Entergy 2008 Annual Report Download - page 80

7878
ENTERGY CORPORATION AND SUBSIDIARIES 2008
Notes to Consolidated Financial Statements continued
78
loads. In its opinion, the D.C. Circuit concluded that the FERC
(1) acted arbitrarily and capriciously by allowing the Utility
operating companies to phase-in the effects of the elimination
of the interruptible load over a 12-month period of time; (2)
failed to adequately explain why refunds could not be ordered
under Section 206(c) of the Federal Power Act; and (3) exercised
appropriately its discretion to defer addressing the cost of sulfur
dioxide allowances until a later time. The D.C. Circuit remanded
the matter to the FERC for a more considered determination
on the issue of refunds. The FERC issued its order on remand in
September 2007, in which it directs Entergy to make a compliance
filing removing all interruptible load from the computation of
peak load responsibility commencing April 1, 2004 and to issue
any necessary refunds to reflect this change. In addition, the order
directs the Utility operating companies to make refunds for the
period May 1995 through July 1996. Entergy, the APSC, the MPSC,
and the City Council requested rehearing of the FERC’s order
on remand. The FERC granted the Utility operating companies’
request to delay the payment of refunds for the period May
1995 through July 1996 until 30 days following a FERC order on
rehearing. The FERC issued in September 2008 an order denying
rehearing. The refunds were made by the Utility operating
companies that owed refunds to the Utility operating companies
that were due a refund on October 15, 2008. The APSC and the
Utility operating companies appealed the FERC decisions to the
D.C. Circuit. The procedural schedule calls for briefing during the
first half of 2009. Because of its refund obligation to customers as a
result of this proceeding and a related LPSC proceeding, Entergy
Louisiana recorded provisions during 2008 of approximately
$16 million, including interest, for rate refunds.
CO-OW N E R -IN I T I A T E D PR O C E E D I N G A T T H E FERC
(EN T E R G Y AR K A N S A S )
In October 2004, Arkansas Electric Cooperative Corporation
(AECC) filed a complaint at the FERC against Entergy Arkansas
relating to a contract dispute over the pricing of substitute energy at
the co-owned Independence and White Bluff coal plants. The main
issue in the case related to the consequences under the governing
contracts when the dispatch of the coal units is constrained due
to system operating conditions. A hearing was held on the AECC
complaint and an ALJ Initial Decision was issued in January 2006
in which the ALJ found AECC’s claims to be without merit. On
October 25, 2006, the FERC issued its order in the proceeding. In
the order, the FERC reversed the ALJ’s findings. Specifically, the
FERC found that the governing contracts do not recognize the
effects of dispatch constraints on the co-owned units. The FERC
explained that for over twenty-three years the course of conduct of
the parties was such that AECC received its full entitlement to the
two coal units, regardless of any reduced output caused by system
operating constraints. Based on the order, Entergy Arkansas is
required to refund to AECC all excess amounts billed to AECC
as a result of the system operating constraints. The FERC denied
Entergy Arkansas’ request for rehearing and Entergy Arkansas
refunded $22.1 million (including interest) to AECC in September
2007. Entergy Arkansas had previously recorded a provision for
the estimated effect of this refund. AECC has filed a protest at
the FERC claiming that Entergy Arkansas owes an additional $2.5
million plus interest. Entergy Arkansas has appealed the FERC’s
decision to the D.C. Circuit.
NOTE 3. INCOME TAXES
Income tax expenses from continuing operations for 2008, 2007,
and 2006 for Entergy Corporation and subsidiaries consist of the
following (in thousands):
2008 2007 2006
Current:
Federal $451,517 $(1,379,288) $(266,464)
Foreign 256 316 64
State 146,171 27,174 (74,319)
Total 597,944 (1,351,798) (340,719)
Deferred - net 23,022 1,884,383 801,745
Investment tax credit
adjustments - net (17,968) (18,168) (17,982)
Income tax expense from
continuing operations $602,998 $ 514,417 $ 443,044
Total income taxes from continuing operations for Entergy
Corporation and subsidiaries differ from the amounts computed
by applying the statutory income tax rate to income before taxes.
The reasons for the differences for the years 2008, 2007, and 2006
are (in thousands):
2008 2007 2006
Consolidated net income $1,220,566 $1,134,849 $1,132,602
Discontinued operations
(net of income tax expense
of $67 in 2006) – – 496
Preferred dividend requirements 19,969 25,105 27,783
Income before preferred stock
dividends of subsidiaries 1,240,535 1,159,954 1,160,881
Income taxes before
discontinued operations 602,998 514,417 443,044
Pretax income $1,843,533 $1,674,371 $1,603,925
Computed at statutory
rate (35%) $ 645,237 $ 586,030 $ 561,374
Increases (reductions) in tax
resulting from:
State income taxes net of
federal income tax effect 9,926 31,066 44,230|
Regulatory differences -
utility plant items 45,543 50,070 50,211
Amortization of investment
tax credits (17,458) (17,612) (17,460)
Decommissioning
trust fund basis (417) (35,684) –
Capital gains (losses) (74,278) 7,126| (79,427)
Flow-through/permanent
differences 14,656 (49,609) (52,866)
Tax reserves (27,970) (25,821) (53,610)
Valuation allowance 11,770 (8,676) 22,300
Other - net (4,011) (22,473) (31,708)
Total income taxes as reported
from continuing operations $ 602,998 $ 514,417 $ 443,044|
Effective income tax rate 32.7% 30.7%| 27.6%
The capital loss for 2006 includes a loss for tax purposes recorded
in the fourth quarter 2006 resulting from the liquidation of Entergy
Power International Holdings, Entergy’s holding company for
Entergy-Koch, LP. The $79.4 million tax benefit is net of other
capital gains.