Entergy 2011 Annual Report Download - page 36

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
n
the deferral in 2011 of $13.4 million of 2010 Michoud plant
maintenance costs pursuant to the settlement of Entergy New
Orleans’ 2010 test year formula rate plan filing approved by
the City Council in September 2011. See Note 2 to the financial
statements for further discussion of the 2010 test year formula
rate plan filing and settlement;
n the amortization of $11 million of Entergy Texas rate case
expenses in 2010. See Note 2 to the financial statements for
further discussion of the Entergy Texas rate case settlement; and
n a decrease of $10 million in operating expenses due to the sale
of surplus oil inventory in 2011.
Depreciation and amortization expense increased primarily due
to an increase in plant in service, partially offset by a decrease in
depreciation rates at Entergy Arkansas as a result of the rate case
settlement agreement approved by the APSC in June 2010.
Interest expense decreased primarily due to:
n the refinancing of long-term debt at lower interest rates by
certain of the Utility operating companies;
n a revision caused by FERC’s acceptance of a change in the
treatment of funds received from independent power producers
for transmission interconnection projects; and
n interest expense accrued in 2010 related to the expected result
of the LPSC Staff audit of Entergy Gulf States Louisiana’s fuel
adjustment clause for the period 1995 through 2004.
Entergy Wholesale Commodities
Other operation and maintenance expenses decreased from
$1,047 million for 2010 to $905 million for 2011 primarily due to:
n the write-off of $64 million of capital costs in 2010, primarily for
software that would not be utilized, and $16 million of additional
costs incurred in 2010 in connection with Entergy’s decision to
unwind the infrastructure created for the planned spin-off of its
non-utility nuclear business;
n a decrease of $30 million due to the absence of expenses from
the Harrison County plant, which was sold in December 2010;
n a decrease in compensation and benefits costs resulting from
an increase of $19 million in the accrual for incentive-based
compensation in 2010;
n a decrease of $12 million in spending on tritium remediation
work; and
n the write-off of $10 million of capitalized engineering costs in
2010 associated with a potential uprate project.
The gain on sale resulted from the sale in 2010 of Entergy’s
ownership interest in the Harrison County Power Project 550 MW
combined-cycle plant to two Texas electric cooperatives that owned
a minority share of the plant. Entergy sold its 61 percent share of the
plant for $219 million and realized a pre-tax gain of $44.2 million on
the sale.
Depreciation and amortization expense increased primarily
due to an increase in plant in service and declining useful life of
nuclear assets.
Other income decreased primarily due to a decrease in interest
income earned on loans to the parent company, Entergy
Corporation, and a decrease of $13 million in realized earnings on
decommissioning trust fund investments.
Interest expense decreased primarily due to the write-off of $39
million of debt financing costs in 2010, primarily incurred for a
$1.2 billion credit facility that will not be used, in connection with
Entergy’s decision to unwind the infrastructure created for the
planned spin-off of its non-utility nuclear business.
Other expenses decreased primarily due to a credit to
decommissioning expense of $34.1 million in 2011 resulting from
a reduction in the decommissioning liability for a plant as a result
of a revised decommissioning cost study obtained to comply with
a state regulatory requirement. See “Critical Accounting Estimates
– Nuclear Decommissioning Costs” below for further discussion of
accounting for asset retirement obligations.
Parent & Other
Other operation and maintenance expenses increased primarily due
to lower intercompany stock option credits recorded by the parent
company, Entergy Corporation, and an increase of $13 million
related to the planned spin-off and merger of Entergy’s transmission
business. See “Plan to Spin Off the Utility’s Transmission Business”
below for further discussion.
Interest expense increased primarily due to $1 billion of
Entergy Corporation senior notes issued in September 2010,
with the proceeds used to pay down borrowings outstanding on
Entergy Corporation’s revolving credit facility that were at a lower
interest rate.
INCO M E TA XE S
The effective income tax rate for 2011 was 17.3%. The difference in
the effective income tax rate versus the statutory rate of 35% in 2011
was primarily due to a settlement with the IRS related to the mark-
to-market income tax treatment of power purchase contracts, which
resulted in a reduction in income tax expense of $422 million. See
Note 3 to the financial statements herein for further discussion of
the settlement.
The effective income tax rate for 2010 was 32.7%. The difference in
the effective income tax rate versus the statutory rate of 35% in 2010
was primarily due to:
n a favorable Tax Court decision holding that the U.K. Windfall
Tax may be used as a credit for purposes of computing the U.S.
foreign tax credit, which allowed Entergy to reverse a provision
for uncertain tax positions of $43 million, included in Parent and
Other, on the issue. See Note 3 to the financial statements for
further discussion of this tax litigation;
n a $19 million tax benefit recorded in connection with Entergy’s
decision to unwind the infrastructure created for the planned
spin-off of its non-utility nuclear business; and
n the recognition of a $14 million Louisiana state income tax
benefit related to storm cost financing.
Partially offsetting the decreased effective income tax rate was a
charge of $16 million resulting from a change in tax law associated
with the recently enacted federal healthcare legislation, as discussed
below in “Critical Accounting Estimates” and state income taxes and
certain book and tax differences for Utility plant items.
See Note 3 to the financial statements for a reconciliation of the
federal statutory rate of 35.0% to the effective income tax rates, and
for additional discussion regarding income taxes.
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