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<SEC-DOCUMENT>0000065984-00-000048.txt : 20000316
<SEC-HEADER>0000065984-00-000048.hdr.sgml : 20000316
ACCESSION NUMBER: 0000065984-00-000048
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 23
CONFORMED PERIOD OF REPORT: 19991231
FILED AS OF DATE: 20000315
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY CORP /DE/
CENTRAL INDEX KEY: 0000065984
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 721229752
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-11299
FILM NUMBER: 569627
BUSINESS ADDRESS:
STREET 1: 639 LOYOLA AVE
CITY: NEW ORLEANS
STATE: LA
ZIP: 70113
BUSINESS PHONE: 5045295262
MAIL ADDRESS:
STREET 1: PO BOX 61000
CITY: NEW ORLEANS
STATE: LA
ZIP: 70161
FORMER COMPANY:
FORMER CONFORMED NAME: ENTERGY GSU HOLDINGS INC /DE/
DATE OF NAME CHANGE: 19940329
FORMER COMPANY:
FORMER CONFORMED NAME: ENTERGY CORP /FL/
DATE OF NAME CHANGE: 19940329
FORMER COMPANY:
FORMER CONFORMED NAME: MIDDLE SOUTH UTILITIES INC
DATE OF NAME CHANGE: 19890521
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY ARKANSAS INC
CENTRAL INDEX KEY: 0000007323
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 710005900
STATE OF INCORPORATION: AR
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-10764
FILM NUMBER: 569628
BUSINESS ADDRESS:
STREET 1: 425 WEST CAPITOL AVE
STREET 2: 40TH FLOOR
CITY: LITTLE ROCK
STATE: AR
ZIP: 72201
BUSINESS PHONE: 5013774000
MAIL ADDRESS:
STREET 1: P O BOX 551
CITY: LITTLE ROCK
STATE: AR
ZIP: 72203
FORMER COMPANY:
FORMER CONFORMED NAME: ARKANSAS POWER & LIGHT CO
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY GULF STATES INC
CENTRAL INDEX KEY: 0000044570
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 740662730
STATE OF INCORPORATION: TX
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-27031
FILM NUMBER: 569629
BUSINESS ADDRESS:
STREET 1: 350 PINE ST
CITY: BEAUMONT
STATE: TX
ZIP: 77701
BUSINESS PHONE: 4098386631
MAIL ADDRESS:
STREET 1: 350 PINE ST
CITY: BEAUMONT
STATE: TX
ZIP: 77701
FORMER COMPANY:
FORMER CONFORMED NAME: GULF STATES UTILITIES CO
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY LOUISIANA INC
CENTRAL INDEX KEY: 0000060527
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 720245590
STATE OF INCORPORATION: LA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-08474
FILM NUMBER: 569630
BUSINESS ADDRESS:
STREET 1: 639 LOYOLA AVE
CITY: NEW ORLEANS
STATE: LA
ZIP: 70113
BUSINESS PHONE: 5045953100
MAIL ADDRESS:
STREET 1: PO BOX 61000
CITY: NEW ORLEANS
STATE: LA
ZIP: 70161
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY MISSISSIPPI INC
CENTRAL INDEX KEY: 0000066901
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 640205830
STATE OF INCORPORATION: MS
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-00320
FILM NUMBER: 569631
BUSINESS ADDRESS:
STREET 1: 308 EAST PEARL STREET
CITY: JACKSON
STATE: MS
ZIP: 39201
BUSINESS PHONE: 6013685000
MAIL ADDRESS:
STREET 1: 308 EAST PEARL STREET
CITY: JACKSON
STATE: MI
ZIP: 39201
FORMER COMPANY:
FORMER CONFORMED NAME: MISSISSIPPI POWER & LIGHT CO
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENTERGY NEW ORLEANS INC
CENTRAL INDEX KEY: 0000071508
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931]
IRS NUMBER: 720273040
STATE OF INCORPORATION: LA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-05807
FILM NUMBER: 569632
BUSINESS ADDRESS:
STREET 1: 639 LOYOLA AVE
CITY: NEW ORLEANS
STATE: LA
ZIP: 70113
BUSINESS PHONE: 5045295262
MAIL ADDRESS:
STREET 1: PO BOX 61000
CITY: NEW ORL
STATE: LA
ZIP: 70161
FORMER COMPANY:
FORMER CONFORMED NAME: NEW ORLEANS PUBLIC SERVICE INC
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SYSTEM ENERGY RESOURCES INC
CENTRAL INDEX KEY: 0000202584
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 720752777
STATE OF INCORPORATION: AR
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-09067
FILM NUMBER: 569633
BUSINESS ADDRESS:
STREET 1: ECHELON ONE
STREET 2: 1340 ECHELON PKWY
CITY: JACKSON
STATE: MS
ZIP: 39213
BUSINESS PHONE: 6013685000
MAIL ADDRESS:
STREET 1: PO BOX 31995
CITY: JACKSON
STATE: MS
ZIP: 39286-1995
FORMER COMPANY:
FORMER CONFORMED NAME: MIDDLE SOUTH ENERGY INC
DATE OF NAME CHANGE: 19860803
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<TEXT>
___________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission Registrant, State of Incorporation, IRS Employer
File Number Address of Principal Executive Identification No.
Offices and Telephone Number
1-11299 ENTERGY CORPORATION 72-1229752
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
1-10764 ENTERGY ARKANSAS, INC. 71-0005900
(an Arkansas corporation)
425 West Capitol Avenue, 40th Floor
Little Rock, Arkansas 72201
Telephone (501) 377-4000
1-2703 ENTERGY GULF STATES, INC. 74-0662730
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
1-8474 ENTERGY LOUISIANA, INC. 72-0245590
(a Louisiana corporation)
4809 Jefferson Highway
Jefferson, Louisiana 70121
Telephone (504) 840-2734
0-320 ENTERGY MISSISSIPPI, INC. 64-0205830
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
0-5807 ENTERGY NEW ORLEANS, INC. 72-0273040
(a Louisiana corporation)
1600 Perdido Building
New Orleans, Louisiana 70112
Telephone (504) 670-3674
1-9067 SYSTEM ENERGY RESOURCES, INC. 72-0752777
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
___________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Class on Which Registered
<S> <C> <C>
Entergy Corporation Common Stock, $0.01 Par Value - 236,145,752 New York Stock Exchange, Inc.
shares outstanding at February 29, 2000 Chicago Stock Exchange Inc.
Pacific Exchange Inc.
Entergy Arkansas Capital I 8-1/2% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc.
Securities, Series A
Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value:
$4.40 Dividend Series New York Stock Exchange, Inc.
$4.52 Dividend Series New York Stock Exchange, Inc.
$5.08 Dividend Series New York Stock Exchange, Inc.
Adjustable Rate Series B (Depository Receipts) New York Stock Exchange, Inc.
Preference Stock, Cumulative, without Par Value New York Stock Exchange, Inc.
$1.75 Dividend Series
Entergy Gulf States Capital I 8.75% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc.
Securities, Series A
Entergy Louisiana Capital I 9% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc.
Securities, Series A
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Class
Entergy Arkansas, Inc. Preferred Stock, Cumulative, $100 Par Value
Preferred Stock, Cumulative, $0.01 Par Value
Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value
Entergy Louisiana, Inc. Preferred Stock, Cumulative, $100 Par Value
Preferred Stock, Cumulative, $25 Par Value
Entergy Mississippi, Inc. Preferred Stock, Cumulative, $100 Par Value
Entergy New Orleans, Inc. Preferred Stock, Cumulative, $100 Par Value
<PAGE>
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants' knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Entergy Corporation Common Stock, $0.01
Par Value, held by non-affiliates, was $4.8 billion based on the reported
last sale price of such stock on the New York Stock Exchange on February
29, 2000. Entergy Corporation is directly or indirectly the sole holder of
the common stock of Entergy Arkansas, Inc., Entergy Gulf States, Inc.,
Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans,
Inc., and System Energy Resources, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Entergy Corporation to be filed in
connection with its Annual Meeting of Stockholders, to be held May 12,
2000, are incorporated by reference into Parts I and III hereof.
<PAGE>
TABLE OF CONTENTS
Page
Number
Definitions i
Part I
Item 1. Business 1
Item 2. Properties 35
Item 3. Legal Proceedings 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Directors and Executive Officers of Entergy Corporation 35
Part II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters 38
Item 6. Selected Financial Data 39
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 39
Item 7A.Quantitative and Qualitative Disclosures
About Market Risk 39
Item 8. Financial Statements and Supplementary Data 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 195
Part III
Item 10. Directors and Executive Officers of the Registrants 195
Item 11. Executive Compensation 198
Item 12. Security Ownership of Certain Beneficial Owners and
Management 207
Item 13. Certain Relationships and Related Transactions 210
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 211
Signatures 212
Report of Independent Accountants on Financial Statement Schedules 220
Index to Financial Statement Schedules S-1
Exhibit Index E-1
This combined Form 10-K is separately filed by Entergy Corporation,
Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc.,
Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy
Resources, Inc. Information contained herein relating to any individual
company is filed by such company on its own behalf. Each company makes
representations only as to itself and makes no other representations
whatsoever as to any other company.
This report should be read in its entirety. No one section of the
report deals with all aspects of the subject matter.
FORWARD LOOKING INFORMATION
Investors are cautioned that forward-looking statements contained
herein with respect to the revenues, earnings, competitive performance, or
other prospects for the business of Entergy Corporation, Entergy Arkansas,
Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy
Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources,
Inc. or their affiliated companies may be influenced by factors that could
cause actual outcomes to be materially different than anticipated. Such
factors include, but are not limited to, the effects of weather, the
performance of generating units, the risk of owning and operating nuclear
plants, fuel prices and availability, regulatory decisions and the effects
of changes in law, litigation results, capital spending requirements, the
evolution of competition, changes in technology, changes in accounting
standards, changes in capital structure and ownership of assets, risks
associated with the electricity and other energy commodity markets,
interest rate changes and changes in financial markets generally, changes
in foreign currency exchange rates, and other factors.
<PAGE>
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes are
defined below:
Abbreviation or Acronym Term
AFUDC Allowance for Funds Used During Construction
Algiers 15th Ward of the City of New Orleans, Louisiana
ALJ Administrative Law Judge
ANO 1 and 2 Units 1 and 2 of Arkansas Nuclear One Steam Electric
Generating Station (nuclear), owned by Entergy Arkansas
APB Accounting Principles Board
APSC Arkansas Public Service Commission
Availability
Agreement Agreement, dated as of June 21, 1974, as amended, among
System Energy and Entergy Arkansas, Entergy Louisiana,
Entergy Mississippi, and Entergy New Orleans, and the
assignments thereof
Board Board of Directors of Entergy Corporation
Boston Edison Boston Edison Company
BPS British pounds sterling
Cajun Cajun Electric Power Cooperative, Inc. (currently in
Chapter 11 bankruptcy reorganization)
Capital Funds
Agreement Agreement, dated as of June 21, 1974, as amended,
between System Energy and Entergy Corporation, and the
assignments thereof
CitiPower CitiPower Pty., an electric distribution company
serving Melbourne, Australia and surrounding suburbs,
which was acquired by Entergy effective January 5,
1996, and was sold by Entergy effective December 31,
1998
Council Council of the City of New Orleans, Louisiana
D.C. Circuit United States Court of Appeals for the District of
Columbia Circuit
DOE United States Department of Energy
domestic utility
companies Entergy Arkansas, Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, and Entergy New
Orleans, collectively
EITF Emerging Issues Task Force
EMF Electromagnetic fields
ENHC Entergy Nuclear Holding Company
EPA Environmental Protection Agency
EPAct Energy Policy Act of 1992
EPDC Entergy Power Development Corporation
EPMC Entergy Power Marketing Corporation
ET&M Entergy Trading and Marketing, Ltd.
ETHC Entergy Technology Holding Company
EWG Exempt wholesale generator under PUHCA
Entergy Entergy Corporation and its various direct and indirect
subsidiaries
Entergy Arkansas Entergy Arkansas, Inc.
Entergy Corporation Entergy Corporation, a Delaware corporation
Entergy Gulf States Entergy Gulf States, Inc., including its wholly owned
subsidiaries - Varibus Corporation, GSG&T, Inc.,
Prudential Oil & Gas, Inc., and Southern Gulf Railway
Company
<PAGE>
DEFINITIONS (Continued)
Abbreviation or Acronym Term
Entergy London Entergy London Investments plc, formerly Entergy Power
UK plc (including its wholly owned subsidiary, London
Electricity plc), which was sold by Entergy effective
December 4, 1998
Entergy Louisiana Entergy Louisiana, Inc.
Entergy Mississippi Entergy Mississippi, Inc.
Entergy New Orleans Entergy New Orleans, Inc.
Entergy Nuclear Entergy Nuclear, Inc.
Entergy Operations Entergy Operations, Inc.
Entergy Power Entergy Power, Inc.
Entergy Services Entergy Services, Inc.
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FUCO an exempt foreign utility company under PUHCA
Grand Gulf 1 and 2 Units 1 and 2 of Grand Gulf Steam Electric Generating
Station (nuclear), 90% owned or leased by System Energy
GWH one million kilowatt-hours
Independence Independence Steam Electric Station (coal), owned 16%
by Entergy Arkansas, 25% by Entergy Mississippi, and 7%
by Entergy Power
IRS Internal Revenue Service
KV kilovolt
KW kilowatt
KWH kilowatt-hour(s)
London Electricity London Electricity plc - a regional electric company
serving London, England, which was acquired by Entergy
London effective February 1, 1997, and was sold by
Entergy effective December 4, 1998
LDEQ Louisiana Department of Environmental Quality
LPSC Louisiana Public Service Commission
MCF 1,000 cubic feet of gas
Merger The combination transaction, consummated on
December 31, 1993, by which Entergy Gulf States became
a subsidiary of Entergy Corporation
MPSC Mississippi Public Service Commission
MW Megawatt(s)
N/A Not applicable
Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric
Generating Station, owned 70% by Entergy Gulf States
NISCO Nelson Industrial Steam Company
NRC Nuclear Regulatory Commission
Pilgrim Pilgrim Nuclear Station, 670 MW facility located in
Plymouth, Massachusetts purchased in July 1999 from
Boston Edison by Entergy's non-utility nuclear power
business
PRP Potentially Responsible Party (a person or entity that
may be responsible for remediation of environmental
contamination)
PUCT Public Utility Commission of Texas
PUHCA Public Utility Holding Company Act of 1935, as amended
<PAGE>
DEFINITIONS (Concluded)
Abbreviation or Acronym Term
PURPA Public Utility Regulatory Policies Act of 1978
Reallocation
Agreement 1981 Agreement, superseded in part by a June 13, 1985
decision of FERC, among Entergy Arkansas, Entergy
Louisiana, Entergy Mississippi, Entergy New Orleans,
and System Energy relating to the sale of capacity and
energy from Grand Gulf
Ritchie 2 Unit 2 of the R. E. Ritchie Steam Electric Generating
Station (gas/oil)
River Bend River Bend Steam Electric Generating Station (nuclear)
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards,
promulgated by the FASB
SMEPA South Mississippi Electric Power Agency, which owns the
remaining 10% interest in Grand Gulf 1
System Agreement Agreement, effective January 1, 1983, as modified,
among the domestic utility companies relating to the
sharing of generating capacity and other power
resources
System Energy System Energy Resources, Inc.
System Fuels System Fuels, Inc.
UK The United Kingdom of Great Britain and Northern
Ireland
Unit Power Sales
Agreement Agreement, dated as of June 10, 1982, as amended and
approved by FERC, among Entergy Arkansas, Entergy
Louisiana, Entergy Mississippi, Entergy New Orleans,
and System Energy, relating to the sale of capacity and
energy from System Energy's share of Grand Gulf 1
Waterford 3 Unit No. 3 (nuclear) of the Waterford Steam Electric
Generating Station, 100% owned or leased by Entergy
Louisiana
White Bluff White Bluff Steam Electric Generating Station, 57%
owned by Entergy Arkansas
<PAGE>
PART I
Item 1. Business
BUSINESS OF ENTERGY
General
Entergy Corporation is a Delaware corporation which, through its
subsidiaries, engages principally in the following businesses: domestic
utility operations, power marketing and trading, global power development,
and domestic non-utility nuclear operations. It has no significant assets
other than the stock of its subsidiaries. Entergy Corporation is a
registered public utility holding company under PUHCA. As such, Entergy
Corporation and its subsidiaries generally are subject to the broad
regulatory provisions of PUHCA. PUHCA generally limits registered public
utility holding company activity to domestic integrated utility businesses,
domestic and foreign electric generation ventures, foreign utility
ownership, telecommunications and information service businesses, and
certain other domestic energy related businesses. Financial information
regarding Entergy Corporation's operating segments is contained in Note 14
to the financial statements.
Domestic Utility Operations
Entergy Corporation has five wholly-owned domestic retail electric
utility subsidiaries: Entergy Arkansas, Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, and Entergy New Orleans. As of December
31, 1999, these utility companies provided retail electric service to
approximately 2.5 million customers primarily in portions of the states of
Arkansas, Louisiana, Mississippi, and Texas. In addition, Entergy Gulf
States furnishes natural gas utility service in and around Baton Rouge,
Louisiana, and Entergy New Orleans furnishes natural gas utility service in
New Orleans, Louisiana. The business of the domestic utility companies is
subject to seasonal fluctuations, with the peak sales period normally
occurring during the third quarter of each year. During 1999, the domestic
utility companies' combined retail electric sales as a percentage of total
electric sales were: residential - 27.8%; commercial - 21.6%; and
industrial - 39.5%. Retail electric revenues from these sectors as a
percentage of total electric revenues were: residential - 35.6%; commercial
- - 24.0%; and industrial - 30.0%. Sales to governmental and municipal
sectors and to nonaffiliated utilities accounted for the balance of energy
sales. The major industrial customers of the domestic utility companies
are in the chemical, petroleum refining, paper, and food products
industries. The retail rates and services of Entergy's domestic retail
utility subsidiaries are regulated by state and/or local regulatory
authorities.
Entergy Corporation also owns 100% of the voting stock of System
Energy, an Arkansas corporation that owns and leases an aggregate 90%
undivided interest in Grand Gulf. System Energy sells all of the capacity
and energy from its interest in Grand Gulf 1 at wholesale to its only
customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and
Entergy New Orleans. Management discusses sales from Grand Gulf 1 more
thoroughly in "CAPITAL REQUIREMENTS AND FUTURE FINANCING - Certain System
Financial and Support Agreements - Unit Power Sales Agreement" below.
System Energy's wholesale power sales are subject to the jurisdiction of
FERC.
Entergy Services, a Delaware corporation wholly-owned by Entergy
Corporation, provides management, administrative, accounting, legal,
engineering, and other services primarily to the domestic utility
subsidiaries of Entergy Corporation. Entergy Operations, a Delaware
corporation, is also wholly-owned by Entergy Corporation and provides
nuclear management, operations and maintenance services under contract for
ANO, River Bend, Waterford 3, and Grand Gulf 1, subject to the owner
oversight of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and
System Energy, respectively. Entergy Arkansas, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans own 35%, 33%, 19%, and 13%,
respectively, of the common stock of System Fuels, a Louisiana corporation
that implements and manages certain programs to procure, deliver, and store
fuel supplies for those companies. Entergy Services, Entergy Operations,
and System Fuels provide their services to the domestic utility companies
and System Energy on an "at cost" basis, pursuant to service agreements
approved by the SEC under PUHCA. Information regarding affiliate
transactions is contained in Note 13 to the financial statements.
Entergy Gulf States has wholly-owned subsidiaries that (i) own and
operate intrastate gas pipelines in Louisiana used primarily to transport
fuel to two of Entergy Gulf States' generating stations; (ii) own the Lewis
Creek Station, a gas-fired generating plant, which is leased to and
operated by Entergy Gulf States; and (iii) own several miles of railroad
track constructed in Louisiana primarily for the purpose of transporting
coal for use as boiler fuel at Entergy Gulf States' Nelson Unit 6
generating facility.
Power Marketing and Trading
Entergy conducts its power marketing and trading business primarily
through three subsidiaries, Entergy Power, EPMC, and ET&M. Entergy Power
is a domestic power producer that owns 665 MW of fossil-fueled generation
assets located in Arkansas. Entergy Power's capacity and energy is sold at
wholesale principally to EPMC and Entergy Arkansas. Entergy Power's
wholesale power sales are subject to the jurisdiction of FERC. EPMC
engages in the marketing and trading of physical and financial energy
commodity products, industrial energy management, and risk management
services. It has authority from the SEC to deal in a wide range of energy
commodities and related financial products. ET&M is engaged in the
marketing and trading of physical and financial energy commodity products
in the UK. Entergy has announced its intent to combine the power marketing
and trading business with the global power development business beginning
in 2000, and the combined businesses will be called Entergy Wholesale
Operations.
Global Power Development
Entergy's global power development business is focused on acquiring or
developing power generation projects in North America and Western Europe
and will evaluate potential opportunities in Latin America. This business
owns interests in the following foreign electric generation assets:
Investment Percent Ownership Status
Argentina - Costanera, 1,260 MW 6% operational
Argentina - Costanera expansion, 220 MW 10% operational
Chile - San Isidro, 375 MW 25% operational
Pakistan - Hub River, 1,200 MW 5% operational
Peru - Edegel - 833 MW 24% operational
United Kingdom - Saltend, 1,200 MW 100% under construction
United Kingdom - Damhead Creek, 800 MW 100% under construction
Entergy's global power development business has several other development
projects in the planning stages, including projects in Texas, Louisiana,
Mississippi, Spain, and Bulgaria. Fairfield is a planned 1,000 MW combined
cycle gas turbine merchant power plant to be constructed in Fairfield,
Texas, adjacent to Entergy Gulf States' service territory. Riverside is a
planned 425 MW combined cycle gas turbine cogeneration plant to be
constructed in Lake Charles, Louisiana. Riverside is expected to be owned
50% by Entergy's global power development business and 50% by PPG
Industries, an industrial customer of Entergy Gulf States. A 300 MW
combined-cycle gas turbine merchant power plant is in the planning stages
for construction in Vicksburg, Mississippi. An 800 MW combined cycle gas
turbine merchant power plant is in the planning stages for construction
near Castelnou, Spain. Entergy plans to work with the National Electric
Company of Bulgaria to modernize and upgrade Maritza East III, an 840 MW
coal-fired power plant located in Bulgaria. In preparation for its
development plans, Entergy has obtained an option to acquire turbines from
GE Power Systems. See "CAPITAL REQUIREMENTS AND FUTURE FINANCING" below
for further information on the turbines.
Entergy divested the 24 MW Nantong project in China in 1999 and does
not intend to pursue further developments in Asia. In June 1999, Entergy
sold its 5% interest in Edesur, S.A., which is the retail electric
distribution company for the southern part of Buenos Aires, Argentina.
Domestic Non-Utility Nuclear Operations
Entergy's domestic non-utility nuclear power business is focused on
acquiring nuclear power plants and providing operations and management
services to nuclear power plants owned by other utilities in the United
States. Plant acquisitions are made through Entergy's wholly-owned
subsidiary, ENHC, and operations and management services, including
decommissioning services, are provided by Entergy's wholly-owned
subsidiary, Entergy Nuclear. In July 1999, Entergy acquired the 670 MW
Pilgrim Nuclear Station located in Plymouth, Massachusetts from Boston
Edison. The facility has firm total output power purchase agreements
(PPAs) with Boston Edison and other utilities that expire at the end of
2004. One hundred percent of the plant output is committed through 2001,
which decreases to 50% by 2003.
Entergy's nuclear business has an outstanding offer to the New York
Power Authority (NYPA) for the acquisition of NYPA's 825 MW James A.
FitzPatrick nuclear power plant located near Oswego, New York and NYPA's
980 MW Indian Point 3 nuclear power plant located in Westchester County,
New York. On February 24, 2000, NYPA received a competing offer for the
purchase of these plants. It is anticipated that the NYPA Board of
Trustees will meet in mid to late March to consider the offers. If Entergy's
offer is accepted, management expects to close the acquisition by the
fourth quarter of 2000.
In December 1999, Entergy signed an agreement with Rochester Gas and
Electric (RG&E) to lease and operate the Nine Mile Point 1 and 2 nuclear
power plants, totaling 1,754 MW, located in Scriba, New York. Nine Mile
Point 1 is owned by Niagara Mohawk Power Corporation (Niagara), and Nine
Mile Point 2 is co-owned by RG&E, Niagara, New York State Electric & Gas
Corporation (NYSEG), Long Island Lighting Company (doing business as LIPA),
and Central Hudson Gas & Electric Corporation. The lease and operating
agreement is subject to RG&E's ability to close on its exercise of its
right of first refusal to acquire Niagara's and NYSEG's ownership interests
in the plants and is subject to approval by the New York Public Service
Commission (NYPSC). Niagara and NYSEG filed a proceeding with the NYPSC
for the sale of their ownership interests to a third party. Entergy's non-
utility nuclear business intervened as a party to the NYPSC proceeding. In
that proceeding, the staff of the NYPSC has stated that it will explore
various alternatives for the future ownership and operation of the Nine
Mile plants.
Entergy Nuclear provides services to plants owned by other utilities,
including engineering, operations and maintenance, fuel procurement,
management and supervision, technical support and training, administrative
support, and other managerial or technical services required to operate,
maintain, and decommission nuclear electric power facilities. Currently
Entergy is providing decommissioning services for the Maine Yankee and
Millstone Unit 1 nuclear power plants. The cost of decommissioning and
insuring the plants that Entergy provides decommissioning services for are
the responsibility of the plant owners.
Business Sales
In January 1999, Entergy disposed of its security monitoring business
which operated primarily in North and South Carolina, Alabama, Florida,
Georgia, Mississippi, Louisiana, and Texas. In June 1999, Entergy disposed
of its interest in the Hyperion Telecommunications joint ventures, which
operate three Competitive Local Exchange Carriers (CLECs) in Little Rock,
Arkansas; Jackson, Mississippi; and Baton Rouge, Louisiana. These CLECs
provide long distance carrier access and local exchange services.
Domestic and Foreign Generation Investment Restrictions and Risks
Entergy's ability to invest in domestic and foreign generation
businesses is subject to the SEC's regulations under PUHCA. Absent SEC
approval, these regulations limit Entergy Corporation's aggregate
investment in domestic and foreign generation businesses to an amount equal
to 50% of consolidated retained earnings at the time an investment is made.
Using the proceeds from the sale of electric distribution businesses in the
UK and Australia in 1998, Entergy has the ability to make significant
additional investments in domestic and foreign generation businesses
without the need of further investment by Entergy Corporation.
International operations are subject to the risks inherent in
conducting business abroad, including possible nationalization or
expropriation, price and currency exchange controls, inflation, limitations
on foreign participation in local enterprises, and other restrictions.
Changes in the relative value of currencies may favorably or unfavorably
affect the financial condition and results of operations of Entergy's non-
U.S. businesses. In addition, exchange control restrictions in certain
countries may limit or prevent the repatriation of earnings.
Selected Data
Selected domestic utility customers and sales data for 1999 are
summarized in the following tables:
Customers as of
December 31, 1999
Area Served Electric Gas
(In Thousands)
Entergy Arkansas Portions of Arkansas and Tennessee 638 -
Entergy Gulf States Portions of Texas and Louisiana 669 89
Entergy Louisiana Portions of Louisiana 635 -
Entergy Mississippi Portions of Mississippi 395 -
Entergy New Orleans City of New Orleans, except Algiers,
which is provided electric service
by Entergy Louisiana 185 146
----- ----
Total customers 2,522 235
===== ====
<TABLE>
<CAPTION>
1999 - Selected Domestic Utility Electric Energy Sales Data
Entergy Entergy Entergy Entergy Entergy System
Arkansas Gulf States Louisiana Mississippi New Orleans Energy Entergy (a)
(In GWH)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric Department:
Sales to retail
customers 18,664 34,348 29,095 12,518 5,895 - 100,519
Sales for resale:
Affiliates 7,592 677 415 1,774 441 7,567 -
Others 4,868 3,408 831 426 180 - 9,714
----------------------------------------------------------------------------
Total 31,124 38,433 30,341 14,718 6,516 7,567 110,233
Steam Department:
Sales to steam
products customer - 464 - - - - 464
----------------------------------------------------------------------------
Total 31,124 38,897 30,341 14,718 6,516 7,567 110,697
============================================================================
Average use per
residential customer
(KWH) 11,955 15,322 15,033 14,180 12,674 - 14,034
============================================================================
</TABLE>
(a) Includes the effect of intercompany eliminations.
1999 - Selected Natural Gas Sales Data
Entergy New Orleans and Entergy Gulf States sold 15,106,716 and
6,064,879 MCF, respectively, of natural gas to retail customers in 1999.
For the periods ended December 31, 1999, 1998, and 1997, revenues from
natural gas operations were not material for Entergy Gulf States. Entergy
New Orleans' products and services are discussed below in "BUSINESS
SEGMENTS."
Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY
CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, ENTERGY GULF STATES,
ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, and SYSTEM
ENERGY" which follow each company's financial statements in this report,
for further information with respect to operating statistics.
Employees
As of December 31, 1999, Entergy had 12,375 employees as follows:
Full-time:
Entergy Corporation -
Entergy Arkansas 1,490
Entergy Gulf States 1,595
Entergy Louisiana 833
Entergy Mississippi 811
Entergy New Orleans 362
System Energy -
Entergy Operations 3,249
Entergy Services 2,772
Other subsidiaries 1,102
------
Total Full-time 12,214
Part-time 161
------
Total Entergy 12,375
======
Competition
As a result of the actions of federal legislative and regulatory
bodies over the period of approximately the past twenty years, wholesale
markets have developed in which electricity, gas, and other energy related
products and services are purchased and sold at market-based (rather than
traditional cost-based) rates. These wholesale markets are continuing to
grow and evolve. This has resulted in changes in the ways in which public
utilities conduct their business and in the nature of the participants in
these wholesale markets, which now include not only public utilities but
also power marketers and traders, other energy commodity marketers and
traders, wholesale generators of electricity, and a wide range of wholesale
customers.
Major changes in the retail utility business are now occurring in some
parts of the United States, including states in which Entergy's domestic
utility companies operate. Both Texas and Arkansas adopted legislation in
1999 aimed at separating ("unbundling") traditional integrated public
utilities into distinct distribution, transmission, generation, and various
types of retail marketing businesses and introducing competition into the
generation component of utility service. Other jurisdictions in which the
Entergy domestic utility businesses operate have yet to decide whether to
embrace retail competition and utility unbundling, but each of these other
jurisdictions is studying the matter.
It is anticipated that changes in the retail electricity markets in
the Entergy system will take place over a number of years, and it is not
necessarily the case that regulators or legislators in different
jurisdictions will coordinate their changes. In some cases, actions by one
jurisdiction may even come into conflict with actions by another, creating
mutually incompatible obligations for public utilities and holding
companies, including the Entergy system. It is too early to accurately
predict all of the effects of the changes that are beginning to take place
in the retail energy market. However, it is anticipated that these changes
will result in fundamental alterations in the way traditional integrated
utilities and holding company systems, like Entergy and its domestic
utility companies, conduct their business. Some of these alterations will
be positive for Entergy and its affiliates, while others will not be.
These changes will likely result in increased costs associated with
utility unbundling and transitioning to new organizational structures and
ways of conducting business. It is possible that the new organizational
structures that will be required will result in lost economies of scale,
less beneficial cost sharing arrangements within utility holding company
systems, and, in some cases, greater difficulty and cost in accessing
capital.
Utilities, including the domestic utility companies, may be required
or encouraged to sell generating plants or interests therein, or the output
from such plants. They also may be required or encouraged to sell or turn
over operating and management responsibility for some or all of their
transmission systems to independent parties. In the case of the domestic
utility companies, this would cause a fundamental shift away from the
operation of their electric generation and transmission assets as an
integrated system supporting utility service throughout their combined
service territories.
As a result of restructuring, Entergy's domestic utility companies may
no longer be able to apply regulated utility accounting principles to some
or all of their operations, and they may be required to write off certain
regulatory assets or recognize asset impairments.
There are a number of other changes that may result from retail
competition and unbundling, including but not limited to changes in labor
relations, management and staffing, environmental compliance
responsibility, and other aspects of the utility business.
"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS
AND KNOWN TRENDS" and Note 2 to the financial statements contain detailed
discussions of competitive challenges Entergy faces in the utility
industry, including the status of the transition to a more competitive
utility business environment for the domestic utility companies.
CAPITAL REQUIREMENTS AND FUTURE FINANCING
For the years 2000 through 2004, Entergy plans to spend $9.8 billion
in a capital investment plan focused on improving service at the domestic
utility companies and growing its global power development and nuclear
operations businesses. The estimated allocation in the plan is $4.2
billion to the domestic utility companies, $3.9 billion to the global power
development business, and $1.7 billion to the nuclear operations business.
The capital investment plan is subject to modification based on the ongoing
effects of transition to competition planning and the ability to recover
the regulated utility costs in rates. Additionally, the plan is contingent
upon Entergy's ability to access the capital necessary to finance the
planned expenditures, and significant borrowings may be necessary for
Entergy to implement these capital spending plans. Construction
expenditures (including environmental expenditures and AFUDC, but excluding
nuclear fuel) for Entergy are estimated at $1.5 billion in 2000, $1.7
billion in 2001, and $1.8 billion in 2002. Included in these totals are
estimated construction expenditures for the domestic utility companies and
System Energy as follows:
2000 2001 2002 Total
(In Millions)
Entergy Arkansas $350 $248 $188 $786
Entergy Gulf States 298 269 204 771
Entergy Louisiana 202 188 162 552
Entergy Mississippi 115 122 123 360
Entergy New Orleans 50 46 45 141
System Energy 39 20 12 71
The domestic utility companies' anticipated spending is focused mainly
on (i) distribution and transmission projects that will support continued
reliability improvements; (ii) return to service of generation stations
that have been held in reserve shutdown status; and (iii) transitioning to
a more competitive environment. Projected construction expenditures for
the replacement of ANO 2's steam generators, which is scheduled for the
third quarter of 2000, are included in Entergy Arkansas' estimated figures
above. The replacement of ANO 2's steam generators is discussed in Note 9
to the financial statements. Entergy, in addition to meeting construction
expenditure requirements, must meet scheduled long-term debt and preferred
stock maturities and cash sinking fund requirements. Entergy's capital and
financing requirements and available lines of credit are discussed in Notes
4, 5, 6, 7, 9, and 10 to the financial statements. Actual construction
costs may vary from these estimates for a number of reasons, including
changes in load growth estimates; environmental regulations; labor,
equipment, materials, and capital costs; modifications to generating units
to meet regulatory requirements; and the transition to competition.
Entergy's global power development business is currently constructing
two combined-cycle gas turbine merchant power plants in the UK. Saltend, a
1,200 MW plant, will provide steam and electricity to BP Chemicals' nearby
complex with the remaining electricity to be sold into the UK national
power pool. Approximately 75 MW of the capacity will be sold to BP
Chemicals under a PPA with a term of 15 years. Originally scheduled for
commercial operation in January 2000, Saltend's completion has been delayed
due to construction problems at the site. The construction contractor has
submitted a revised construction schedule after substantial analysis, and
currently estimates a phased-in completion of the three-unit plant with the
full plant in service by June 30, 2000. The total cost of this project is
currently estimated to be approximately $824 million. The second plant is
an 800 MW facility known as Damhead Creek. It is expected to begin
commercial operation in the fourth quarter of 2000. Management estimates
the total cost of this project at approximately $582 million. The
financing of the construction of these two power plants is discussed in
Note 7 to the financial statements.
