Entergy 2012 Annual Report Download - page 38

Entergy Corporation and Subsidiaries 2012
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
repurchase program. As of December 31, 2012, $350 million of author-
ity remains under the $500 million share repurchase program. The
amount of repurchases may vary as a result of material changes in busi-
ness 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 poten-
tial investments include:
n internally generated funds;
n cash on hand ($533 million as of December 31, 2012);
n securities issuances;
n bank financing under new or existing facilities or commercial
paper; and
n sales of assets.
Circumstances such as weather patterns, fuel and purchased power
price fluctuations, and unanticipated expenses, including unsched-
uled 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 inden-
tures 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, 2012,
under provisions in their mortgage indentures, Entergy Arkansas
and Entergy Mississippi had restricted retained earnings unavail-
able 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 matur-
ities 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 neces-
sary 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 authoriza-
tion from the APSC that extends through December 2015. Entergy
New Orleans has obtained long-term financing authorization from
the City Council that extends through July 2014. In addition to bor-
rowings from commercial banks, the FERC short-term borrowing
orders authorize the Registrant Subsidiaries to continue as partici-
pants in the Entergy System money pool. The money pool is an inter-
company borrowing arrangement designed to reduce Entergy’s sub-
sidiaries’ 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 2013, Entergy Arkansas arranged for the issuance by (i)
Independence County, Arkansas of $45 million of 2.375% Pollution
Control Revenue Refunding Bonds (Entergy Arkansas, Inc. Project)
Series 2013 due January 2021, and (ii) Jefferson County, Arkansas of
$54.7 million of 1.55% Pollution Control Revenue Refunding Bonds
(Entergy Arkansas, Inc. Project) Series 2013 due October 2017, each
of which series is secured by a separate series of non-interest bearing
first mortgage bonds of Entergy Arkansas. The proceeds of these issu-
ances were applied to the refunding of outstanding series of pollution
control revenue bonds previously issued by the respective issuers.
In February 2013 the Entergy Gulf States Louisiana nuclear fuel
company variable interest entity issued $70 million of 3.38% Series
R notes due August 2020. The Entergy Gulf States nuclear fuel com-
pany variable interest entity used the proceeds principally to purchase
additional nuclear fuel.
HURRICANE GUSTAV AND HURRICANE IKE
In September 2008, Hurricane Gustav and Hurricane Ike caused cat-
astrophic damage to portions of Entergy’s service territories in Loui-
siana 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 Utili-
ties 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 costs pursuant to Act 55 of the Louisiana Reg-
ular Session of 2007 (Act 55 financings). In July 2010 the Louisiana
Local Government Environmental Facilities and Community Devel-
opment Authority (LCDA) issued $468.9 million in bonds under Act
55. From the $462.4 million of bond proceeds loaned by the LCDA
to the LURC, the LURC deposited $200 million in a restricted escrow
account as a storm damage reserve for Entergy Louisiana and trans-
ferred $262.4 million directly to Entergy Louisiana. In July 2010,
the LCDA issued another $244.1 million in bonds under Act 55.
From the $240.3 million of bond proceeds loaned by the LCDA to
the LURC, the LURC deposited $90 million in a restricted escrow
account as a storm damage reserve for Entergy Gulf States Louisiana
and transferred $150.3 million directly to Entergy Gulf States Loui-
siana. Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana
do not report the bonds on their balance sheets because the bonds are
the obligation of the LCDA, and there is no recourse against Entergy,
Entergy Gulf States Louisiana or Entergy Louisiana in the event of a
bond default. See Notes 2 and 3 to the financial statements for addi-
tional discussion of the Act 55 financings.
ENTERGY ARKANSAS JANUARY 2009 ICE STORM
In January 2009 a severe ice storm caused significant damage to
Entergy Arkansas’s transmission and distribution lines, equipment,
poles, and other facilities. A law was enacted in April 2009 in
Arkansas that authorizes securitization of storm damage restoration
costs. In June 2010 the APSC issued a financing order authorizing
the issuance of storm cost recovery bonds, including carrying costs of
$11.5 million and $4.6 million of up-front financing costs. In August
2010, Entergy Arkansas Restoration Funding, LLC, a company
wholly-owned and consolidated by Entergy Arkansas, issued $124.1
million of storm cost recovery bonds. There is no recourse to Entergy
or Entergy Arkansas in the event of a bond default. See Note 5 to the
financial statements for additional discussion of the issuance of the
storm cost recovery bonds.
ENTERGY LOUISIANA SECURITIZATION BONDS –
LITTLE GYPSY
In August 2011 the LPSC issued a financing order authorizing the
issuance of bonds to recover Entergy Louisiana’s investment recov-
ery costs associated with the cancelled Little Gypsy repowering
project. In September 2011, Entergy Louisiana Investment Recovery
Funding I, L.L.C., a company wholly-owned and consolidated by
36