Entergy 2008 Annual Report Download - page 92

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
Notes to Consolidated Financial Statements continued
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market value or to renew the leases for either fair market value or,
under certain conditions, a fixed rate.
Entergy Louisiana issued $208.2 million of non-interest bearing
first mortgage bonds as collateral for the equity portion of certain
amounts payable under the leases.
Upon the occurrence of certain events, Entergy Louisiana may
be obligated to assume the outstanding bonds used to finance
the purchase of the interests in the unit and to pay an amount
sufficient to withdraw from the lease transaction. Such events
include lease events of default, events of loss, deemed loss events,
or certain adverse “Financial Events.” “Financial Events” include,
among other things, failure by Entergy Louisiana, following the
expiration of any applicable grace or cure period, to maintain (i)
total equity capital (including preferred membership interests)
at least equal to 30% of adjusted capitalization, or (ii) a fixed
charge coverage ratio of at least 1.50 computed on a rolling 12
month basis. As of December 31, 2008, Entergy Louisiana was in
compliance with these provisions.
As of December 31, 2008, Entergy Louisiana had future minimum
lease payments (reflecting an overall implicit rate of 7.45%) in
connection with the Waterford 3 sale and leaseback transactions,
which are recorded as long-term debt, as follows (in thousands):
2009 $ 32,452
2010 35,138
2011 50,421
2012 39,067
2013 26,301
Years thereafter 137,858
Total 321,237
Less: Amount representing interest 73,512
Present value of net minimum lease payments $247,725
Grand Gulf Lease Obligations
In December 1988, in two separate but substantially identical
transactions, System Energy sold and leased back undivided
ownership interests in Grand Gulf for the aggregate sum of $500
million. The interests represent approximately 11.5% of Grand Gulf.
The leases expire in 2015. Under certain circumstances, System
Entergy may repurchase the leased interests prior to the end of the
term of the leases. At the end of the lease terms, System Energy has
the option to repurchase the leased interests in Grand Gulf at fair
market value or to renew the leases for either fair market value or,
under certain conditions, a fixed rate.
In May 2004, System Energy caused the Grand Gulf lessors to
refinance the outstanding bonds that they had issued to finance the
purchase of their undivided interest in Grand Gulf. The refinancing
is at a lower interest rate, and System Energy’s lease payments have
been reduced to reflect the lower interest costs.
System Energy is required to report the sale-leaseback as a
financing transaction in its financial statements. For financial
reporting purposes, System Energy expenses the interest portion of
the lease obligation and the plant depreciation. However, operating
revenues include the recovery of the lease payments because the
transactions are accounted for as a sale and leaseback for ratemaking
purposes. Consistent with a recommendation contained in a FERC
audit report, System Energy initially recorded as a net regulatory
asset the difference between the recovery of the lease payments and
the amounts expensed for interest and depreciation and continues
to record this difference as a regulatory asset or liability on an
ongoing basis, resulting in a zero net balance for the regulatory
asset at the end of the lease term. The amount of this net regulatory
asset was $19.2 million and $36.6 million as of December 31, 2008
and 2007, respectively.
As of December 31, 2008, System Energy had future minimum
lease payments (reflecting an implicit rate of 5.13%), which are
recorded as long-term debt as follows (in thousands):
2009 $ 47,760
2010 48,569
2011 49,437
2012 49,959
2013 50,546
Years thereafter 103,890
Total 350,161
Less: Amount representing interest 54,857
Present value of net minimum lease payments $295,304
NOTE 11. RETIREMENT, OTHER POSTRETIREMENT
BENEFITS, AND DEFINED CONTRIBUTION PLANS
QU A L I F I E D PE N S I O N PL A N S
Entergy has seven qualified pension plans covering substantially
all of its employees: “Entergy Corporation Retirement Plan for
Non-Bargaining Employees,” “Entergy Corporation Retirement
Plan for Bargaining Employees,” “Entergy Corporation
Retirement Plan II for Non-Bargaining Employees,” “Entergy
Corporation Retirement Plan II for Bargaining Employees,”
“Entergy Corporation Retirement Plan III,” “Entergy Corporation
Retirement Plan IV for Non-Bargaining Employees,” and “Entergy
Corporation Retirement Plan IV for Bargaining Employees.” The
Registrant Subsidiaries participate in two of these plans: “Entergy
Corporation Retirement Plan for Non-Bargaining Employees” and
“Entergy Corporation Retirement Plan for Bargaining Employees.”
Except for the Entergy Corporation Retirement Plan III, the
pension plans are noncontributory and provide pension benefits
that are based on employees’ credited service and compensation
during the final years before retirement. The Entergy Corporation
Retirement Plan III includes a mandatory employee contribution
of 3% of earnings during the first 10 years of plan participation,
and allows voluntary contributions from 1% to 10% of earnings for
a limited group of employees.
Entergy Corporation and its subsidiaries fund pension costs
in accordance with contribution guidelines established by the
Employee Retirement Income Security Act of 1974, as amended,
and the Internal Revenue Code of 1986, as amended. The assets
of the plans include common and preferred stocks, fixed-income
securities, interest in a money market fund, and insurance
contracts. The Registrant Subsidiaries’ pension costs are recovered
from customers as a component of cost of service in each of their
jurisdictions. Entergy uses a December 31 measurement date for
its pension plans.
In September 2006, FASB issued SFAS 158, “Employer’s
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements Nos. 87, 88, 106 and
132(R),” to be effective December 31, 2006. SFAS 158 requires
an employer to recognize in its balance sheet the funded status
of its benefit plans. This is measured as the difference between
plan assets at fair value and the benefit obligation. Employers are
to record previously unrecognized gains and losses, prior service
costs, and the remaining transition asset or obligation as a result
of adopting SFAS 87 and SFAS 106 as comprehensive income
and/or as a regulatory asset reflective of the recovery mechanism
for pension and OPEB costs in the Utility’s jurisdictions. For the
portion of Entergy Gulf States Louisiana that is not regulated, the
unrecognized prior service cost, gains and losses, and transition
asset/obligation for its pension and other postretirement benefit
obligations are recorded as other comprehensive income. Entergy