Entergy 2008 Annual Report Download - page 68

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
Notes to Consolidated Financial Statements continued
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RE A C Q U I R E D DE B T
The premiums and costs associated with reacquired debt of
Entergy’s Utility operating companies and System Energy (except
that portion allocable to the deregulated operations of Entergy
Gulf States Louisiana) are included in regulatory assets and are
being amortized over the life of the related new issuances, in
accordance with ratemaking treatment.
TA X E S IM P O S E D O N RE V E N U E -PR O D U C I N G TR A N S A C T I O N S
Governmental authorities assess taxes that are both imposed on
and concurrent with a specific revenue-producing transaction
between a seller and a customer, including, but not limited to,
sales, use, value added, and some excise taxes. Entergy presents
these taxes on a net basis, excluding them from revenues, unless
required to report them differently by a regulatory authority.
NE W AC C O U N T I N G PR O N O U N C E M E N T S
The FASB issued Statement of Financial Accounting Standards
No. 141(R), “Business Combinations” (SFAS 141(R)) during the
fourth quarter 2007. The significant provisions of SFAS 141R are
that: (i) assets, liabilities and non-controlling (minority) interests
will be measured at fair market value; (ii) costs associated with the
acquisition such as transaction-related costs or restructuring costs
will be separately recorded from the acquisition and expensed as
incurred; (iii) any excess of fair market value of the assets, liabilities
and minority interests acquired over the fair market value of the
purchase price will be recognized as a bargain purchase and a gain
recorded at the acquisition date; and (iv) contractual contingencies
resulting in potential future assets or liabilities may be recorded at
fair market value at the date of acquisition if certain criteria are
met. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. An entity may not apply SFAS 141(R) before that date.
The FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements”
(SFAS 160) during the fourth quarter 2007. SFAS 160 enhances
disclosures and affects the presentation of minority interests in the
balance sheet, income statement and statement of comprehensive
income. SFAS 160 will also require a parent to record a gain or loss when
a subsidiary in which it retains a minority interest is deconsolidated
from the parent company. SFAS 160 applies prospectively to business
combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December
15, 2008. An entity may not apply SFAS 160 before that date. Pursuant
to SFAS 160, beginning in 2009, Entergy will prospectively reclassify as
equity its subsidiary preferred stock without sinking fund.
In March 2008 the FASB issued Statement of Financial Accounting
Standards No. 161 “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161), which requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-
related contingent features in derivative agreements. SFAS 161 is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008.
NOTE 2. RATE AND REGULATORY MATTERS
RE G U L A T O R Y AS S E T S
Hurricane Gustav and Hurricane Ike
In September 2008, Hurricane Gustav and Hurricane Ike caused
catastrophic damage to portions of Entergy’s service territories
in Louisiana and Texas, and to a lesser extent in Arkansas and
Mississippi. Entergy has recorded the estimated costs incurred,
including payments already made, that were necessary to return
customers to service. Entergy has recorded approximately
$746 million against its storm damage provisions or as regulatory
assets and approximately $484 million in construction expenditures.
Entergy recorded the regulatory assets in accordance with its
accounting policies and based on the historic treatment of such
costs in its service territories (except for Entergy Arkansas because
it discontinued regulatory storm reserve accounting in July 2007
as a result of an APSC order), because management believes that
recovery through some form of regulatory mechanism is probable.
Because Entergy has not gone through the regulatory process
regarding these storm costs, however, there is an element of risk,
and Entergy is unable to predict with certainty the degree of success
it may have in its recovery initiatives, the amount of restoration costs
that it may ultimately recover, or the timing of such recovery.
Other Regulatory Assets
The Utility business is subject to the provisions of SFAS 71,
“Accounting for the Effects of Certain Types of Regulation.”
Regulatory assets represent probable future revenues associated
with certain costs that are expected to be recovered from customers
through the ratemaking process. In addition to the regulatory
assets that are specifically disclosed on the face of the balance
sheets, the table below provides detail of “Other regulatory assets”
that are included on Entergy’s and the Registrant Subsidiaries’
balance sheets as of December 31, 2008 and 2007 (in millions):
Entergy 2008 2007
Asset retirement obligation - recovery dependent
upon timing of decommissioning (Note 9)(b) $ 371.2 $ 334.9
Deferred capacity - recovery timing will be
determined by the LPSC in the formula
rate plan filings (Note 2 - Retail Rate Proceedings -
Filings with the LPSC) 48.4 86.4
Deferred fuel - non-current - recovered through
rate riders when rates are redetermined periodically
(Note 2 - Fuel and Purchased Power Cost Recovery) 20.7 32.8
Gas hedging costs - recovered through fuel rates 66.8 9.7
Pension & postretirement costs
(Note 11 - Qualified Pension Plans, Other Postretirement
Benefits, and Non-Qualified Pension Plans)(b) 1,468.6 675.1
Postretirement benefits - recovered through 2012
(Note 11 - Other Postretirement Benefits)(b) 9.6 12.0
Provision for storm damages, including hurricane
costs - recovered through securitization,
insurance proceeds, and retail rates (Note 2 -
Hurricane Gustav and Hurricane Ike and Storm
Cost Recovery Filings with Retail Regulators)(c) 1,163.4 1,339.8
Removal costs - recovered through depreciation rates
(Note 9)(b) 63.9 –
River Bend AFUDC - recovered through August 2025
(Note 1 - River Bend AFUDC) 29.9 31.8
Sale-leaseback deferral - recovered through June 2014
(Note 10 - Sale and Leaseback Transactions -
Grand Gulf Lease Obligations)(c) 91.0 103.9
Spindletop gas storage facility - recovered through
December 2032(a) 35.8 37.4
Transition to competition - recovered through
February 2021 (Note 2 - Retail Rate Proceedings -
Filings with the PUCT and Texas Cities) 107.6 112.9
Unamortized loss on reacquired debt -
recovered over term of debt 124.0 137.1
Other 14.2 57.6
Total $3,615.1 $2,971.4
(a) The jurisdictional split order assigned the regulatory asset to Entergy Texas.
The regulatory asset, however, is being recovered and amortized at Entergy Gulf
States Louisiana. As a result, a billing will occur monthly over the same term
as the recovery and receipts will be submitted to Entergy Texas. Entergy Texas
has recorded a receivable from Entergy Gulf States Louisiana and Entergy Gulf
States Louisiana has recorded a corresponding payable.
(b) Does not earn a return on investment, but is offset by related liabilities.
(c) Does not earn a return on investment at this time. For the provision for
storm damages, this only applies to Entergy Texas’ storm damages for
Hurricane Gustav and Hurricane Ike, approximately $358 million, and
Entergy New Orleans’ storm damages for Hurricane Gustav of approximately
$18 million. Other provision for storm damages amounts earn a return
on investment.