Entergy 2009 Annual Report Download - page 74

Entergy Corporation and Subsidiaries
Notes to Financial Statements
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Investments
Entergy records decommissioning trust funds on the balance sheet at their fair value. Because of the ability
of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory
treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of
unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the nonregulated portion
of River Bend, Entergy Gulf States Louisiana has recorded an offsetting amount of unrealized gains/(losses) in other
deferred credits. Decommissioning trust funds for Pilgrim, Indian Point 2, Vermont Yankee, and Palisades do not
meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains recorded on the assets in these
trust funds are recognized in the accumulated other comprehensive income component of shareholders' equity because
these assets are classified as available for sale. Unrealized losses (where cost exceeds fair market value) on the
assets in these trust funds are also recorded in the accumulated other comprehensive income component of
shareholders' equity unless the unrealized loss is other than temporary and therefore recorded in earnings. Effective
January 1, 2009, Entergy adopted an accounting pronouncement providing guidance regarding recognition and
presentation of other-than-temporary impairments related to investments in debt securities. The assessment of
whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether
Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its
amortized costs. Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an
other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows
expected to be collected less the amortized cost basis (credit loss). The assessment of whether an investment in an
equity security has suffered an other-than-temporary impairment continues to be based on a number of factors
including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and
severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable
period of time. Entergy's trusts are managed by third parties who operate in accordance with agreements that define
investment guidelines and place restrictions on the purchases and sales of investments. See Note 17 to the financial
statements for details on the decommissioning trust funds and the other than temporary impairments recorded in 2009
and 2008.
Equity Method Investees
Entergy owns investments that are accounted for under the equity method of accounting because Entergy's
ownership level results in significant influence, but not control, over the investee and its operations. Entergy records
its share of earnings or losses of the investee based on the change during the period in the estimated liquidation value
of the investment, assuming that the investee's assets were to be liquidated at book value. In accordance with this
method, earnings are allocated to owners or members based on what each partner would receive from its capital
account if, hypothetically, liquidation were to occur at the balance sheet date and amounts distributed were based on
recorded book values. Entergy discontinues the recognition of losses on equity investments when its share of losses
equals or exceeds its carrying amount for an investee plus any advances made or commitments to provide additional
financial support. See Note 14 to the financial statements for additional information regarding Entergy's equity
method investments.
Derivative Financial Instruments and Commodity Derivatives
The accounting standards for derivative instruments and hedging activities require that all derivatives be
recognized at fair value on the balance sheet, either as assets or liabilities, unless they meet the normal purchase,
normal sales criteria. The changes in the fair value of recognized derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction.
Contracts for commodities that will be delivered in quantities expected to be used or sold in the ordinary
course of business, including certain purchases and sales of power and fuel, meet the normal purchase, normal sales
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