In October 1999, Entergy's global power development business obtained
an option to acquire twenty-four GE7FA advanced technology gas turbines,
four steam turbines, and eight GE7EA advanced technology gas turbines.
Delivery of the turbines is scheduled for 2001 through 2004. The total
cost of the turbines, including long-term service agreements with GE Power
Systems, is approximately $2.0 billion. The turbines are expected to be
used in future generation projects. Management anticipates that the
acquisition of these turbines will be funded by a combination of cash on
hand, project financing, and other external financing. Payments scheduled
for the acquisition of these turbines are $273 million in 2000, $415
million in 2001, and $311 million in 2002.
Entergy Corporation's primary capital requirements are to invest
periodically in, or make loans to, its subsidiaries and to invest in new
enterprises. Management discusses Entergy Corporation's current and future
planned investments in its subsidiaries and the financial sources for such
investments in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY
AND CAPITAL RESOURCES." The principal sources of funds for Entergy
Corporation are dividend distributions from its subsidiaries, funds
available under its bank credit facilities, funds received from its
dividend reinvestment and stock purchase plan, and funds received from the
sale of assets.
Certain System Financial and Support Agreements
Unit Power Sales Agreement (Entergy Arkansas, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans, and System Energy)
The Unit Power Sales Agreement allocates capacity, energy, and the
related costs from System Energy's 90% ownership and leasehold interests in
Grand Gulf 1 to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy
Mississippi (33%), and Entergy New Orleans (17%). Each of these companies
is obligated to make payments to System Energy for its entitlement of
capacity and energy on a full cost-of-service basis regardless of the
quantity of energy delivered, so long as Grand Gulf 1 remains in commercial
operation. Payments under the Unit Power Sales Agreement are System
Energy's only source of operating revenues. The financial condition of
System Energy depends upon the continued commercial operation of Grand Gulf
1 and the receipt of such payments. Entergy Arkansas, Entergy Louisiana,
Entergy Mississippi, and Entergy New Orleans generally recover payments
made under the Unit Power Sales Agreement through the rates charged to
their customers. In the case of Entergy Arkansas and Entergy Louisiana,
payments are also recovered through sales of electricity from their
respective retained shares of Grand Gulf 1. The retained shares are
discussed in Note 2 to the financial statements under the heading "Grand
Gulf 1 Deferrals and Retained Shares."
Availability Agreement (Entergy Arkansas, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans, and System Energy)
The Availability Agreement among System Energy and Entergy Arkansas,
Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered
into in 1974 in connection with the financing by System Energy of Grand
Gulf. The Availability Agreement provided that System Energy would join in
the System Agreement on or before the date on which Grand Gulf 1 was placed
in commercial operation and would make available to Entergy Arkansas,
Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all
capacity and energy available from System Energy's share of Grand Gulf.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy
New Orleans also agreed severally to pay System Energy monthly for the
right to receive capacity and energy from Grand Gulf in amounts that (when
added to any amounts received by System Energy under the Unit Power Sales
Agreement, or otherwise) would at least equal System Energy's total
operating expenses for Grand Gulf (including depreciation at a specified
rate) and interest charges. The September 1989 write-off of System
Energy's investment in Grand Gulf 2, amounting to approximately $900
million, is being amortized for Availability Agreement purposes over 27
years.
The allocation percentages under the Availability Agreement are fixed
as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy
Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation
percentages under the Availability Agreement would remain in effect and
would govern payments made under such agreement in the event of a shortfall
of funds available to System Energy from other sources, including payments
under the Unit Power Sales Agreement.
System Energy has assigned its rights to payments and advances from
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans under the Availability Agreement as security for its first mortgage
bonds and reimbursement obligations to certain banks providing the letters
of credit in connection with the equity funding of the sale and leaseback
transactions described in Note 10 to the financial statements under "Sale
and Leaseback Transactions - Grand Gulf 1 Lease Obligations." In these
assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and
Entergy New Orleans further agreed that, in the event they were prohibited
by governmental action from making payments under the Availability
Agreement (for example, if FERC reduced or disallowed such payments as
constituting excessive rates), they would then make subordinated advances
to System Energy in the same amounts and at the same times as the
prohibited payments. System Energy would not be allowed to repay these
subordinated advances so long as it remained in default under the related
indebtedness or in other similar circumstances.
Each of the assignment agreements relating to the Availability
Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans will make payments directly to System
Energy. However, if there is an event of default, those payments must be
made directly to the holders of indebtedness that are the beneficiaries of
such assignment agreements. The payments must be made pro rata according
to the amount of the respective obligations secured.
The obligations of Entergy Arkansas, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans to make payments under the
Availability Agreement are subject to the receipt and continued
effectiveness of all necessary regulatory approvals. Sales of capacity and
energy under the Availability Agreement would require that the Availability
Agreement be submitted to FERC for approval with respect to the terms of
such sale. No such filing with FERC has been made because sales of
capacity and energy from Grand Gulf are being made pursuant to the Unit
Power Sales Agreement. If, for any reason, sales of capacity and energy
are made in the future pursuant to the Availability Agreement, the
jurisdictional portions of the Availability Agreement would be submitted to
FERC for approval. Other aspects of the Availability Agreement are subject
to the jurisdiction of the SEC, whose approval has been obtained, under
PUHCA.
Since commercial operation of Grand Gulf 1 began, payments under the
Unit Power Sales Agreement to System Energy have exceeded the amounts
payable under the Availability Agreement. Therefore, no payments under the
Availability Agreement have ever been required. If Entergy Arkansas or
Entergy Mississippi fails to make its Unit Power Sales Agreement payments,
and System Energy is unable to obtain funds from other sources, Entergy
Louisiana and Entergy New Orleans could become subject to claims or demands
by System Energy or its creditors for payments or advances under the
Availability Agreement (or the assignments thereof) equal to the difference
between their required Unit Power Sales Agreement payments and their
required Availability Agreement payments.
The Availability Agreement may be terminated, amended, or modified by
mutual agreement of the parties thereto, without further consent of any
assignees or other creditors.
Capital Funds Agreement (Entergy Corporation and System Energy)
System Energy and Entergy Corporation have entered into the Capital
Funds Agreement, whereby Entergy Corporation has agreed to supply System
Energy with sufficient capital to (i) maintain System Energy's equity
capital at an amount equal to a minimum of 35% of its total capitalization
(excluding short-term debt) and (ii) permit the continued commercial
operation of Grand Gulf 1 and pay in full all indebtedness for borrowed
money of System Energy when due.
Entergy Corporation has entered into various supplements to the
Capital Funds Agreement. System Energy has assigned its rights under such
supplements as security for its first mortgage bonds and for reimbursement
obligations to certain banks providing letters of credit in connection with
the equity funding of the sale and leaseback transactions described in Note
10 under "Sale and Leaseback Transactions - Grand Gulf 1 Lease
Obligations." Each such supplement provides that permitted indebtedness
for borrowed money incurred by System Energy in connection with the
financing of Grand Gulf may be secured by System Energy's rights under the
Capital Funds Agreement on a pro rata basis (except for the Specific
Payments, as defined below). In addition, in the supplements to the
Capital Funds Agreement relating to the specific indebtedness being
secured, Entergy Corporation has agreed to make cash capital contributions
directly to System Energy sufficient to enable System Energy to make
payments when due on such indebtedness (Specific Payments). However, if
there is an event of default, Entergy Corporation must make those payments
directly to the holders of indebtedness benefiting from the supplemental
agreements. The payments (other than the Specific Payments) must be made
pro rata according to the amount of the respective obligations benefiting
from the supplemental agreements.
The Capital Funds Agreement may be terminated, amended, or modified by
mutual agreement of the parties thereto, upon obtaining the consent, if
required, of those holders of System Energy's indebtedness then outstanding
who have received the assignments of the Capital Funds Agreement.
RATE MATTERS AND REGULATION
Rate Matters
The retail rates of Entergy's domestic utility companies are regulated
by state or local regulatory authorities, as described below. FERC
regulates their wholesale rates (including intrasystem sales pursuant to
the System Agreement) and interstate transmission of electricity, as well
as rates for System Energy's sales of capacity and energy from Grand Gulf 1
to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy
New Orleans pursuant to the Unit Power Sales Agreement.
Wholesale Rate Matters
System Energy
As described above under "CAPITAL REQUIREMENTS AND FUTURE FINANCING -
Certain System Financial and Support Agreements," System Energy recovers
costs related to its interest in Grand Gulf 1 through rates charged to
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans for capacity and energy under the Unit Power Sales Agreement.
In December 1995, System Energy implemented a $65.5 million rate
increase, subject to refund. In 1998, FERC approved requests by Entergy
Arkansas and Entergy Mississippi to accelerate a portion of their Grand
Gulf purchased power obligations. The rate increase request filed by
System Energy with FERC and the Grand Gulf accelerated recovery tariffs are
discussed in Note 2 to the financial statements.
System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and
System Energy)
The domestic utility companies have historically engaged in the
coordinated planning, construction, and operation of generation and
transmission facilities pursuant to the terms of the System Agreement, as
described under "PROPERTY - Generating Stations," below. Restructuring in
the electric utility industry will affect these coordinated activities in
the future.
In connection with the Merger in 1993, FERC approved certain rate
schedule changes to integrate Entergy Gulf States into the System
Agreement. In approving the Merger, FERC also initiated a new proceeding
to consider whether the System Agreement permits certain out-of-service
generating units to be included in reserve equalization calculations under
Service Schedule MSS-1 of that agreement. The LPSC and the MPSC submitted
testimony in this proceeding seeking retroactive refunds for Entergy
Louisiana and Entergy Mississippi estimated at $22.6 million and $13.2
million plus related interest charges, respectively. In August 1997, the
FERC decided that retroactive refunds should not be ordered and that the
System Agreement should be amended to allow out-of-service units to be
included in reserve equalization. Appeals made by the LPSC and the MPSC
were denied in 1999.
In March 1995, the LPSC filed a complaint with FERC alleging that the
System Agreement results in unjust and unreasonable rates. The LPSC
requested that FERC modify the System Agreement to exclude curtailable load
from the cost allocation determination and to permit Entergy's domestic
utility companies that engage in real-time pricing at the retail level to
be assessed only the marginal cost for energy sold among the domestic
utility companies. In August 1996, FERC found that the LPSC's claim that
the System Agreement is unjust and unreasonable was without merit and
dismissed the LPSC's complaint. The FERC confirmed this finding in a
September 1997 order denying the LPSC's request for rehearing. On appeal,
the D.C. Circuit remanded the matter to FERC for further consideration,
including the taking of evidence. A procedural schedule has not been set
by FERC, and no assurance can be given as to the timing or outcome of this
proceeding.
Open Access Transmission (Entergy Corporation, Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans)
In October 1994, Entergy's domestic utility companies filed revised
transmission tariffs. In January 1995, FERC made the transmission tariffs
effective, subject to refund, and ordered an investigation of Entergy
Power's market pricing authority, thereby making Entergy Power's market
price rate schedules subject to refund.
In 1996 FERC issued two orders designed to implement open access
transmission for wholesale customers by allowing third party suppliers to
transmit energy to customers over transmission facilities owned by other
companies. Order No. 888 requires all public utilities regulated by FERC
to provide wholesale transmission access to third parties and specifically
addresses issues related to nondiscriminatory transmission and stranded
costs. Order No. 889 addresses codes of conduct and requires the
implementation and maintenance of an open access same-time information
system by each public utility. Order Nos. 888 and 889 led to open access
transmission and an increase in marketing and trading activities by
utilities and power marketers, which intensified competition within the
wholesale power market.
In July 1996, in order to comply with FERC Order No. 888, the domestic
utility companies filed an open access transmission tariff which superseded
the October 1994 tariffs. In January 1997, FERC accepted the non-rate
terms and conditions of the July 1996 tariff, subject to limited
modifications. In March 1997 FERC issued Order No. 888-A addressing
rehearing requests from Order No. 888 and directing public utilities to
file revised tariffs to reflect the new requirements established in Order
No. 888-A. In July 1997, Entergy Services filed with the FERC its
wholesale transmission access compliance tariff incorporating the non-rate
terms and conditions of FERC Order No. 888-A.
In October 1998, FERC issued an order addressing the outstanding
tariff rate and market power issues. The order stipulated that Entergy's
open access transmission tariff mitigated any transmission market power and
determined that no further action is needed in the investigation of Entergy
Power's market pricing authority. The order also affirmed that
transmission service should be priced at a rolled-in, system-wide rate
rather than the bifurcated bulk and local transmission pricing proposed by
Entergy. The FERC also rejected customers' requests to receive credits for
customer-owned facilities, finding that the facilities were not integrated
with and did not support Entergy's transmission system. Requests for
rehearing or clarification of the October 1998 order are pending before
FERC.
FERC policy strongly favors independent control over transmission
operations as a means of enhancing competitive wholesale power markets. In
response to this policy, Entergy proposed to FERC the formation of a
regional transmission company (Transco). The proposed Transco would be:
o a separate legal entity regulated by FERC;
o composed of the transmission system transferred to it by the
domestic utility companies and other transmission owners in
Entergy's region;
o operated and maintained by employees who would work exclusively
for the Transco and would not be employed by Entergy or the
domestic utility companies; and
o passively owned by the domestic utility companies and other members
who transfer assets, which will not control or otherwise direct its
operation and management.
In July 1999, FERC responded to Entergy's proposal. FERC concluded
that passive ownership of a Transco by a generating company or other market
participant could meet FERC's current independence and governance
requirements, provided the Transco is structured to address certain issues
and concerns raised by FERC. The issues and concerns identified by FERC
relate to:
o the selection process for the Transco's board of directors;
o the Transco board's fiduciary obligations to the member companies;
o the ability of the Transco to raise additional capital; and
o restrictions on transactions between the Transco and the member
companies.
Management expects to make additional filings with federal, state, and
local regulatory authorities addressing these and other issues and seeking
necessary approvals for the formation of the Transco. If approved, the
Transco would likely become operational in 2001.
In a rulemaking that will affect the Transco, FERC issued Order 2000
in December 1999. Order 2000 calls for owners and operators of
transmission lines in the United States to join regional transmission
organizations ("RTOs") on a voluntary basis. Order 2000 requires public
utilities that own, operate, or control interstate transmission facilities
to file by October 15, 2000 a proposal for how they intend to participate
in an RTO or, alternatively, to describe the steps they have taken to do so
or the reasons why it is not feasible to participate in an RTO. FERC's
Order 2000 requires that RTOs be effective no later than December 15, 2001.
FERC is maintaining flexibility as to the structure of RTOs. For
example, it appears that RTOs may be for-profit or not-for-profit and may
be organized as joint ventures or legal entities of various types.
However, RTOs will be required, among other things, to be independent
market participants, to have sufficient regional scope to maintain
reliability and efficiency, to be non-discriminatory in granting service,
and to maintain operational control over their regional transmission
systems.
The Transco, an independent, for-profit transmission company which has
already been proposed to FERC by the domestic utility companies, is
Entergy's preferred approach for complying with FERC's Order 2000.
However, Entergy is also exploring other means for complying with Order
2000.
Retail Rate Matters
General (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans)
Certain costs related to Grand Gulf 1, Waterford 3, and River Bend
were phased into retail rates over a period of years in order to avoid the
"rate shock" associated with increasing rates to reflect all such costs at
once. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and the
portion of Entergy Gulf States regulated by the LPSC have fully recovered
such deferred costs associated with one or more of the plants. Entergy New
Orleans' phase-in plan expires in 2001.
The retail regulatory philosophy has shifted in some jurisdictions
from traditional, exclusively cost-of-service regulation to include
performance-based rate elements. Performance-based formula rate plans are
designed to encourage efficiencies and productivity while permitting
utilities and their customers to share in the benefits. Entergy
Mississippi and Entergy Louisiana have implemented performance-based
formula rate plans.
The domestic utility companies have initiated proceedings with state
and local regulators regarding transition to a more competitive market for
electricity. In addition, retail open access laws have been enacted in
Arkansas and Texas. These matters are discussed more thoroughly in Note 2
to the financial statements.
Entergy Arkansas
Retail Rate Proceedings
Entergy Arkansas' material retail rate proceedings that were resolved
during the past year, are currently pending, or affect current year results
are discussed in Note 2 to the financial statements.
Recovery of Grand Gulf 1 Costs
Under the settlement agreement entered into with the APSC in 1985 and
amended in 1988, Entergy Arkansas retains 22% of its share of Grand Gulf 1
costs and recovers the remaining 78% of its share through rates. Under the
Unit Power Sales Agreement, Entergy Arkansas' share of Grand Gulf 1 costs
is 36%. In the event Entergy Arkansas is not able to sell its retained
share to third parties, it may sell such energy to its retail customers at
a price equal to its avoided energy cost, which is currently less than
Entergy Arkansas' cost of energy from the retained share.
Fuel Recovery
Entergy Arkansas' rate schedules include an energy cost recovery rider
to recover fuel and purchased energy costs. The rider utilizes projected
energy costs for the twelve month period commencing on April 1 of each year
to develop an energy cost rate, which is redetermined annually and includes
a true-up adjustment reflecting the over-recovery or under-recovery of the
energy cost for the prior calendar year.
Rate Freeze
In December 1997, the APSC approved a settlement agreement resolving
Entergy Arkansas' transition to competition case. One provision in that
settlement was that base rates would remain at the level resulting from
that case until July 1, 2001. The terms of the settlement agreement are
discussed in Note 2 to the financial statements.
Entergy Gulf States
Retail Rate Proceedings
Entergy Gulf States' material retail rate proceedings that were
resolved during the past year, are currently pending, or affect current
year results are discussed in Note 2 to the financial statements. In
addition, the 1999 agreement that settled Entergy Gulf States' 1996 and
1998 rate proceedings, which is currently under appeal, and various other
matters is discussed in Note 2 to the financial statements.
Texas Jurisdiction - River Bend
In March 1998, the PUCT issued an order disallowing recovery of $1.4
billion of company-wide abeyed River Bend plant costs which have been held
in abeyance since 1988. Entergy Gulf States has appealed the PUCT's
decision on this matter to a Texas District Court. The settlement
agreement mentioned above addresses the treatment of abeyed plant costs,
and, as a result, Entergy Gulf States removed the reserve for these costs
and reduced the plant asset in 1999. Based on advice of counsel,
management believes that it is probable that the matter will be remanded
again to the PUCT for a further ruling on the prudence of the abeyed plant
costs and it is reasonably possible that some portion of these costs will
be included in rate base. The abeyed plant costs are discussed in more
detail in Note 2 to the financial statements.
Fuel Recovery
Entergy Gulf States' Texas rate schedules include a fixed fuel factor
to recover fuel and purchased power costs not recovered in base rates. The
settlement agreement mentioned above established a methodology for semi-
annual revisions of the fixed fuel factor in March and September based on
the market price of natural gas. This agreement is effective through
December 2001 or until otherwise ordered by the PUCT. To the extent actual
costs vary from the fixed fuel factor, refunds or surcharges are required
or permitted. Fuel costs are also subject to reconciliation proceedings at
least every three years.
Entergy Gulf States' Louisiana electric rate schedules include a fuel
adjustment clause designed to recover the cost of fuel and purchased power
costs in the second prior month, adjusted by a surcharge or credit for
deferred fuel expense arising from the monthly reconciliation of actual
fuel costs incurred with fuel revenues billed to customers. The LPSC and
the PUCT fuel cost reviews that were resolved during the past year or are
currently pending are discussed in Note 2 to the financial statements.
Entergy Gulf States' Louisiana gas rates include a purchased gas
adjustment based on estimated gas costs for the billing month adjusted by a
surcharge or credit for deferred fuel expense arising from the monthly
reconciliation of actual fuel costs incurred with fuel cost revenues billed
to customers.
Entergy Louisiana
Retail Rate Proceedings
Entergy Louisiana's material retail rate proceedings that were
resolved during the past year, are currently pending, or affect current
year results are discussed in Note 2 to the financial statements.
Recovery of Grand Gulf 1 Costs
In a series of LPSC orders, court decisions, and agreements from late
1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to
costs associated with Entergy Louisiana's share of capacity and energy from
Grand Gulf 1, subject to certain terms and conditions. In November 1988,
Entergy Louisiana agreed to retain, and not recover from retail ratepayers,
18% of its 14% share of the costs of Grand Gulf 1's capacity and energy.
Non-fuel operation and maintenance costs for Grand Gulf 1 are recovered
through Entergy Louisiana's base rates. Additionally, Entergy Louisiana is
allowed to recover, through the fuel adjustment clause, 4.6 cents per KWH
for the energy related to its retained portion of these costs.
Alternatively, Entergy Louisiana may sell such energy to nonaffiliated
parties at prices above the fuel adjustment clause recovery amount, subject
to the LPSC's approval.
Performance-Based Formula Rate Plan
Entergy Louisiana's performance-based formula rate plan filings are
discussed in Note 2 to the financial statements.
Fuel Recovery
Entergy Louisiana's rate schedules include a fuel adjustment clause
designed to recover the cost of fuel in the second prior month, adjusted by
a surcharge or credit for deferred fuel expense arising from the monthly
reconciliation of actual fuel costs incurred with fuel cost revenues billed
to customers. In May 1999, the LPSC issued an order requiring Entergy
Louisiana to realign approximately $15.9 million of certain fuel costs from
the fuel adjustment clause to base rates.
Entergy Mississippi
Retail Rate Proceedings
Entergy Mississippi's material retail rate proceedings that were
resolved during the past year, are currently pending, or affect current
year results are discussed in Note 2 to the financial statements.
Performance-Based Formula Rate Plan
Under its performance-based formula rate plan, Entergy Mississippi's
earned rate of return is calculated automatically every 12 months and
compared to and adjusted against a benchmark rate of return. The benchmark
is calculated under a separate formula within the formula rate plan. The
formula rate plan allows for periodic small adjustments in rates based on a
comparison of actual earned returns to benchmark returns and upon certain
performance factors. The formula rate plan filing for the 1998 test year
is discussed in Note 2 to the financial statements. The formula rate plan
filing for the 1999 test year will be submitted in March 2000.
Fuel Recovery
Entergy Mississippi's rate schedules include an energy cost recovery
rider to recover fuel and purchased energy costs. The rider utilizes
projected energy costs for the coming calendar year to develop an energy
cost rate, which is redetermined annually and includes a true-up adjustment
reflecting the over-recovery or under-recovery of the energy cost as of
September 30 immediately preceding the annual redetermination.
Entergy New Orleans
Retail Rate Proceedings
Entergy New Orleans' material retail rate proceedings that were
resolved during the past year, are currently pending, or affect current
year results are discussed in Note 2 to the financial statements.
Recovery of Grand Gulf 1 Costs
Under Entergy New Orleans' various rate settlements with the Council
in 1986, 1988, and 1991, Entergy New Orleans agreed to absorb and not
recover from ratepayers a total of $96.2 million of its Grand Gulf 1 costs.
Entergy New Orleans was permitted to implement annual rate increases in
decreasing amounts each year through 1995, and to defer certain costs and
related carrying charges for recovery on a schedule extending from 1991
through 2001. As of December 31, 1999, the uncollected balance of Entergy
New Orleans' deferred costs was $35.7 million.
Fuel Recovery
Entergy New Orleans' electric rate schedules include a fuel adjustment
clause designed to recover the cost of fuel in the second prior month,
adjusted by a surcharge or credit for deferred fuel expense arising from
the monthly reconciliation of actual fuel costs incurred with fuel cost
revenues billed to customers. The adjustment also includes the difference
between non-fuel Grand Gulf 1 costs paid by Entergy New Orleans and the
estimate of such costs, which are included in base rates, as provided in
Entergy New Orleans' Grand Gulf 1 rate settlements. Entergy New Orleans'
gas rate schedules include an adjustment to reflect estimated gas costs for
the billing month, adjusted by a surcharge or credit similar to that
included in the electric fuel adjustment clause.
Regulation
Federal Regulation (Entergy Corporation, Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and
System Energy)
PUHCA
Entergy Corporation and its various direct and indirect subsidiaries
(with the exception of its EWG and FUCO subsidiaries) are subject to the
broad regulatory provisions of PUHCA. Except with respect to investments
in certain domestic power projects and foreign utility company projects,
the principal regulatory provisions of PUHCA:
o limit the operations of a registered holding company system to a
single, integrated public utility system, plus certain ancillary
and related systems and businesses;
o regulate certain transactions among affiliates within a holding
company system;
o govern the issuance, acquisition and disposition of securities
and assets by registered holding companies and their subsidiaries;
o limit the entry by registered holding companies and their
subsidiaries into businesses other than electric and/or gas
utility businesses; and
o require SEC approval for certain utility mergers and acquisitions.
Entergy Corporation and other electric utility holding companies have
supported legislation in the United States Congress to repeal PUHCA and
transfer certain aspects of the oversight of public utility holding
companies from the SEC to FERC. Entergy believes that PUHCA inhibits its
ability to compete in the evolving electric energy marketplace and largely
duplicates the oversight activities otherwise performed by FERC and other
federal regulators and by state and local regulators. In June 1995, the
SEC adopted a report proposing options for the repeal or significant
modification of PUHCA.
Federal Power Act
The domestic utility companies, System Energy, Entergy Power, and EPMC
are subject to the Federal Power Act as administered by FERC and the DOE.
The Federal Power Act provides for regulatory jurisdiction over the
transmission and wholesale sale of electric energy in interstate commerce,
licensing of certain hydroelectric projects and certain other activities,
including accounting policies and practices. Such regulation includes
jurisdiction over the rates charged by System Energy for Grand Gulf 1
capacity and energy provided to Entergy Arkansas, Entergy Louisiana,
Entergy Mississippi, and Entergy New Orleans.
Entergy Arkansas holds a FERC license for two hydroelectric projects
(70 MW), which was renewed on July 2, 1980 and expires in February 2003.
In February 1998, Entergy Arkansas filed notice of its intent to relicense
these hydroelectric projects.
Regulation of the Nuclear Power Industry (Entergy Corporation, Entergy
Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy)
Regulation of Nuclear Power
Under the Atomic Energy Act of 1954 and the Energy Reorganization Act
of 1974, the operation of nuclear plants is heavily regulated by the NRC,
which has broad power to impose licensing and safety-related requirements.
In the event of non-compliance, the NRC has the authority to impose fines
or shut down a unit, or both, depending upon its assessment of the severity
of the situation, until compliance is achieved. Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana, and System Energy, as owners of all or
portions of ANO, River Bend, Waterford 3, and Grand Gulf 1, respectively,
and Entergy Operations, as the licensee and operator of these units, are
subject to the jurisdiction of the NRC. Additionally, Entergy's non-
utility nuclear power business is subject to the NRC's jurisdiction as the
owner and operator of Pilgrim. Revised safety requirements promulgated by
the NRC have, in the past, necessitated substantial capital expenditures at
these nuclear plants, and additional expenditures could be required in the
future.
The nuclear power industry faces uncertainties with respect to the
cost and long-term availability of sites for disposal of spent nuclear fuel
and other radioactive waste, nuclear plant operations, the technological
and financial aspects of decommissioning plants at the end of their
licensed lives, and requirements relating to nuclear insurance. These
matters are briefly discussed below.
Regulation of Spent Fuel and Other High-Level Radioactive Waste
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a
specified fee, to construct storage facilities for, and to dispose of, all
spent nuclear fuel and other high-level radioactive waste generated by
domestic nuclear power reactors. However, the DOE has not yet identified a
permanent storage repository and, as a result, future expenditures may be
required to increase spent fuel storage capacity at Entergy's nuclear plant
sites. Information concerning spent fuel disposal contracts with the DOE,
current on-site storage capacity, and costs of providing additional on-site
storage is presented in Note 9 to the financial statements.
Regulation of Low-Level Radioactive Waste
The availability and cost of disposal facilities for low-level
radioactive waste resulting from normal nuclear plant operations are
subject to a number of uncertainties. Under the Low-Level Radioactive
Waste Policy Act of 1980, as amended, each state is responsible for
disposal of waste originating in that state, but states may participate in
regional compacts to fulfill their responsibilities jointly. The States of
Arkansas and Louisiana participate in the Central Interstate Low-Level
Radioactive Waste Compact (Central States Compact), and the State of
Mississippi participates in the Southeast Low-Level Radioactive Waste
Compact (Southeast Compact). Both the Central States Compact and the
Southeast Compact have experienced significant delays in the development of
waste storage facilities. Massachusetts, where Pilgrim is located, does
not participate in any regional compact and has been slow to fulfill its
responsibility. Two disposal sites are currently operating in the United
States, but only one site, the Barnwell Disposal Facility (Barnwell)
located in South Carolina, is open to out-of-region generators. The
availability of Barnwell provides only a temporary solution for Entergy's
low-level radioactive waste storage, and does not alleviate the need to
develop new disposal capacity.
The Southeast Compact process is currently on hold pending resolution
of future funding. In December 1998, the host state for the Central States
Compact, Nebraska, denied the license application. In December 1998,
Entergy and two other utilities in the Central States Compact filed a
lawsuit against the state of Nebraska seeking damages resulting from delays
and a faulty license review process. Entergy Arkansas, Entergy Louisiana,
and Entergy Gulf States, along with other waste generators, fund the
development costs for new disposal facilities relating to the Central
States Compact. Development costs to be incurred in the future are
difficult to predict. The current schedules for the site development in
both the Central States Compact and the Southeast Compact are undetermined
at this time. Until long-term disposal facilities are established, Entergy
will seek continued access to existing facilities. If such access is
unavailable, Entergy will store low-level waste at its nuclear plant sites.
Regulation of Nuclear Plant Decommissioning
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System
Energy are recovering through electric rates the estimated decommissioning
costs for ANO, River Bend, Waterford 3, and Grand Gulf 1, respectively.
These amounts are deposited in trust funds which, together with the related
earnings, can only be used for future decommissioning costs. Estimated
decommissioning costs are periodically reviewed and updated to reflect
inflation and changes in regulatory requirements and technology.
Applications are periodically made to appropriate regulatory authorities to
reflect, in rates, the changes in projected decommissioning costs. In
conjunction with the Pilgrim acquisition, Entergy received Pilgrim's
decommissioning trust fund. Based on cost estimates provided by an outside
consultant, Entergy believes that Pilgrim's decommissioning fund will be
adequate to cover future decommissioning costs for the plant without any
additional deposits to the trust. Additional information with respect to
decommissioning costs for ANO, River Bend, Waterford 3, Grand Gulf 1, and
Pilgrim is found in Note 9 to the financial statements.
The EPAct requires all electric utilities (including Entergy Arkansas,
Entergy Gulf States, Entergy Louisiana, and System Energy) that purchased
uranium enrichment services from the DOE to contribute up to a total of
$150 million annually over approximately 15 years (adjusted for inflation,
up to a total of $2.25 billion) for decontamination and decommissioning of
enrichment facilities. In accordance with the EPAct, contributions to
decontamination and decommissioning funds are recovered through rates in
the same manner as other fuel costs. The estimated annual contributions by
Entergy for decontamination and decommissioning fees are discussed in Note
9 to the financial statements.
Nuclear Insurance
The Price-Anderson Act limits public liability for a single nuclear
incident to approximately $9.5 billion. Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, System Energy, and Entergy's non-utility nuclear
power business have protection with respect to this liability through a
combination of private insurance and an industry assessment program, as
well as insurance for property damage, costs of replacement power, and
other risks relating to nuclear generating units. Insurance applicable to
the nuclear programs of Entergy is discussed in Note 9 to the financial
statements.
Nuclear Operations
General (Entergy Corporation, Entergy Arkansas, Entergy Gulf States,
Entergy Louisiana, and System Energy)
Entergy Operations operates ANO, River Bend, Waterford 3, and Grand
Gulf 1, subject to the owner oversight of Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, and System Energy, respectively. Entergy
Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy pay
directly or reimburse Entergy Operations at cost for its operation of the
nuclear units. Entergy's non-utility nuclear power business is the operator
of Pilgrim.
ANO Matters (Entergy Corporation and Entergy Arkansas)
The replacement of steam generators at ANO 2 is discussed in Note 9 to
the financial statements.
In February 2000, Entergy Arkansas applied to the NRC for an extension
of ANO 1's operating license. The current license expires in 2014, and, if
granted, the extension would provide the authority to continue operating
the plant until 2034. Management expects the NRC consideration process to
take two years.
State Regulation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana,
Entergy Mississippi, and Entergy New Orleans)
General
Entergy Arkansas is subject to regulation by the APSC, which includes
the authority to:
o oversee utility service;
o set rates;
o determine reasonable and adequate service;
o require proper accounting;
o control leasing;
o control the acquisition or sale of any public utility plant or
property constituting an operating unit or system;
o set rates of depreciation;
o issue certificates of convenience and necessity and certificates of
environmental compatibility and public need; and
o regulate the issuance and sale of certain securities.
Entergy Gulf States is subject to the jurisdiction of the municipal
authorities of a number of incorporated cities in Texas as to retail rates
and service within their boundaries, with appellate jurisdiction over such
matters residing in the PUCT. Entergy Gulf States' Texas business is also
subject to regulation by the PUCT as to:
o retail rates and service in rural areas;
o certification of new generating plants; and
o extensions of service into new areas.
Entergy Gulf States' Louisiana electric and gas business and Entergy
Louisiana are subject to regulation by the LPSC as to:
o utility service;
o rates and charges;
o certification of generating facilities;
o power or capacity purchase contracts; and
o depreciation, accounting, and other matters.
Entergy Louisiana is also subject to the jurisdiction of the Council
with respect to such matters within Algiers in Orleans Parish.
Entergy Mississippi is subject to regulation by the MPSC as to the
following:
o utility service;
o service areas;
o facilities; and
o retail rates.
Entergy Mississippi is also subject to regulation by the APSC as to
the certificate of environmental compatibility and public need for the
Independence Station, which is located in Arkansas.
Entergy New Orleans is subject to regulation by the Council as to the
following:
o utility service;
o rates and charges;
o standards of service;
o depreciation, accounting, and issuance of certain securities; and
o other matters.
Franchises
Entergy Arkansas holds exclusive franchises to provide electric
service in approximately 303 incorporated cities and towns in Arkansas.
These franchises are unlimited in duration and continue unless the
municipalities purchase the utility property. In Arkansas, franchises are
considered to be contracts and, therefore, are terminable upon breach of
the terms of the franchise.
Entergy Gulf States holds non-exclusive franchises, permits, or
certificates of convenience and necessity to provide electric and gas
service in approximately 55 incorporated municipalities in Louisiana and
approximately 63 incorporated municipalities in Texas. Entergy Gulf States
typically is granted 50-year franchises in Texas and 60-year franchises in
Louisiana. Entergy Gulf States' current electric franchises will expire
during 2007 - 2036 in Texas and during 2015 - 2046 in Louisiana. The
natural gas franchise in the City of Baton Rouge will expire in 2015. In
addition, Entergy Gulf States holds a certificate of convenience and
necessity from the PUCT to provide electric service to areas within 21
counties in eastern Texas.
Entergy Louisiana holds non-exclusive franchises to provide electric
service in approximately 116 incorporated Louisiana municipalities. Most
of these franchises have 25-year terms, although six of these
municipalities have granted 60-year franchises. Entergy Louisiana also
supplies electric service in approximately 353 unincorporated communities,
all of which are located in Louisiana parishes in which it holds non-
exclusive franchises.
