Entergy 2012 Annual Report Download - page 29

Entergy Corporation and Subsidiaries 2012
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
Parent & Other
Interest expense increased primarily due to the issuance of $500
million of 4.7% senior notes by Entergy Corporation in January
2012 and a higher interest rate on outstanding borrowings under the
Entergy Corporation credit facility.
INCOM E TA X ES
The effective income tax rate for 2012 was 3.4%. The difference in
the effective income tax rate versus the statutory rate of 35% for
2012 is related to (1) an IRS settlement of the tax treatment of the
Louisiana Act 55 financing of the Hurricane Katrina and Hurricane
Rita storm costs and the reversal of the provision for the uncertain
tax position related to that item as discussed further in Note 3 to the
financial statements; (2) a unanimous court decision from the U.S.
Court of Appeals for the Fifth Circuit affirming an earlier decision of
the U.S. Tax Court holding that Entergy was entitled to claim a credit
against its U.S. tax liability for the U.K. windfall tax that it paid.
The decision necessitated that Entergy reverse the provision for the
uncertain tax position related to that item; and (3) an IRS Settlement
on nuclear power plant decommissioning liabilities resulting in an
earnings benefit of approximately $155 million, as discussed further
in Note 3 to the financial statements.
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 for further discussion of the settlement.
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.
2011 Compared to 2010
Following are income statement variances for Utility, Entergy Whole-
sale Commodities, Parent & Other, and Entergy comparing 2011 to
2010 showing how much the line item increased or (decreased) in
comparison to the prior period (in thousands):
Entergy
Wholesale Parent
Utility Commodities & Other Entergy
2010 Consolidated
Net Income (Loss) $ 829,719 $ 450,104 $ (9,518) $1,270,305
Net revenue (operating
revenue less fuel expense,
purchased power, and
other regulatory
charges/credits) (146,947) (155,898) 3,620 (299,225)
Other operation and
maintenance expenses 1,674 (141,672) 38,354 (101,644)
Taxes other than
income taxes 248 1,079 400 1,727
Depreciation and
amortization 16,326 16,008 (26) 32,308
Gain on sale of business – (44,173) – (44,173)
Other income (3,388) (47,257) 9,339 (41,306)
Interest expense (37,502) (69,661) 45,623 (61,540)
Other expenses 1,688 (23,335) 1 (21,646)
Income taxes (426,916) (71,489) 167,429 (330,976)
2011 Consolidated
Net Income (Loss) $1,123,866 $ 491,846 $(248,340) $1,367,372
Refer to “Selected Financial Data - Five-Year Comparison Of Entergy
Corporation And Subsidiaries” which accompanies Entergy Corpora-
tion’s financial statements in this report for further information with
respect to operating statistics.
Net income for Utility in 2011 was significantly affected by a settle-
ment with the IRS related to the mark-to-market income tax treat-
ment of power purchase contracts, which resulted in a reduction in
income tax expense. The net income effect was partially offset by a
regulatory charge, which reduced net revenue in 2011, because a por-
tion of the benefits will be shared with customers. See Notes 3 and 8
to the financial statements for additional discussion of the tax settle-
ment and benefit sharing.
NET REVENUE
Utility
Following is an analysis of the change in net revenue comparing 2011
to 2010 (in millions):
2010 Net Revenue $5,051
Mark-to-market tax settlement sharing (196)
Purchased power capacity (21)
Net wholesale revenue (14)
Volume/weather 13
ANO decommissioning trust 24
Retail electric price 49
Other (2)
2011 Net Revenue $4,904
The mark-to-market tax settlement sharing variance results from
a regulatory charge because a portion of the benefits of a settlement
with the IRS related to the mark-to-market income tax treatment
of power purchase contracts will be shared with customers, slightly
offset by the amortization of a portion of that charge beginning in
October 2011. See Notes 3 and 8 to the financial statements for
additional discussion of the tax settlement and benefit sharing.
The purchased power capacity variance is primarily due to price
increases for ongoing purchased power capacity and additional
capacity purchases.
The net wholesale revenue variance is primarily due to lower
margins on co-owner contracts and higher wholesale energy costs.
The volume/weather variance is primarily due to an increase of
2,061 GWh in weather-adjusted usage across all sectors. Weather-
adjusted residential retail sales growth reflected an increase in the
number of customers. Industrial sales growth has continued since
the beginning of 2010. Entergy’s service territory has benefited from
the national manufacturing economy and exports, as well as indus-
trial facility expansions. Increases have been offset to some extent
by declines in the paper, wood products, and pipeline segments.
The increase was also partially offset by the effect of less favorable
weather on residential sales.
The ANO decommissioning trust variance is primarily related to
the deferral of investment gains from the ANO 1 and 2 decommis-
sioning trust in 2010 in accordance with regulatory treatment. The
gains resulted in an increase in interest and investment income in
2010 and a corresponding increase in regulatory charges with no
effect on net income.
The retail electric price variance is primarily due to:
n rate actions at Entergy Texas, including a base rate increase
effective August 2010 and an additional increase beginning
May 2011;
n a formula rate plan increase at Entergy Louisiana effective
May 2011; and
n a base rate increase at Entergy Arkansas effective July 2010.
These were partially offset by formula rate plan decreases at Entergy
New Orleans effective October 2010 and October 2011. See Note 2
to the financial statements for further discussion of these proceedings.
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