net income or shareholders’ equity.
US E O F ES T I M A T E S IN T H E PR E P A R A T I O N O F
FI N A N C I A L STAT E M E N T S
In conformity with generally accepted accounting principles,
the preparation of Entergy Corporation’s consolidated financial
statements and the separate financial statements of the Registrant
Subsidiaries requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses and the disclosure of contingent assets
and liabilities. Adjustments to the reported amounts of assets and
liabilities may be necessary in the future to the extent that future
estimates or actual results are different from the estimates used.
RE V E N U E S A N D FU E L CO S T S
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy
Louisiana, Entergy Mississippi, and Entergy Texas generate,
transmit, and distribute electric power primarily to retail customers
in Arkansas, Louisiana, Louisiana, Mississippi, and Texas,
respectively. Entergy Gulf States Louisiana also distributes gas to
retail customers in and around Baton Rouge, Louisiana. Entergy
New Orleans sells both electric power and gas to retail customers in
the City of New Orleans, except for Algiers, where Entergy Louisiana
is the electric power supplier. Entergy’s Non-Utility Nuclear segment
derives almost all of its revenue from sales of electric power generated
by plants owned by the Non-Utility Nuclear segment.
Entergy recognizes revenue from electric power and gas sales
when power or gas is delivered to customers. To the extent that
deliveries have occurred but a bill has not been issued, Entergy’s
Utility operating companies accrue an estimate of the revenues
for energy delivered since the latest billings. The Utility operating
companies calculate the estimate based upon several factors
including billings through the last billing cycle in a month,
actual generation in the month, historical line loss factors, and
prices in effect in Entergy’s Utility operating companies’ various
jurisdictions. Changes are made to the inputs in the estimate as
needed to reflect changes in billing practices. Each month the
estimated unbilled revenue amounts are recorded as revenue
and unbilled accounts receivable, and the prior month’s estimate
is reversed. Therefore, changes in price and volume differences
resulting from factors such as weather affect the calculation of
unbilled revenues from one period to the next, and may result
in variability in reported revenues from one period to the next as
prior estimates are reversed and new estimates recorded.
Entergy’s Utility operating companies’ rate schedules include
either fuel adjustment clauses or fixed fuel factors, which allow
either current recovery in billings to customers or deferral of
fuel costs until the costs are billed to customers. Because the fuel
adjustment clause mechanism allows monthly adjustments to
recover fuel costs, Entergy New Orleans and, prior to 2006, Entergy
Louisiana and Entergy Gulf States Louisiana include a component
of fuel cost recovery in their unbilled revenue calculations.
Effective January 1, 2006, however, for Entergy Louisiana and
Entergy Gulf States Louisiana this fuel component of unbilled
accounts receivable was reclassified to a deferred fuel asset and is
no longer included in the unbilled revenue calculations, which is in
accordance with regulatory treatment. Where the fuel component
of revenues is billed based on a pre-determined fuel cost (fixed
fuel factor), the fuel factor remains in effect until changed as
part of a general rate case, fuel reconciliation, or fixed fuel factor
filing. Entergy Mississippi’s fuel factor includes an energy cost
rider that is adjusted quarterly. In the case of Entergy Arkansas and
Entergy Texas, a portion of their fuel under-recoveries is treated in
the cash flow statements as regulatory investments because those
companies are allowed by their regulatory jurisdictions to recover
the fuel cost regulatory asset over longer than a twelve-month
period, and the companies earn a carrying charge on the under-
recovered balances.
System Energy’s operating revenues are intended to recover
from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi,
and Entergy New Orleans operating expenses and capital costs
attributable to Grand Gulf. The capital costs are computed by
allowing a return on System Energy’s common equity funds
allocable to its net investment in Grand Gulf, plus System Energy’s
effective interest cost for its debt allocable to its investment in
Grand Gulf.
PR O P E R T Y , PL A N T , A N D EQ U I P M E N T
Property, plant, and equipment is stated at original cost.
Depreciation is computed on the straight-line basis at rates
based on the applicable estimated service lives of the various
classes of property. For the Registrant Subsidiaries, the original
cost of plant retired or removed, less salvage, is charged to
accumulated depreciation. Normal maintenance, repairs, and
minor replacement costs are charged to operating expenses.
Substantially all of the Registrant Subsidiaries’ plant is subject to
mortgage liens.
Electric plant includes the portions of Grand Gulf and
Waterford 3 that have been sold and leased back. For financial
reporting purposes, these sale and leaseback arrangements are
reflected as financing transactions.
Net property, plant, and equipment for Entergy (including
property under capital lease and associated accumulated
amortization) by business segment and functional category, as of
December 31, 2008 and 2007, is shown below (in millions):
Non-Utility
2008 Entergy Utility Nuclear All Other
Production:
Nuclear $ 7,998 $ 5,468 $2,530 $ –
Other 1,944 1,723 – 221
Transmission 2,757 2,724 33 –
Distribution 5,361 5,361 – –
Other 1,554 1,283 271 –
Construction work in progress 1,713 1,441 252 20
Nuclear fuel (leased and owned) 1,102 596 506 –
Property, plant, and
equipment - net $22,429 $18,596 $3,592 $241