Entergy Mississippi has received from the MPSC certificates of public
convenience and necessity to provide electric service to areas within 45
counties, including a number of municipalities, in western Mississippi.
Under Mississippi statutory law, such certificates are exclusive. Entergy
Mississippi may continue to serve in such municipalities upon payment of a
statutory franchise fee, regardless of whether an original municipal
franchise is still in existence.
Entergy New Orleans provides electric and gas service in the City of
New Orleans pursuant to city ordinances (except for in Algiers, which is
served by Entergy Louisiana). These ordinances contain a continuing option
for the City of New Orleans to purchase Entergy New Orleans' electric and
gas utility properties.
The business of System Energy is limited to wholesale power sales. It
has no distribution franchises.
Environmental Regulation
General
Entergy's facilities and operations are subject to regulation by
various domestic and foreign governmental authorities having jurisdiction
over air quality, water quality, control of toxic substances and hazardous
and solid wastes, and other environmental matters. Management believes
that its affected subsidiaries are in substantial compliance with
environmental regulations currently applicable to their facilities and
operations. Because environmental regulations are subject to change,
future compliance costs cannot be precisely estimated. However, management
estimates that future capital expenditures for environmental compliance
will not be material for Entergy or any of its reporting subsidiaries.
Clean Air Legislation
The Clean Air Act Amendments of 1990 (the Act) established the
following three programs that currently or in the future may affect
Entergy's fossil-fueled generation:
o an acid rain program for control of sulfur dioxide (SO2) and
nitrogen oxides (NOx);
o an ozone nonattainment area program for control of NOx and volatile
organic compounds; and
o an operating permits program for administration and enforcement of
these and other Act programs.
Under the acid rain program, Entergy's subsidiaries do not anticipate
that they will require additional equipment to control SO2 The Act
provides allowances to most of the affected Entergy generating units for
emissions based upon past emission levels and operating characteristics.
Each allowance is an entitlement to emit one ton of SO2 per year. Under
the Act, utilities are or will be required to possess allowances for SO2
emissions from affected generating units. All Entergy fossil-fueled
generating units are classified as "Phase II" units under the Act and are
subject to SO2 allowance requirements beginning in the year 2000.
Management believes that it will be able to operate the domestic utility
companies' generating units efficiently without installing scrubbers or
experiencing other significant expenditures.
Additional control equipment was recently installed at certain Entergy
Gulf States generating units to achieve NOx reductions due to the ozone
nonattainment status of areas served in and around Beaumont and Houston,
Texas. Texas environmental authorities imposed NOx controls on power
plants that had to be in place by November 1999. Entergy Gulf States
believes the cost of additional control equipment necessary to maintain
this compliance is immaterial. In December 1999, Texas authorities
proposed future control strategies for public comment. Depending on the
final strategies adopted, additional costs will likely be incurred between
2000 and 2007. Entergy Gulf States has studies underway to estimate the
costs that would be incurred based on the proposed strategies. These
estimates will be refined during 2000 based on the final adopted strategies
approved by the EPA.
As part of legislation passed in Texas in June 1999 to restructure the
electric power industry in the state, certain generating units of Entergy
Gulf States will be required to obtain operating permits and meet new,
lower emission limits for NOx. It is expected that Entergy Gulf States
will incur costs of approximately $6 million between 2000 and 2003 to meet
these new standards. These costs may or may not be recoverable in the
restructured electric utility environment.
Other Environmental Matters
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended (CERCLA), authorizes the EPA and, indirectly, the
states, to mandate cleanup, or reimbursement of clean-up costs, by parties
that generate or transport hazardous substances released from or at a site.
Owners and operators of such sites also are deemed liable by CERCLA.
CERCLA has been interpreted to impose joint and several liability on
responsible parties. The domestic utility companies have sent waste
materials to various disposal sites over the years. In addition,
environmental laws now regulate certain of the domestic utility companies'
operating procedures and maintenance practices which historically were not
subject to regulation. Some of Entergy's disposal sites have been the
subject of governmental action under CERCLA, resulting in site clean-up
activities. The domestic utility companies have participated to various
degrees in accordance with their respective potential liabilities in such
site cleanups and have developed experience with clean-up costs. The
affected domestic utility companies have established reserves for such
environmental clean-up and restoration activities.
Entergy Arkansas
Entergy Arkansas has received notices from the EPA and the Arkansas
Department of Environmental Quality (ADEQ) alleging that Entergy Arkansas,
along with others, may be a PRP for clean-up costs associated with various
sites in Arkansas. Contaminants at the sites include polychlorinated
biphenyls (PCBs), lead, and other hazardous substances.
Entergy Arkansas identified PCB contamination at the Little Rock Radio
Tower site (formerly Pulaski Heights Substation) during the fall of 1998.
Entergy Arkansas performed extensive sampling to determine the extent of
contamination and received approval from the EPA on its work plan for
remediation. Cleanup of the site was completed in November 1999 at a cost
of approximately $320,000. Entergy Arkansas does not believe that any
further liability, if any, with respect to this site will be material.
Entergy Arkansas entered into a Consent Administrative Order with the
ADEQ in 1991 that named Entergy Arkansas as a PRP for the initial
stabilization associated with contamination at the Utilities Services, Inc.
state Superfund site located near Rison, Arkansas. This site is neither
owned nor operated by any Entergy-affiliated company. This site was found
to have soil contaminated by PCBs and pentachlorophenol (a wood
preservative). Containers and drums that contained PCBs and other
hazardous substances were found at the site. Entergy Arkansas worked with
the ADEQ to identify and notify other PRPs with respect to this site.
Approximately twenty PRPs have been identified to date. In December 1999,
Entergy Arkansas, along with several other PRPs, met with ADEQ
representatives to discuss the cleanup of the site. The PRPs are being
encouraged to undertake a voluntary cleanup and have begun discussions
regarding the sharing of costs. Entergy Arkansas' share of total
remediation costs at this site is estimated at $2.7 million. As of
December 31, 1999, Entergy Arkansas had incurred approximately $400,000 of
these costs.
Entergy Gulf States
Entergy Gulf States has been designated by the EPA as a PRP for the
cleanup of certain hazardous waste disposal sites. Entergy Gulf States is
negotiating with the EPA and state authorities regarding the cleanup of
these sites. Several class action and other suits have been filed in state
and federal courts seeking relief from Entergy Gulf States and others for
damages caused by the disposal of hazardous waste and for asbestos-related
disease allegedly resulting from exposure on Entergy Gulf States' premises
(see "Other Regulation and Litigation" below).
In August 1999, Entergy Gulf States received notice from the Texas
Natural Resource Conservation Commission (TNRCC) that it is considered to
be a PRP for the Spector Salvage Yard in Orange, Texas. The Spector
Salvage site operated from approximately 1944 until ceasing operations in
1971. In addition to general salvage, the facility functioned as a
repository for military surplus equipment and supplies purchased from
military, industrial, and chemical facilities. Soil samples from the site
indicate the release of heavy metals and various organics, including PCBs.
The TNRCC requested of all PRPs a submission of a good faith offer to fully
fund or conduct a remedial investigation. Entergy Gulf States is still
developing its submission and has yet to determine the extent of its
participation as a PRP. Based on the size of the site, future expenditures
for investigation and clean-up are estimated at $400,000.
Entergy Gulf States is currently involved in a remedial investigation
of the Lake Charles Service Center site, located in Lake Charles,
Louisiana. A manufactured gas plant (MGP) is believed to have operated at
this site from approximately 1916 to 1931. Coal tar, a by-product of the
distillation process employed at MGPs, was apparently routed to a portion
of the property for disposal. The same area has also been used as a
landfill. In 1999, Entergy Gulf States signed a second Administrative
Consent Order with the EPA to perform removal action at the site. Entergy
Gulf States believes that its ultimate responsibility for this site will
not materially exceed its existing clean-up provision of $19 million.
Entergy Gulf States is currently involved in the second phase of an
investigation of contamination of an MGP site, known as the Old Jennings
Ice Plant, located in Jennings, Louisiana. The MGP is believed to have
operated from approximately 1909 to 1926. The site is currently used for
an electrical substation and storage of transmission and distribution
equipment. In July 1996, a petroleum-like substance was discovered on the
surface soil, and notification was made to the LDEQ. The LDEQ was aware of
this site based upon a survey performed by an environmental consultant for
the EPA. Entergy Gulf States obtained the services of an environmental
consultant to collect core samples and to perform a search of historical
records to determine what activities occurred at Jennings. Results of the
core sampling, which found limited amounts of contamination on-site, were
submitted to the LDEQ. A plan to determine a cost-effective remediation
strategy will be developed upon completion of a review of the sampling
report by the LDEQ. Entergy does not expect that its ultimate financial
responsibility with respect to this site will be material. The amount of
its existing provision for cleanup is $500,000.
In 1994, Entergy Gulf States performed a site assessment in
conjunction with a construction project at the Louisiana Station Generating
Plant (Louisiana Station). In 1995, a further assessment confirmed
subsurface soil and groundwater impact to three areas on the plant site.
After further evaluation, a notification was made to the LDEQ. Remediation
of Louisiana Station is expected to continue through 2001. The remediation
cost incurred through December 31, 1999 for this site was $5.6 million.
Future costs are not expected to exceed the existing provision of $1.9
million.
Entergy New Orleans
Entergy New Orleans has completed the stabilization and abatement of
asbestos containing material at the A. B. Paterson Generating Plant located
in New Orleans, Louisiana. Entergy notified the LDEQ of its intent to
repair and remove insulation and machinery gaskets. On-site abatement of
gaskets and insulating material was completed during the third quarter of
1999. The cost incurred through December 31, 1999 was approximately
$1.9 million. Future costs are not expected to be material.
Entergy New Orleans is planning a new substation on a parcel of land
located adjacent to an existing substation which is in close proximity to
the Market Street power plant. During pre-construction activities in
January 2000, significant levels of lead were discovered in both soil and
groundwater at this site. Entergy New Orleans has notified the LDEQ of the
contamination. In addition to soil removal and disposal, installation of
groundwater monitoring wells and a long-term monitoring program may be
required. Entergy New Orleans believes remediation costs will not exceed
$2 million.
Entergy Louisiana and Entergy New Orleans
Entergy Louisiana and Entergy New Orleans have received notices from
the EPA and/or the states of Louisiana and Mississippi that one or more of
them may be a PRP for the following disposal sites, which are neither owned
nor operated by any Entergy subsidiary:
o In October 1997, the Mississippi Department of Environmental Quality
(MDEQ) ordered Entergy Louisiana to implement a remedial action work
plan prepared by a PRP committee for Disposal Systems, Inc. sites
at Fifth Street (Clay Point) and Lee Street in Biloxi, Mississippi, and
at Woolmarket, Mississippi. The MDEQ issued a similar order on the
same date to Entergy Louisiana's contractor, Ebasco Services, Inc.
(Ebasco), which Entergy Louisiana has agreed to defend and indemnify.
A settlement was negotiated for Entergy Louisiana, including Ebasco,
for $289,000. This settlement relieved Entergy Louisiana of future
liabilities associated with these sites.
o From 1992 to 1994, Entergy Louisiana performed a site assessment and
remedial activities at a retired power plant known as the Thibodaux
municipal site, previously owned and operated by a Louisiana
municipality. Entergy Louisiana purchased the power plant at this
site as part of the acquisition of municipal electric systems. The
site assessment indicated some subsurface contamination from fuel
oil. Remediation of the Thibodaux site is expected to continue
through 2001. The cost incurred through December 31, 1999 for the
Thibodaux site was $502,000. Future costs are not expected to
exceed the existing provision of $318,000.
During 1993, the LDEQ issued new rules for solid waste regulation,
including regulation of wastewater impoundments. Entergy Louisiana and
Entergy New Orleans have determined that certain of their power plant
wastewater impoundments were affected by these regulations and have chosen
to upgrade or close them. As a result, a remaining recorded liability in
the amount of $5.9 million for Entergy Louisiana and $0.5 million for
Entergy New Orleans existed at December 31, 1999 for wastewater upgrades
and closures. Completion of this work is pending LDEQ approval.
Other Regulation and Litigation
Merger (Entergy Corporation and Entergy Gulf States)
Several parties, including Entergy Services, appealed FERC's approval
of the Merger to the D.C. Circuit. Entergy Services sought review of
FERC's deletion of a 40% cap on the amount of fuel savings Entergy Gulf
States may be required to transfer to other domestic utility companies
under a tracking mechanism designed to protect the other companies from
certain unexpected increases in fuel costs. The other parties sought to
overturn FERC's decisions on various grounds, including issues as to
whether FERC appropriately conditioned the Merger to protect various
interested parties from alleged harm and FERC's reliance on Entergy's
transmission tariff to mitigate any potential anticompetitive impacts of
the Merger. The D.C. Circuit has ordered that the cases be held in
abeyance pending FERC's issuance of a final order on remand in the
proceedings on Entergy's transmission tariff (see discussion of tariff case
in "RATE MATTERS AND REGULATION - Rate Matters - Wholesale Rate Matters -
Open Access Transmission" above).
Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Entergy Corporation and the domestic utility companies are defendants
in numerous lawsuits that have been filed by former employees alleging that
they were wrongfully terminated and/or discriminated against on the basis
of age, race, and/or sex. Entergy Corporation and the domestic utility
companies are vigorously defending these suits and deny any liability to
the plaintiffs. However, no assurance can be given as to the outcome of
these cases.
Asbestos and Hazardous Waste Suits (Entergy Gulf States)
Several lawsuits have been filed on behalf of plaintiffs in state and
federal courts in Texas and Louisiana that seek relief from Entergy Gulf
States as well as numerous other defendants for damages caused to the
plaintiffs or others by the alleged exposure to hazardous waste and
asbestos on the defendants' premises. The plaintiffs in some suits are
also suing Entergy Gulf States and all other defendants on a conspiracy
claim. It will not be known until discovery is complete how many of the
plaintiffs in any of the foregoing cases actually worked on Entergy Gulf
States' premises. Entergy Gulf States believes that the ultimate
resolution of these matters will not be material, in the aggregate, to its
financial position or results of operations.
Union Pacific Railroad (Entergy Corporation and Entergy Arkansas)
In October 1997, Entergy Arkansas and Entergy Services filed a civil
suit against Union Pacific Railroad Company (Union Pacific) in the United
States District Court for the Middle District of Louisiana. This suit
seeks damages and the termination of coal shipping contracts with Union
Pacific because of Union Pacific's failure to meet its contractual
obligations to ship coal to Entergy Arkansas' two coal-fired plants. The
lawsuit also alleges that such failure has impaired Entergy Arkansas'
ability to generate and sell electricity from these plants. The case has
been transferred to the United States District Court for the District of
Nebraska. In January 1999, on cross motions for summary judgment, the
court ruled that Union Pacific has breached obligations under the
contracts. Under the court's ruling, if the breaches of the contracts by
Union Pacific are proven at trial to be material, rescission of the
contracts is available to Entergy as a remedy, in addition to the monetary
damages to be awarded.
Aquila Power Corporation (Entergy Corporation, Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans)
In March 1998, Aquila Power Corporation ("Aquila") filed a complaint
with FERC against Entergy Services, as agent for the domestic utility
companies, alleging that the domestic utility companies improperly
reserved transmission capacity on Entergy's transmission system, resulting
in the denial of Aquila's request for transmission service. Aquila's
complaint seeks compensation for lost profits, an order prohibiting
Entergy and/or its affiliates from engaging in similar conduct, and
suspension of the domestic utility companies' and EPMC's market-rate
authority. In May 1998, Entergy filed its response denying the Aquila
allegations. Subsequently, Aquila amended and restated its complaint,
alleging additional instances of improper activities by Entergy. In
addition to its requests in its original complaint, Aquila's amended
complaint seeks a finding by FERC that Entergy is in violation of FERC
Orders No. 888 and 889, and an order that Entergy should be required to
join or agree to the formation of an independent system operator. Entergy
filed its response to the amended and restated complaint in July 1998,
denying the alleged improper conduct, and also moved to dismiss Aquila's
complaint in September 1998. Aquila has responded, and no hearing date
has been set by FERC.
Ratepayer Lawsuits (Entergy Corporation, Entergy Gulf States, Entergy
Louisiana, and Entergy New Orleans)
In May 1998, a group of ratepayers filed a complaint against Entergy
Corporation, Entergy Power, and Entergy Louisiana in state court in Orleans
Parish purportedly on behalf of all Entergy Louisiana ratepayers. The
plaintiffs seek treble damages for alleged injuries arising from the
defendants' alleged violations of Louisiana's antitrust laws in connection
with the costs included in fuel filings with the LPSC and passed through to
ratepayers. Among other things, plaintiffs allege that Entergy Louisiana
improperly introduced certain costs into the calculation of the fuel
charges, including imprudently purchased high-cost electricity from its
affiliates and imprudently purchased high-cost gas. Plaintiffs allege that
these practices violated Louisiana's antitrust laws. In addition,
plaintiffs seek to recover interest and attorney fees. Exceptions have
been filed by Entergy, asserting that this dispute should be litigated
before the LPSC and FERC. At the appropriate time, if necessary, Entergy
will raise its defenses to the antitrust claims. At present, the suit in
state court is stayed by stipulation of the parties.
Plaintiffs also filed this complaint with the LPSC to initiate a
review by the LPSC of Entergy Louisiana's monthly fuel adjustment charge
filings and to force restitution to ratepayers of all costs that the
plaintiffs allege were improperly included in those fuel adjustment
filings. Marathon Oil Company and Louisiana Energy Users Group have also
intervened in the LPSC proceeding. Discovery at the LPSC has been
conducted and is expected to continue. Direct testimony was filed with the
LPSC by plaintiffs and the intervenors in July 1999. In their testimony
for the period 1989 through 1998, plaintiffs purport to quantify many of
their claims in an amount totaling $544 million, plus interest. The
plaintiffs will likely assert additional damages for the period 1974
through 1988. The Entergy companies filed responsive and rebuttal
testimony in September 1999. Rebuttal testimony by the plaintiffs and
intervenors was filed in November 1999. Direct testimony of the LPSC staff
will be filed in April 2000, to which Entergy will be permitted to respond.
Hearings before the LPSC are scheduled to begin in September 2000.
Entergy intends to defend this matter vigorously, both in court and at
the LPSC. The outcome of the lawsuit and the LPSC proceeding cannot be
predicted at this time. Management has provided reserves for this, other
litigation, and Entergy Louisiana's formula rate plan proceedings based on
its estimate of the outcome of these proceedings. Information on formula
rate plan proceedings is given in Note 2 to the financial statements.
In April 1999, a group of ratepayers filed a complaint against Entergy
New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in
state court in Orleans Parish purportedly on behalf of all Entergy New
Orleans ratepayers. The plaintiffs seek treble damages for alleged
injuries arising from the defendants' alleged violations of Louisiana's
antitrust laws in connection with certain costs passed on to ratepayers in
Entergy New Orleans's fuel adjustment filings with the Council. In
particular, plaintiffs allege that Entergy New Orleans improperly included
certain costs in the calculation of fuel charges and that Entergy New
Orleans imprudently purchased high-cost fuel from other Entergy affiliates.
Plaintiffs allege that Entergy New Orleans and the other defendant Entergy
companies conspired to make these purchases to the detriment of Entergy New
Orleans' ratepayers and to the benefit of Entergy's shareholders, in
violation of Louisiana's antitrust laws. Plaintiffs also seek to recover
interest and attorney fees. Exceptions to the plaintiffs' allegations were
filed by Entergy, asserting, among other things, that jurisdiction over
these issues rests with the Council and FERC. If necessary, at the
appropriate time, Entergy will also raise its defenses to the antitrust
claims. At present, the suit in state court is stayed by stipulation of
the parties.
Plaintiffs also filed this complaint with the Council in order to
initiate a review by the Council of their allegations and to force
restitution to ratepayers of all costs they allege were improperly and
imprudently included in the fuel adjustment filings. Discovery has begun
in the proceedings before the Council. The plaintiffs have not yet stated
the amount of damages they claim. Entergy intends to defend this matter
vigorously, both in court and before the Council. The ultimate outcome of
the lawsuit and the Council proceeding cannot be predicted at this time.
In April 1998, a group of residential and business ratepayers filed a
complaint against Entergy New Orleans in state court in Orleans Parish
purportedly on behalf of all ratepayers in New Orleans. The plaintiffs
allege that Entergy New Orleans has overcharged ratepayers by at least $300
million since 1975 in violation of limits on Entergy New Orleans' rate of
return that the plaintiffs allege were established by ordinances passed by
the Council in 1922. The plaintiffs seek, among other things, (i) a
declaratory judgment that such franchise ordinances have been violated; and
(ii) a remand to the Council for the establishment of the amount of
overcharges plus interest. Entergy New Orleans believes the lawsuit is
without merit. Entergy New Orleans has charged only those rates authorized
by the Council in accordance with applicable law. Entergy New Orleans is
vigorously defending itself in the lawsuit.
In May 1998, a group of ratepayers filed a complaint against Entergy
Louisiana in state court in East Baton Rouge Parish purportedly on behalf
of all Entergy Louisiana ratepayers. The plaintiffs allege that the
formula ratemaking plan authorized by the LPSC has allowed Entergy
Louisiana to earn amounts in excess of a fair return. The plaintiffs seek,
among other things, (i) a declaratory judgment that the formula ratemaking
plan is an improper ratemaking practice; and (ii) a refund of the amounts
allegedly charged in excess of proper ratemaking practices. Entergy
Louisiana believes the lawsuit is without merit and is vigorously defending
itself.
On February 28, 2000, a lawsuit was commenced in the Civil District
Court for the Parish of Orleans, Louisiana, against Entergy, Entergy Gulf
States, Entergy Louisiana, and Entergy New Orleans relating to power
outages that occurred in July 1999. The plaintiff, who purports to
represent a class of similarly situated persons, claims unspecified damages
as a result of these outages, which the plaintiff claims were the result of
negligence on the part of the Entergy defendants. Entergy, Entergy Gulf
States, Entergy Louisiana, and Entergy New Orleans have not yet filed
responsive pleadings in the case. However, they will vigorously contest
the plaintiff's allegations, which they believe do not support any
liability to the plaintiff for damages.
Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States)
A discussion of this litigation is included under the caption "Cajun-
Coal Contracts" in Note 9 to the financial statements.
Franchise Fee Litigation (Entergy Corporation and Entergy Gulf States)
In September 1998, the City of Nederland filed a petition against
Entergy Gulf States and Entergy Services in state court in Jefferson
County, Texas, purportedly on behalf of all Texas municipalities that have
ordinances or agreements with Entergy Gulf States. The lawsuit alleges
that Entergy Gulf States has been underpaying its franchise fees due to
failure to properly calculate its gross receipts. The plaintiff seeks a
judgment for the allegedly underpaid fees and punitive damages. Entergy
Gulf States believes the lawsuit is without merit and is vigorously
defending itself.
Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf
States)
In May 1998, a group of property owners filed a petition against
Entergy Corporation, Entergy Gulf States, Entergy Services, and ETHC in
state court in Jefferson County, Texas purportedly on behalf of all
property owners throughout the Entergy service area who have conveyed
easements to the defendants. The lawsuit alleged that Entergy installed
fiber optic cable across their property without obtaining appropriate
easements. The plaintiffs sought actual damages for the use of the land
and a share of the profits made through use of the fiber optic cables and
punitive damages. The defendants have dismissed the petition in state
court, and the plaintiffs have commenced an identical lawsuit in the
United States District Court in Beaumont, Texas. Entergy is vigorously
defending itself in the lawsuit and believes that any damages suffered by
the plaintiff landowners are negligible and that there is no basis for the
claim seeking a share of profits.
Franchise Service Area Litigation (Entergy Gulf States)
In early 1998, Beaumont Power and Light Company (BP&L) unsuccessfully
sought a franchise to provide electric service in the City of Beaumont,
Texas, where Entergy Gulf States already holds a franchise. In November
1998, BP&L filed a request before the PUCT to obtain a certificate of
convenience and necessity (CCN) for those portions of Jefferson County
outside the boundaries of any municipality for which Entergy Gulf States
provides retail electric service. BP&L's application contemplates using
Entergy Gulf States' facilities in their provision of service. In Texas,
utilities are required to obtain a CCN prior to providing retail electric
service. Jefferson County is currently singly certificated to Entergy Gulf
States. If BP&L's application is granted, BP&L would be able to provide
retail service to Entergy Gulf States' customers in the area for which the
certificate would apply. BP&L has amended its application to add a request
for a CCN to provide retail electric service within the City of Beaumont.
The amended application acknowledges that the Texas electric utility
restructuring law requires BP&L to use its own facilities to connect to its
customers if it is granted a CCN. A hearing on the merits was conducted in
December 1999, and the ALJ is expected to issue a recommendation in for
consideration by the PUCT.
Hindusthan Development Corporation, Ltd. (Entergy Corporation)
In January 1999, Hindusthan Development Corporation (HDC) commenced an
arbitration proceeding in India against Entergy Power Asia Ltd. (EPAL), an
indirect, wholly owned subsidiary of Entergy Corporation. HDC alleges that
EPAL did not fulfill its obligations under a Joint Development Agreement
(JDA) to develop a 350 MW cogeneration plant to be built in Bina, India.
HDC also alleges that EPAL wrongfully withdrew as lead developer.
Entergy's management believes that HDC's allegations are without merit, and
that each party to the JDA had an absolute right of withdrawal. HDC is
seeking unspecified damages of $1.1 billion. EPAL is vigorously defending
itself in the arbitration proceeding.
Ice Storm Litigation (Entergy Corporation and Entergy Gulf States)
In January 1997, a group of Entergy Gulf States customers in Texas
filed a lawsuit against Entergy Corporation, Entergy Gulf States, and other
Entergy subsidiaries in state court in Jefferson County, Texas purportedly
on behalf of all Entergy Gulf States customers in Texas who sustained
outages in a January 1997 ice storm. The lawsuit alleges that Entergy
failed to properly maintain its electrical distribution system and respond
to the ice storm. The district court certified the class in April 1999.
Entergy has appealed the class certification, and arguments on the appeal
were heard in February 2000. Entergy believes that the lawsuit is without
merit and is vigorously defending itself. A similar lawsuit was filed in
Louisiana in 1997, in which class certification was denied.
Litigation Environment (Entergy Corporation, Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and
System Energy)
The four states in which the domestic utility companies operate, in
particular Louisiana, Mississippi, and Texas, have proven to be unusually
litigious environments. Judges and juries in Louisiana, Mississippi, and
Texas have demonstrated a willingness to grant large verdicts, including
punitive damages, to plaintiffs in personal injury, property damage, and
business tort cases. Entergy uses legal and appropriate means to contest
litigation threatened or filed against it, but the litigation environment
in these states poses a significant business risk.
<PAGE>
EARNINGS RATIOS OF DOMESTIC UTILITY COMPANIES AND SYSTEM ENERGY
The domestic utility companies' and System Energy's ratios of earnings
to fixed charges and ratios of earnings to combined fixed charges and
preferred dividends pursuant to Item 503 of SEC Regulation S-K are as
follows:
Ratios of Earnings to Fixed Charges
Years Ended December 31,
1999 1998 1997 1996 1995
Entergy Arkansas 2.08 2.63 2.54 2.93 2.56
Entergy Gulf States 2.18 1.40 1.42 1.47 1.86
Entergy Louisiana 3.48 3.18 2.74 3.16 3.18
Entergy Mississippi 2.44 3.04 2.98 3.40 2.92
Entergy New Orleans 3.00 2.59 2.70 3.51 3.93
System Energy 1.90 2.52 2.31 2.21 2.07
Ratios of Earnings to Combined Fixed
Charges and Preferred Dividends
Years Ended December 31,
1999 1998 1997 1996 1995
Entergy Arkansas 1.80 2.28 2.24 2.44 2.12
Entergy Gulf States(a) 1.86 1.20 1.23 1.19 1.54
Entergy Louisiana 3.09 2.75 2.36 2.64 2.60
Entergy Mississippi 2.18 2.73 2.69 2.95 2.51
Entergy New Orleans 2.74 2.36 2.44 3.22 3.56
(a) "Preferred Dividends" in the case of Entergy Gulf States also include
dividends on preference stock.
BUSINESS SEGMENTS
Entergy Corporation
Entergy's business segments are discussed in Note 14 to the financial
statements.
Entergy New Orleans
As of December 31, 1999, Entergy New Orleans operating revenues and
customer data was as follows:
Electric Operating Natural Gas
Revenue Revenue
Residential 40% 53%
Commercial 37% 20%
Industrial 7% 10%
Governmental/Municipal 16% 17%
Number of Customers 185,000 146,000
Entergy Gulf States
For the year ended December 31, 1999, 98% of Entergy Gulf States'
operating revenue was derived from the electric utility business. Of the
remaining operating revenues, one percent was derived from the steam
business and one percent from the natural gas business.
Financial Information Relating to Products and Services
Financial information relating to Entergy New Orleans' and Entergy
Gulf States' products and services is presented in their respective
financial statements.
PROPERTY
Generating Stations
Domestic Utility Companies and System Energy
The total capability of the generating stations owned and leased by
the domestic utility companies and System Energy as of December 31, 1999,
by company and by fuel type, is indicated below:
Owned and Leased Capability MW (1)
---------------------------------------------------
Gas
Turbine and
Internal
Company Total Fossil Nuclear Combustion Hydro
Entergy Arkansas 4,487 (2) 2,681 1,694 42 70
Entergy Gulf States 6,689 (2) 5,753 936 - -
Entergy Louisiana 5,561 (2) 4,467 1,075 19 -
Entergy Mississippi 3,063 (2) 3,052 - 11 -
Entergy New Orleans 1,077 1,061 - 16 -
System Energy 1,084 - 1,084 - -
---------------------------------------------------
Total 21,961 17,014 4,789 88 70
===================================================
(1) "Owned and Leased Capability" is the dependable load carrying
capability as demonstrated under actual operating conditions based on
the primary fuel (assuming no curtailments) that each station was
designed to utilize.
(2) Excludes the capacity of fossil-fueled generating stations placed on
extended reserve shutdown as follows: Entergy Arkansas - 204 MW;
Entergy Gulf States - 405 MW; Entergy Louisiana - 19 MW; and Entergy
Mississippi - 73 MW. Generating stations that are not expected to be
utilized in the near-term to meet load requirements are placed in
extended reserve shutdown in order to minimize operating expenses.
Entergy's load and capacity projections are reviewed periodically to
assess the need and timing for additional generating capacity and
interconnections in light of the availability of power, the location of new
loads, and maximum economy to Entergy. When the domestic utility companies
require new generation resources based on load and capability projections
and bulk power availability, they do not expect to construct new base load
generating capacity. Instead, they expect to meet future capacity needs
by, among other things, purchasing power in the wholesale power market
and/or removing generating stations from extended reserve shutdown.
Currently, plans are being implemented to reactivate several units that are
in extended reserve shutdown. The units, once back on line, will provide
an additional 417 MW of capacity to serve customers during peak demand.
Under the terms of the System Agreement, generating capacity and other
power resources are shared among the domestic utility companies. The
System Agreement provides, among other things, that parties having
generating reserves greater than their load requirements (long companies)
shall receive payments from those parties having deficiencies in generating
reserves (short companies). Such payments are at amounts sufficient to
cover certain of the long companies' costs, including operating expenses,
fixed charges on debt, dividend requirements on preferred and preference
stock, and a fair rate of return on common equity investment. Under the
System Agreement, these charges are based on costs associated with the long
companies' steam electric generating units fueled by oil or gas. In
addition, for all energy exchanged among the domestic utility companies
under the System Agreement, the short companies are required to pay the
cost of fuel consumed in generating such energy plus a charge to cover
other associated costs. FERC proceedings relating to the System Agreement
are discussed more thoroughly in "RATE MATTERS AND REGULATION - Rate
Matters - Wholesale Rate Matters - System Agreement," above.
Entergy's domestic utility business is subject to seasonal
fluctuations, with the peak period occurring in the summer months. The
1999 (and all-time) peak demand of 20,664 MW occurred on August 18, 1999.
Competitive Businesses
Entergy Power owns 665 MW of fossil-fueled capacity at the Ritchie 2
and Independence plants.
In July 1999, Entergy's non-utility nuclear power business purchased
from Boston Edison the 670 MW Pilgrim Nuclear Station in Plymouth,
Massachusetts. The sale included the Pilgrim generating plant and
facilities (including nuclear fuel) and a 1,600-acre site on Cape Cod Bay.
Entergy's global power development business is constructing two
combined-cycle gas turbine merchant power plants in the UK. Saltend, a
1,200 MW plant located in northeast England, will provide steam and
electricity to BP Chemical's nearby complex with the remaining electricity
to be sold into the UK national power pool. Originally scheduled for
commercial operation in January 2000, Saltend's completion has been delayed
due to construction problems at the site. The construction contractor has
submitted a revised construction schedule after substantial analysis, and
currently estimates a phased-in completion of the three-unit plant with the
full plant in service by June 30, 2000. The second plant, an 800 MW
facility known as Damhead Creek, is located in southeast England. It is
expected to begin commercial operation in the fourth quarter of 2000.
Interconnections
The electric generating facilities of the domestic utility companies
consist principally of steam-electric production facilities. These
generating units are interconnected by a transmission system operating at
various voltages up to 500 KV. With the exception of a small portion of
Entergy Mississippi's capacity, operating facilities or interests therein
generally are owned or leased by the domestic utility company serving the
area in which the generating facilities are located. All of these
generating facilities are centrally dispatched and operated.
The electric generating facilities of Entergy's non-utility nuclear
power business consist of the Pilgrim nuclear production facility. The
facility has firm total output power purchase agreements with Boston Edison
and other utilities that expire at the end of 2004. The Pilgrim plant is
dispatched as a part of the New England Power Pool (NEPP). The primary
purpose of NEPP is to direct the operations of the major generating and
transmission facilities in the New England region.
Entergy's domestic utility companies are interconnected with many
neighboring utilities. In addition, the domestic utility companies are
members of the Southeastern Electric Reliability Council (SERC). The
primary purpose of SERC is to ensure the reliability and adequacy of the
electric bulk power supply in the southeast region of the United States.
SERC is a member of the North American Electric Reliability Council.
Gas Property
As of December 31, 1999, Entergy New Orleans distributed and
transported natural gas for distribution solely within the limits of the
City of New Orleans through a total of 1,453 miles of gas distribution
mains and 41 miles of gas transmission pipelines.
As of December 31, 1999, the gas properties of Entergy Gulf States,
which are located in and around Baton Rouge, Louisiana, were not material
to Entergy Gulf States.
Titles
The generating stations and major transmission substations of
Entergy's public utility companies are generally located on properties
owned in fee simple. The greater portion of the transmission and
distribution lines of the domestic utility companies have been constructed
on property of private owners pursuant to easements or on public highways
and streets pursuant to appropriate franchises. The rights of each company
in the property on which its utility facilities are located are considered
by such company to be adequate for use in the conduct of its business.
Minor defects and irregularities customarily found in properties of like
size and character may exist, but such defects and irregularities do not,
in the opinion of management, materially impair the use of the properties
affected thereby. The domestic utility companies generally have the right
of eminent domain, whereby they may, if necessary, perfect or secure titles
to, or easements or servitudes on, privately held lands used in or
reasonably necessary for their utility operations.
