Entergy 2010 Annual Report Download - page 44

Management’s Financial Discussion and Analysis continued
Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana do
not report the bonds on their balance sheets because the bonds
are the obligation of the LCDA, and there is no recourse against
Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the
event of a bond default. See Note 2 to the financial statements for
additional discussion of the Act 55 financings.
In November 2009, Entergy Texas Restoration Funding, LLC
(Entergy Texas Restoration Funding), a company wholly-owned
and consolidated by Entergy Texas, issued $545.9 million of
secured transition bonds (securitization bonds) to finance
Entergy Texas Hurricane Ike and Hurricane Gustav restoration
costs. See Note 2 to the financial statements for a discussion
of the proceeding approving the issuance of the securitization
bonds and see Note 5 to the financial statements for a discussion
of the terms of the securitization bonds.
In the third quarter 2009, Entergy settled with its insurer on its
Hurricane Ike claim and Entergy Texas received $75.5 million in
proceeds (Entergy received a total of $76.5 million).
ENTERGY ARKANSAS JANUARY 2009 ICE STORM
In January 2009 a severe ice storm caused significant damage
to Entergy Arkansas’s transmission and distribution lines,
equipment, poles, and other facilities. A law was enacted in April
2009 in Arkansas that authorizes securitization of storm damage
restoration costs. In June 2010 the APSC issued a financing order
authorizing the issuance of approximately $126.3 million in storm
cost recovery bonds, which includes carrying costs of $11.5
million and $4.6 million of up-front financing costs. See Note 5
to the financial statements for a discussion of the August 2010
issuance of the securitization bonds.
HURRICANE KATRINA AND HURRICANE RITA
In August and September 2005, Hurricanes Katrina and Rita
caused catastrophic damage to large portions of the Utility’s
service territories in Louisiana, Mississippi, and Texas, including
the effect of extensive flooding that resulted from levee breaks
in and around the greater New Orleans area. The storms and
flooding resulted in widespread power outages, significant
damage to electric distribution, transmission, and generation
and gas infrastructure, and the loss of sales and customers
due to mandatory evacuations and the destruction of homes
and businesses. Entergy pursued a broad range of initiatives
to recover storm restoration and business continuity costs,
including obtaining reimbursement of certain costs covered by
insurance and pursuing recovery through existing or new rate
mechanisms regulated by the FERC and local regulatory bodies,
including the issuance of securitization bonds.
Storm Cost Financings
Louisiana
In March 2008, Entergy Gulf States Louisiana, Entergy Louisiana,
and the Louisiana Utilities Restoration Corporation (LURC),
an instrumentality of the State of Louisiana, filed at the LPSC
an application requesting that the LPSC grant financing orders
authorizing the financing of Entergy Gulf States Louisiana and
Entergy Louisiana storm costs, storm reserves, and issuance
costs pursuant to Act 55 of the Louisiana Legislature (Act 55
financings). In July 2008 the LPFA issued $687.7 million in bonds
under the aforementioned Act 55. From the $679 million of bond
proceeds loaned by the LPFA to the LURC, the LURC deposited
$152 million in a restricted escrow account as a storm damage
reserve for Entergy Louisiana and transferred $527 million
directly to Entergy Louisiana. In August 2008 the LPFA issued
$278.4 million in bonds under the aforementioned Act 55. From the
$274.7 million of bond proceeds loaned by the LPFA to the LURC,
the LURC deposited $87 million in a restricted escrow account
as a storm damage reserve for Entergy Gulf States Louisiana
and transferred $187.7 million directly to Entergy Gulf States
Louisiana. Entergy Gulf States Louisiana and Entergy Louisiana do
not report the bonds on their balance sheets because the bonds
are the obligation of the LPFA, and there is no recourse against
Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the
event of a bond default. See Note 2 to the financial statements for
additional discussion of the Act 55 financings.
Community Development Block Grants
In December 2005, the U.S. Congress passed the Katrina Relief Bill,
a hurricane aid package that included Community Development
Block Grant (CDBG) funding (for the states affected by Hurricanes
Katrina, Rita, and Wilma) that allowed state and local leaders
to fund individual recovery priorities. In March 2007, the City
Council certified that Entergy New Orleans incurred $205 million
in storm-related costs through December 2006 that are eligible for
CDBG funding under the state action plan. Entergy New Orleans
received $180.8 million of CDBG funds in 2007 and $19.2 million
in 2010.
Cash Flow Activity
As shown in Entergy’s Statements of Cash Flows, cash flows
for the years ended December 31, 2010, 2009, and 2008 were as
follows (in millions):
2010 2009 2008
Cash and Cash Equivalents at
Beginning of Period $ 1,710 $ 1,920 $ 1,253
Cash flow provided by (used in):
Operating activities 3,926 2,933 3,324
Investing activities (2,574) (2,094) (2,590)
Financing activities (1,767) (1,048) (70)
Effect of exchange rates on cash
and cash equivalents – (1) 3
Net increase (decrease) in cash
and cash equivalents (415) (210) 667
Cash and Cash Equivalents at
End of Period $ 1,295 $ 1,710 $ 1,920
OPERATING CASH FLOW ACTIVITY
2010 Compared to 2009
Entergy’s cash flow provided by operating activities increased
$993 million in 2010 compared to 2009 primarily due to the
receipt in July 2010 of $703 million from the Louisiana Utilities
Restoration Corporation as a result of the Louisiana Act 55 storm
cost financings for Hurricane Gustav and Hurricane Ike. The Act
55 storm cost financings are discussed in more detail above and
also in Note 2 to the financial statements. In addition, the absence
of the Hurricane Gustav, Hurricane Ike, and Arkansas ice storm
restoration spending that occurred in 2009 also contributed to
the increase. These factors were partially offset by an increase
of $323 million in pension contributions at Utility and Entergy
Wholesale Commodities and a decrease in net revenue at Entergy
Wholesale Commodities. See “Critical Accounting Estimates -
Qualified Pension and Other Postretirement Benefits” below and
also Note 11 to the financial statements for further discussion of
pension funding.
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