Entergy 2010 Annual Report Download - page 94

Notes to Consolidated Financial Statements continued
Total rental expenses for all leases (excluding nuclear fuel
leases and the Grand Gulf and Waterford 3 sale and leaseback
transactions) amounted to $80.8 million in 2010, $71.6 million in
2009, and $66.4 million in 2008. In addition to the above rental
expense, railcar operating lease payments and oil tank facilities
lease payments are recorded in fuel expense in accordance with
regulatory treatment. Railcar operating lease payments were
$8.4 million in 2010, $7.2 million in 2009, and $10.2 million in 2008
for Entergy Arkansas and $2.3 million in 2010, $3.1 million in 2009,
and $3.4 million in 2008 for Entergy Gulf States Louisiana. Oil tank
facilities lease payments for Entergy Mississippi were $3.4 million
in 2010, $3.4 million in 2009, and $3.4 million in 2008.
Sale and Leaseback Transactions
WATERFORD 3 LEASE OBLIGATIONS
In 1989, in three separate but substantially identical transactions,
Entergy Louisiana sold and leased back undivided interests in
Waterford 3 for the aggregate sum of $353.6 million. The interests
represent approximately 9.3% of Waterford 3. The leases expire
in 2017. Under certain circumstances, Entergy Louisiana may
repurchase the leased interests prior to the end of the term of the
leases. At the end of the lease terms, Entergy Louisiana has the
option to repurchase the leased interests in Waterford 3 at fair
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, 2010, Entergy Louisiana was in
compliance with these provisions.
As of December 31, 2010, 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):
2011 $ 50,421
2012 39,067
2013 26,301
2014 31,036
2015 28,827
Years thereafter 77,994
Total 253,646
Less: Amount representing interest 29,844
Present value of net minimum lease payments $223,802
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 Energy 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 was a net regulatory asset of $60.6 million and
$93.1 million as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, 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):
2011 $ 49,437
2012 49,959
2013 50,546
2014 51,637
2015 52,253
Years thereafter –
Total 253,832
Less: Amount representing interest 31,552
Present value of net minimum lease payments $222,280
Note 11. Retirement, Other Postretirement Benefits,
and Defined Contribution Plans
Qualified Pension Plans
Entergy has seven qualified pension plans covering substantially
all 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
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