Substantially all of the physical properties and assets owned by
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy
are subject to the liens of mortgages securing the first mortgage bonds of
such company. The Lewis Creek generating station is owned by GSG&T, Inc.,
a subsidiary of Entergy Gulf States, and is not subject to the lien of the
Entergy Gulf States mortgage securing the first mortgage bonds of Entergy
Gulf States, but is leased to and operated by Entergy Gulf States. All of
the debt outstanding under the original first mortgages of Entergy
Mississippi and Entergy New Orleans has been retired and the original first
mortgages were cancelled in 1999 and 1997, respectively. As a result, the
general and refunding mortgages of Entergy Mississippi and Entergy New
Orleans now also constitute a first mortgage lien on substantially all of
the respective physical properties and assets of the respective companies.
FUEL SUPPLY
The sources of generation and average fuel cost per KWH for the
domestic utility companies and System Energy for the years 1997-1999 were:
Natural Gas Fuel Oil Nuclear Fuel Coal
% Cents % Cents % Cents % Cents
of per of Per of Per of Per
Year Gen KWH Gen KWH Gen KWH Gen KWH
1999 45 2.75 4 2.06 35 .54 16 1.59
1998 40 2.50 6 2.37 40 .53 14 1.67
1997 39 2.97 4 3.11 41 .54 16 1.73
Actual 1999 and projected 2000 sources of generation for the domestic
utility companies and System Energy are:
Natural Gas Fuel Oil Nuclear Coal
1999 2000 1999 2000 1999 2000 1999 2000
Entergy Arkansas (a) 10% 7% - - 56% 40% 33% 52%
Entergy Gulf States 66% 68% - - 19% 18% 15% 14%
Entergy Louisiana 64% 62% 1% - 35% 38% - -
Entergy Mississippi 44% 53% 30% 23% - - 26% 24%
Entergy New Orleans 91% 100% 9% - - - - -
System Energy - - - - 100%(b) 100%(b) - -
Total (a) 45% 42% 4% 2% 35% 33% 16% 22%
(a)Hydroelectric power provided an immaterial amount of generation at
Entergy Arkansas in 1999 and is expected to provide an immaterial
amount of generation in 2000.
(b)In addition to the nuclear capacity given above for the following
companies, the Unit Power Sales Agreement allocates capacity and energy
from System Energy's interest in Grand Gulf 1 as follows: Entergy
Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and
Entergy New Orleans - 17%.
Natural Gas
The domestic utility companies have long-term firm and short-term
interruptible gas contracts. Long-term firm contracts comprise less than
26% of the domestic utility companies' total requirements but can be called
upon, if necessary, to satisfy a significant percentage of the domestic
utility companies' needs. Short-term contracts and spot-market purchases
satisfy additional gas requirements. Entergy Gulf States has a
transportation service agreement with a gas supplier that provides flexible
natural gas service to certain generating stations by using such supplier's
pipeline and gas storage facility.
Many factors, including wellhead deliverability, storage and pipeline
capacity, and demand requirements of end users, influence the availability
and price of natural gas supplies for power plants. Demand is tied to
weather conditions as well as to the prices of other energy sources.
Supplies of natural gas are expected to be adequate in 2000. However,
pursuant to federal and state regulations, gas supplies to power plants may
be interrupted during periods of shortage. To the extent natural gas
supplies may be disrupted, the domestic utility companies will use
alternate fuels, such as oil, or rely to a larger extent on coal and
nuclear generation.
Coal
Entergy Arkansas has long-term contracts for low-sulfur Wyoming coal
for White Bluff and Independence. These contracts, which expire in 2002
and 2011, respectively, provide for approximately 85% of Entergy Arkansas'
expected annual coal requirements. Additional requirements are satisfied
by spot market purchases. Entergy Gulf States has a contract for the
supply of low-sulfur Wyoming coal for Nelson Unit 6, which should be
sufficient to satisfy its fuel requirements for that unit through 2010 if
all price reopeners are accepted. If both parties cannot agree upon a
price, then the contract terminates. Effective April 1, 2000, Louisiana
Generating LLC will assume Cajun's 58% ownership interest in the Big Cajun
generating facilities and will operate the plant. The management of
Louisiana Generating LLC has advised Entergy Gulf States that it has
executed coal supply and transportation contracts that should provide an
adequate supply of coal for the operation of Big Cajun 2, Unit 3 for the
foreseeable future.
Entergy Arkansas has a long-term railroad transportation contract for
the delivery of at least 90% of the coal requirements of both White Bluff
and Independence. This contract will expire in the year 2014. However,
Entergy Arkansas has filed a lawsuit against the railroad claiming breach
of contract by the railroad and requesting termination of the contract (see
discussion of lawsuit in "RATE MATTERS AND REGULATION - Regulation - Other
Regulation and Litigation - Union Pacific Railroad" above).
Entergy Gulf States has a transportation requirements contract with a
railroad to deliver coal to Nelson Unit 6 through December 31, 2004. This
contract specifies a minimum annual tonnage amounting to approximately one-
half of the plant's requirements and provides flexibility for shipping up
to all of the plant's requirements.
Nuclear Fuel
The nuclear fuel cycle involves the following:
o mining and milling of uranium ore to produce a concentrate;
o conversion of the concentrate to uranium hexafluoride gas;
o enrichment of the hexafluoride gas;
o fabrication of nuclear fuel assemblies for use in fueling nuclear
reactors; and
o disposal of spent fuel.
System Fuels is responsible for contracts to acquire nuclear material
to be used in fueling Entergy Arkansas', Entergy Louisiana's, and System
Energy's nuclear units. System Fuels also maintains inventories of such
materials during the various stages of processing. Each of these companies
purchases enriched uranium hexafluoride from System Fuels, but contracts
separately for the fabrication of its own nuclear fuel. The requirements
for River Bend are pursuant to contracts made by Entergy Gulf States. The
requirements for Pilgrim are pursuant to contracts made by Entergy's non-
utility nuclear power business.
Based upon currently planned fuel cycles, Entergy's nuclear units
currently have contracts and inventory that provide adequate materials and
services. Existing contracts for uranium concentrate, conversion of the
concentrate to uranium hexafluoride, and enrichment of the uranium
hexafluoride will provide a significant percentage of these materials and
services over the next several years. Additional materials and services
required beyond the coverage of these contracts are expected to be
available at a reasonable cost for the foreseeable future.
Current fabrication contracts will provide a significant percentage of
these materials and services over the next several years. The Nuclear
Waste Policy Act of 1982 provides for the disposal of spent nuclear fuel or
high level waste by the DOE. There is a discussion of spent nuclear fuel
disposal in Note 9 to the financial statements.
It will be necessary for Entergy to enter into additional arrangements
to acquire nuclear fuel in the future. It is not possible to predict the
ultimate cost of such arrangements.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System
Energy each have made arrangements to lease nuclear fuel and related
equipment and services. The lessors finance the acquisition and ownership
of nuclear fuel through credit agreements and the issuance of notes. These
arrangements are subject to periodic renewal. There is a discussion of
nuclear fuel leases in Note 10 to the financial statements.
Natural Gas Purchased for Resale
Entergy New Orleans has several suppliers of natural gas. Its system
is interconnected with three interstate and three intrastate pipelines.
Entergy New Orleans' primary suppliers currently are Columbia Energy
Services, Inc. (CES), an interstate gas marketer, Bridgeline Gas
Distributors, and Pontchartrain Natural Gas via Louisiana Gas Services.
Entergy New Orleans has a "no-notice" service gas purchase contract with
CES which guarantees Entergy New Orleans gas delivery at any point after
the agreed gas volume has been met. The CES gas supply is transported to
Entergy New Orleans pursuant to a transportation service agreement with
Koch Gateway Pipeline Company (KGPC). This service is subject to FERC-
approved rates. Entergy New Orleans has firm contracts with its two
intrastate suppliers and also makes interruptible spot market purchases.
In recent years, natural gas deliveries to Entergy New Orleans have been
subject primarily to weather-related curtailments. However, Entergy New
Orleans experienced no such curtailments in 1999.
As a result of the implementation of FERC-mandated interstate pipeline
restructuring in 1993, curtailments of interstate gas supply could occur if
Entergy New Orleans' suppliers failed to perform their obligations to
deliver gas under their supply agreements. KGPC could curtail
transportation capacity only in the event of pipeline system constraints.
Based on the current supply of natural gas, and absent extreme weather-
related curtailments, Entergy New Orleans does not anticipate any
interruptions in natural gas deliveries to its customers.
Entergy Gulf States purchases natural gas for resale under an
agreement with Mid Louisiana Gas Company. Mid Louisiana Gas Company is not
allowed to discontinue providing gas to Entergy Gulf States without
obtaining FERC approval.
Research
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans are members of the Electric Power
Research Institute (EPRI). EPRI conducts a broad range of research in
major technical fields related to the electric utility industry. Entergy
participates in various EPRI projects based on Entergy's needs and
available resources. Entergy and its subsidiaries contributed
approximately $6 million in 1999, $8 million in 1998, and $9 million in
1997 to EPRI and other research programs.
Item 2. Properties
Information regarding the properties of the registrants is included in
Item 1. "Business - PROPERTY," in this report.
Item 3. Legal Proceedings
Details of the registrants' material rate proceedings, environmental
regulation and proceedings, and other regulatory proceedings and litigation
that are pending or that terminated in the fourth quarter of 1999 are
discussed in Item 1. "Business - RATE MATTERS AND REGULATION," in this
report.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1999, no matters were submitted to a vote
of the security holders of Entergy Corporation, Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans,
or System Energy.
DIRECTORS AND EXECUTIVE OFFICERS OF ENTERGY CORPORATION
Directors
Information required by this item concerning directors of Entergy
Corporation is set forth under the heading "Proposal 1--Election of
Directors" contained in the Proxy Statement of Entergy Corporation, (the
"Proxy Statement"), to be filed in connection with its Annual Meeting of
Stockholders to be held May 12, 2000, ("Annual Meeting"), and is
incorporated herein by reference. Information required by this item
concerning officers and directors of the remaining registrants is reported
in Part III of this document.
<TABLE>
<CAPTION>
Executive Officers
Name Age Position Period
<S> <C> <C> <C>
J. Wayne Leonard (a) 49 Chief Executive Officer and Director 1999-Present
of Entergy Corporation
Director of Entergy Arkansas, Entergy 1998-1999
Gulf States, Entergy Louisiana,
Entergy Mississippi, Entergy New
Orleans, and System Energy
President and Chief Operating Officer 1998
of Entergy Corporation
Chief Operating Officer of Entergy 1998
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Vice Chairman of Entergy New Orleans 1998
President of Energy Commodities 1996-1998
Strategic Business Unit
President of Cinergy Capital & 1996-1998
Trading
Group Vice President and Chief 1994-1996
Financial Officer of Cinergy
Corporation
Jerry L. Maulden (a) (b) 63 Vice Chairman of Entergy Corporation 1995-1999
Vice Chairman of Entergy Arkansas, 1993-1999
Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, and
Entergy New Orleans
Chief Operating Officer of Entergy 1993-1998
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, and Entergy New
Orleans
President and Chief Operating Officer 1993-1995
of Entergy Corporation
Director of Entergy Gulf States 1993-1999
Director of Entergy Louisiana 1991-1999
Director of Entergy New Orleans 1991-1998
Director of Entergy Mississippi 1988-1999
Director of System Energy 1987-1998
Director of Entergy Arkansas 1979-1999
Donald C. Hintz (a) 57 President of Entergy Corporation 1999-Present
Executive Vice President and Chief 1998
Nuclear Officer of Entergy Arkansas,
Entergy Gulf States, and Entergy
Louisiana
Group President and Chief Nuclear 1997-1998
Operating Officer of Entergy
Corporation, Entergy Arkansas,
Entergy Gulf States, and Entergy
Louisiana
Executive Vice President and Chief 1994-1997
Nuclear Officer of Entergy
Corporation
Executive Vice President - Nuclear of 1994-1997
Entergy Arkansas, Entergy Gulf
States, and Entergy Louisiana
Chief Executive Officer and President 1992-1998
of System Energy
Director of Entergy Gulf States 1993-Present
Director of Entergy Arkansas, Entergy 1992-Present
Louisiana, Entergy Mississippi, and
System Energy
Director of Entergy New Orleans 1999-Present
1992-1994
Jerry D. Jackson (a) 55 Executive Vice President of Entergy 1999-Present
Corporation
President and Chief Executive Officer 1999-Present
- Louisiana of Entergy Gulf States
President and Chief Executive Officer 1999-Present
of Entergy Louisiana
Chief Administrative Officer of 1997-1998
Entergy Corporation, Entergy
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Executive Vice President - External 1995-1998
Affairs of Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana,
Entergy Mississippi, and Entergy New
Orleans
Executive Vice President - Marketing 1995
of Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Executive Vice President - External 1994-1998
Affairs of Entergy Corporation
Director of Entergy Gulf States 1994-Present
Executive Vice President of Marketing 1994-1995
of Entergy Corporation
Director of Entergy Louisiana 1992-Present
Director of Entergy Arkansas, Entergy 1992-1999
Mississippi and Entergy New Orleans
Secretary of Entergy Gulf States 1994-1995
Director of System Energy 1993-1995
C. John Wilder (a) 41 Executive Vice President and Chief 1998-Present
Financial Officer of Entergy
Corporation, Entergy Arkansas,
Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi,
Entergy New Orleans, and System
Energy
Director of Entergy Arkansas, Entergy 1999-Present
Gulf States, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans, and
System Energy
Chief Executive Officer of Shell 1998
Capital Company
Assistant Treasurer of the Royal 1996-1998
Dutch/Shell Group
Director of Economics and Finance of 1995-1996
Shell Exploration and Production
Assistant Treasurer of Shell Oil 1992-1995
Company
Frank F. Gallaher (a) 54 Senior Vice President, Generation, 1999-Present
Transmission and Energy Management
of Entergy Corporation, Entergy
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans,
and System Energy
Executive Vice President and Chief 1998-1999
Utility Operating Officer for
Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Group President and Chief Utility 1997-1999
Operating Officer of Entergy
Corporation
Group President and Chief Utility 1997-1998
Operating Officer of Entergy
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Director of Entergy Arkansas, Entergy 1997-1999
Louisiana, and Entergy Mississippi
Executive Vice President of 1996-1997
Operations of Entergy Corporation
President of Entergy Gulf States 1994-1996
Director of Entergy Gulf States 1993-1999
Executive Vice President of 1993-1997
Operations of Entergy Arkansas,
Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Michael G. Thompson (a) 59 Senior Vice President and General 1992-Present
Counsel of Entergy Corporation
Senior Vice President, General 1995-Present
Counsel, and Secretary of Entergy
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
Secretary of Entergy Corporation 1994-Present
Joseph T. Henderson (a) 42 Vice President and General Tax 1999-Present
Counsel of Entergy Corporation,
Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans and
System Energy
Associate General Tax Counsel 1998-1999
Senior Tax Counsel of Shell Oil 1995-1998
Company
Senior Tax Attorney of Shell Oil 1994-1995
Company
Nathan E. Langston (a) 51 Vice President and Chief Accounting 1998-Present
Officer of Entergy Corporation,
Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans,
and System Energy
Director of Tax Services of Entergy 1993-1998
Services
Steven C. McNeal (a) 43 Vice President and Treasurer of 1998-Present
Entergy Corporation, Entergy
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans,
and System Energy
Assistant Treasurer of Entergy 1994-1998
Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans,
and System Energy
Director of Corporate Finance of 1994-1998
Entergy Services
</TABLE>
(a) In addition, this officer is an executive officer and/or director of
various other wholly owned subsidiaries of Entergy Corporation and its
operating companies.
(b) Mr. Maulden retired effective December 31, 1999.
Each officer of Entergy Corporation is elected yearly by the Board of
Directors.
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder
Matters
Entergy Corporation
The shares of Entergy Corporation's common stock are listed on the New
York Stock, Chicago Stock, and Pacific Exchanges.
The high and low prices of Entergy Corporation's common stock for each
quarterly period in 1999 and 1998 were as follows:
1999 1998
High Low High Low
(In Dollars)
First 31 1/8 27 1/2 30 1/8 27 5/16
Second 33 1/8 27 3/4 29 5/8 23 1/4
Third 31 9/16 28 3/16 30 13/16 26 3/16
Fourth 30 23 7/8 32 7/16 28 1/16
Consecutive quarterly cash dividends on common stock were paid to
stockholders of Entergy Corporation in 1999 and 1998. Quarterly dividends
of 30 cents per share were paid in 1999. In 1998, dividends of 45 cents
per share were paid in the first and second quarters, and dividends of 30
cents per share were paid in the third and fourth quarters.
As of February 29, 2000, there were 73,619 stockholders of record of
Entergy Corporation.
Entergy Corporation's future ability to pay dividends is discussed in
Note 8 to the financial statements. In addition to the restrictions
described in Note 8, PUHCA provides that, without approval of the SEC, the
unrestricted, undistributed retained earnings of any Entergy Corporation
subsidiary are not available for distribution to Entergy Corporation's
common stockholders until such earnings are made available to Entergy
Corporation through the declaration of dividends by such subsidiaries.
Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy
There is no market for the common stock of Entergy Corporation's
wholly owned subsidiaries. Cash dividends on common stock paid by the
subsidiaries to Entergy Corporation during 1999 and 1998, were as follows:
1999 1998
(In Millions)
Entergy Arkansas $ 82.7 $ 92.6
Entergy Gulf States $107.0 $109.4
Entergy Louisiana $197.0 $138.5
Entergy Mississippi $ 34.1 $ 66.0
Entergy New Orleans $ 26.5 $ 9.7
System Energy $ 75.0 $ 72.3
ETHC $ 10.0 -
Information with respect to restrictions that limit the ability of
System Energy and the domestic utility companies to pay dividends is
presented in Note 8 to the financial statements.
Item 6. Selected Financial Data
Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY
CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, ENTERGY GULF STATES,
ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, and SYSTEM
ENERGY" which follow each company's financial statements in this report,
for information with respect to operating statistics.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY
AND CAPITAL RESOURCES," " - SIGNIFICANT FACTORS AND KNOWN TRENDS," and "-
RESULTS OF OPERATIONS OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY
ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI,
ENTERGY NEW ORLEANS, and SYSTEM ENERGY."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Entergy Corporation and Subsidiaries. Refer to information under the
heading "ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL
DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS."
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Entergy Corporation and Subsidiaries:
Report of Management 42
Management's Financial Discussion and Analysis 43
Report of Independent Accountants 56
Management's Financial Discussion and Analysis 57
Consolidated Statements of Income For the Years Ended December 31, 65
1999, 1998, and 1997
Consolidated Statements of Cash Flows For the Years Ended December 66
31, 1999, 1998, and 1997
Consolidated Balance Sheets, December 31, 1999 and 1998 68
Consolidated Statements of Retained Earnings, Comprehensive Income, 70
and Paid-In Capital for the Years Ended December 31, 1999, 1998,
and 1997
Selected Financial Data - Five-Year Comparison 71
Entergy Arkansas, Inc.:
Report of Independent Accountants 72
Management's Financial Discussion and Analysis 73
Income Statements For the Years Ended December 31, 1999, 1998, and 76
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 77
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 78
Statements of Retained Earnings for the Years Ended December 31, 80
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 81
Entergy Gulf States, Inc.:
Report of Independent Accountants 82
Management's Financial Discussion and Analysis 83
Income Statements For the Years Ended December 31, 1999, 1998, and 87
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 89
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 90
Statements of Retained Earnings for the Years Ended December 31, 92
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 93
Entergy Louisiana, Inc.:
Report of Independent Accountants 94
Management's Financial Discussion and Analysis 95
Income Statements For the Years Ended December 31, 1999, 1998, and 98
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 99
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 100
Statements of Retained Earnings for the Years Ended December 31, 102
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 103
Entergy Mississippi, Inc.:
Report of Independent Accountants 104
Management's Financial Discussion and Analysis 105
Income Statements For the Years Ended December 31, 1999, 1998, and 108
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 109
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 110
Statements of Retained Earnings for the Years Ended December 31, 112
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 113
Entergy New Orleans, Inc.:
Report of Independent Accountants 114
Management's Financial Discussion and Analysis 115
Income Statements For the Years Ended December 31, 1999, 1998, and 118
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 119
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 120
Statements of Retained Earnings for the Years Ended December 31, 122
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 123
System Energy Resources, Inc.:
Report of Independent Accountants 124
Management's Financial Discussion and Analysis 125
Income Statements For the Years Ended December 31, 1999, 1998, and 127
1997
Statements of Cash Flows For the Years Ended December 31, 1999, 129
1998, and 1997
Balance Sheets, December 31, 1999 and 1998 130
Statements of Retained Earnings for the Years Ended December 31, 132
1999, 1998, and 1997
Selected Financial Data - Five-Year Comparison 133
Notes to Financial Statements for Entergy Corporation and 134
Subsidiaries
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
REPORT OF MANAGEMENT
Management of Entergy Corporation and its subsidiaries has prepared
and is responsible for the financial statements and related financial
information included herein. The financial statements are based on
generally accepted accounting principles in the United States. Financial
information included elsewhere in this report is consistent with the
financial statements.
To meet their responsibilities with respect to financial information,
management maintains and enforces a system of internal accounting controls
designed to provide reasonable assurance, on a cost-effective basis, as to
the integrity, objectivity, and reliability of the financial records, and
as to the protection of assets. This system includes communication through
written policies and procedures, an employee Code of Entegrity, and an
organizational structure that provides for appropriate division of
responsibility and the training of personnel. This system is also tested
by a comprehensive internal audit program.
The Audit Committee of our Board of Directors, composed solely of
Directors who are not employees of our company, meets with the independent
auditors, management, and internal accountants periodically to discuss
internal accounting controls and auditing and financial reporting matters.
The Audit Committee appoints the independent accountants, subject to
ratification by the shareholders. The Committee reviews with the
independent auditors the scope and results of the audit effort. The
Committee also meets periodically with the independent auditors and the
chief internal auditor without management, providing free access to the
Committee.
Independent public accountants provide an objective assessment of the
degree to which management meets its responsibility for fairness of
financial reporting. They regularly evaluate the system of internal
accounting controls and perform such tests and other procedures as they
deem necessary to reach and express an opinion on the fairness of the
financial statements.
Management believes that these policies and procedures provide
reasonable assurance that its operations are carried out with a high
standard of business conduct.
J. WAYNE LEONARD C. JOHN WILDER
Chief Executive Officer Executive Vice President and Chief
of Entergy Corporation Financial Officer
THOMAS J. WRIGHT JERRY D. JACKSON
Chairman, President, and Chief Chairman of Entergy Gulf States,
Executive Officer of Entergy Inc. and Entergy Louisiana, Inc.,
Arkansas, Inc. President and Chief Executive
Officer of Entergy Gulf States,
Inc. - Louisiana and Entergy
Louisiana, Inc.
JOSEPH F. DOMINO CAROLYN C. SHANKS
President and Chief Executive Officer Chairman, President, and Chief
of Entergy Gulf States, Inc. - Texas Executive Officer of Entergy
Mississippi, Inc.
DANIEL F. PACKER JERRY W. YELVERTON
Chairman, President, and Chief Chairman, President, and Chief
Executive Officer of Entergy Executive Officer of System Energy
New Orleans, Inc. Resources, Inc.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Operations
Net cash flow from operations for Entergy, the domestic utility
companies, and System Energy for the years ended December 31, 1999, 1998,
and 1997 was:
1999 1998 1997
(In Millions)
Entergy $1,307 $1,753 $1,793
Entergy Arkansas $ 313 $ 409 $ 435
Entergy Gulf States $ 345 $ 448 $ 484
Entergy Louisiana $ 410 $ 342 $ 315
Entergy Mississippi $ 142 $ 125 $ 156
Entergy New Orleans $ 60 $ 40 $ 54
System Energy $ 103 $ 299 $ 286
Entergy's consolidated cash flow from operations decreased as compared
to 1998 primarily due to less cash provided by competitive businesses. The
decrease was also due to the completion of rate phase-in plans for some of
the domestic utility companies during 1998.
In 1999, competitive businesses used $9.3 million of operating cash
flow from operations compared with $151.7 million they contributed in
1998. This change was primarily due to the sales of London Electricity
and CitiPower in December 1998. Both businesses contributed operating
cash flow in 1998 but did not contribute at all in 1999. Offsetting the
decrease in operating cash flow in 1999 are the sales of Efficient
Solutions, Inc. in September 1998 and Entergy Security, Inc. in January
1999. These businesses used operating cash flow in 1998 and used none in
1999. Also, the power marketing and trading business used less operating
cash flow in 1999 than in 1998.
In prior years, rate phase-in plans for some of the domestic utility
companies contributed to cash flow from operations. But Entergy Gulf
States' Louisiana retail phase-in plan for River Bend was completed in
February 1998, Entergy Mississippi's phase-in plan for Grand Gulf 1 was
completed in September 1998, and Entergy Arkansas' phase-in plan for Grand
Gulf 1 was completed in November 1998. Therefore, these phase-in plans did
not contribute to operating cash flow in 1999. Entergy New Orleans' phase-
in plan for Grand Gulf 1 will be completed in 2001.
System Energy's operating cash flow decreased in 1999 primarily due to
an increase in receivables from associated companies. The increase in
receivables is primarily due to an increase in money pool borrowings for
several Entergy affiliates as of December 31, 1999. The money pool is an
inter-company borrowing arrangement designed to reduce the domestic utility
companies' dependence on external short-term borrowings.
Investing Activities
Net cash provided by investing activities decreased in 1999 due to the
sales in 1998 of London Electricity and CitiPower, and higher construction
expenditures in 1999. The increased construction expenditures were
primarily due to construction of the Saltend and Damhead Creek power plants
by Entergy's global power development business, spending on customer
service and reliability improvements by the domestic utility companies, and
the return to service of generation plants at Entergy Arkansas, Entergy
Louisiana, and Entergy New Orleans.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The following items partially offset the overall decrease:
o $947.4 million of the proceeds from the sale of London Electricity in
1998 was used to purchase notes receivable which matured in August 1999.
Upon maturity, $321.4 million of the proceeds was reinvested in other
temporary investments consisting of U.S. dollar denominated commercial
paper and bank deposits; and
o the sales of Entergy Security, Inc. in January 1999 and Entergy Power
Edesur Holding, LTD and several telecommunications businesses in June
1999.
Financing Activities
Net cash used in financing activities decreased in 1999 primarily due
to:
o the retirement in 1998 of debt associated with the acquisition of
London Electricity and CitiPower;
o increased borrowings in 1999 under the credit facilities for the
construction of the Saltend and Damhead Creek power plants by Entergy's
global power development business; and
o a reduction in dividend payments made by Entergy Corporation in 1999
compared to 1998.
Partially offsetting the overall decrease were the following uses:
o the 1999 repayment of bank borrowings by Entergy Corporation and ETHC
with a portion of the proceeds from the sale of Entergy Security, Inc.;
o the redemption of preferred stock in 1999 at Entergy Arkansas, Entergy
Gulf States, and Entergy Louisiana; and
o the repurchase of Entergy Corporation common stock.
Capital Resources and Outlays
Entergy requires capital resources for:
o construction/capital expenditures;
o debt and preferred stock maturities;
o capital investments;
o funding of subsidiaries; and
o dividend and interest payments.
For the years 2000 through 2004, Entergy plans to spend $9.8 billion in a
capital investment plan focused on improving service at the domestic
utility companies and growing its global power development and nuclear
operations businesses. The estimated allocation in the plan is $4.2
billion to the domestic utility companies, $3.9 billion to the global power
development business, and $1.7 billion to the nuclear operations business.
Management provides more information on construction expenditures and long-
term debt and preferred stock maturities in Notes 5, 6, 7, and 9 to the
financial statements.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Entergy's sources to meet the above requirements include:
o internally generated funds;
o cash on hand;
o debt or preferred stock issuances;
o bank financing under new or existing facilities;
o short-term borrowings; and
o sales of assets.
The capital investment plan discussed above is subject to modification
based on the ongoing effects of transition to competition planning and the
ability to recover the regulated utility costs in rates. Additionally, the
plan is contingent upon Entergy's ability to access the capital necessary
to finance the planned expenditures, and significant borrowings may be
necessary for Entergy to implement these capital spending plans.
The domestic utility companies have plans to issue debt in 2000, the
proceeds of which will be used for general corporate purposes, including
capital expenditures, the retirement of short-term indebtedness, and, in
the case of Entergy Gulf States, the mandatory redemption of preference
stock. On February 15, 2000, Entergy Mississippi issued $120 million of
7.75% Series First Mortgage Bonds due February 15, 2003. On March 9, 2000,
Entergy Arkansas issued $100 million of 7.72% Series First Mortgage Bonds
due March 1, 2003. Proceeds of both issuances will be used, in part, for
the retirement of short-term indebtedness that was incurred for working
capital needs and capital expenditures.
On February 25, 2000, Entergy Corporation obtained a 364-day term loan
in the amount of $120 million, accruing interest at a rate of 6.7%. The
proceeds are being used to make an open-account advance to Entergy
Louisiana in order to repay maturing debt. Entergy Corporation will use
any remaining proceeds for general corporate purposes and working capital
needs.
During 1999, cash from operations, the sale of businesses, and cash on
hand met substantially all investing and financing requirements of the
domestic utility companies and System Energy. Entergy Corporation received
$532.3 million in dividend payments from its subsidiaries in 1999.
All debt and common and preferred stock issuances are subject to
regulatory approval. Preferred stock and debt issuances are subject to
issuance tests set forth in corporate charters, bond indentures, and other
agreements. The domestic utility companies have sufficient capacity under
these issuance tests to consummate the financings planned for 2000. The
domestic utility companies may also establish special purpose trusts or
limited partnerships as financing subsidiaries for the purpose of issuing
quarterly income preferred securities.
Management expects the domestic utility companies and System Energy to
continue to refinance or redeem higher cost debt and preferred stock prior
to maturity, to the extent market conditions and interest and dividend
rates are favorable.
Entergy's ability to invest in domestic and foreign generation
businesses is subject to the SEC's regulations under PUHCA. These
regulations limit to 50% of consolidated retained earnings the total amount
that Entergy may invest in domestic and foreign generation businesses at
the time an investment is made. Using the proceeds from the sales of
London Electricity and CitiPower, Entergy's FUCO and EWG subsidiaries have
the ability to make significant additional investments in domestic and
foreign generation businesses without the need of further investment by
Entergy Corporation.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Entergy's global power development business is currently constructing
two combined-cycle gas turbine merchant power plants in the UK. Saltend, a
1,200 MW plant in northeast England, will provide steam and electricity to
BP Chemicals' nearby industrial complex, with the remaining electricity to
be sold into the UK national power pool. Approximately 75 MW of the
capacity will be sold to BP Chemicals under a PPA with a term of 15 years.
Originally scheduled for commercial operation in January 2000, Saltend's
completion has been delayed due to construction problems at the site. The
construction contractor has submitted a revised construction schedule after
substantial analysis, and currently estimates a phased-in completion of the
three-unit plant with the full plant in service by June 30, 2000. The
total cost of Saltend is currently estimated to be approximately $824
million. The second plant, an 800 MW facility known as Damhead Creek, is
located in southeast England. It is expected to begin commercial operation
in the fourth quarter of 2000. Management estimates the total cost of
Damhead Creek at approximately $582 million. The financing of the
construction of these two power plants is discussed in Note 7 to the
financial statements.
In October 1999, Entergy's global power development business obtained
an option to acquire twenty-four GE7FA advanced technology gas turbines,
four steam turbines, and eight GE7EA advanced technology gas turbines.
Delivery of the turbines is scheduled for 2001 through 2004. The total
cost of the turbines, including long-term service agreements with GE Power
Systems, is approximately $2.0 billion. Management plans to use the
turbines in future generation projects of the global power development
business, and anticipates that the acquisition of the turbines will be
funded by a combination of cash on hand, project financing, and other
external financing. Payments scheduled for the acquisition of these
turbines are $273 million in 2000, $415 million in 2001, and $311 million
in 2002.
On July 13, 1999, Entergy's non-utility nuclear power business bought
the 670 MW Pilgrim Nuclear Station located in Plymouth, Massachusetts from
Boston Edison. The acquisition included the plant, real estate, materials
and supplies, and nuclear fuel for a purchase price of $81 million. The
purchase price was funded with a portion of the proceeds from the sales of
non-regulated businesses. As part of the Pilgrim purchase, Boston Edison
transferred a $471 million decommissioning trust fund to Entergy's non-
utility nuclear power business. After a favorable tax determination
regarding the trust fund, Entergy returned $43 million of the trust fund to
Boston Edison. Based on cost estimates provided by an outside consultant,
Entergy believes that Pilgrim's decommissioning fund will be adequate to
cover future decommissioning costs for the Pilgrim plant without any
additional deposits to the trust.
Entergy's nuclear business has an outstanding offer to NYPA for the
acquisition of NYPA's 825 MW James A. FitzPatrick nuclear power plant
located near Oswego, New York and NYPA's 980 MW Indian Point 3 nuclear
power plant located in Westchester County, New York. On February 24, 2000,
NYPA received a competing offer for the purchase of these plants. It is
anticipated that the NYPA Board of Trustees will meet in mid to late March
to consider the offers. If Entergy's offer is accepted, management expects
to close the acquisition by the fourth quarter of 2000. Entergy would pay
$50 million in cash at the closing of the purchase, plus seven annual
installments of approximately $108 million each commencing one year from
the date of the closing. Entergy projects that these installments will be
paid from the proceeds of the sale of power from the plants and that
Entergy will invest an additional $100 million in the plants.
Entergy has also made investments in energy-related businesses,
including power marketing and trading. Under PUHCA, the SEC imposes a limit
equal to 15% of consolidated capitalization on the amount that may be
invested in such businesses without specific SEC approval. Entergy's
capacity to make additional investments at December 31, 1999 was
approximately $2.2 billion.
In 1999, Entergy Corporation paid $291.5 million in cash dividends on
its common stock. Declarations of dividends on Entergy's common stock are
made at the discretion of the Board. The Board evaluates the level of
Entergy common stock dividends based upon Entergy's earnings and financial
strength. Dividend restrictions are discussed in Note 8 to the financial
statements.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
In October 1998, the Board approved a plan for the repurchase of
Entergy common stock through December 31, 2001 to fulfill the requirements
of various compensation and benefit plans. The stock repurchase plan
provides for purchases in the open market of up to 5 million shares, for an
aggregate consideration of up to $250 million. In July 1999, the Board
approved the commitment of up to an additional $750 million toward the
repurchase of Entergy common stock through December 31, 2001. Shares are
being purchased on a discretionary basis. See Note 5 to the financial
statements for stock repurchases and issuances made during 1999.
Entergy's capital and refinancing requirements and available lines of
credit are more thoroughly discussed in Notes 4, 5, 6, 7, 9, and 10 to the
financial statements.
Entergy Corporation and System Energy
Pursuant to an agreement with certain creditors, Entergy Corporation
has agreed to supply System Energy with sufficient capital to:
o maintain System Energy's equity capital at a minimum of 35% of its
total capitalization (excluding short-term debt);
o permit the continued commercial operation of Grand Gulf 1;
o pay in full all System Energy indebtedness for borrowed money when
due; and
o enable System Energy to make payments on specific System Energy debt,
under supplements to the agreement assigning System Energy's rights
in the agreement as security for the specific debt.
