Entergy 2010 Annual Report Download - page 52

Management’s Financial Discussion and Analysis continued
In the fourth quarter 2009, Entergy Gulf States Louisiana
recorded a revision to its estimated decommissioning cost liability
for River Bend as a result of a revised decommissioning cost study.
The revised estimate resulted in a $78.7 million increase in its
decommissioning liability, along with a corresponding increase in
the related asset retirement obligation asset that will be depreciated
over the remaining life of the unit.
Unbilled Revenue
As discussed in Note 1 to the financial statements, Entergy records
an estimate of the revenues earned for energy delivered since
the latest customer billing. Each month the estimated unbilled
revenue amounts are recorded as revenue and a receivable, and
the prior month’s estimate is reversed. The difference between
the estimate of the unbilled receivable at the beginning of the
period and the end of the period is the amount of unbilled
revenue recognized during the period. The estimate recorded is
primarily based upon an estimate of customer usage during the
unbilled period and the billed price to customers in that month.
Therefore, revenue recognized may be affected by the estimated
price and usage at the beginning and end of each period, in
addition to changes in certain components of the calculation.
Impairment of Long-Lived Assets and
Trust Fund Investments
Entergy has significant investments in long-lived assets in all
of its segments, and Entergy evaluates these assets against the
market economics and under the accounting rules for impairment
whenever there are indications that impairments may exist.
This evaluation involves a significant degree of estimation and
uncertainty. In the Utility business, portions of River Bend are
not included in rate base, which could reduce the revenue that
would otherwise be recovered for the applicable portions of its
generation. In the Entergy Wholesale Commodities business,
Entergy’s investments in merchant nuclear generation assets are
subject to impairment if adverse market conditions arise, if a unit
ceases operation, or for certain units if their operating licenses
are not renewed. Entergy’s investments in merchant non-nuclear
generation assets are subject to impairment if adverse market
conditions arise.
In order to determine if Entergy should recognize an impairment
of a long-lived asset that is to be held and used, accounting
standards require that the sum of the expected undiscounted
future cash flows from the asset be compared to the asset’s
carrying value. The carrying value of the asset includes any
capitalized asset retirement cost associated with the recording
of an additional decommissioning liability, therefore changes
in assumptions that affect the decommissioning liability can
increase or decrease the carrying value of the asset subject to
impairment. If the expected undiscounted future cash flows
exceed the carrying value, no impairment is recorded; if such
cash flows are less than the carrying value, Entergy is required
to record an impairment charge to write the asset down to its fair
value. If an asset is held for sale, an impairment is required to be
recognized if the fair value (less costs to sell) of the asset is less
than its carrying value.
These estimates are based on a number of key assumptions,
including:
n FUTURE POWER AND FUEL PRICES – Electricity and gas prices
have been very volatile in recent years, and this volatility is
expected to continue. This volatility necessarily increases the
imprecision inherent in the long-term forecasts of commodity
prices that are a key determinant of estimated future
cash flows.
n MARKET VALUE OF GENERATION ASSETS – Valuing assets
held for sale requires estimating the current market value
of generation assets. While market transactions provide
evidence for this valuation, the market for such assets is
volatile and the value of individual assets is impacted by
factors unique to those assets.
n FUTURE OPERATING COSTS – Entergy assumes relatively
minor annual increases in operating costs. Technological
or regulatory changes that have a significant impact on
operations could cause a significant change in these
assumptions.
n TIMING – Entergy currently assumes, for a number of its
nuclear units, that the plant’s license will be renewed. A
change in that assumption could have a significant effect on
the expected future cash flows and result in a significant effect
on operations.
Four nuclear power plants in the Entergy Wholesale
Commodities business segment have applications pending for
NRC license renewals. This includes the Vermont Yankee plant,
which currently has an operating license that expires March 21,
2012. In addition to its federal NRC license, there is a two-step
state law licensing process for obtaining a Certificate of Public
Good (CPG) to operate Vermont Yankee and store spent nuclear
fuel beyond March 21, 2012, when the current CPG expires. First,
the Vermont legislature must vote affirmatively to permit the
Vermont Public Service Board to consider Vermont Yankee’s
application for a renewed CPG for the continued operation of
Vermont Yankee and for storage of spent fuel. Second, the Vermont
Public Service Board must vote to renew the CPG. On March 3,
2008, Entergy filed an application with the VPSB to renew its CPG.
On February 24, 2010, a bill to approve the continued operation
of Vermont Yankee was advanced to a vote in the Vermont Senate
and defeated by a margin of 26 to 4. Neither house of the Vermont
General Assembly has voted on a similar bill since that time.
If Entergy concludes that Vermont Yankee is unlikely to operate
significantly beyond its current license expiration date in 2012, it
could result in an impairment of part or all of the carrying value
of the plant. Entergy’s evaluation of the probability associated
with operations of the plant past 2012 includes a number of
factors such as the status of the NRC’s evaluation of Entergy’s
application for license renewal, the status of state regulatory
issues as described above, the potential sale of the plant, and the
application of federal laws regarding the continued operations
of nuclear facilities. In preparing its 2010 financial statements
Entergy evaluated these factors and concluded that the carrying
value of Vermont Yankee is not impaired as of December 31, 2010.
The net carrying value of the plant, including nuclear fuel, is $424
million as of December 31, 2010.
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