Entergy 2009 Annual Report Download - page 50

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
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Entergy's Non-Utility Nuclear business' purchase of the FitzPatrick and Indian Point 3 plants from NYPA
included value sharing agreements with NYPA. In October 2007, NYPA and the subsidiaries that own the
FitzPatrick and Indian Point 3 plants amended and restated the value sharing agreements to clarify and amend certain
provisions of the original terms. Under the amended value sharing agreements, Entergy's Non-Utility Nuclear
business agreed to make annual payments to NYPA based on the generation output of the Indian Point 3 and
FitzPatrick plants from January 2007 through December 2014. Entergy's Non-Utility Nuclear business will pay
NYPA $6.59 per MWh for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh
for power sold from FitzPatrick, up to an annual cap of $24 million. The annual payment for each year's output is
due by January 15 of the following year. In August 2008, Non-Utility Nuclear entered into a resolution of a dispute
with NYPA over the applicability of the value sharing agreements to its FitzPatrick and Indian Point 3 nuclear power
plants after the planned spin-off of the Non-Utility Nuclear business. 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 spin-off transaction, Non-Utility Nuclear will continue to
be obligated to make payments to NYPA under the amended and restated value sharing agreements.
Non-Utility Nuclear will record its liability for payments to NYPA as power is generated and sold by Indian
Point 3 and FitzPatrick. In 2009, 2008, and 2007, Non-Utility Nuclear recorded a $72 million liability for generation
during each of those years. An amount equal to the liability was recorded each year to the plant asset account as
contingent purchase price consideration for the plants. This amount will be depreciated over the expected remaining
useful life of the plants.
Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants contain
provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements.
The Entergy subsidiary is required to provide collateral based upon the difference between the current market and
contracted power prices in the regions where Non-Utility Nuclear sells power. The primary form of collateral to
satisfy these requirements is an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms
of collateral. At December 31, 2009, based on power prices at that time, Entergy had $369 million of collateral in
place to support Entergy Nuclear Power Marketing transactional activity, consisting primarily of Entergy
Corporation guarantees, but also including $20 million of guarantees that support letters of credit and $2 million of
cash collateral. As of December 31, 2009, the credit exposure associated with Non-Utility Nuclear assurance
requirements could increase by an estimated amount of up to $308 million for each $1 per MMBtu increase in gas
prices in both the short- and long-term markets, but because market prices have fallen below most contract prices, the
credit exposure would increase by only $8 million. In the event of a decrease in Entergy Corporation's credit rating
to below investment grade, based on power prices as of December 31, 2009, Entergy would have been required to
provide approximately $73 million of additional cash or letters of credit under some of the agreements.
As of December 31, 2009, for the planned energy output under contract for Non-Utility Nuclear through
2014, 99.7% of the planned energy output is under contract with counterparties with public investment grade credit
ratings and 0.3% is with load-serving entities without public credit ratings.
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