The Capital Funds Agreement and other Grand Gulf 1-related agreements
are more thoroughly discussed in Note 9 to the financial statements.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Domestic Transition to Competition
The electric utility industry for years has been preparing for the
advent of competition in its business, particularly in generation
operations. For most electric utilities, the transition from a regulated
monopoly to a competitive business is challenging and complex. The new
electric utility environment presents opportunities to compete for new
customers and creates the risk of loss of existing customers. It presents
opportunities to enter into new businesses and to restructure existing
businesses.
For Entergy, it is a formidable undertaking, made uniquely difficult
because the domestic utility companies operate in five retail regulatory
jurisdictions and are subject to the System Agreement, which contemplates
the integrated operation of Entergy's electric generation and transmission
assets throughout the retail service territories. Entergy is striving to
achieve consistent paths to competition in all five retail regulatory
jurisdictions. Progress was made in 1999 when the Arkansas and Texas
legislatures enacted laws to bring about electric utility competition.
More progress is expected in 2000 as Entergy continues to work with
regulatory and legislative officials in all jurisdictions in designing the
rules surrounding a competitive electricity industry.
State Regulatory and Legislative Activity
Arkansas
In April 1999, the Arkansas legislature enacted a law providing for
competition in the electric utility industry through retail open access on
January 1, 2002. With retail open access, generation operations will
become a competitive business, but transmission and distribution operations
will continue to be regulated. The APSC may delay implementation of retail
open access, but not beyond June 30, 2003. The provisions of the new law:
o require utilities to separate (unbundle) their costs into generation,
transmission, distribution, and customer service functions;
o require operation of transmission facilities by an organization
independent from the generation, distribution, and retail operations;
o provide for the determination of and mitigation measures for
generation market power, which could require generation asset
divestitures;
o allow for recovery of stranded and transition costs if the costs are
approved by the APSC;
o allow for the securitization of approved stranded costs; and
o freeze residential and small business customer rates for three years
by utilities that will recover stranded costs.
Entergy Arkansas filed separate generation, transmission,
distribution, and customer service rates with the APSC in December 1999.
The rates were based on the cost-of-service study that formed the basis of
the rates included in the 1997 settlement agreement discussed in Note 2 to
the financial statements. Hearings on the rate filing are scheduled for
September 2000. If approved, these rates will become effective July 1,
2001. Entergy Arkansas also filed notice with the APSC in December 1999 of
its intent to recover stranded costs. The APSC and various participants in
the industry, including Entergy Arkansas, are currently in the process of
implementing the legislation through various rulemaking and other
proceedings.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Texas
In June 1999, the Texas legislature enacted a law providing for
competition in the electric utility industry through retail open access.
The law provides for retail open access by most electric utilities,
including Entergy Gulf States, on January 1, 2002. With retail open
access, generation and a new retail provider operation will be competitive
businesses, but transmission and distribution operations will continue to
be regulated. The new retail provider function will be the primary point
of contact with the customers for most services beyond initiation of
electric service and restoration of service following an outage. The
provisions of the new law:
o require a rate freeze through January 1, 2002 with frozen rates beyond
that for residential and small commercial customers of incumbent
utilities;
o require utilities to separate (unbundle) their generation,
transmission and distribution, and retail electric provider functions.
Entergy Gulf States filed its plan in January 2000 with the PUCT to
separate its functions. The plan included separate transmission and
distribution companies;
o require operation in a non-discriminatory manner of transmission and
distribution facilities by an organization independent from the
generation and retail operations by the time competition is implemented;
o allow for recovery of stranded costs incurred in purchasing power and
providing electric generation service if the costs are approved by the
PUCT;
o allow securitization of regulatory assets and stranded costs;
o provide for the determination of and mitigation measures for
generation market power; and
o require utilities to file separated data and proposed transmission,
distribution, and competition tariffs by April 1, 2000.
The market power measures include a limit on the ownership of
generation assets by a power generation company within a specified region.
The implications of this limit are uncertain for Entergy Gulf States and
the Entergy system. However, it is possible that Entergy Gulf States could
be required to divest some of its generation assets if Entergy Gulf States
is found to have generation market power. The legislation also requires
affected utilities to sell at auction, at least 60 days before January 1,
2002, entitlements to at least 15% of their installed generation capacity
in Texas. The obligation to auction capacity entitlements continues for up
to 60 months after January 1, 2002, or until 40% of customers in the
jurisdiction have chosen an alternative supplier, whichever comes first.
The PUCT and various participants in the industry are currently in the
process of implementing the legislation through various rulemaking and
other proceedings. Two significant rules have been issued by the PUCT:
o A code of conduct was approved by the PUCT in December 1999 to ensure
that utilities do not allow affiliates to have a business advantage over
competitors. The rules allow the continuation of shared services
affiliates, such as Entergy Operations and Entergy Services. Entergy
adopted an internal code of conduct to ensure compliance with the new
rules.
o Rules governing the separated costs filing have been issued. Included
is a provision establishing, as an alternative to a market-based return
on equity, a presumptively reasonable return on equity for a distribution
utility at 200 basis points over its cost of debt. The provision allows
the utility to provide evidence that the return should be higher. The
rules also provide that the utility may propose a performance-based
enhancement to the authorized rate of return, based on distribution and
transmission company independence. Management does not agree with the
arbitrary level set in the rule, and will seek a higher return in its
separated costs filing. A workshop has been held by the PUCT to discuss
opportunities to seek a performance-based return.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Louisiana
In March 1999, the LPSC deferred making a decision on whether
competition in the electric industry is in the public interest. However,
the LPSC staff, outside consultants, and counsel were directed to work
together to analyze and resolve issues related to competition and then
recommend a plan for its implementation to be considered by the LPSC by
January 1, 2001. The LPSC staff, outside consultants, counsel, and
industry members are working together to develop a plan to be submitted to
the LPSC.
Mississippi
The MPSC issued a proposed transition plan in June 1998 and continues
to hold periodic hearings and request informational filings regarding
various potential effects of retail competition. In February 2000,
legislation was introduced in Mississippi to establish a study committee to
consider competition and provide a report to the legislature by December 1,
2000. Management does not expect deregulation in Mississippi to occur prior
to 2003. See Note 2 to the financial statements for additional
information.
New Orleans
In 1997, Entergy New Orleans filed an electric business restructuring
plan with the Council. The Council has not established a procedural
schedule to consider electricity restructuring or Entergy's plan. The
Council is conducting hearings regarding retail gas competition. Entergy
New Orleans has filed a plan in that proceeding outlining the conditions
under which it could support retail gas competition. The outcome of this
proceeding is uncertain.
Federal Regulatory and Legislative Activity
Open Access Transmission and Entergy's Transco Proposal
Competition within the wholesale electric energy market increased with
the implementation of open access transmission. Open access allows any
supplier to transmit electricity to its customers over transmission
facilities owned by a different company. In 1996, FERC required all public
utilities that it regulates to provide wholesale transmission access to
third parties. FERC also required utilities to implement and maintain an
open access same-time information system. Entergy's domestic utility
companies made filings with FERC to comply with the FERC requirements.
FERC policy strongly favors independent control of transmission
operations to enhance competitive wholesale power markets. In response to
this policy, Entergy proposed the formation of a regional transmission
company (Transco) and sought guidance from FERC on the proposal. The
proposed Transco would be:
o a separate, independent, incentive-driven transmission company
regulated by FERC;
o governed by an independent board of directors with no ties to Entergy
or to any power market participant;
o composed of the transmission system assets transferred to it by the
domestic utility companies and other transmission owners;
o operated and maintained by employees who would work exclusively for
the Transco and would not be employed by Entergy or the domestic
utility companies; and
o passively owned with no voting rights by the domestic utility
companies and other members who transfer assets.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
In July 1999, FERC responded to Entergy's proposal and stated that passive
ownership of a Transco by a generating company or other market participant
could meet FERC's current independence and governance requirements under
certain circumstances. However, FERC raised concerns about the following
issues regarding Entergy's proposal:
o the selection process for the Transco's board of directors;
o the Transco board's fiduciary obligations to the member companies;
o the ability of the Transco to raise additional capital; and
o restrictions on transactions between the Transco and the member
companies.
Management expects to make additional filings during 2000 with
federal, state, and local regulatory authorities addressing these and other
issues and seeking necessary approvals for the formation of the Transco.
If approved, the Transco could become operational in 2001.
In a rulemaking that will affect the Transco, FERC issued Order 2000
in December 1999. Order 2000 calls for owners and operators of
transmission lines in the United States to join regional transmission
organizations ("RTOs") on a voluntary basis. Order 2000 requires public
utilities that own, operate, or control interstate transmission facilities
to file by October 15, 2000 a proposal for how they intend to participate
in an RTO or, alternatively, to describe the steps they have taken to do so
or the reasons why it is not feasible to participate in an RTO. FERC's
Order 2000 requires that RTOs be effective no later than December 15, 2001.
FERC is maintaining flexibility as to the structure of RTOs. For
example, it appears that RTOs may be for-profit or not-for-profit and may
be organized as joint ventures or legal entities of various types.
However, RTOs will be required, among other things, to be independent
market participants, to have sufficient regional scope to maintain
reliability and efficiency, to be non-discriminatory in granting service,
and to maintain operational control over their regional transmission
systems.
The Transco, an independent, for-profit transmission company which has
already been proposed to FERC by the domestic utility companies, is
Entergy's preferred approach for complying with FERC's Order 2000.
However, Entergy is also exploring other means for complying with Order
2000.
Deregulation legislation
Over the past several years, a number of bills have been introduced in
the United States Congress to deregulate the generation function of the
electric power industry. The bills generally have provisions that would
give retail consumers the ability to choose their own electric service
provider. Entergy Corporation has supported some deregulation legislation
in Congress that would lead to an orderly transition to competition and
would also repeal PUHCA and PURPA. Congressional sentiment appears to be
against mandating retail competition by a certain date and in favor of
clarifying state authority to order retail choice for consumers. Congress
adjourned in 1999 without final action on a deregulation bill by a
committee of the House or Senate.
Industrial and Commercial Customers
The domestic utility companies face the risk of losing customers due
to competition. Some of their large industrial and commercial customers
are exploring ways to reduce their energy costs. In particular,
cogeneration is an option available to a significant portion of the
domestic utility companies' industrial customer base. The domestic utility
companies have responded by working with some industrial and commercial
customers and negotiating electric service contracts that provide service
at rates lower than would otherwise be charged. Despite these actions,
Entergy Gulf States and Entergy Louisiana have lost revenue in recent years
from large industrial customers who have completed cogeneration projects.
However, material losses to cogeneration are not expected in 2000.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
State and Local Rate Regulation
The retail regulatory basis for setting rates for electric service is
shifting in some jurisdictions from traditional, exclusively cost-of-
service regulation to include performance-based elements. Performance-
based formula rate plans are designed to reward increased efficiency and
productivity, with utility shareholders and customers sharing in the
benefits. Entergy Mississippi and Entergy Louisiana have implemented
performance-based rate plans. These companies made the following filings
resulting in rate reductions in 1999:
o Entergy Louisiana submitted its formula rate plan filing for the 1998
test year and implemented a rate reduction of approximately $15.0
million, effective August 1, 1999. Entergy Louisiana's filing is
subject to further review by the LPSC, which may result in an
additional change in rates.
o Entergy Mississippi implemented a $13.3 million rate reduction,
effective May 1999, based on its formula rate plan filing for the 1998
test year. In June 1999, Entergy Mississippi revised its filing,
resulting in an additional rate reduction of approximately $1.5
million, effective July 1999.
All of the domestic utility companies have recently been ordered to grant
base rate reductions and have refunded or credited customers for previous
overcollections of rates. The continuing pattern of rate reductions
reflects completion of rate phase-in plans, lower costs of service ordered
by regulators, and lower authorized returns on common equity. The domestic
utility companies' retail and wholesale rate matters and proceedings are
discussed more thoroughly in Note 2 to the financial statements.
Other Electric Utility Trends
Utility mergers and joint ventures involving domestic and overseas
companies are another continuing trend in the industry. In some areas of
the country, utilities have either sold or are attempting to sell all or a
substantial portion of their generation assets in order to focus their
businesses on transmission and/or distribution services. Entergy, through
its global power development and non-utility nuclear power businesses,
intends to expand its generation business. While the global power
development business is focused on building new power plants or modifying
existing plants, the nuclear business expansion plan focuses on acquiring
generation assets of other utilities.
In some areas of the United States, municipalities are exploring the
possibility of establishing their own electric distribution systems, which
would result in both residential and large industrial customers leaving
some investor-owned utilities. If the efforts of a municipality are
successful, the investor-owned utility may be unable to recover some costs
incurred for the purpose of serving those customers.
Continued Application of SFAS 71 and Stranded Cost Exposure
The domestic utility companies' and System Energy's financial
statements primarily reflect assets and costs based on existing cost-based
ratemaking regulation in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." Under traditional ratemaking
practice, regulated electric utilities are granted exclusive geographic
franchises to sell electricity. In return, the utilities are obligated to
make investments and incur obligations to serve customers. Prudently
incurred costs are recovered from customers along with a return on
investment. Regulators may require utilities to defer collecting from
customers some operating costs until a future date. These deferred costs
are recorded as regulatory assets in the financial statements. In order to
continue applying SFAS 71 to its financial statements, a utility's rates
must be set by an independent regulator on a cost-of-service basis and the
rates must be charged to and collected from customers.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
As the generation portion of the utility industry moves toward
competition, it is likely that generation rates will no longer be set on a
cost-of-service basis. When that occurs, the generation portion of the
business could be required to discontinue application of SFAS 71. The
result of discontinuing application of SFAS 71 could be the recording of
asset impairments and the removal of regulatory assets and liabilities from
the balance sheet. Management believes that definitive outcomes have not
yet been determined regarding the transition to competition in each of
Entergy's jurisdictions. Therefore, the regulated operations of the
domestic utility companies and System Energy continue to apply SFAS 71.
Arkansas and Texas have enacted retail open access laws as described above,
but Entergy believes that significant issues remain to be addressed by
Arkansas and Texas regulators, and the enacted laws do not provide
sufficient detail to determine definitively the impact on Entergy Arkansas'
and Entergy Gulf States' regulated operations.
As Entergy's domestic utility companies move toward competition, there
are costs or commitments that have been incurred under a regulated pricing
system that might be impaired or not recovered in a competitive market.
These costs are referred to as stranded costs. The restructuring laws
enacted in Arkansas and Texas provide an opportunity for the recovery of
stranded costs following review and approval by the APSC or the PUCT.
Nearly all of Entergy's exposure to stranded costs involves commitments
that were approved by regulators. These exposures include the following:
o the allowed cost of constructing its nuclear generating plants (the
domestic utility companies' net investment in nuclear generation is
provided in Note 1 to the financial statements);
o long-term contracts to purchase power under the Unit Power Sales
Agreement and associated with the Vidalia project, which may require
paying above-market prices in a competitive environment (detail
concerning these obligations is provided in Note 9 to the financial
statements);
o nuclear power plant decommissioning costs (detail concerning these
costs is provided in Note 9 to the financial statements);
o the construction cost of some fossil-fueled generating plants and
related contracts to buy fuel that may be above-market price in a
competitive market (detail concerning the domestic utility companies'
net investment in generation other than nuclear, which is primarily
fossil fueled, is provided in Note 1 to the financial statements,
and detail concerning certain fuel contracts is provided in Note 9
to the financial statements); and
o regulatory assets reflected in the balance sheets.
As of December 31, 1999, the amount of these potentially strandable
costs for Entergy reflected in the financial statements is approximately
$1.8 billion at Entergy Arkansas, $3.3 billion at Entergy Gulf States,
$2.5 billion at Entergy Louisiana, and $0.3 billion at Entergy Mississippi.
The estimated net present value of the obligations described above that are
not reflected in the balance sheets for Entergy is approximately $0.9
billion at Entergy Arkansas, $0.4 billion at Entergy Gulf States, $1.5
billion at Entergy Louisiana, $0.6 billion at Entergy Mississippi, and
$0.3 billion at Entergy New Orleans. In the normal course of business,
depreciation, amortization, and payments under the contractual obligations
will continue to reduce these amounts. The actual amount of these costs
and obligations that will be identified as stranded will be determined in
regulatory proceedings. These proceedings will commence in Arkansas and
Texas in 2000. The outcome of the proceedings cannot be predicted and will
depend upon a number of variables, including the timing of stranded cost
determination, the values attributable to certain strandable assets,
assumptions concerning future market prices for electricity, and other
factors. In addition, because transition legislation or regulation is not
in place in Louisiana, Mississippi, or New Orleans, Entergy cannot predict
how those jurisdictions will treat stranded costs and whether Entergy will
be able to recover all or a part of the costs in those jurisdictions.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Until the proceedings in Arkansas and Texas provide a greater level of
certainty, it is anticipated that both Entergy Arkansas and Entergy Gulf
States will continue to apply SFAS 71 to their regulated operations. SFAS
71 will continue to be applied in the Louisiana, Mississippi, and New
Orleans jurisdictions pending legislative or regulatory developments
relating to transition to competition. If SFAS 71 is no longer applied by
the respective domestic utility companies and System Energy, and regulation
or legislation does not allow for recovery of all or a portion of its
stranded costs, there could be a material adverse impact on the respective
domestic utility companies' and Entergy's financial statements. However,
Entergy believes that the amount of costs that will be stranded without a
means of recovery or mitigation for the domestic utility companies will be
significantly less than the amounts referred to above. The application of
SFAS 71 is discussed more thoroughly in Note 1 to the financial statements.
Year 2000 Issues
Entergy did not experience any significant problems in operations due
to the rollover to year 2000, and there were no power outages caused by the
rollover. Entergy will continue to monitor additional dates during 2000
that could be affected by the rollover to year 2000, but does not expect
material problems based on its testing and the results of the January 1,
2000 rollover.
Management expects to spend approximately $54 million for maintenance
and modification costs related to year 2000 issues between 1998 and mid-
2000. Entergy has incurred approximately $51 million of this total through
December 1999. The maintenance or modification costs associated with year
2000 compliance are expensed as incurred, while the costs of new software
are capitalized and amortized over the software's useful life. The costs
are being funded through operating cash flows. In certain of Entergy's
jurisdictions, the expenses have been deferred and will be recovered from
ratepayers into 2002. Total capitalized costs for projects accelerated due
to year 2000 were estimated to be $20 million, which is the amount Entergy
has incurred through December 1999.
Market Risks Disclosure
Entergy is exposed to the following market risks:
o the commodity price risk associated with its power marketing and
trading business;
o the interest rate risk associated with certain of its variable rate
credit facilities; and
o the interest rate and equity price risk associated with its
investments in decommissioning trust funds.
Entergy's power marketing and trading business enters into sales and
purchases of electricity and natural gas for delivery in the future.
Because the market prices of electricity and natural gas can be volatile,
Entergy's power marketing and trading business is exposed to risk arising
from differences between the fixed prices in its commitments and
fluctuating market prices. To mitigate its exposure, Entergy's power
marketing and trading business enters into electricity and natural gas
futures, swaps, option contracts, and electricity forward agreements. The
business also manages its exposure with policies limiting its exposure to
market risk and daily monitoring of its potential financial exposure.
Entergy's power marketing and trading business uses a value-at-risk
model (VAR) as one measure of market risk for the traded portfolio. VAR
acts in conjunction with stress testing, position reporting, and profit and
loss reporting in order to measure and control the risk inherent in the
traded portfolio. The primary use of VAR is to provide a benchmark for
market risk contained in the trading portfolio. VAR does not function as a
comprehensive measure of all risks in a portfolio. Furthermore, VAR is
only an appropriate risk measure for products traded in relatively liquid
markets.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Management's VAR methodology uses a variance/covariance approach to
the measurement of market risk. The variance/covariance approach assumes
that prices follow a "random-walk" process in which prices are lognormally
distributed. This approach requires the following inputs:
o a one-tailed test with a 95% confidence interval that measures the
probability of loss;
o a 20-day window for measuring volatility;
o cross-product correlation matrix that measures the tendency of
different basis products to move together; and
o inter-temporal correlation matrix that measures the tendency of
commodities with different delivery periods to move together.
Based on these assumptions, this business' VAR was approximately $3.3
million as of December 31, 1999 and $6.1 million as of December 31, 1998.
During 1999, the average month-end VAR was $3.7 million, with a high month-
end VAR of $7.1 million and a low month-end VAR of $2.0 million.
Management's calculation of value-at-risk exposure represents an
estimate of reasonably possible net losses that would be recognized on its
portfolio of derivative financial instruments, assuming hypothetical
movements in prices. It does not represent the maximum possible loss or an
expected loss that may occur, because actual future gains and losses will
differ from those estimated based upon actual fluctuations in market rates,
operating exposures, and the timing thereof, and changes in the portfolio
of derivative financial instruments during the year.
Entergy uses interest rate swaps to reduce the impact of interest rate
changes on certain variable-rate credit facilities associated with its
global power development business. Under the interest rate swap
agreements, Entergy receives floating-rate interest payments and pays fixed-
rate interest rate payments over the life of the agreements. The floating-
rate interest that Entergy receives is approximately equal to the interest
it must pay on the variable-rate credit facilities. Therefore, through the
use of the swap agreements, Entergy effectively achieves a fixed rate of
interest on the credit facilities. These swaps are discussed more
thoroughly in Note 7 to the financial statements.
Entergy is exposed to fluctuations in equity prices and interest rates
through its nuclear decommissioning trust funds. The NRC requires Entergy
to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River
Bend, Waterford 3, Grand Gulf, and Pilgrim. The funds are invested
primarily in equity securities; fixed-rate, fixed-income securities; and
cash and cash equivalents. Management believes that its exposure to market
fluctuations will not affect results of operations for the ANO, River Bend,
Grand Gulf, and Waterford 3 trust funds because of the application of
regulatory accounting principles. The Pilgrim trust fund holds
approximately $341 million of fixed-rate, fixed-income securities as of
December 31, 1999. These securities have an average coupon rate of 6.67%,
an average duration of 6.2 years, and an average maturity of 9.5 years.
The Pilgrim trust fund also holds equity securities worth approximately $81
million as of December 31, 1999. These securities are held in a fund which
is designed to approximate the Standard & Poor's 500 Index. The
decommissioning trust funds are discussed more thoroughly in Notes 1 and 9
to the financial statements.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of retained earnings,
comprehensive income and paid-in-capital and of cash flows present fairly,
in all material respects, the financial position of Entergy Corporation and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Entergy's results of operations are discussed in two business
categories, "Domestic Utility Companies and System Energy" and "Competitive
Businesses." Domestic Utility Companies and System Energy is Entergy's
predominant business segment, contributing 73% of Entergy's operating
revenue and 93% of its net income in 1999. Competitive Businesses include
the following segments detailed in Note 14 to the financial statements:
power marketing and trading, Entergy London, CitiPower, and all other.
"All other" principally includes global power development, non-utility
nuclear power, and the parent company, Entergy Corporation. The
elimination of power marketing and trading mark-to-market profits on
intercompany power transactions is also included in all other. Note 14 to
the financial statements provides a detailed breakdown of financial
information by business segment.
Net income for the year ended December 31, 1998 reflected the results
of operations for Entergy London, CitiPower, Efficient Solutions, Inc.,
Entergy Security, Inc., Entergy Power Edesur Holdings, and several
telecommunications businesses. These businesses were sold between late
1998 and mid-1999, and are therefore not included in some or all of 1999's
results of operations.
Net Income
Entergy Corporation's consolidated net income in 1999 decreased
compared to 1998 primarily due to:
o the absence of London Electricity's results of operations in 1999
because of the sale of the business in December 1998; and
o the gains on the sales of London Electricity and CitiPower reflected
in 1998 results.
The decrease is partially offset by gains on the sales of other businesses
in 1999, the loss on Efficient Solutions reflected in 1998 results, a 5%
increase in domestic utility net income, and a reduction in the net loss
for the power marketing and trading business.
Entergy Corporation's consolidated net income in 1998 increased
compared to 1997 primarily due to the gains on the sales of London
Electricity and CitiPower and the UK windfall profits tax reflected in 1997
results.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Domestic Utility Companies and System Energy
Revenues and Sales
The changes in electric operating revenues for Entergy's domestic
utility companies and System Energy for 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues $81.2 ($290.3)
Rate riders (164.1) (108.6)
Fuel cost recovery 188.7 (80.6)
Sales volume/weather 5.3 187.3
Other revenue (including unbilled) 74.3 (191.0)
Sales for resale (50.3) 80.7
------ -------
Total $135.1 ($402.5)
====== =======
Base revenues
In 1999, base revenues increased $81.2 million primarily due to:
o a $93.6 million reversal in June 1999 of regulatory reserves
associated with the accelerated amortization of accounting order
deferrals in conjunction with the settlement agreement in Entergy
Gulf States' Texas November 1996 and 1998 rate filings. The
settlement agreement was approved by the PUCT in June 1999. The
net income effect of this reversal is largely offset by the
amortization of rate deferrals discussed below; and
o a reduction in the amount of reserves recorded in 1999 at Entergy Gulf
States compared to 1998 for the anticipated effects of rate proceedings
in Texas.
Partially offsetting these increases were:
o annual base rate reductions implemented for Entergy Gulf States'
Louisiana and Texas retail customers in 1998 and 1999 and Entergy
Mississippi customers in 1999; and
o reserves recorded by Entergy Gulf States' Louisiana jurisdiction,
Entergy Louisiana, and Entergy New Orleans in 1999 for potential rate
actions or rate refunds.
In 1998, base revenues decreased primarily due to base rate
reductions, reserves for refunds, and other regulatory adjustments totaling
$216.5 million ($129.0 million net of tax) at Entergy Gulf States.
These rate reductions and other pending rate proceedings are discussed
in Note 2 to the financial statements.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Rate rider revenues
Rate rider revenues do not affect net income because specific incurred
expenses offset them.
In 1999, rate rider revenues decreased $164.1 million due to a revised
Grand Gulf rider implemented at Entergy Arkansas and Entergy Mississippi.
The revised rider eliminated revenues attributable to the Grand Gulf phase-
in plans, which were completed in 1998, and implemented the Grand Gulf
Accelerated Recovery Tariff (GGART), allowing accelerated recovery and
payment of a portion of the two companies' Grand Gulf purchased power
obligations. The tariffs became effective in January 1999 and October
1998, respectively.
In 1998, rate rider revenues decreased $108.6 million due to the
decline in the Grand Gulf 1 cost recovery rate rider revenues at Entergy
Arkansas, reflecting scheduled reductions in the phase-in plan that was
completed in November 1998. Rate rider revenues also decreased due to
reductions required by the settlement agreement between the APSC and
Entergy Arkansas. The settlement agreement with the APSC is discussed in
Note 2 to the financial statements.
Fuel cost recovery revenues
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
In 1999, fuel cost recovery revenues increased $188.7 million
primarily due to:
o an increased fuel factor and a new fuel surcharge implemented in
Entergy Gulf States' Texas jurisdiction in 1999;
o recovery of higher-priced fuel and purchased power costs at Entergy
Louisiana due to nuclear outages at Waterford 3 in 1999; and
o an increase in the energy cost recovery rate effective April 1999 and
the completion of a customer refund obligation in 1998 which lowered
1998 fuel cost recovery at Entergy Arkansas.
In 1998, fuel cost recovery revenues decreased $80.6 million primarily
due to lower pricing at Entergy Louisiana resulting from a change in
generation mix.
Sales volume
In 1998, sales volume increased $187.3 million as a result of
significantly warmer weather at all of the domestic utility companies.
Other revenue
In 1999, other revenue increased $74.3 million primarily due to a
change in estimated unbilled revenues for the domestic utility companies.
The changed estimate more closely aligns the fuel component of unbilled
revenues with regulatory treatment. This change is expected to affect
comparisons to applicable prior period amounts through the first quarter of
2000. Comparative impacts are also affected by seasonal variations in
demand.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1998, other revenue decreased $191 million primarily due to the
revenue portion of the gain recognized in December 1997 on the settlement
by Entergy Gulf States of litigation with Cajun, the effect of which was
partially offset by regulatory reserves recorded at Entergy Gulf States in
1997. Other revenue also decreased due to unfavorable pricing of unbilled
revenues resulting from rate reductions at Entergy Gulf States.
Sales for resale
In 1999, sales for resale decreased $50.3 million primarily due to the
loss of certain municipal and co-op customer contracts at Entergy Arkansas.
In 1998, sales for resale increased due to increased sales to non-
associated companies, particularly at Entergy Arkansas, and increased
demand at Entergy Gulf States.
Expenses
Fuel and purchased power expenses
In 1999, fuel and purchased power expenses increased due to:
o higher gas and purchased power prices as well as increased gas usage
at Entergy Arkansas and Entergy Louisiana;
o higher fuel recovery due to an increased fuel factor and fuel
surcharge in Entergy Gulf States' Texas jurisdiction; and
o an increased energy cost recovery rate in 1999 and the completion of a
customer refund obligation in 1998 which lowered 1998 fuel cost
recovery at Entergy Arkansas.
These increases were partially offset by decreased fuel expenses at
Entergy Mississippi as a result of lower total generation.
Other operation and maintenance expenses
In 1999, other operation and maintenance expenses increased primarily
due to increased customer service and reliability improvements throughout
the system, increases in storm damage accruals and loss reserves across the
system, and increases in maintenance work at Entergy Arkansas and Entergy
Mississippi.
In 1998, other operation and maintenance expenses increased primarily
due to the 1997 settlement of litigation with Cajun, which resulted in the
transfer of the 30% interest in River Bend owned by Cajun to Entergy Gulf
States. Entergy Gulf States' operating expenses in 1998 included 100% of
River Bend's operation and maintenance expenses, as compared to 70% of such
expenses for the year ended December 31, 1997.
This increase was partially offset by decreased non-refueling outage
related contract work and maintenance performed at Entergy Louisiana and
lower contract labor, materials and supplies expense, and insurance and
materials and supplies refunds at System Energy.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Depreciation and amortization expenses
In 1999, depreciation and amortization expenses decreased due to:
o lower depreciation at Entergy Gulf States as a result of the write-
down of the River Bend abeyed plant as required by the Texas rate
settlement and a review of plant in-service dates; and
o reduction in principal payments associated with the sale and leaseback
in 1989 of a portion of Grand Gulf 1 at System Energy.
Other regulatory charges
In 1999, other regulatory charges decreased due to:
o lower accruals for transition costs in 1999 at Entergy Arkansas;
o a change in the amortization period for deferred River Bend finance
charges in the Entergy Gulf States' Texas retail jurisdiction; and
o deferral of Year 2000 costs at Entergy Gulf States and Entergy
Louisiana in accordance with an LPSC order.
These decreases were partially offset by increased charges at System
Energy as a result of the implementation of the GGART at Entergy Arkansas
and Entergy Mississippi.
In 1998, other regulatory charges increased primarily due to:
o additional accruals of $74.0 million ($45.0 million net of tax) for
the transition cost account at Entergy Arkansas; and
o the decrease in the under-recovery of Grand Gulf 1-related costs at
Entergy Mississippi.
The increase was partially offset by the $15.3 million ($9.3 million
net of tax) reversal of 1997 reserves at Entergy Arkansas for previously
deferred radioactive waste facility costs in December 1998.
Entergy Arkansas' settlement agreement with the APSC established the
transition cost account to collect earnings in excess of an allowed return
on equity for offset against potential stranded costs when retail access is
implemented.
Amortization of rate deferrals
In 1999, amortization of rate deferrals decreased due to the
completion of Grand Gulf 1 rate phase-in plans at Entergy Arkansas and
Entergy Mississippi in 1998. These decreases were partially offset by
increased amortization at Entergy Gulf States due to a reduction of
accounting order deferrals in June 1999 in accordance with the Texas
settlement agreement.
In 1998, amortization of rate deferrals decreased because of the
completion of rate phase-in plans at Entergy Arkansas, Entergy Gulf States
(Louisiana jurisdiction), and Entergy Mississippi.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other
Other income
In 1999, other income increased primarily due to an increase in AFUDC
resulting from an adjustment recorded in the third quarter of 1999 on
certain capital projects.
In 1998, other income increased primarily due to lower reserves for
regulatory adjustments recorded in 1998 than in 1997 at Entergy Gulf
States.
This increase was partially offset by interest income related to the
settlement by Entergy Gulf States of litigation with Cajun recorded in
December 1997.
Interest charges
In 1999, interest on long-term debt decreased due to retirement and
refinancing of long-term debt at the domestic utility companies and System
Energy.
Other interest increased in 1999 primarily due to interest on the
potential refund of System Energy's proposed rate increase.
In 1998, interest charges decreased due to the retirement of certain
long-term debt at the domestic utility companies and System Energy.
Competitive Businesses
Revenues and Sales
Competitive business revenues decreased approximately $2.8 billion for
the year ended December 31, 1999. The decrease was primarily due to the
sales of Entergy London and CitiPower in 1998 and decreased sales revenues
in the power marketing and trading business. The decreased sales revenues
in the power marketing and trading business resulted from decreased
electricity trading volume in the peak summer months in 1999 compared to
1998. However, the impact on net income from these decreased revenues was
more than offset by decreased fuel and purchased power expenses as
discussed below, resulting in a reduction in operating loss for this
business for the year ended December 31, 1999. The decrease in revenues
was partially offset by an increase for the non-utility nuclear business
resulting primarily from acquisition and operation of the Pilgrim plant in
1999.
Competitive business revenues increased $2.4 billion in 1998 primarily
due to increased sales volume in the power marketing and trading business.
This business' volume increased dramatically in 1998 due to increased
marketing efforts and significantly warmer weather. The impact on net
income from these revenues is offset by increased power purchased for
resale as discussed below.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Expenses
Fuel and purchased power expenses
Fuel and purchased power expenses decreased for the year ended
December 31, 1999, primarily due to:
o the business sales previously discussed;
o decreased electricity trading volume in the power marketing and
trading business; and
o a $44 million ($27 million net of tax) counterparty default incurred
in 1998 by the power marketing and trading business.
These decreases are partially offset by increased gas trading volume in the
power marketing and trading business.
In 1998, purchased power expenses increased primarily due to
significantly increased power trading by the power marketing and trading
business. The power marketing and trading business also incurred a $44
million ($27 million net of tax) counterparty default in 1998.
Other operation and maintenance expenses
Other operation and maintenance expenses decreased for the year ended
December 31, 1999 primarily due to the business sales previously discussed.
The decrease was partially offset by:
o an increase for the power marketing and trading business resulting
primarily from increased risk management and back-office support; and
o an increase for the non-utility nuclear power business resulting
primarily from acquisition and operation of the Pilgrim plant in 1999.
In 1998, other operation and maintenance expenses increased primarily
due to:
o acquisition of security companies whose operation and maintenance
expenses were included in 1998 but not in 1997; and
o higher transmission expenses for the power marketing and trading
business due to significantly increased power trading sales volume.
