Entergy 2011 Annual Report Download - page 45

Entergy Corporation and Subsidiaries 2011
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
the unit is in rates. If the project is not in service by January 1, 2013,
earnings above a 10.25% return on common equity (based on the
2011 test year) for the period January 1, 2013 through the date that
the project is placed in service will be accrued and used to offset
the incremental revenue requirement for the first twelve months
that the unit is in rates. Upon the in-service date of the replacement
steam generators, rates will increase, subject to refund following any
prudence review, by the full revenue requirement associated with the
replacement steam generators, less (i) the previously accrued excess
earnings from September 2012 until the in-service date and (ii) any
earnings above a 10.25% return on common equity (based on the 2011
test year) for the period following the in-service date, provided that the
excess earnings accrued prior to the in-service date shall only offset the
revenue requirement for the first year of operation of the replacement
steam generators. These rates are anticipated to remain in effect until
Entergy Louisiana’s next full rate case is resolved. Entergy Louisiana
currently anticipates filing a full rate case by January 2013.
DIVI D E N D S A N D STO C K REPU RCHAS ES
Declarations of dividends on Entergy’s common stock are made at
the discretion of the Board. Among other things, the Board evaluates
the level of Entergy’s common stock dividends based upon Entergy’s
earnings, financial strength, and future investment opportunities. At
its January 2012 meeting, the Board declared a dividend of $0.83 per
share, which is the same quarterly dividend per share that Entergy
has paid since the second quarter 2010. The prior quarterly dividend
per share was $0.75. Entergy paid $590 million in 2011, $604 million in
2010, and $577 million in 2009 in cash dividends on its common stock.
In accordance with Entergy’s stock-based compensation plan,
Entergy periodically grants stock options to key employees, which
may be exercised to obtain shares of Entergy’s common stock.
According to the plan, these shares can be newly issued shares,
treasury stock, or shares purchased on the open market. Entergy’s
management has been authorized by the Board to repurchase on the
open market shares up to an amount sufficient to fund the exercise
of grants under the plan.
In addition to the authority to fund grant exercises, in January 2007
the Board approved a program under which Entergy was authorized
to repurchase up to $1.5 billion of its common stock. In January 2008,
the Board authorized an incremental $500 million share repurchase
program to enable Entergy to consider opportunistic purchases in
response to equity market conditions. Entergy completed both the
$1.5 billion and $500 million programs in the third quarter 2009. In
October 2009 the Board granted authority for an additional $750
million share repurchase program which was completed in the fourth
quarter 2010. In October 2010 the Board granted authority for an
additional $500 million share repurchase program. As of December
31, 2011, $350 million of authority remains under the $500 million
share repurchase program. The amount of repurchases may vary as
a result of material changes in business results or capital spending or
new investment opportunities, or if limitations in the credit markets
continue for a prolonged period.
Sources of Capital
Entergy’s sources to meet its capital requirements and to fund potential
investments include:
n internally generated funds;
n cash on hand ($694 million as of December 31, 2011);
n securities issuances;
n bank financing under new or existing facilities; and
n sales of assets.
Circumstances such as weather patterns, fuel and purchased
power price fluctuations, and unanticipated expenses, including
unscheduled plant outages and storms, could affect the timing and
level of internally generated funds in the future.
Provisions within the Articles of Incorporation or pertinent
indentures and various other agreements relating to the long-
term debt and preferred stock of certain of Entergy Corporation’s
subsidiaries could restrict the payment of cash dividends or other
distributions on their common and preferred stock. As of December
31, 2011, under provisions in their mortgage indentures, Entergy
Arkansas and Entergy Mississippi had restricted retained earnings
unavailable for distribution to Entergy Corporation of $394.9 million
and $68.5 million, respectively. All debt and common and preferred
equity issuances by the Registrant Subsidiaries require prior
regulatory approval and their preferred equity and debt issuances
are also subject to issuance tests set forth in corporate charters,
bond indentures, and other agreements. Entergy believes that the
Registrant Subsidiaries have sufficient capacity under these tests to
meet foreseeable capital needs.
The FERC has jurisdiction over securities issuances by the Utility
operating companies and System Energy (except securities with
maturities longer than one year issued by Entergy Arkansas and
Entergy New Orleans, which are subject to the jurisdiction of the
APSC and the City Council, respectively). No regulatory approvals
are necessary for Entergy Corporation to issue securities. The
current FERC-authorized short-term borrowing limits are effective
through October 31, 2013. Entergy Gulf States Louisiana, Entergy
Louisiana, Entergy Mississippi, Entergy Texas, and System Energy
have obtained long-term financing authorizations from the FERC
that extend through July 2013. Entergy Arkansas has obtained
long-term financing authorization from the APSC that extends
through December 2012. Entergy New Orleans has obtained long-
term financing authorization from the City Council that extends
through July 2012. In addition to borrowings from commercial
banks, the FERC short-term borrowing orders authorize the
Registrant Subsidiaries to continue as participants in the Entergy
System money pool. The money pool is an intercompany borrowing
arrangement designed to reduce Entergy’s subsidiaries’ dependence
on external short-term borrowings. Borrowings from the money
pool and external short-term borrowings combined may not exceed
the FERC-authorized limits. See Notes 4 and 5 to the financial
statements for further discussion of Entergy’s borrowing limits,
authorizations, and amounts outstanding.
In January 2012, Entergy Corporation issued $500 million of
4.70% senior notes due January 2017. Entergy Corporation used the
proceeds to repay borrowings under its $3.5 billion credit facility.
In January 2012, Entergy Louisiana issued $250 million of 1.875%
Series first mortgage bonds due December 2014. Entergy Louisiana
used the proceeds to repay short-term borrowings under the Entergy
System money pool.
HURRICA N E GUSTAV A N D HU R R ICAN E IKE
In September 2008, Hurricane Gustav and Hurricane Ike caused
catastrophic damage to portions of Entergy’s service territories
in Louisiana and Texas, and to a lesser extent in Arkansas and
Mississippi. The storms resulted in widespread power outages,
significant damage to distribution, transmission, and generation
infrastructure, and the loss of sales during the power outages.
In September 2009, Entergy Gulf States Louisiana and Entergy
Louisiana and the Louisiana Utilities Restoration Corporation
(LURC), an instrumentality of the State of Louisiana, filed with
the LPSC an application requesting that the LPSC grant financing
orders authorizing the financing of Entergy Gulf States Louisiana’s
and Entergy Louisiana’s storm costs, storm reserves, and issuance
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