Entergy 2011 Annual Report Download - page 94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
operating lease payments and oil tank facilities lease payments are
recorded in fuel expense in accordance with regulatory treatment.
Railcar operating lease payments were $8.3 million in 2011, $8.4
million in 2010, and $7.2 million in 2009 for Entergy Arkansas and
$2.0 million in 2011, $2.3 million in 2010, and $3.1 million in 2009 for
Entergy Gulf States Louisiana. Oil tank facilities lease payments for
Entergy Mississippi were $3.4 million in 2011, $3.4 million in 2010,
and $3.4 million in 2009.
Sale and Leaseback Transactions
WATERFO R D 3 LEASE OB LIGATION S
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,
2011, Entergy Louisiana was in compliance with these provisions.
As of December 31, 2011, 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):
2012 $ 39,067
2013 26,301
2014 31,036
2015 28,827
2016 16,938
Years thereafter 106,335
Total 248,504
Less: Amount representing interest 60,249
Present value of net minimum lease payments $188,255
GR A ND GULF LE AS E OB LIG ATION S
In 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 Entergy 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.
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 (liability) of ($2.0) million and $60.6
million as of December 31, 2011 and 2010, respectively.
As of December 31, 2011, 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):
2012 $ 49,959
2013 50,546
2014 51,637
2015 52,253
2016 –
Years thereafter –
Total 204,395
Less: Amount representing interest 25,611
Present value of net minimum lease payments $178,784
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 that are based on employees’ credited
service and compensation during the final years before retirement.
The Entergy Corporation Retirement Plan III includes a mandatory
employee contribution of 3% of earnings during the first 10 years of
plan participation, and allows voluntary contributions from 1% to
10% of earnings for a limited group of employees.
The assets of the seven qualified pension plans are held in a master
trust established by Entergy. Each pension plan has an undivided
beneficial interest in each of the investment accounts of the master
trust that is maintained by a trustee. Use of the master trust permits
the commingling of the trust assets of the pension plans of Entergy
Corporation and its Registrant Subsidiaries for investment and
administrative purposes. Although assets are commingled in the
master trust, the trustee maintains supporting records for the purpose
of allocating the equity in net earnings (loss) and the administrative
expenses of the investment accounts to the various participating
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