Other
Other income
Other income decreased for the year ended December 31, 1999, due
primarily to the gains recorded in 1998 on the sales of Entergy London of
$327.3 million ($246.8 million net of tax) and CitiPower of $29.8 million
($19.3 million net of tax). The decrease was partially offset by the
following:
o interest income of $58.5 million in 1999 on the proceeds of the sales
of Entergy London and CitiPower;
o a $26.7 million ($17 million net of tax) gain on the sale of Entergy
Power Edesur Holdings in June 1999;
o a $12.9 million ($8.0 million net of tax) gain on the sale of Entergy
Hyperion Telecommunications in June 1999;
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
o a $22.0 million ($6.4 million net of tax) gain on the sale of Entergy
Security, Inc. in January 1999, including a true-up recognized in
December 1999;
o a $7.6 million ($4.9 million net of tax) favorable adjustment to the
final sale price of CitiPower in January 1999;
o a $68.6 million ($35.9 million net of tax) loss on the sale of
Efficient Solutions, Inc. (formerly Entergy Integrated Solutions,
Inc.) in September 1998;
o $32.8 million ($21.3 million net of tax) of write-downs of Entergy's
investments in two Asian projects in 1998; and
o favorable experience on warranty reserves for the businesses sold
during 1998.
In 1998, other income increased primarily due to the gains recorded on
the sales of Entergy London of $327.3 million ($246.8 million net of tax)
and CitiPower of $29.8 million ($19.3 million net of tax).
This increase in 1998 was partially offset by:
o the $68.6 million ($35.9 million net of tax) loss on the sale of
Efficient Solutions, Inc. in September 1998; and
o $32.8 million ($21.3 million net of tax) of write-downs of Entergy's
investments in electric generation projects in Asia, one of which
was sold.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 were 37.5%,
25.3%, and 61.0%, respectively. The effective income tax rate increased in
1999 primarily due to the items discussed below that occurred in 1998. The
increase was partially offset by the recording of deferred tax benefits in
1999 related to expected utilization of foreign tax credits.
The effective income tax rate decreased in 1998 principally due to:
o the UK windfall profits tax of $234.1 million at Entergy London
recognized in 1997;
o the tax effects of the settlement by Entergy Gulf States of litigation
with Cajun in 1997;
o recognition of $44 million of deferred tax benefits in 1998 related to
expected utilization of Entergy's capital loss carryforwards; and
o a $31.7 million reduction in taxes because of reductions in the UK
corporation tax rate from 31% to 30% in the third quarter of 1998.
These decreases were partially offset by a reduction in the UK
corporation tax rate from 33% to 31% in 1997, which lowered taxes in 1997
by $64.7 million.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
1999 1998 1997
(In Thousands, Except Share Data)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $6,271,414 $6,136,322 $6,538,831
Natural gas 110,355 115,355 137,345
Steam products 15,852 43,167 43,664
Competitive businesses 2,375,607 5,199,928 2,819,086
---------- ----------- ----------
TOTAL 8,773,228 11,494,772 9,538,926
---------- ----------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 2,082,875 1,706,028 1,677,041
Purchased power 2,442,484 4,585,444 2,318,811
Nuclear refueling outage expenses 76,057 83,885 73,857
Other operation and maintenance 1,705,545 1,988,040 1,886,149
Decommissioning 45,988 46,750 52,552
Taxes other than income taxes 339,284 362,153 365,439
Depreciation and amortization 698,881 938,179 927,456
Other regulatory charges (credits) - net 8,113 35,136 (18,545)
Amortization of rate deferrals 122,347 237,302 421,803
---------- ----------- ----------
TOTAL 7,521,574 9,982,917 7,704,563
---------- ----------- ----------
OPERATING INCOME 1,251,654 1,511,855 1,834,363
---------- ----------- ----------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 29,291 12,465 10,057
Gain on sale of assets - net 71,926 274,941 26,432
Miscellaneous - net 154,423 85,618 (236,340)
---------- ----------- ----------
TOTAL 255,640 373,024 (199,851)
---------- ----------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 476,877 735,601 797,266
Other interest - net 82,471 65,047 51,624
Distributions on preferred securities of 18,838 42,628 21,319
subsidiaries
Allowance for borrowed funds used during construction (22,585) (10,761) (7,937)
---------- ----------- ----------
TOTAL 555,601 832,515 862,272
---------- ----------- ----------
INCOME BEFORE INCOME TAXES 951,693 1,052,364 772,240
Income taxes 356,667 266,735 471,341
---------- ----------- ----------
CONSOLIDATED NET INCOME 595,026 785,629 300,899
Preferred dividend requirements and other 42,567 46,560 53,216
---------- ----------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $552,459 $739,069 $247,683
========== =========== ==========
Earnings per average common share:
Basic and diluted $2.25 $3.00 $1.03
Dividends declared per common share $1.20 $1.50 $1.80
Average number of common shares outstanding:
Basic 245,127,460 246,396,469 240,207,539
Diluted 245,326,883 246,572,328 240,347,697
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Consolidated net income $595,026 $785,629 $300,899
Noncash items included in net income:
Gain on Cajun Settlement - - (246,022)
Amortization of rate deferrals 122,347 237,302 421,803
Reserve for regulatory adjustments 10,531 130,603 381,285
Other regulatory charges (credits) - net 8,113 35,136 (18,545)
Depreciation, amortization, and decommissioning 744,869 984,929 980,008
Deferred income taxes and investment tax credits (204,644) (64,563) (252,955)
Allowance for equity funds used during construction (29,291) (12,465) (10,057)
Gain on sale of assets - net (71,926) (274,941) (26,432)
Changes in working capital (net of effects from acquisitions and dispositions):
Receivables 9,246 24,176 (99,411)
Fuel inventory (1,359) 28,439 20,272
Accounts payable 35,233 31,229 181,243
Taxes accrued 158,733 58,505 143,151
Interest accrued (56,552) (37,937) (9,849)
Deferred fuel (71,072) (18,993) (28,412)
Other working capital accounts 45,285 43,209 (102,303)
Provision for estimated losses and reserves (59,464) (133,880) (22,423)
Changes in other regulatory assets (36,379) (13,684) 28,016
Proceeds from settlement of Cajun litigation - - 102,299
Other 108,673 (49,996) 50,204
---------- ---------- ----------
Net cash flow provided by operating activities 1,307,369 1,752,698 1,792,771
---------- ---------- ----------
INVESTING ACTIVITIES
Construction/capital expenditures (1,195,750) (1,143,612) (847,223)
Allowance for equity funds used during construction 29,291 12,465 10,057
Nuclear fuel purchases (137,649) (102,747) (89,237)
Proceeds from sale/leaseback of nuclear fuel 137,093 128,210 144,442
Proceeds from sale of businesses 351,082 2,275,014 54,153
Investment in other nonregulated/nonutility properties (81,273) (85,014) (2,039,370)
Proceeds from notes receivable 956,356 - -
Purchase of other temporary investments (321,351) (947,444) -
Decommissioning trust contributions and realized change in trust assets (61,766) (73,641) (68,139)
Other (42,258) - (15,966)
---------- ---------- ----------
Net cash flow provided by (used in) investing activities (366,225) 63,231 (2,851,283)
---------- ---------- ----------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from the issuance of:
Long-term debt 1,113,370 1,904,074 2,047,282
Preferred securities of subsidiary trusts and partnerships - - 382,323
Common stock 15,320 19,341 305,379
Retirement of:
Long-term debt (1,195,451) (3,151,680) (751,669)
Repurchase of common stock (245,004) (2,964) -
Redemption of preferred stock (98,597) (17,481) (124,367)
Changes in short-term borrowings - net (165,506) 205,412 142,025
Dividends paid:
Common stock (291,483) (373,441) (438,183)
Preferred stock (43,621) (46,809) (51,270)
---------- ---------- ----------
Net cash flow provided by (used in) financing activities (910,972) (1,463,548) 1,511,520
---------- ---------- ----------
Effect of exchange rates on cash and cash equivalents (948) 1,567 (11,164)
---------- ---------- ----------
Net increase in cash and cash equivalents 29,224 353,948 441,844
Cash and cash equivalents at beginning of period 1,184,495 830,547 388,703
---------- ---------- ----------
Cash and cash equivalents at end of period $1,213,719 $1,184,495 $830,547
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $601,739 $833,728 $831,307
Income taxes $373,537 $273,935 $390,238
Noncash investing and financing activities:
Change in unrealized appreciation of
decommissioning trust assets $41,582 $46,325 $30,951
Treasury shares issued to acquire security business - - $21,464
Net assets acquired from Cajun settlement - - $319,056
Decommissioning trust fund acquired from Pilgrim acquisition $471,284 - -
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $108,198 $386,764
Temporary cash investments - at cost,
which approximates market 1,105,521 797,731
----------- -----------
Total cash and cash equivalents 1,213,719 1,184,495
----------- -----------
Other temporary investments - at cost,
which approximates market 321,351 -
Notes receivable 2,161 959,328
Accounts receivable:
Customer 290,331 280,648
Allowance for doubtful accounts (9,507) (10,300)
Other 207,898 197,362
Accrued unbilled revenues 298,616 245,350
----------- -----------
Total receivables 787,338 713,060
----------- -----------
Deferred fuel costs 240,661 169,589
Fuel inventory - at average cost 94,419 90,408
Materials and supplies - at average cost 392,403 374,674
Rate deferrals 30,394 37,507
Deferred nuclear refueling outage costs 58,119 37,138
Prepayments and other 78,567 77,749
----------- -----------
TOTAL 3,219,132 3,643,948
----------- -----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 214 214
Decommissioning trust funds 1,246,023 709,018
Non-utility property - at cost (less accumulated depreciation 317,165 275,421
Non-regulated investments 198,003 487,586
Other - at cost (less accumulated depreciation) 16,714 16,041
----------- -----------
TOTAL 1,778,119 1,488,280
----------- -----------
UTILITY PLANT
Electric 23,163,161 22,704,572
Plant acquisition adjustment 406,929 423,195
Property under capital lease 768,500 789,045
Natural gas 186,041 183,621
Steam products - 80,537
Construction work in progress 1,500,617 911,278
Nuclear fuel under capital lease 286,476 282,595
Nuclear fuel 87,693 29,690
----------- -----------
TOTAL UTILITY PLANT 26,399,417 25,404,533
Less - accumulated depreciation and amortization 10,898,661 10,075,951
----------- -----------
UTILITY PLANT - NET 15,500,756 15,328,582
----------- -----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals 16,581 125,095
SFAS 109 regulatory asset - net 1,068,006 1,141,318
Unamortized loss on reacquired debt 198,631 191,786
Other regulatory assets 637,870 528,179
Long-term receivables 32,260 34,617
Other 533,732 354,889
----------- -----------
TOTAL 2,487,080 2,375,884
----------- -----------
TOTAL ASSETS $22,985,087 $22,836,694
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $194,555 $255,221
Notes payable 120,715 296,790
Accounts payable 707,678 522,072
Customer deposits 161,909 148,972
Taxes accrued 445,677 284,847
Accumulated deferred income taxes 72,640 31,976
Nuclear refueling outage costs 11,216 16,991
Interest accrued 129,028 185,688
Co-owner advances 7,018 4,073
Obligations under capital leases 178,247 176,270
Other 125,749 58,909
----------- -----------
TOTAL 2,154,432 1,981,809
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 3,310,340 3,538,332
Accumulated deferred investment tax credits 519,910 565,744
Obligations under capital leases 205,464 220,209
FERC settlement - refund obligation 37,337 43,159
Other regulatory liabilities 199,139 153,163
Decommissioning 703,453 243,400
Transition to competition 157,034 90,623
Regulatory reserves 378,307 674,310
Accumulated provisions 279,425 252,321
Other 535,156 498,989
----------- -----------
TOTAL 6,325,565 6,280,250
----------- -----------
Long-term debt 6,612,583 6,596,617
Preferred stock with sinking fund 69,650 167,523
Preference stock 150,000 150,000
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely junior subordinated deferrable debentures 215,000 215,000
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 338,455 338,455
Common stock, $.01 par value, authorized 500,000,000
shares; issued 247,082,345 shares in 1999 and
246,829,076 shares in 1998 2,471 2,468
Paid-in capital 4,636,163 4,630,609
Retained earnings 2,786,467 2,526,888
Accumulated other comprehensive loss:
Cumulative foreign currency translation adjustment (68,782) (46,739)
Net unrealized investment losses (5,023) -
Less - treasury stock, at cost (8,045,434 shares in 1999 and
208,907 shares in 1998) 231,894 6,186
----------- -----------
TOTAL 7,457,857 7,445,495
----------- -----------
Commitments and Contingencies (Notes 2, 9, 10, and 11)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $22,985,087 $22,836,694
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Retained Earnings - Beginning of period $2,526,888 $2,157,912 $2,341,703
Add - Earnings applicable to common stock 552,459 $552,459 739,069 $739,069 247,683 $247,683
Deduct:
Dividends declared on common stock 294,352 369,498 432,268
Capital stock and other expenses (1,472) 595 (794)
---------- ---------- ----------
Total 292,880 370,093 431,474
---------- ---------- ----------
Retained Earnings - End of period $2,786,467 $2,526,888 $2,157,912
========== ========== ==========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period ($46,739) ($69,817) $21,725
Foreign currency translation adjustments (22,043) (22,043) 23,078 23,078 (91,542) (91,542)
Net unrealized investment losses (5,023) (5,023) - - - -
-------- -------- --------
Balance at end of period ($73,805) ($46,739) ($69,817)
======== -------- ======== -------- ======== --------
Comprehensive Income $525,393 $762,147 $156,141
======== ======== ========
PAID-IN CAPITAL
Paid-in Capital - Beginning of period $4,630,609 $4,613,572 $4,320,591
Add:
Gain on reacquisition of subsidiaries' - - 273
preferred stock
Common stock issuances related to stock plans 5,554 17,037 292,870
---------- ---------- ----------
Total 5,554 17,037 293,143
---------- ---------- ----------
Deduct:
Capital stock discount and other expenses - - 162
---------- ---------- ----------
Total - - 162
---------- ---------- ----------
Paid-in Capital - End of period $4,636,163 $4,630,609 $4,613,572
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 (1) 1997 (2) 1996 (3) 1995
(In Thousands, Except Percentages and Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 8,773,228 $11,494,772 $ 9,538,926 $ 7,163,526 $ 6,273,072
Consolidated net income $ 595,026 $ 785,629 $ 300,899 $ 490,563 $ 562,534 (5)
Earnings per share
Basic and Diluted $ 2.25 $ 3.00 $ 1.03 $ 1.83 $ 2.13 (5)
Dividends declared per share $ 1.20 $ 1.50 $ 1.80 $ 1.80 $ 1.80
Return on average common equity 7.77% 10.71% 3.71% 6.41% 8.11%
Book value per share, year-end $ 29.78 $ 28.82 $ 27.23 $ 28.51 $ 28.41
Total assets $22,985,087 $22,836,694 $27,000,700 $22,956,025 $22,265,930
Long-term obligations (4) $ 7,252,697 $ 7,349,349 $10,154,330 $ 8,335,150 $ 7,484,248
</TABLE>
(1) Includes the effects of the sale of London Electricity and CitiPower
in December 1998.
(2) Includes the effects of the London Electricity acquisition in February
1997.
(3) Includes the effects of the CitiPower acquisition in January 1996.
(4) Includes long-term debt (excluding currently maturing debt), preferred
stock with sinking fund, preference stock, preferred securities of
subsidiary trusts and partnership, and noncurrent capital lease
obligations.
(5) Represents income before cumulative effect of accounting changes.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Domestic Utility Electric
Operating Revenues:
Residential $2,231,091 $2,299,317 $2,271,363 $2,277,647 $2,177,348
Commercial 1,502,267 1,513,050 1,581,878 1,573,251 1,491,818
Industrial 1,878,363 1,829,085 2,018,625 1,987,640 1,810,045
Governmental 163,403 172,368 171,773 169,287 154,032
---------- ---------- ---------- ---------- ----------
Total retail 5,775,124 5,813,820 6,043,639 6,007,825 5,633,243
Sales for resale 397,844 448,842 359,881 376,011 334,874
Other (1) 98,446 (126,340) 135,311 67,104 119,901
---------- ---------- ---------- ---------- ----------
Total $6,271,414 $6,136,322 $6,538,831 $6,450,940 $6,088,018
========== ========== ========== ========== ==========
Billed Electric Energy
Sales (GWH):
Residential 30,631 30,935 28,286 28,303 27,704
Commercial 23,775 23,177 21,671 21,234 20,719
Industrial 43,549 43,453 44,649 44,340 42,260
Governmental 2,564 2,659 2,507 2,449 2,311
---------- ---------- ---------- ---------- ----------
Total retail 100,519 100,224 97,113 96,326 92,994
Sales for resale 9,714 11,187 9,707 10,583 10,471
---------- ---------- ---------- ---------- ----------
Total 110,233 111,411 106,820 106,909 103,465
========== ========== ========== ========== ==========
(1)1998 includes the effect of a reserve for rate refund at Entergy Gulf
States.
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy Arkansas, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of Entergy Arkansas, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased in 1999 primarily due to decreased electric
operating revenues and increased operation and maintenance expenses,
partially offset by lower regulatory charges.
Net income decreased in 1998 primarily due to decreased electric
operating revenues which were partially offset by lower operation and
maintenance expenses and lower interest charges.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues $4.5 ($7.0)
Rate riders (68.2) (106.0)
Fuel cost recovery 36.4 (21.8)
Sales volume/weather 3.8 55.8
Other revenue (including unbilled) (25.2) 11.4
Sales for resale (18.1) (39.4)
------ -------
Total ($66.8) ($107.0)
====== =======
Rate riders
Rate rider revenues have no material effect on net income because
specific incurred expenses offset them.
In 1999, rate rider revenues decreased as a result of a revised Grand
Gulf rider, which includes the completion of the Grand Gulf 1 phase-in plan
in November 1998, partially offset by the Grand Gulf Accelerated Recovery
Tariff (GGART). The GGART is designed to allow Entergy Arkansas to pay
down a portion of its Grand Gulf purchased power obligation in advance of
the implementation of retail access in Arkansas. The rider and GGART
became effective with the first billing cycle in January 1999. The GGART
is discussed further in Note 2 to the financial statements.
In 1998, rate rider revenues decreased primarily due to a decline in
the Grand Gulf 1 cost recovery rate rider revenues. This decline reflects
scheduled reductions in the phase-in plan, which was completed in November
1998, and reductions required by the settlement agreement with the APSC.
This agreement is discussed in more detail in Note 2 to the financial
statements.
Fuel cost recovery
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
Fuel cost recovery revenues increased in 1999 due to an increase in
the energy cost recovery factor, effective in April 1999, and the
completion of a customer refund obligation in 1998, which lowered 1998 fuel
cost recovery.
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1998, fuel cost recovery revenues decreased due to unfavorable
pricing resulting from a change to a fixed fuel factor in January 1998,
partially offset by an increase in generation.
Other revenue
In 1999, other revenue decreased primarily as a result of a change in
estimated unbilled revenues and, to a lesser extent, less favorable weather
for the unbilled period of 1999. The changed estimate more closely aligns
the fuel component of unbilled revenue with its regulatory treatment. The
change in estimate is expected to affect comparisons of revenue applicable
to prior period amounts through the first quarter of 2000. Comparative
impacts are also affected by seasonal impacts on demand.
In 1998, other revenue, primarily unbilled, increased as a result of
significantly warmer weather as compared to 1997.
Sales for resale
In 1999, sales for resale decreased due to the loss of certain
municipal and co-op customer contracts.
In 1998, sales for resale decreased primarily due to a decrease in
sales to associated companies. The decrease resulted from reduced
generation due to outages at both ANO1 and ANO2 and restricted generation
due to disruption in coal deliveries during the second quarter of 1998.
This decrease was partially offset by an increase in sales revenue from non-
associated companies as a result of short-term contracts with certain
wholesale customers.
Expenses
Fuel and purchased power expenses
In 1999, fuel expenses increased primarily due to:
o higher-priced gas generation as a result of refueling outages at ANO1
and ANO2, a mid-cycle maintenance outage at ANO2, limited coal
capability at White Bluff during parts of the year, and displacement
of higher priced purchased power;
o increased purchased power costs due to higher market prices in July
and August 1999; and
o an increase in the energy cost recovery rate in April 1999 and the
completion of a customer refund obligation in 1998 which lowered
1998 fuel cost recovery.
The increase in the energy cost recovery rate allows Entergy Arkansas to
recover previously under-recovered fuel expenses.
In 1998, fuel expenses decreased primarily due to the impact of the
under-recovered deferred fuel cost in excess of the fixed fuel factor
implemented in January 1998, billed to retail customers.
Other operation and maintenance
Other operation and maintenance expenses increased for 1999 primarily
due to increased customer service costs related to tree trimming around
power lines, increased employee pension and benefits costs, and increased
plant maintenance costs.
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other regulatory charges
In 1999, other regulatory charges decreased primarily as a result of
lower accruals for transition costs in 1999, partially offset by the 1998
reversal of the 1997 reserve recorded for the low-level radioactive waste
facility.
In 1998, other regulatory charges increased as a result of additional
accruals for the transition cost account, partially offset by a small over-
recovery of Grand Gulf 1 related costs and the reversal of the 1997 reserve
for previously deferred radioactive waste facility costs.
The transition cost account is discussed in more detail in Note 2 to
the financial statements.
Amortization of rate deferrals
In 1999, amortization of rate deferrals decreased due to the November
1998 completion of the Grand Gulf 1 rate phase-in plan. These phase-ins
had no material effect on net income.
In 1998, the amortization of Grand Gulf 1 rate deferrals decreased due
to a decrease in the amortization prescribed in the Grand Gulf 1 rate phase-
in plan, which was completed in November 1998.
Other
Other income
Other income decreased in 1999 due to reduced miscellaneous non-
operating income, reduced other interest income, and the completion in 1998
of the amortization of Grand Gulf 1 carrying charges, which was partially
offset by accruals for equity funds used during construction. Other
interest income includes income from intercompany loans. The allowance for
equity funds used during construction increased due to capital charges on
projects in 1999.
Other income decreased in 1998 due to reduced Grand Gulf 1 carrying
charges as a result of a decline in the deferral balance, which does not
impact net income.
Interest charges
Interest charges decreased in 1999 due to the retirement of certain
long-term debt and decreased borrowings for funds used during construction.
These decreases were partially offset by an adjustment for interest expense
on an income tax settlement from prior years.
Interest charges decreased in 1998 due to the retirement of certain
long-term debt.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 were 43.8 %,
39.1% and 31.6%, respectively.
The effective income tax rate increased in 1999 primarily is due to
accelerated tax depreciation deductions, for which deferred taxes have not
been normalized, reflecting a shorter tax life on certain assets.
The effective income tax rate increased in 1998 primarily due to the
reversal of previously recorded AFUDC amounts included in depreciation.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $1,541,894 $1,608,698 $1,715,714
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 257,946 204,318 254,703
Purchased power 455,425 419,947 419,128
Nuclear refueling outage expenses 29,857 32,046 27,969
Other operation and maintenance 389,462 358,006 360,860
Decommissioning 10,670 15,583 17,306
Taxes other than income taxes 36,669 37,223 36,700
Depreciation and amortization 161,234 165,853 149,346
Other regulatory charges - net 5,230 45,658 29,686
Amortization of rate deferrals - 75,249 153,141
---------- ---------- ----------
TOTAL 1,346,493 1,353,883 1,448,839
---------- ---------- ----------
OPERATING INCOME 195,401 254,815 266,875
---------- ---------- ----------
OTHER INCOME
Allowance for equity funds used during construction 12,866 5,921 3,563
Gain on sale of assets - 1,777 113
Miscellaneous - net 3,622 12,292 18,550
---------- ---------- ----------
TOTAL 16,488 19,990 22,226
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 80,800 86,772 95,122
Other interest - net 11,123 4,813 3,943
Distributions on preferred securities of subsidiary 5,100 5,100 5,100
Allowance for borrowed funds used during construction (8,459) (4,205) (2,261)
---------- ---------- ----------
TOTAL 88,564 92,480 101,904
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 123,325 182,325 187,197
Income taxes 54,012 71,374 59,220
---------- ---------- ----------
NET INCOME 69,313 110,951 127,977
Preferred dividend requirements and other 10,854 10,201 10,988
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $58,459 $100,750 $116,989
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $69,313 $110,951 $127,977
Noncash items included in net income:
Amortization of rate deferrals - 75,249 153,141
Other regulatory charges - net 5,230 45,658 29,686
Depreciation, amortization, and decommissioning 171,904 181,436 166,652
Deferred income taxes and investment tax credits 22,421 (12,293) (77,814)
Allowance for equity funds used during construction (12,866) (5,921) (3,563)
Gain on sale of assets - (1,777) (113)
Changes in working capital:
Receivables 40,375 61,143 (14,828)
Fuel inventory (4,633) 8,317 29,150
Accounts payable 56,985 (7,911) (25,451)
Taxes accrued (30,054) (8,742) 23,133
Interest accrued (2,908) (3,541) 1,201
Deferred fuel costs (429) (57,435) (9,289)
Other working capital accounts 2,444 (6,845) (931)
Provision for estimated losses and reserves (8,116) 2,032 9,594
Changes in other regulatory assets 45,898 (13,029) (7,150)
Other (42,249) 41,499 33,374
-------- -------- --------
Net cash flow provided by operating activities 313,315 408,791 434,769
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (238,009) (190,459) (140,913)
Allowance for equity funds used during construction 12,866 5,921 3,563
Nuclear fuel purchases (32,517) (45,845) (59,104)
Proceeds from sale/leaseback of nuclear fuel 32,517 42,055 59,065
Decommissioning trust contributions and realized
change in trust assets (17,746) (25,929) (24,956)
-------- -------- --------
Net cash flow used in investing activities (242,889) (214,257) (162,345)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt - - 129,564
Retirement of:
Long-term debt (39,607) (151,424) (117,587)
Redemption of preferred stock (22,666) (9,000) (9,000)
Dividends paid:
Common stock (82,700) (92,600) (128,600)
Preferred stock (11,696) (10,407) (11,194)
-------- -------- --------
Net cash flow used in financing activities (156,669) (263,431) (136,817)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (86,243) (68,897) 135,607
Cash and cash equivalents at beginning of period 93,105 162,002 26,395
-------- -------- --------
Cash and cash equivalents at end of period $6,862 $93,105 $162,002
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $94,872 $95,050 $98,013
Income taxes $61,273 $91,407 $111,394
Noncash investing and financing activities:
Change in unrealized appreciation of
decommissioning trust assets $22,980 $26,782 $22,343
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $6,862 $9,814
Temporary cash investments - at cost,
which approximates market - 83,291
---------- ----------
Total cash and cash equivalents 6,862 93,105
---------- ----------
Accounts receivable:
Customer 73,357 72,234
Allowance for doubtful accounts (1,768) (1,753)
Associated companies 27,073 50,145
Other 5,583 4,510
Accrued unbilled revenues 53,600 73,083
---------- ----------
Total receivables 157,845 198,219
---------- ----------
Deferred fuel costs 41,620 41,191
Fuel inventory - at average cost 24,485 19,852
Materials and supplies - at average cost 85,612 89,033
Deferred nuclear refueling outage costs 28,119 17,787
Prepayments and other 6,480 5,557
---------- ----------
TOTAL 351,023 464,744
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 11,215 11,213
Decommissioning trust funds 344,011 303,286
Non-utility property - at cost (less accumulated depreciation) 1,463 1,468
Other - at cost (less accumulated depreciation) 3,033 3,602
---------- ----------
TOTAL 359,722 319,569
---------- ----------
UTILITY PLANT
Electric 4,854,433 4,731,699
Property under capital lease 44,471 49,415
Construction work in progress 267,091 201,853
Nuclear fuel under capital lease 85,725 95,589
Nuclear fuel 9,449 -
---------- ----------
TOTAL UTILITY PLANT 5,261,169 5,078,556
Less - accumulated depreciation and amortization 2,401,021 2,275,170
---------- ----------
UTILITY PLANT - NET 2,860,148 2,803,386
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 192,344 248,275
Unamortized loss on reacquired debt 48,193 51,747
Other regulatory assets 106,959 96,927
Other 14,125 22,003
---------- ----------
TOTAL 361,621 418,952
---------- ----------
TOTAL ASSETS $3,932,514 $4,006,651
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $220 $1,094
Notes payable 667 667
Accounts payable:
Associated companies 81,958 47,963
Other 102,959 79,969
Customer deposits 26,320 25,196
Taxes accrued 38,532 68,585
Accumulated deferred income taxes 38,649 24,162
Interest accrued 22,378 25,285
Co-owner advances 15,338 4,073
Obligations under capital leases 55,150 64,068
Other 11,598 16,183
---------- ----------
TOTAL 393,769 357,245
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 713,622 756,571
Accumulated deferred investment tax credits 94,852 98,768
Obligations under capital leases 75,045 80,936
Other regulatory liabilities 88,563 65,583
Transition to competition 109,933 90,623
Accumulated provisions 43,288 51,404
Other 51,080 56,400
---------- ----------
TOTAL 1,176,383 1,200,285
---------- ----------
Long-term debt 1,130,801 1,172,285
Preferred stock with sinking fund - 22,027
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated deferrable debentures 60,000 60,000
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 116,350 116,350
Common stock, $0.01 par value, authorized 325,000,000
shares; issued and outstanding 46,980,196 shares in 1999
and 1998 470 470
Paid-in capital 591,127 590,134
Retained earnings 463,614 487,855
---------- ----------
TOTAL 1,171,561 1,194,809
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,932,514 $4,006,651
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $487,855 $479,705 $491,316
Add:
Net income 69,313 110,951 127,977
Deduct:
Dividends declared:
Preferred stock 9,223 10,201 10,988
Common stock 82,700 92,600 128,600
Capital stock expenses and other 1,631 - -
-------- -------- --------
Total 93,554 102,801 139,588
-------- -------- --------
Retained Earnings, December 31 (Note 8) $463,614 $487,855 $479,705
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $1,541,894 $1,608,698 $1,715,714 $1,743,433 $1,648,233
Net income $ 69,313 $ 110,951 $ 127,977 $ 157,798 $ 136,665 (2)
Total assets $3,932,514 $4,006,651 $4,106,877 $4,153,817 $4,204,415
Long-term obligations (1) $1,265,846 $1,335,248 $1,419,728 $1,439,355 $1,423,804
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt), preferred
stock with sinking fund, preferred securities of subsidiary trust, and
noncurrent capital lease obligations.
(2) Represents income before cumulative effect of accounting changes.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $533,245 $562,325 $551,821 $546,100 $542,862
Commercial 288,677 288,816 332,715 323,328 318,475
Industrial 335,824 330,016 372,083 364,943 362,854
Governmental 14,606 14,640 18,200 16,989 17,084
---------- ---------- ---------- ---------- ----------
Total retail 1,172,352 1,195,797 1,274,819 1,251,360 1,241,275
Sales for resale:
Associated companies 178,150 149,603 213,845 248,211 178,885
Non-associated companies 193,449 240,090 215,249 207,887 195,844
Other (2,057) 23,208 11,801 35,975 32,229
---------- ---------- ---------- ---------- ----------
Total $1,541,894 $1,608,698 $1,715,714 $1,743,433 $1,648,233
========== ========== ========== ========== ==========
Billed Electric Energy
Sales (GWH):
Residential 6,493 6,613 5,988 6,023 5,868
Commercial 4,880 4,773 4,445 4,390 4,267
Industrial 7,054 6,837 6,647 6,487 6,314
Governmental 237 233 239 234 243
---------- ---------- ---------- ---------- ----------
Total retail 18,664 18,456 17,319 17,134 16,692
Sales for resale:
Associated companies 7,592 6,500 9,557 10,471 8,386
Non-associated companies 4,868 5,948 6,828 6,720 5,066
---------- ---------- ---------- ---------- ----------
Total 31,124 30,904 33,704 34,325 30,144
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy Gulf States, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of Entergy Gulf States, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased in 1999 primarily due to increased unbilled
revenues, decreased provisions for rate refunds in 1999, decreased
depreciation and amortization expenses, and decreased interest expense,
partially offset by increased operation and maintenance expenses.
Net income in 1998 would have increased approximately 19% compared to
1997, excluding the following net-of-tax items: rate reserves of $129.0
million recorded in 1998; rate reserves of $227.0 million recorded in 1997;
the write-off of radioactive waste facilities of $7.4 million recorded in
1997; and the 1997 recording of $146.6 million to income relating to the
settlement of litigation with Cajun. The increase in 1998, excluding these
items, was due to decreased operating expenses, partially offset by
increased income taxes.
Revenues and Sales
Electric operating revenues
The changes in electric operating revenues for the twelve months ended
December 31, 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues $146.4 ($228.3)
Fuel cost recovery 104.9 1.6
Sales volume/weather 1.0 61.2
Other revenue (including unbilled) 31.3 (171.5)
Sales for resale 21.2 53.1
------ -------
Total $304.8 ($283.9)
====== =======
Base revenues
In 1999, base revenues increased due to:
o a $93.6 million reversal in June 1999 of regulatory reserves
associated with the accelerated amortization of accounting order
deferrals in conjunction with the settlement agreement in Entergy
Gulf States' Texas November 1996 and 1998 rate filings. The
settlement agreement was approved by the PUCT in June 1999. The
net income effect of this reversal is largely offset by the
amortization of rate deferrals discussed below; and
o a reduction in the amount of reserves recorded in 1999 compared to
1998 for the anticipated effects of rate proceedings in Texas.
Partially offsetting these increases were:
o annual base rate reductions of $87 million and $18 million that were
implemented for Louisiana retail customers in February and August 1998,
respectively;
o annual base rate reductions of $69 million and $4.2 million that were
implemented for Texas retail customers in December 1998 and March 1999,
respectively; and
o reserves recorded in the Louisiana jurisdiction in 1999 for the
estimated outcomes of annual earnings reviews.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1998, base revenues decreased due to base rate reductions and
reserves for refunds to Louisiana and Texas retail customers totaling
$216.5 million ($129.0 million net of tax).
The LPSC and PUCT rate issues are discussed in Note 2 to the financial
statements.
Fuel cost recovery
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
In 1999, fuel cost recovery revenues increased due to a higher fuel
factor in 1999 and a fuel surcharge implemented in February 1999 in the
Texas jurisdiction. This increase was partially offset by reduced fuel
recovery in the Louisiana jurisdiction primarily due to lower fuel and
purchased power costs in 1999.
Sales volume
In 1998, sales volume increased due to significantly warmer weather
and an increase in customer base.
Other revenue
In 1999, other revenue increased primarily due to a change in
estimated unbilled revenues. The estimate more closely aligns the fuel
component of unbilled revenues with regulatory treatment. This change is
expected to affect comparisons of revenue to applicable prior period
amounts through the first quarter of 2000. Comparative impacts are also
affected by seasonal variations in demand.
In 1998, other revenue decreased primarily due to the revenue
recognized on the gain on the settlement of litigation with Cajun in
December 1997 for the transfer of Cajun's 30% of River Bend, the effect of
which was partially offset by regulatory reserves recorded in 1997. Other
revenue also decreased due to unfavorable pricing of unbilled revenues due
to rate reductions.
Sales for resale
In 1999, sales for resale increased primarily due to increased sales
to associated companies due to higher market prices and outages at
affiliate plants in 1999.
In 1998, sales for resale increased primarily due to additional
revenues related to the sale of energy from the 30% interest in River Bend
transferred by the Cajun bankruptcy trustee to Entergy Gulf States in
December 1997. Sales for resale also increased due to increased sales to
non-associated utilities as a result of increased demand.
Gas and steam operating revenues
In 1999, gas operating revenues decreased primarily due to lower
prices of gas purchased for resale as well as decreased usage as a result
of warmer winter weather, particularly in the residential and commercial
sectors.
Steam operating revenues decreased in 1999 due to a new lease
arrangement for the Louisiana Station 1 generating facility that began in
June 1999. Under the terms of this new lease, revenues are now classified
as other income rather than steam operating revenues.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
It is expected that less revenue will be realized under the new lease
arrangement compared to the previous arrangement with the steam customer.
In 1998, gas operating revenues decreased due to a lower unit price
for gas purchased for resale.
Expenses
Fuel and purchased power
In 1999, fuel and purchased power expenses increased due to:
o increased gas expenses resulting from a shift to gas generation during
the first six months of 1999 because of the reduced availability of
Nelson 6 and an extended refueling outage at River Bend;
o increased purchased power expenses due to higher market prices; and
o a higher fuel factor and fuel surcharge in the Texas jurisdiction in
1999.
In 1998, fuel and purchased power expenses decreased primarily due to
favorable gas and nuclear fuel prices and a shift in the generation mix as
a result of these prices. Continued under-recovery of deferred expenses
also contributed to the decrease in fuel expenses.
Other operation and maintenance expenses
In 1999, other operation and maintenance expenses increased due to
increased employee benefit expense, casualty reserve accruals, and customer
service expenses, such as tree trimming.
In 1998, other operation and maintenance expenses increased as a
result of the settlement of litigation with Cajun in December 1997,
pursuant to which the 30% interest in River Bend owned by Cajun was
transferred by the Cajun bankruptcy trustee to Entergy Gulf States.
Entergy Gulf States now includes 100% of River Bend's operation and
maintenance expenses in its operating expenses, as compared to 70% of such
expenses for the year ended December 31, 1997.
Depreciation and amortization
In 1999, depreciation and amortization decreased due to:
o lower depreciation as a result of the write-down of the River Bend
abeyed plant as required by the Texas rate settlement;
o reduced amortization of the River Bend Unit 2 cancellation loss as a
result of the completion of amortization for the Louisiana portion of
the loss and the reduction in amortization of the Texas portion in
accordance with a PUCT rate order; and
o lower depreciation due to a review of plant in-service dates for
consistency with regulatory treatment.
Other regulatory credits
In 1999, other regulatory credits increased due to:
o change in the amortization period for deferred River Bend finance
charges for the Texas retail jurisdiction in accordance with the Texas
settlement agreement; and
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
o deferral of Year 2000 costs in accordance with an LPSC order. These
costs are to be amortized over a five-year period.
Amortization of rate deferrals
In 1999, the amortization of rate deferrals increased due to the
reduction of accounting order deferrals in accordance with the June 1999
Texas settlement agreement. This settlement substantially reduced the
unamortized balance of rate deferrals, while decreasing the amortization
period for the remaining deferrals from a ten-year period to a three-year
period.
In 1998, the amortization of rate deferrals decreased due to the
completion in February of the Louisiana retail rate phase-in plan for River
Bend.
Other
Other income
In 1998, other income increased primarily due to the 1997 reserve for
regulatory adjustments of $311 million ($185.4 million net of tax). This
increase was partially offset by interest income of $19.6 million ($11.6
million net of tax) related to the settlement of litigation with Cajun
recorded in December 1997.
Interest charges
In 1999, interest charges decreased as a result of the retirement,
redemption, and refinancing of certain long-term debt in 1998 and 1999, as
well as lower accruals of interest on certain Louisiana fuel and earnings
reviews in 1998.
Interest charges remained relatively unchanged in 1998. Total
interest expense decreased as a result of the retirement, redemption, and
refinancing of certain long-term debt in 1997 and 1998. This decrease was
offset by an increase in other interest due to the interest component of
the provisions recorded for anticipated rate refunds in Louisiana.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 are 37.6%,
40.6%, and 27.2%, respectively.
The decrease in the effective income tax rate in 1999 is due to
accelerated tax depreciation deductions, for which deferred taxes have not
been normalized, reflecting a shorter tax life on certain assets.
The increase in the effective income tax rate in 1998 is due to a
decrease in the flow-through of tax benefits related to operating reserves
and the increased reversal of previously recorded AFUDC amounts included in
depreciation.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $2,082,358 $1,777,584 $2,061,511
Natural gas 28,998 33,058 42,654
Steam products 15,852 43,167 43,664
---------- ---------- ----------
TOTAL 2,127,208 1,853,809 2,147,829
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 634,726 538,388 560,104
Purchased power 365,245 317,684 327,037
Nuclear refueling outage expenses 16,307 14,293 10,829
Other operation and maintenance 419,713 411,372 316,253
Decommissioning 7,588 3,437 8,855
Taxes other than income taxes 111,872 120,782 109,572
Depreciation and amortization 185,254 195,935 205,789
Other regulatory credits - net (24,092) (5,485) (26,611)
Amortization of rate deferrals 89,597 21,749 105,455
---------- ---------- ----------
TOTAL 1,806,210 1,618,155 1,617,283
---------- ---------- ----------
OPERATING INCOME 320,998 235,654 530,546
---------- ---------- ----------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 6,306 2,143 2,211
Gain on sale of assets 2,046 1,816 -
Miscellaneous - net 18,073 14,903 (272,135)
---------- ---------- ----------
TOTAL 26,425 18,862 (269,924)
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 138,602 149,767 163,146
Other interest - net 6,994 21,016 10,026
Distributions on preferred securities of subsidiary 7,438 7,437 6,901
Allowance for borrowed funds used during construction (5,776) (1,870) (1,829)
---------- ---------- ----------
TOTAL 147,258 176,350 178,244
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 200,165 78,166 82,378
Income taxes 75,165 31,773 22,402
---------- ---------- ----------
NET INCOME 125,000 46,393 59,976
Preferred dividend requirements and other 17,423 19,011 23,865
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $107,577 $27,382 $36,111
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $125,000 $46,393 $59,976
Noncash items included in net income:
Gain on Cajun Settlement - - (246,022)
Amortization of rate deferrals 89,597 21,749 105,455
Reserve for regulatory adjustments (97,953) 130,603 381,285
Other regulatory credits - net (24,092) (5,485) (26,611)
Depreciation, amortization, and decommissioning 192,842 199,372 214,644
Deferred income taxes and investment tax credits (1,495) (29,174) (52,486)
Allowance for equity funds used during construction (6,306) (2,143) (2,211)
Gain on sale of assets (2,046) (1,816) (1,399)
Changes in working capital:
Receivables 9,791 65,527 (11,834)
Fuel inventory (8,070) 7,426 7,382
Accounts payable 42,370 (6,135) 16,999
Taxes accrued 46,018 7,462 12,171
Interest accrued (14,061) (2,523) (4,497)
Deferred fuel costs (1,561) 12,861 (46,254)
Other working capital accounts (10,954) 11,006 (11,765)
Provision for estimated losses and reserves 8,496 (4,207) (5,852)
Changes in other regulatory assets (59,242) (3,226) 44,883
Proceeds from settlement of Cajun litigation - - 102,299
Other 56,817 458 (52,454)
--------- --------- ---------
Net cash flow provided by operating activities 345,151 448,148 483,709
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (199,076) (136,960) (132,566)
Allowance for equity funds used during construction 6,306 2,143 2,211
Nuclear fuel purchases (53,293) (1,977) (25,522)
Proceeds from sale/leaseback of nuclear fuel 53,293 15,932 25,522
Decommissioning trust contributions and realized
change in trust assets (10,853) (11,899) (9,540)
--------- --------- ---------
Net cash flow used in investing activities (203,623) (132,761) (139,895)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 122,906 21,600 -
Preferred securities of subsidiary trust - - 82,323
Retirement of:
Long-term debt (197,960) (212,090) (183,105)
Redemption of preferred stock (25,931) (8,481) (93,367)
Dividends paid:
Common stock (107,000) (109,400) (77,200)
Preferred stock (16,967) (19,055) (21,862)
--------- --------- ---------
Net cash flow used in financing activities (224,952) (327,426) (293,211)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (83,424) (12,039) 50,603
Cash and cash equivalents at beginning of period 115,736 127,775 77,172
--------- --------- ---------
Cash and cash equivalents at end of period $32,312 $115,736 $127,775
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $161,326 $173,599 $171,874
Income taxes $28,410 $46,620 $50,477
Noncash investing and financing activities:
Change in unrealized appreciation of
decommissioning trust assets $14,054 $10,410 $3,939
Net assets acquired from Cajun settlement - - $319,056
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $8,607 $11,629
Temporary cash investments - at cost,
which approximates market 23,705 104,107
---------- ----------
Total cash and cash equivalents 32,312 115,736
---------- ----------
Accounts receivable:
Customer 73,215 78,961
Allowance for doubtful accounts (1,828) (1,735)
Associated companies 1,706 23,250
Other 15,030 28,265
Accrued unbilled revenues 90,396 59,569
---------- ----------
Total receivables 178,519 188,310
---------- ----------
Deferred fuel costs 134,458 132,896
Fuel inventory - at average cost 38,271 30,201
Materials and supplies - at average cost 112,585 108,346
Rate deferrals 5,606 9,077
Prepayments and other 21,750 20,495
---------- ----------
TOTAL 523,501 605,061
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds 234,677 209,770
Non-utility property - at cost (less accumulated depreciation) 187,759 165,272
Other - at cost (less accumulated depreciation) 13,681 12,426
---------- ----------
TOTAL 436,117 387,468
---------- ----------
UTILITY PLANT
Electric 7,365,407 7,250,789
Property under capital lease 46,210 54,427
Natural gas 52,473 51,053
Steam products - 80,537
Construction work in progress 145,492 105,121
Nuclear fuel under capital lease 70,801 46,572
---------- ----------
TOTAL UTILITY PLANT 7,680,383 7,588,499
Less - accumulated depreciation and amortization 3,534,473 3,141,518
---------- ----------
UTILITY PLANT - NET 4,145,910 4,446,981
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals 5,606 89,333
SFAS 109 regulatory asset - net 385,405 376,406
Unamortized loss on reacquired debt 40,576 42,879
Other regulatory assets 140,157 89,914
Long-term receivables 32,260 34,617
Other 23,490 221,085
---------- ----------
TOTAL 627,494 854,234
---------- ----------
TOTAL ASSETS $5,733,022 $6,293,744
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $- $71,515
Accounts payable:
Associated companies 79,962 60,932
Other 114,444 91,102
Customer deposits 33,360 31,462
Taxes accrued 101,798 55,780
Accumulated deferred income taxes 27,960 21,260
Nuclear refueling outage costs 11,216 16,991
Interest accrued 28,570 42,631
Obligations under capital leases 51,973 34,343
Other 14,557 16,325
---------- ----------
TOTAL 463,840 442,341
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 1,098,882 1,081,598
Accumulated deferred investment tax credits 178,500 193,509
Obligations under capital leases 65,038 66,656
Other regulatory liabilities 20,089 30,287
Decommissioning 139,194 136,035
Transition to competition 47,101 -
Regulatory reserves 110,536 515,023
Accumulated provisions 69,395 60,899
Other 117,804 319,962
---------- ----------
TOTAL 1,846,539 2,403,969
---------- ----------
Long-term debt 1,631,581 1,631,658
Preferred stock with sinking fund 34,650 60,497
Preference stock 150,000 150,000
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated deferrable debentures 85,000 85,000
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 51,444 51,444
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 100 shares in 1999 and 1998 114,055 114,055
Paid-in capital 1,153,131 1,152,575
Retained earnings 202,782 202,205
---------- ----------
TOTAL 1,521,412 1,520,279
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,733,022 $6,293,744
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $202,205 $284,165 $325,312
Add:
Net income 125,000 46,393 59,976
Deduct:
Dividends declared:
Preferred and preference stock 16,784 19,011 21,862
Common stock 107,000 109,400 77,200
Preferred and preference stock
redemption and other 639 (58) 2,061
-------- -------- --------
Total 124,423 128,353 101,123
-------- -------- --------
Retained Earnings, December 31 (Note 8) $202,782 $202,205 $284,165
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $2,127,208 $1,853,809 $2,147,829 $2,019,181 $1,861,974
Net income (loss) $ 125,000 $ 46,393 $ 59,976 $ (3,887) $ 122,919
Total assets $5,733,022 $6,293,744 $6,488,637 $6,421,179 $6,861,058
Long-term obligations (1) $1,966,269 $1,993,811 $2,098,752 $2,226,329 $2,521,203
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt), preferred
and preference stock with sinking fund, preferred securities of
subsidiary trust, and noncurrent capital lease obligations.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $607,875 $605,759 $624,862 $612,398 $573,566
Commercial 430,291 422,944 452,724 444,133 412,601
Industrial 718,779 704,393 740,418 685,178 604,688
Governmental 28,475 35,930 33,774 31,023 25,042
---------- ---------- ---------- ---------- ----------
Total retail 1,785,420 1,769,026 1,851,778 1,772,732 1,615,897
Sales for resale:
Associated companies 38,416 14,172 14,260 20,783 62,431
Non-associated companies 109,132 112,182 59,015 76,173 67,103
Other (1) 149,390 (117,796) 136,458 56,300 43,533
---------- ---------- ---------- ---------- ----------
Total $2,082,358 $1,777,584 $2,061,511 $1,925,988 $1,788,964
========== ========== ========== ========== ==========
Billed Electric Energy
Sales (GWH):
Residential 8,929 8,903 8,178 8,035 7,699
Commercial 7,310 6,975 6,575 6,417 6,219
Industrial 17,684 18,158 18,038 16,661 15,393
Governmental 425 560 481 438 311
---------- ---------- ---------- ---------- ----------
Total retail 34,348 34,596 33,272 31,551 29,622
Sales for resale:
Associated companies 677 380 414 656 2,935
Non-associated companies 3,408 3,701 1,503 2,148 2,212
---------- ---------- ---------- ---------- ----------
Total Electric Department 38,433 38,677 35,189 34,355 34,769
========== ========== ========== ========== ==========
</TABLE>
(1) 1998 includes the effects of an Entergy Gulf States reserve for rate
refund.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy Louisiana, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of Entergy Louisiana, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased in 1999 primarily due to increases in unbilled
revenue and other regulatory credits, and decreases in nuclear refueling
outage expenses and interest charges, partially offset by increased
provisions for rate refunds.
Net income increased in 1998 primarily due to a decrease in operating
expenses, partially offset by a decrease in electric operating revenues and
higher income taxes.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues ($48.7) ($35.0)
Fuel cost recovery 63.6 (95.4)
Sales volume/weather (5.3) 30.8
Other revenue (including unbilled) 74.5 (3.2)
Sales for resale 11.6 10.4
----- ------
Total $95.7 ($92.4)
===== ======
Base revenues
In 1999, base revenues decreased primarily due to accruals for
potential rate refunds.
In 1998, base revenues decreased due to base rate reductions that
became effective in early 1998.
Fuel cost recovery revenues
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
In 1999, fuel cost recovery revenues increased due to a shift from
lower priced nuclear fuel to higher priced gas and purchased power due to
nuclear outages at Waterford 3 in 1999.
In 1998, fuel cost recovery revenues decreased due to lower pricing
resulting from a change in generation mix.
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales volume/weather
In 1999, sales volume decreased primarily due to less favorable
weather, partially offset by increased usage by residential and industrial
customers.
In 1998, sales volume increased primarily due to significantly warmer
weather. The increase in sales volume was partially offset by the loss of
a large industrial customer as well as substantially lower sales to two
other large industrial customers.
Other revenue
In 1999, other revenue increased primarily due to a change in
estimated unbilled revenues. The changed estimate more closely aligns the
fuel component of unbilled revenues with regulatory treatment. The change
in estimate is expected to affect comparisons to applicable prior period
amounts through the first quarter of 2000. Comparative impacts are also
affected by seasonal variations in demand.
Sales for resale
In 1999, sales for resale increased as a result of increased sales to
affiliates due to outages at affiliate plants, in addition to favorable
unit prices.
In 1998, sales for resale increased as a result of an increase in
sales to associated companies, primarily due to changes in generation
requirements and availability among the domestic utility companies.
Expenses
Fuel and purchased power expenses
In 1999, fuel and purchased power expenses increased due to:
o higher gas prices;
o higher purchased power market prices; and
o a shift in generation from lower priced nuclear fuel to higher priced
gas as a result of refueling and other outages at Waterford 3.
In 1998, fuel and purchased power expenses decreased due to:
o lower gas prices;
o a shift in mix to nuclear fuel; and
o shifting generation requirements in 1997 as a result of the extended
refueling outage at Waterford 3.
Other operation and maintenance expenses
Other operation and maintenance expenses decreased in 1998 primarily
due to:
o non-refueling outage related contract work at Waterford 3 during 1997;
o maintenance performed at Waterford 3 in 1997;
o the write-off of previously deferred radioactive waste facility costs
in 1997; and
o expenses related to fire damage sustained at the Little Gypsy fossil
plant in September 1997.
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Nuclear refueling outage expenses
In 1999, nuclear refueling outage expenses decreased as a result of
the amortization of higher outage expenses in 1998 due to the extended
nuclear refueling outage in 1997.
Other regulatory credits
In 1999, other regulatory credits increased due to the deferral of
Year 2000 costs incurred as required by the LPSC. The deferred costs will
be recovered over a five-year period.
Other
Interest charges
In 1999, interest on long-term debt decreased primarily due to the
redemption and refinancing of certain long-term debt in 1999.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 were 38.9%,
37.8%, and 41.1%, respectively.
The effective income tax rate decreased in 1998 primarily due to
accelerated tax depreciation deductions, for which deferred taxes have not
been normalized, reflecting a shorter tax life on certain assets.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $1,806,594 $1,710,908 $1,803,272
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 421,763 383,413 429,823
Purchased power 418,878 372,763 413,532
Nuclear refueling outage expenses 15,756 21,740 18,634
Other operation and maintenance 289,348 289,522 318,856
Decommissioning 8,786 8,786 8,786
Taxes other than income taxes 75,447 70,621 71,558
Depreciation and amortization 161,754 162,937 163,249
Other regulatory charges (credits) - net (5,280) (1,755) 5,505
Amortization of rate deferrals - - 5,749
---------- ---------- ----------
TOTAL 1,386,452 1,308,027 1,435,692
---------- ---------- ----------
OPERATING INCOME 420,142 402,881 367,580
---------- ---------- ----------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 4,925 1,887 1,149
Gain on sale of assets - 2,340 -
Miscellaneous - net 2,206 2,644 (517)
---------- ---------- ----------
TOTAL 7,131 6,871 632
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 103,937 109,463 116,715
Other interest - net 7,010 7,127 5,885
Distributions on preferred securities of 6,300 6,300 6,300
subsidiary
Allowance for borrowed funds used during construction(4,112) (1,729) (1,410)
---------- ---------- ----------
TOTAL 113,135 121,161 127,490
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 314,138 288,591 240,722
Income taxes 122,368 109,104 98,965
---------- ---------- ----------
NET INCOME 191,770 179,487 141,757
Preferred dividend requirements and other 9,955 13,014 13,355
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $181,815 $166,473 $128,402
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $191,770 $179,487 $141,757
Noncash items included in net income:
Amortization of rate deferrals - - 5,749
Other regulatory charges (credits) - net (5,280) (1,754) 5,505
Depreciation, amortization, and decommissioning 170,540 171,723 172,035
Deferred income taxes and investment tax credits (15,487) 26,910 (15,456)
Allowance for equity funds used during construction (4,925) (1,887) (1,149)
Gain on sale of assets - (2,340) -
Changes in working capital:
Receivables (41,565) (7,972) (3,385)
Accounts payable 95,120 (5,878) (21,926)
Taxes accrued 7,659 (7,040) 17,853
Interest accrued (33,066) 18,731 (14,678)
Deferred fuel costs (9,959) 4,530 21,615
Other working capital accounts 56,714 16,983 (2,286)
Provision for estimated losses and reserves 5,442 6,410 3,986
Changes in other regulatory assets 38,577 (11,443) 17,932
Other (45,146) (44,099) (12,130)
-------- -------- --------
Net cash flow provided by operating activities 410,394 342,361 315,422
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (130,933) (105,306) (84,767)
Allowance for equity funds used during construction 4,925 1,887 1,149
Nuclear fuel purchases (11,308) (38,141) (43,332)
Proceeds from sale/leaseback of nuclear fuel 11,308 39,701 43,332
Decommissioning trust contributions and realized
change in trust assets (13,678) (11,648) (11,191)
-------- -------- --------
Net cash flow used in investing activities (139,686) (113,507) (94,809)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 298,092 112,556 -
Retirement of:
Long-term debt (386,707) (150,786) (34,288)
Redemption of preferred stock (50,000) - (7,500)
Dividends paid:
Common stock (197,000) (138,500) (145,400)
Preferred stock (10,389) (13,014) (13,251)
-------- -------- --------
Net cash flow used in financing activities (346,004) (189,744) (200,439)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (75,296) 39,110 20,174
Cash and cash equivalents at beginning of period 83,030 43,920 23,746
-------- -------- --------
Cash and cash equivalents at end of period $7,734 $83,030 $43,920
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $144,731 $98,801 $138,530
Income taxes $132,924 $86,830 $68,323
Noncash investing and financing activities:
Change in unrealized appreciation of
decommissioning trust assets $4,585 $5,928 $3,432
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $7,734 $10,187
Temporary cash investments - at cost,
which approximates market - 72,843
---------- ----------
Total cash and cash equivalents 7,734 83,030
---------- ----------
Accounts receivable:
Customer 79,335 65,262
Allowance for doubtful accounts (1,615) (1,164)
Associated companies 14,601 33,775
Other 10,762 19,305
Accrued unbilled revenues 106,200 50,540
---------- ----------
Total receivables 209,283 167,718
---------- ----------
Deferred fuel costs 2,161 -
Accumulated deferred income taxes 12,520 13,332
Materials and supplies - at average cost 84,027 82,220
Deferred nuclear refueling outage costs 11,336 6,498
Prepayments and other 6,014 11,565
---------- ----------
TOTAL 333,075 364,363
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 14,230 14,230
Decommissioning trust funds 100,943 82,681
Non-utility property - at cost (less accumulated depreciation) 21,433 21,459
---------- ----------
TOTAL 136,606 118,370
---------- ----------
UTILITY PLANT
Electric 5,178,808 5,095,278
Property under capital lease 236,271 234,339
Construction work in progress 108,106 85,565
Nuclear fuel under capital lease 51,930 75,814
---------- ----------
TOTAL UTILITY PLANT 5,575,115 5,490,996
Less - accumulated depreciation and amortization 2,294,394 2,158,800
---------- ----------
UTILITY PLANT - NET 3,280,721 3,332,196
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 230,899 270,068
Unamortized loss on reacquired debt 35,856 30,629
Other regulatory assets 50,191 49,599
Other 17,302 15,816
---------- ----------
TOTAL 334,248 366,112
---------- ----------
TOTAL ASSETS $4,084,650 $4,181,041
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $116,388 $6,772
Accounts payable:
Associated companies 137,869 43,051
Other 90,768 90,465
Customer deposits 61,096 55,966
Taxes accrued 25,863 18,203
Interest accrued 20,236 53,302
Deferred fuel cost - 7,798
Obligations under capital leases 28,387 32,539
Other 59,737 7,644
---------- ----------
TOTAL 540,344 315,740
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 792,290 840,931
Accumulated deferred investment tax credits 123,155 128,689
Obligations under capital leases 23,543 43,275
Other regulatory liabilities 15,421 10,836
Accumulated provisions 58,087 52,645
Other 34,564 39,791
---------- ----------
TOTAL 1,047,060 1,116,167
---------- ----------
Long-term debt 1,145,463 1,332,315
Preferred stock with sinking fund 35,000 85,000
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated deferrable debentures 70,000 70,000
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 100,500 100,500
Common stock, no par value, authorized 250,000,000
shares; issued and outstanding 165,173,180 shares in 1999
and 1998 1,088,900 1,088,900
Capital stock expense and other (2,171) (2,320)
Retained earnings 59,554 74,739
---------- ----------
TOTAL 1,246,783 1,261,819
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,084,650 $4,181,041
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $74,739 $46,766 $63,764
Add:
Net income 191,770 179,487 141,757
Deduct:
Dividends declared:
Preferred stock 9,805 13,014 13,016
Common stock 197,000 138,500 145,400
Capital stock expenses 150 - 339
------- ------- -------
Total 206,955 151,514 158,755
------- ------- -------
Retained Earnings, December 31 (Note 8) $59,554 $74,739 $46,766
======= ======= =======
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $1,806,594 $1,710,908 $1,803,272 $1,828,867 $1,674,875
Net income $ 191,770 $ 179,487 $ 141,757 $ 190,762 $ 201,537
Total assets $4,084,650 $4,181,041 $4,175,400 $4,279,278 $4,331,523
Long-term obligations (1) $1,274,006 $1,530,590 $1,522,043 $1,545,889 $1,528,542
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt), preferred
stock with sinking fund, preferred securities of subsidiary trust, and
noncurrent capital lease obligations.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $620,146 $598,573 $606,173 $609,308 $583,373
Commercial 386,042 367,151 379,131 374,515 353,582
Industrial 646,517 597,536 708,356 727,505 641,196
Governmental 33,738 32,795 34,171 33,621 31,616
---------- ---------- ---------- ---------- ----------
Total retail 1,686,443 1,596,055 1,727,831 1,744,949 1,609,767
Sales for resale:
Associated companies 27,253 16,002 3,817 5,065 1,178
Non-associated companies 53,923 53,538 55,345 58,685 48,987
Other 38,975 45,313 16,279 20,168 14,943
---------- ---------- ---------- ---------- ----------
Total $1,806,594 $1,710,908 $1,803,272 $1,828,867 $1,674,875
========== ========== ========== ========== ==========
Billed Electric Energy
Sales (GWH):
Residential 8,354 8,477 7,826 7,893 7,855
Commercial 5,221 5,265 4,906 4,846 4,786
Industrial 15,052 14,781 16,390 17,647 16,971
Governmental 468 481 460 457 439
---------- ---------- ---------- ---------- ----------
Total retail 29,095 29,004 29,582 30,843 30,051
Sales for resale:
Associated companies 415 386 104 143 44
Non-associated companies 831 855 805 982 1,293
---------- ---------- ---------- ---------- ----------
Total 30,341 30,245 30,491 31,968 31,388
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy Mississippi, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of Entergy Mississippi, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased in 1999 primarily due to a decrease in unbilled
revenues and an increase in other operation and maintenance expenses.
Net income decreased in 1998 primarily due to an increase in operating
expenses, partially offset by an increase in electric operating revenues.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues ($9.7) ($10.2)
Grand Gulf rate rider (95.9) (2.6)
Fuel cost recovery (11.6) 20.5
Sales volume/weather 4.1 25.6
Other revenue (including unbilled) (12.1) 0.6
Sales for resale (18.3) 5.0
------- -----
Total ($143.5) $38.9
======= =====
Base revenues
In 1999 and 1998, base revenues decreased due to the formula rate plan
reduction that became effective in 1998. The formula rate plan reduction
is discussed in more detail in Note 2 to the financial statements.
Rate riders
Rate rider revenues have no material effect on net income because
specific incurred expenses offset them.
In 1999, Grand Gulf rate rider revenue decreased as a result of a new
rider which became effective October 1, 1998. This new rider eliminated
revenues attributable to the Grand Gulf phase-in plan, which was completed
in September 1998. However, this decrease was partially offset by the
Grand Gulf Accelerated Recovery Tariff (GGART), which also became effective
October 1, 1998. This tariff provides for accelerated recovery of a
portion of Entergy Mississippi's Grand Gulf purchased power obligation.
The GGART is discussed in more detail in Note 2 to the financial
statements.
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fuel cost recovery
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
In 1999, fuel cost recovery revenues decreased due to the MPSC's
review and subsequent decrease of Entergy Mississippi's energy cost
recovery rider.
In 1998, fuel cost recovery revenues increased primarily due to an
increase in sales volume.
Sales volume/weather
In 1999, sales volume increased as a result of sales growth in the
residential and commercial sectors, partially offset by unfavorable
weather.
In 1998, sales volume increased as a result of significantly warmer
weather.
Other revenue
In 1999, other revenue decreased primarily due to a change in
estimated unbilled revenues. The changed estimate more closely aligns the
fuel component of unbilled revenues with regulatory treatment. The change
in estimate is expected to affect comparisons to applicable prior period
amounts through the first quarter of 2000. Comparative impacts are also
affected by seasonal variations in demand.
Sales for resale
In 1999, sales for resale decreased as a result of decreased oil
generation due to plant outages at Entergy Mississippi. The decrease is
also due to higher sales to associated companies in 1998 as a result of an
outage at Entergy Arkansas.
Expenses
Fuel and purchased power expenses
In 1999, fuel and purchased power expenses decreased primarily due to:
o a decrease in total energy consumption requirements; and
o planned and unplanned plant outages during the year.
The decrease in fuel and purchased power expenses was partially offset
by:
o a shift from lower priced oil generation to higher priced gas
generation as a result of plant outages in 1999;
o an increase in the market price of purchased power; and
o the GGART implemented by System Energy in October 1998 resulting in an
increase in the price of System Energy purchased power.
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1998, fuel and purchased power expenses increased primarily due to:
o the increased usage as a result of significantly warmer weather; and
o the impact of the under-recovery of deferred fuel costs in excess of
the fixed fuel factor applied in 1997. In January 1998, Entergy
Mississippi increased its fixed fuel factor to recover actual fuel
expenses more timely.
Other operation and maintenance
In 1999, other operation and maintenance expenses increased primarily
due to:
o planned and unplanned plant outages in 1999;
o an increase in customer service and reliability improvement spending;
o an increase in employee benefit expense; and
o an increase in casualty reserves.
Other regulatory credits
In 1999, other regulatory credits increased due to greater under-
recovery of Grand Gulf 1 related costs as a result of the new rider
implemented in October 1998.
In 1998, other regulatory credits decreased primarily due to less
under-recovery of Grand Gulf related expenses in 1998 as compared to 1997.
Amortization of rate deferrals
In 1999, amortization of rate deferrals decreased due to the
completion of the Grand Gulf 1 rate phase-in plan in September 1998. These
phase-ins had no material effect on net income.
In 1998, amortization of rate deferrals decreased due to a decrease in
the amortization prescribed in the Grand Gulf 1 rate phase-in plan, which
was completed in September 1998. These phase-ins had no material effect on
net income.
Other
Interest and other charges
Interest on long-term debt decreased in 1999 and 1998 primarily due to
the refinancing of certain long-term debt.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 were 29.7%,
30.9%, and 28.6%, respectively.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $832,819 $976,300 $937,395
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 185,063 241,415 199,880
Purchased power 332,015 286,769 285,447
Other operation and maintenance 152,817 131,752 129,810
Taxes other than income taxes 44,013 44,888 43,142
Depreciation and amortization 42,870 45,133 43,300
Other regulatory credits - net (12,044) (3,186) (20,731)
Amortization of rate deferrals - 104,969 119,797
-------- -------- --------
TOTAL 744,734 851,740 800,645
-------- -------- --------
OPERATING INCOME 88,085 124,560 136,750
-------- -------- --------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 1,569 188 543
Gain (loss) on sale of assets - 1,025 (2)
Miscellaneous - net 6,781 4,891 919
-------- -------- --------
TOTAL 8,350 6,104 1,460
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 35,265 37,756 40,791
Other interest - net 3,574 3,171 4,483
Allowance for borrowed funds used during construction (1,529) (932) (469)
-------- -------- --------
TOTAL 37,310 39,995 44,805
-------- -------- --------
INCOME BEFORE INCOME TAXES 59,125 90,669 93,405
Income taxes 17,537 28,031 26,744
-------- -------- --------
NET INCOME 41,588 62,638 66,661
Preferred dividend requirements and other 3,370 3,370 4,044
-------- -------- --------
EARNINGS APPLICABLE TO
COMMON STOCK $38,218 $59,268 $62,617
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $41,588 $62,638 $66,661
Noncash items included in net income:
Amortization of rate deferrals - 104,969 119,797
Other regulatory credits - net (12,044) (3,186) (20,731)
Depreciation and amortization 42,870 45,133 43,300
Deferred income taxes and investment tax credits 18,066 (12,494) (32,204)
Allowance for equity funds used during construction (1,569) (188) (543)
(Gain) loss on sale of assets - (1,025) 2
Changes in working capital:
Receivables 24,208 6,253 2,978
Fuel inventory (771) 384 3,275
Accounts payable 54,317 (31,967) (12,338)
Taxes accrued 29,955 (26,301) 5,832
Interest accrued (4,595) 323 (6,600)
Deferred fuel costs (45,830) 12,858 (10,967)
Other working capital accounts 10,072 8,652 (12,245)
Provision for estimated losses and reserves 4,173 (6,915) 1,173
Changes in other regulatory assets (30,179) (38,295) (29,699)
Other 12,152 4,202 38,304
-------- -------- --------
Net cash flow provided by operating activities 142,413 125,041 155,995
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (94,717) (58,705) (50,334)
Allowance for equity funds used during construction 1,569 188 543
-------- -------- --------
Net cash flow used in investing activities (93,148) (58,517) (49,791)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 153,629 78,703 64,827
Retirement of:
Long-term debt (163,278) (80,020) (96,015)
Redemption of preferred stock - - (14,500)
Changes in short-term borrowing, net (6) (13) -
Dividends paid:
Common stock (34,100) (66,000) (59,200)
Preferred stock (3,363) (3,370) (3,998)
-------- -------- --------
Net cash flow used in financing activities (47,118) (70,700) (108,886)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,147 (4,176) (2,682)
Cash and cash equivalents at beginning of period 2,640 6,816 9,498
-------- -------- --------
Cash and cash equivalents at end of period $4,787 $2,640 $6,816
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized $41,567 $39,291 $50,662
Income taxes ($29,850) $64,204 $51,598
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $4,787 $2,640
Accounts receivable:
Customer 35,675 39,701
Allowance for doubtful accounts (886) (1,217)
Associated companies 1,370 5,703
Other 2,391 1,267
Accrued unbilled revenues 28,600 45,904
---------- ----------
Total receivables 67,150 91,358
---------- ----------
Deferred fuel costs 47,939 2,108
Accumulated deferred income taxes - 665
Fuel inventory - at average cost 3,774 3,002
Materials and supplies - at average cost 17,068 17,149
Prepayments and other 7,114 12,256
---------- ----------
TOTAL 147,832 129,178
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 5,531 5,531
Non-utility property - at cost (less accumulated depreciation) 6,965 7,056
Other - at cost (less accumulated depreciation) - 13
---------- ----------
TOTAL 12,496 12,600
---------- ----------
UTILITY PLANT
Electric 1,763,636 1,718,426
Property under capital lease 384 477
Construction work in progress 66,789 35,317
---------- ----------
TOTAL UTILITY PLANT 1,830,809 1,754,220
Less - accumulated depreciation and amortization 709,543 685,214
---------- ----------
UTILITY PLANT - NET 1,121,266 1,069,006
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 24,051 25,515
Unamortized loss on reacquired debt 16,345 7,981
Other regulatory assets 132,243 100,601
Other 5,784 6,048
---------- ----------
TOTAL 178,423 140,145
---------- ----------
TOTAL ASSETS $1,460,017 $1,350,929
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $ - $20
Accounts payable:
Associated companies 84,382 44,091
Other 32,470 18,444
Customer deposits 23,303 18,265
Taxes accrued 35,968 6,013
Accumulated deferred income taxes 526 -
Interest accrued 10,038 14,632
Obligations under capital leases 95 92
Other 2,137 2,319
---------- ----------
TOTAL 188,919 103,876
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 298,477 281,017
Accumulated deferred investment tax credits 20,908 22,408
Obligations under capital leases 290 384
Accumulated provisions 7,374 3,200
Other 3,368 4,331
---------- ----------
TOTAL 330,417 311,340
---------- ----------
Long-term debt 464,466 463,616
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 50,381 50,381
Common stock, no par value, authorized 15,000,000
shares; issued and outstanding 8,666,357 shares in 1999 and 1998 199,326 199,326
Capital stock expense and other (59) (59)
Retained earnings 226,567 222,449
---------- ----------
TOTAL 476,215 472,097
---------- ----------
Commitments and Contingencies (Notes 2, 8, and 9)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,460,017 $1,350,929
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $222,449 $229,181 $225,764
Add:
Net income 41,588 62,638 66,661
Deduct:
Dividends declared:
Preferred stock 3,370 3,370 3,656
Common stock 34,100 66,000 59,200
Preferred stock expenses - - 388
-------- -------- --------
Total 37,470 69,370 63,244
-------- -------- --------
Retained Earnings, December 31 (Note 8) $226,567 $222,449 $229,181
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 832,819 $ 976,300 $ 937,395 $ 958,430 $ 889,843
Net Income $ 41,588 $ 62,638 $ 66,661 $ 79,211 $ 68,667
Total assets $1,460,017 $1,350,929 $1,439,561 $1,521,466 $1,581,983
Long-term obligations (1) $ 464,756 $ 464,000 $ 464,156 $ 406,054 $ 511,613
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt) and
noncurrent capital lease obligations.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $311,003 $367,895 $342,818 $358,264 $336,194
Commercial 250,929 284,787 274,195 281,626 262,786
Industrial 151,659 170,910 173,152 185,351 178,466
Governmental 23,528 26,670 26,882 29,093 27,410
-------- -------- -------- -------- --------
Total retail 737,119 850,262 817,047 854,334 804,856
Sales for resale:
Associated companies 63,004 80,357 78,233 58,749 35,928
Non-associated companies 31,546 32,442 21,276 22,814 21,906
Other 1,150 13,239 20,839 22,533 27,153
-------- -------- -------- -------- --------
Total $832,819 $976,300 $937,395 $958,430 $889,843
======== ======== ======== ======== ========
Billed Electric Energy
Sales (GWH):
Residential 4,753 4,800 4,323 4,355 4,233
Commercial 4,156 4,015 3,673 3,508 3,368
Industrial 3,246 3,163 3,089 3,063 3,044
Governmental 363 347 333 346 336
-------- -------- -------- -------- --------
Total retail 12,518 12,325 11,418 11,272 10,981
Sales for resale:
Associated companies 1,774 2,424 1,918 1,368 959
Non-associated companies 426 484 412 521 692
-------- -------- -------- -------- --------
Total 14,718 15,233 13,748 13,161 12,632
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Entergy New Orleans, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of Entergy New Orleans, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased slightly in 1999 primarily due to an increase in
unbilled revenues and sales volume, partially offset by an increase in
other operation and maintenance expenses.
Net income increased in 1998 primarily due to an increase in operating
revenues and other income and a decrease in income taxes, partially offset
by increased operating expenses.
Revenues and Sales
Electric operating revenues
The changes in electric operating revenues for the twelve months
ended December 31, 1999 and 1998 are as follows:
Increase/(Decrease)
Description 1999 1998
(In Millions)
Base revenues ($11.3) ($9.8)
Fuel cost recovery (4.6) 14.5
Sales volume/weather 1.7 13.9
Other revenue (including unbilled) 5.5 1.0
Sales for resale 3.7 1.7
----- -----
Total ($5.0) $21.3
===== =====
Base revenues
In 1999, base revenues decreased primarily due to base rate reductions
effective January 1999 and rate refund provisions accrued for potential
rate matters.
In 1998, base revenues decreased primarily due to reductions in
residential and commercial rates that went into effect in August 1997.
Fuel cost recovery
Fuel cost recovery revenues do not affect net income because they are
an increase to revenues that are offset by specific incurred fuel costs.
In 1999, fuel cost recovery revenues decreased due to an under-
recovery of fuel expenses resulting from higher market prices in 1999
compared to the prior year.
In 1998, fuel cost recovery revenues increased due to higher fuel
prices and increased generation.
Sales volume/weather
In 1998, sales volume increased primarily due to significantly warmer
weather.
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other revenue
In 1999, other revenue increased due to a change in estimated unbilled
revenues. The changed estimate more closely aligns the fuel component of
unbilled revenues with regulatory treatment. The increase was partially
offset by less favorable weather in 1999. The change in estimate is
expected to affect comparisons of revenue to applicable time period amounts
through the first quarter of 2000. Comparative impacts are also affected
by seasonal variations in demand.
Sales for resale
In 1999, sales for resale increased due to favorable unit prices
resulting from increased purchased power and gas market prices, coupled
with an increase in affiliated sales volume.
Gas operating revenues
In 1998, gas operating revenues decreased due to lower gas prices.
Expenses
Fuel and purchased power expenses
In 1998, fuel and purchased power expenses increased primarily due to:
o an increase in purchased power primarily due to increased generation
requirements as a result of significantly warmer weather and an
increase in the price of purchased power; and
o an over-recovery of gas and electric fuel cost in 1998 due to market
price fluctuations.
This increase was partially offset by a decrease in the price of gas
purchased for resale.
Other operation and maintenance expenses
In 1999 and 1998, other operation and maintenance expenses increased
primarily due to:
o increased environmental provisions;
o employee benefit expense; and
o increased spending for customer service and reliability improvements.
Amortization of rate deferrals
In 1999, amortization of rate deferrals decreased due to a scheduled
rate change in the amortization of Grand Gulf 1 phase-in expenses.
Other regulatory credits
In 1999, other regulatory credits increased due to a greater under-
recovery of Grand Gulf 1 costs in 1999.
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other
Other income
Other income increased in 1999 primarily due to:
o an increase in AFUDC resulting from increased capital charges on
projects in 1999; and
o increased interest related to the Grand Gulf 1 rate deferral plan.
Miscellaneous income increased in 1998 primarily due to Entergy New
Orleans' portion of System Fuel's gain on the sale of oil and gas
properties and an increase in interest related to the Grand Gulf 1 rate
deferral plan.
The Grand Gulf 1 rate deferral plan is discussed in more detail in
Note 2 to the financial statements.
Income taxes
The effective income tax rates for 1999, 1998, and 1997 were 40.7%,
38.4%, and 44.0%, respectively.
The increase in the effective income tax rate for 1999 was primarily
due to the increase in pre-tax income reducing the impact of permanent
differences and flow through items.
The decrease in the effective income tax rate for 1998 was primarily
due to a tax benefit recorded in 1998 related to a depreciation adjustment.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $426,431 $431,453 $410,131
Natural gas 81,357 82,297 94,691
-------- -------- --------
TOTAL 507,788 513,750 504,822
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 135,242 138,142 141,902
Purchased power 166,579 164,435 156,542
Other operation and maintenance 83,197 79,023 72,748
Taxes other than income taxes 39,621 40,417 21,107
Depreciation and amortization 21,219 21,878 38,964
Other regulatory credits - net (9,036) (4,540) (6,394)
Amortization of rate deferrals 28,430 35,336 37,662
-------- -------- --------
TOTAL 465,252 474,691 462,531
-------- -------- --------
OPERATING INCOME 42,536 39,059 42,291
-------- -------- --------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 1,084 284 380
Gain on sale of assets - 458 -
Miscellaneous - net 2,263 951 (77)
-------- -------- --------
TOTAL 3,347 1,693 303
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 13,277 13,717 13,918
Other interest - net 1,403 1,075 1,369
Allowance for borrowed funds used during construction (788) (219) (286)
-------- -------- --------
TOTAL 13,892 14,573 15,001
-------- -------- --------
INCOME BEFORE INCOME TAXES 31,991 26,179 27,593
Income taxes 13,030 10,042 12,142
-------- -------- --------
NET INCOME 18,961 16,137 15,451
Preferred dividend requirements and other 965 965 965
-------- -------- --------
EARNINGS APPLICABLE TO
COMMON STOCK $17,996 $15,172 $14,486
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $18,961 $16,137 $15,451
Noncash items included in net income:
Amortization of rate deferrals 28,430 35,336 37,662
Other regulatory credits - net (9,036) (4,540) (6,394)
Depreciation and amortization 21,219 21,878 21,107
Deferred income taxes and investment tax credits (3,131) (7,498) (1,957)
Allowance for equity funds used during construction (1,084) (284) (380)
Gain on sale of assets - (458) -
Changes in working capital:
Receivables (7,258) 3,148 4,257
Fuel inventory 179 (861) (145)
Accounts payable 23,319 (4,136) 540
Taxes accrued 429 (5,270) 4,065
Interest accrued 37 (130) (276)
Deferred fuel costs (13,293) 8,193 (2,094)
Other working capital accounts 6,607 (5,122) (15,908)
Provision for estimated losses and reserves (531) (6,295) (247)
Changes in other regulatory assets (11,482) (6,964) 7,365
Other 6,796 (2,805) (8,941)
-------- -------- --------
Net cash flow provided by operating activities 60,162 40,329 54,105
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (46,239) (21,691) (16,137)
Allowance for equity funds used during construction 1,084 284 380
-------- -------- --------
Net cash flow used in investing activities (45,155) (21,407) (15,757)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt - 29,438 -
Retirement of:
Long-term debt - (30,000) (12,000)
Dividends paid:
Common stock (26,500) (9,700) (26,000)
Preferred stock (1,206) (965) (965)
-------- -------- --------
Net cash flow used in financing activities (27,706) (11,227) (38,965)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (12,699) 7,695 (617)
Cash and cash equivalents at beginning of period 17,153 9,458 10,075
-------- -------- --------
Cash and cash equivalents at end of period $4,454 $17,153 $9,458
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $14,281 $14,592 $15,237
Income taxes - net $12,476 $26,197 $10,981
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $4,454 $3,769
Temporary cash investments - at cost,
which approximates market - 13,384
-------- --------
Total cash and cash equivalents 4,454 17,153
-------- --------
Accounts receivable:
Customer 28,658 24,355
Allowance for doubtful accounts (846) (761)
Associated companies 404 3,320
Other 6,225 3,835
Accrued unbilled revenues 19,820 16,254
-------- --------
Total receivables 54,261 47,003
-------- --------
Deferred fuel costs 14,483 1,191
Fuel inventory - at average cost 3,293 3,472
Materials and supplies - at average cost 10,127 8,845
Rate deferrals 24,788 28,430
Prepayments and other 2,528 6,686
-------- --------
TOTAL 113,934 112,780
-------- --------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 3,259 3,259
-------- --------
UTILITY PLANT
Electric 541,525 514,685
Natural gas 133,568 132,568
Construction work in progress 29,780 20,184
-------- --------
TOTAL UTILITY PLANT 704,873 667,437
Less - accumulated depreciation and amortization 382,797 371,558
-------- --------
UTILITY PLANT - NET 322,076 295,879
-------- --------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals 10,974 35,762
Unamortized loss on reacquired debt 1,187 1,399
Other regulatory assets 33,039 21,558
Other 1,277 1,267
-------- --------
TOTAL 46,477 59,986
-------- --------
TOTAL ASSETS $485,746 $471,904
======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Associated companies $24,350 $18,283
Other 28,261 11,008
Customer deposits 17,830 18,082
Taxes accrued 429 -
Accumulated deferred income taxes 10,863 6,284
Interest accrued 4,956 4,919
Other 5,524 1,783
-------- --------
TOTAL 92,213 60,359
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 43,878 57,214
Accumulated deferred investment tax credits 6,378 6,894
SFAS 109 regulatory liability - net 7,528 942
Other regulatory liabilities 1,753 3,146
Accumulated provisions 8,836 9,367
Other 7,733 8,116
-------- --------
TOTAL 76,106 85,679
-------- --------
Long-term debt 169,083 169,018
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 19,780 19,780
Common stock, $4 par value, authorized 10,000,000
shares; issued and outstanding 8,435,900 shares in 1999
and 1998 33,744 33,744
Paid-in capital 36,294 36,294
Retained earnings 58,526 67,030
-------- --------
TOTAL 148,344 156,848
-------- --------
Commitments and Contingencies (Notes 2 and 9)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $485,746 $471,904
======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Retained Earnings, January 1 $67,030 $61,558 $73,072
Add:
Net income 18,961 16,137 15,451
Deduct:
Dividends declared:
Preferred stock 965 965 965
Common stock 26,500 9,700 26,000
------- ------- -------
Total 27,465 10,665 26,965
------- ------- -------
Retained Earnings, December 31 (Note 8) $58,526 $67,030 $61,558
======= ======= =======
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 507,788 $513,750 $504,822 $504,277 $470,278
Net Income $ 18,961 $ 16,137 $ 15,451 $ 26,776 $ 34,386
Total assets $ 485,746 $471,904 $498,150 $549,996 $596,206
Long-term obligations (1) $ 169,083 $169,018 $168,953 $168,888 $155,958
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $158,822 $164,765 $145,688 $151,577 $141,353
Commercial 146,328 149,353 143,113 149,649 144,374
Industrial 25,584 26,229 24,616 24,663 22,842
Governmental 63,056 62,332 58,746 58,561 52,880
-------- -------- -------- -------- --------
Total retail 393,790 402,679 372,163 384,450 361,449
Sales for resale:
Associated companies 14,207 10,451 10,342 2,649 3,217
Non-associated companies 10,545 10,590 8,996 9,882 9,864
Other 7,889 7,733 18,630 6,273 15,472
-------- -------- -------- -------- --------
Total $426,431 $431,453 $410,131 $403,254 $390,002
======== ======== ======== ======== ========
Billed Electric Energy
Sales (GWH):
Residential 2,102 2,141 1,971 1,998 2,049
Commercial 2,208 2,149 2,072 2,073 2,079
Industrial 514 514 484 481 537
Governmental 1,071 1,037 994 974 983
-------- -------- -------- -------- --------
Total retail 5,895 5,841 5,521 5,526 5,648
Sales for resale:
Associated companies 441 370 316 66 149
Non-associated companies 180 199 160 212 297
-------- -------- -------- -------- --------
Total 6,516 6,410 5,997 5,804 6,094
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
System Energy Resources, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of System Energy Resources, Inc.
at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 17, 2000
<PAGE>
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased in 1999 due to the additional reserves and
interest recorded for the potential refund of System Energy's proposed rate
increase, as well as downtime for unplanned outages.
Net income increased slightly in 1998 primarily due to an increase in
other income.
Revenues
Operating revenues recover operating expenses, depreciation, and
capital costs attributable to Grand Gulf 1. Capital costs are computed by
allowing a return on System Energy's common equity funds allocable to its
net investment in Grand Gulf 1 and adding to such amount System Energy's
effective interest cost for its debt.
Operating revenues increased in 1999 primarily due to the
implementation of the Grand Gulf Accelerated Recovery Tariff (GGART) at
Entergy Arkansas and Entergy Mississippi. This increase in revenues is
offset by related regulatory charges and does not affect net income. The
tariff was designed to allow Entergy Arkansas and Entergy Mississippi to
accelerate the payment of a portion of their Grand Gulf purchased power
obligation in advance of the implementation of retail access. It became
effective on January 1, 1999 and October 1, 1998 for Entergy Arkansas and
Entergy Mississippi, respectively. The GGART and System Energy's proposed
rate increase, which is subject to refund, are discussed in Note 2 to the
financial statements.
Expenses
Fuel expenses
In 1999, fuel expenses decreased primarily due to an extended nuclear
refueling outage at Grand Gulf 1 in addition to unplanned outages. Grand
Gulf 1 was on-line for 17 fewer days in 1999 compared to 1998.
In 1998, fuel expenses decreased because of lower generation due to a
scheduled nuclear refueling outage in April and May. Grand Gulf 1 was on-
line for 47 fewer days in 1998 compared to 1997.
Depreciation and amortization
In 1999, depreciation and amortization expenses decreased as a result
of the reduction in principal payment associated with the sale and
leaseback of a portion of Grand Gulf 1. The depreciation schedule matches
the collection of lease principal and revenues with the depreciation of the
asset.
Other regulatory charges
In both 1999 and 1998, other regulatory charges increased due to the
implementation of the GGART at Entergy Arkansas and Entergy Mississippi, as
discussed above.
<PAGE>
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other
Other income
Other income increased in both 1999 and 1998 as a result of the
interest earned on System Energy's advances to the money pool, an inter-
company funding arrangement. The money pool is discussed in Note 4 to the
financial statements.
Interest charges
Other interest increased in 1999 due to interest on the potential
refund of System Energy's proposed rate increase.
Interest on long-term debt decreased in 1999 and 1998 as a result of
the retirement and refinancing of higher-cost long-term debt.
Income taxes
The effective income tax rates in 1999, 1998, and 1997 were 39.5%,
42.1%, and 42.2%, respectively.
The effective income tax rate for 1999 decreased due to decreased pre-
tax income partially offset by the amortization of investment tax credits
related to Grand Gulf 2.
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $620,032 $602,373 $633,698
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 37,336 41,740 48,475
Nuclear refueling outage expenses 14,136 15,737 16,425
Other operation and maintenance 87,450 86,696 101,269
Decommissioning 18,944 18,944 18,944
Taxes other than income taxes 27,212 26,839 26,477
Depreciation and amortization 113,862 125,331 128,915
Other regulatory charges - net 57,656 4,443 -
-------- -------- --------
TOTAL 356,596 319,730 340,505
-------- -------- --------
OPERATING INCOME 263,436 282,643 293,193
-------- -------- --------
OTHER INCOME
Allowance for equity funds used
during construction 2,540 2,042 2,209
Miscellaneous - net 16,309 13,309 8,517
-------- -------- --------
TOTAL 18,849 15,351 10,726
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 102,764 109,735 121,633
Other interest - net 45,218 6,325 7,020
Allowance for borrowed funds used
during construction (1,920) (1,805) (1,683)
-------- -------- --------
TOTAL 146,062 114,255 126,970
-------- -------- --------
INCOME BEFORE INCOME TAXES 136,223 183,739 176,949
Income taxes 53,851 77,263 74,654
-------- -------- --------
NET INCOME $82,372 $106,476 $102,295
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $82,372 $106,476 $102,295
Noncash items included in net income:
Reserve for regulatory adjustments 108,484 68,236 43,123
Other regulatory charges - net 57,656 4,443 -
Depreciation, amortization, and decommissioning 132,806 144,275 147,859
Deferred income taxes and investment tax credits (86,860) (28,222) (39,370)
Allowance for equity funds used during construction (2,540) (2,042) (2,209)
Changes in working capital:
Receivables (172,354) 9,690 (23,833)
Accounts payable (11,688) (2,859) 11,172
Taxes accrued (21,424) 1,131 7,852
Interest accrued (2,022) (300) 8,127
Other working capital accounts (4,425) (2,228) 19,054
Provision for estimated losses and reserves 45 (1,704) (1,025)
Changes in other regulatory assets (18,492) 25,066 36,654
Other 41,250 (23,159) (23,392)
--------- --------- ---------
Net cash flow provided by operating activities 102,808 298,803 286,307
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (28,848) (30,692) (35,141)
Allowance for equity funds used during construction 2,540 2,042 2,209
Nuclear fuel purchases (39,975) (30,523) (16,524)
Proceeds from sale/leaseback of nuclear fuel 39,975 30,523 16,524
Decommissioning trust contributions and realized
change in trust assets (22,139) (24,166) (22,452)
--------- --------- ---------
Net cash flow used in investing activities (48,447) (52,816) (55,384)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 101,835 212,976 -
Retirement of:
Long-term debt (282,885) (300,341) (17,319)
Dividends paid:
Common stock (75,000) (72,300) (113,800)
--------- --------- ---------
Net cash flow used in financing activities (256,050) (159,665) (131,119)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (201,689) 86,322 99,804
Cash and cash equivalents at beginning of period 236,841 150,519 50,715
--------- --------- ---------
Cash and cash equivalents at end of period $35,152 $236,841 $150,519
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $102,867 $107,923 $112,387
Income taxes $154,336 $104,987 $105,621
Noncash investing and financing activities:
Change in unrealized appreciation (depreciation) of
decommissioning trust assets ($37) $3,205 $1,237
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC
BALANCE SHEETS
ASSETS
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $136 $120
Temporary cash investments - at cost,
which approximates market 35,016 236,721
---------- ----------
Total cash and cash equivalents 35,152 236,841
---------- ----------
Accounts receivable:
Associated companies 301,287 125,171
Other 670 4,431
---------- ----------
Total receivables 301,957 129,602
---------- ----------
Materials and supplies - at average cost 61,264 62,203
Deferred nuclear refueling outage cost 18,665 12,853
Prepayments and other 2,251 2,592
---------- ----------
TOTAL 419,289 444,091
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds 135,384 113,282
---------- ----------
UTILITY PLANT
Electric 3,060,324 3,030,636
Property under capital lease 434,993 441,098
Construction work in progress 58,510 57,076
Nuclear fuel under capital lease 78,020 64,621
---------- ----------
TOTAL UTILITY PLANT 3,631,847 3,593,431
Less - accumulated depreciation 1,312,559 1,198,266
and amortization
---------- ----------
UTILITY PLANT - NET 2,319,288 2,395,165
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 242,834 221,996
Unamortized loss on reacquired debt 56,474 57,150
Other regulatory assets 185,910 188,256
Other 9,869 11,265
---------- ----------
TOTAL 495,087 478,667
---------- ----------
TOTAL ASSETS $3,369,048 $3,431,205
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31,
1999 1998
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $77,947 $175,820
Accounts payable:
Associated companies 15,237 25,975
Other 18,470 19,420
Taxes accrued 55,383 76,806
Accumulated deferred income taxes 7,162 5,022
Interest accrued 40,000 42,022
Obligations under capital leases 38,421 41,835
Other 1,651 1,543
---------- ----------
TOTAL 254,271 388,443
---------- ----------
DEFERRED CREDITS AND OTHER
LIABILITIES
Accumulated deferred income taxes 481,945 506,727
Accumulated deferred investment 93,219 96,695
tax credits
Obligations under capital leases 39,599 22,786
FERC settlement - refund 37,337 43,159
obligation
Other regulatory liabilities 73,313 43,309
Decommissioning 129,503 107,365
Regulatory reserves 267,771 159,287
Accumulated provisions 2,016 1,971
Other 16,014 17,524
---------- ----------
TOTAL 1,140,717 998,823
---------- ----------
Long-term debt 1,082,579 1,159,830
SHAREHOLDER'S EQUITY
Common stock, no par value, authorized
1,000,000 shares; issued and
outstanding 789,350 shares in 1999 and
1998 789,350 789,350
Retained earnings 102,131 94,759
---------- ----------
TOTAL 891,481 884,109
---------- ----------
Commitments and Contingencies
(Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,369,048 $3,431,205
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
1999 1998 1997
(In Thousands)
Retained Earnings, January 1 $94,759 $60,583 $72,088
Add:
Net income 82,372 106,476 102,295
Deduct:
Dividends declared 75,000 72,300 113,800
-------- ------- -------
Retained Earnings, December 31 (Note 8) $102,131 $94,759 $60,583
======== ======= =======
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
1999 1998 1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 620,032 $ 602,373 $ 633,698 $ 623,620 $ 605,639
Net income $ 82,372 $ 106,476 $ 102,295 $ 98,668 $ 93,039
Total assets $3,369,048 $3,431,205 $3,432,031 $3,461,293 $3,431,012
Long-term obligations (1) $1,122,178 $1,182,616 $1,364,161 $1,474,427 $1,264,024
Electric energy sales (GWH) 7,567 8,259 9,735 8,302 7,212
</TABLE>
(1) Includes long-term debt (excluding current maturities) and noncurrent
capital lease obligations.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Entergy Corporation,
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans, and System Energy)
The accompanying consolidated financial statements include the
accounts of Entergy Corporation and its direct and indirect subsidiaries,
including the domestic utility companies and System Energy, whose separate
financial statements are included in this document. The financial
statements presented herein result from these companies having registered
securities with the SEC.
As required by generally accepted accounting principles, all
significant intercompany transactions have been eliminated in the
consolidated financial statements. The domestic utility companies and
System Energy maintain accounts in accordance with FERC and other
regulatory guidelines. Certain previously reported amounts have been
reclassified to conform to current classifications, with no effect on net
income or shareholders' equity.
Entergy Corporation sold its investments in Entergy London and
CitiPower in December 1998. Accordingly, the consolidated balance sheet
does not include amounts for these entities as of December 31, 1998. The
consolidated statements of income and cash flows for 1998 include amounts
for Entergy London and CitiPower through the dates of their respective
sales.
Use of Estimates in the Preparation of Financial Statements
The preparation of Entergy Corporation's and its subsidiaries'
financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses. Adjustments to the reported amounts of assets and liabilities
may be necessary in the future to the extent that future estimates or
actual results are different from the estimates used.
Revenues and Fuel Costs
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi generate,
transmit, and distribute electricity primarily to retail customers in
Arkansas, Louisiana, and Mississippi, respectively. Entergy Gulf States
generates, transmits, and distributes electricity primarily to retail
customers in Texas and Louisiana. Entergy Gulf States also distributes gas
to retail customers in and around Baton Rouge, Louisiana. Entergy New
Orleans sells both electricity and gas to retail customers in the City of
New Orleans, except for Algiers, where Entergy Louisiana is the electricity
supplier.
System Energy's operating revenues are intended to recover operating
expenses and capital costs attributable to Grand Gulf 1 from Entergy
Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
Capital costs are computed by allowing a return on System Energy's common
equity funds allocable to its net investment in Grand Gulf 1, plus System
Energy's effective interest cost for its debt allocable to its investment
in Grand Gulf 1. System Energy's proposed rate increase is discussed in
Note 2 to the financial statements.
The domestic utility companies accrue estimated revenues for energy
delivered since the latest billings. The domestic utility companies' rate
schedules include either fuel adjustment clauses or fixed fuel factors,
both of which allow either current recovery or deferral of fuel costs until
such costs are reflected in the related revenues. Fixed fuel factors
remain in effect until changed as part of a general rate case, fuel
reconciliation, or fixed fuel factor filing.
Utility Plant
Utility plant is stated at original cost. The original cost of
utility plant retired or removed, plus the applicable removal costs, less
salvage, is charged to accumulated depreciation. Maintenance, repairs, and
minor replacement costs are charged to operating expenses. Substantially
all of the utility plant is subject to liens from mortgage bond indentures.
Utility plant includes the portions of Grand Gulf 1 and Waterford 3
that have been sold and leased back. For financial reporting purposes,
these sale and leaseback arrangements are reflected as financing
transactions.
Net utility plant by company and functional category, as of December
31, 1999, is shown below (in millions):
<TABLE>
<CAPTION>
Entergy Entergy Entergy Entergy Entergy System
Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy
<S> <C> <C> <C> <C> <C> <C> <C>
Production
Nuclear $6,766 $ 913 $1,853 $1,832 $ - $ - $ 2,157
Other 1,396 338 585 201 199 15 -
Transmission 1,597 455 495 311 300 27 9
Distribution 3,225 964 889 742 463 167 -
Other 567 99 152 118 92 17 16
Plant acquisition adjustment -
Entergy Gulf States 407 - - - - - -
Other 86 - 20 - - 66 -
Construction work in progress 1,590 267 145 108 67 30 59
Nuclear fuel 374 95 71 52 - - 78
(leased and owned)
Accumulated provision for
Decommissioning (1) (418) (271) (64) (83) - - -
--------------------------------------------------------------------------------------
Utility plant - net $ 15,590 $ 2,860 $ 4,146 $ 3,281 $ 1,121 $ 322 $ 2,319
======================================================================================
</TABLE>
(1) The decommissioning liabilities related to Grand Gulf 1, Pilgrim, and
the 30% of River Bend previously owned by Cajun are recorded in the
applicable Balance Sheets in "Deferred Credits and Other Liabilities -
Decommissioning."
Depreciation is computed on the straight-line basis at rates based on
the estimated service lives and costs of removal of the various classes of
property. Depreciation rates on average depreciable property are shown
below:
<TABLE>
<CAPTION>
Entergy Entergy Entergy Entergy Entergy System
Entergy Arkansas Gulf States Louisiana Mississippi New Orleans Energy
<S> <C> <C> <C> <C> <C> <C> <C>
1999 2.9% 3.2% 2.4% 2.9% 2.4% 3.0% 3.3%
1998 3.0% 3.3% 2.6% 3.0% 2.5% 3.1% 3.3%
1997 3.2% 3.1% 2.8% 3.0% 2.5% 3.1% 3.4%
</TABLE>
AFUDC represents the approximate net composite interest cost of
borrowed funds and a reasonable return on the equity funds used for
construction. Although AFUDC increases both utility plant and earnings, it
is realized in cash through depreciation provisions included in rates.
Jointly-Owned Generating Stations
Certain Entergy subsidiaries jointly own electric generating
facilities with third parties. The investments and expenses associated
with these generating stations are recorded by the Entergy subsidiaries to
the extent of their respective undivided ownership interests. As of
December 31, 1999, the subsidiaries' investment and accumulated
depreciation in each of these generating stations were as follows:
<TABLE>
<CAPTION>
Total
Megawatt Accumulated
Generating Stations Fuel-Type Capability Ownership Investment Depreciation
(In Millions)
<S> <C> <C> <C> <C> <C>
Entergy Arkansas
Independence Unit 1 Coal 836 31.50% $ 118 $ 55
Common Coal 15.75% 30 13
Facilities
White Bluff Units 1 and 2 Coal 1,659 57.00% 404 205
Entergy Gulf States
Roy S. Nelson Unit 6 Coal 550 70.00% 403 199
Big Cajun 2 Unit 3 Coal 540 42.00% 227 106
Entergy Mississippi -
Independence Units 1 and 2 Coal 1,678 25.00% 227 95
System Energy -
Grand Gulf Unit 1 Nuclear 1,200 90.00%(1) 3,483 1,313
Entergy Power -
Independence Unit 2 Coal 842 14.37% 81 32
</TABLE>
(1)Includes an 11.5% leasehold interest held by System Energy. System
Energy's Grand Gulf 1 lease obligations are discussed in Note 10 to the
financial statements.
Income Taxes
Entergy Corporation and its subsidiaries file a U.S. consolidated
federal income tax return. Income taxes are allocated to the subsidiaries
in proportion to their contribution to consolidated taxable income. SEC
regulations require that no Entergy subsidiary pay more taxes than it would
have paid if a separate income tax return had been filed. In accordance
with SFAS 109, "Accounting for Income Taxes," deferred income taxes are
recorded for all temporary differences between the book and tax basis of
assets and liabilities, and for certain credits available for carryforward.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Investment tax credits are deferred and amortized based upon the
average useful life of the related property, in accordance with ratemaking
treatment.
Reacquired Debt
The premiums and costs associated with reacquired debt of the domestic
utility companies and System Energy (except that allocable to the
deregulated operations of Entergy Gulf States) are being amortized over the
life of the related new issuances, in accordance with ratemaking treatment.
Cash and Cash Equivalents
Entergy considers all unrestricted highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Investments
Entergy applies the provisions of SFAS 115, "Accounting for
Investments for Certain Debt and Equity Securities," in accounting for
investments in decommissioning trust funds. As a result, Entergy has
recorded on the consolidated balance sheet $136 million of additional value
in its decommissioning trust funds. This increase represents the amount by
which the fair value of the securities held in such funds exceeds the
amounts deposited plus the earnings on the deposits. In accordance with
the regulatory treatment for decommissioning trust funds, the domestic
utility companies and System Energy have recorded an offsetting amount in
unrealized gains on investment securities as a regulatory liability in
other deferred credits.
Decommissioning trust funds for Pilgrim do not receive regulatory
treatment. Accordingly, unrealized gains recorded on the assets in
Pilgrim's trust funds are recognized as a separate component of
shareholders' equity because these assets are classified as available for
sale.
Foreign Currency Translation
All assets and liabilities of Entergy's foreign subsidiaries are
translated into U.S. dollars at the exchange rate in effect at the end of
the period. Revenues and expenses are translated at average exchange rates
prevailing during the period. The resulting translation adjustments are
reflected in a separate component of shareholders' equity. Current
exchange rates are used for U.S. dollar disclosures of future obligations
denominated in foreign currencies.
Earnings per Share
The average number of common shares outstanding for the presentation
of diluted earnings per share were greater by approximately 199,000 shares
in 1999, 176,000 shares in 1998, and 140,000 shares in 1997, than the
number of such shares for the presentation of basic earnings per share due
to Entergy's stock option and other stock compensation plans discussed more
thoroughly in Note 5 to the financial statements.
Options to purchase approximately 5,205,000, 149,000, and 225,000
shares of common stock at various prices were outstanding at the end of
1999, 1998, and 1997, respectively, but were not included in the
computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares at the end of
each of the years presented.
Application of SFAS 71
The domestic utility companies and System Energy currently account for
the effects of regulation pursuant to SFAS 71, "Accounting for the Effects
of Certain Types of Regulation." This statement applies to the financial
statements of a rate-regulated enterprise that meet three criteria. The
enterprise must have rates that (i) are approved by the regulator; (ii) are
cost-based; and (iii) can be charged to and collected from customers.
These criteria may also be applied to separable portions of a utility's
business, such as the generation or transmission functions, or to specific
classes of customers. If an enterprise meets these criteria, it may
capitalize costs that would otherwise be charged to expense if the rate
actions of its regulator make it probable that those costs will be
recovered in future revenue. Such capitalized costs are reflected as
regulatory assets in the accompanying financial statements. SFAS 71
requires that rate-regulated enterprises assess the probability of
recovering their regulatory assets at each balance sheet date. When an
enterprise concludes that recovery of a regulatory asset is no longer
probable, the regulatory asset must be removed from the entity's balance
sheet.
SFAS 101, "Accounting for the Discontinuation of Application of FASB
Statement No. 71," specifies how an enterprise that ceases to meet the
criteria for application of SFAS 71 for all or part of its operations
should report that event in its financial statements. In general, SFAS 101
requires that the enterprise report the discontinuation of the application
of SFAS 71 by eliminating from its balance sheet all regulatory assets and
liabilities related to the applicable segment. Additionally, if it is
determined that a regulated enterprise is no longer recovering all of its
costs and therefore no longer qualifies for SFAS 71 accounting, it is
possible that an impairment may exist that could require further write-offs
of plant assets.
EITF 97-4: "Deregulation of the Pricing of Electricity - Issues
Related to the Application of FASB Statements No. 71 and 101" specifies
that SFAS 71 should be discontinued at a date no later than when the
effects of a transition to competition plan for all or a portion of the
entity subject to such plan are reasonably determinable. Additionally, EITF
97-4 promulgates that regulatory assets to be recovered through cash flows
derived from another portion of the entity that continues to apply SFAS 71
should not be written off; rather, they should be considered regulatory
assets of the segment that will continue to apply SFAS 71.
As described in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -
SIGNIFICANT FACTORS AND KNOWN TRENDS," management believes that definitive
outcomes have not yet been determined regarding transition to competition
in any of Entergy's jurisdictions. Therefore, the regulated operations of
the domestic utility companies and System Energy continue to apply SFAS 71.
Arkansas and Texas have enacted retail open access laws, but Entergy
believes that significant issues remain to be addressed by Arkansas and
Texas regulators, and the enacted laws do not provide sufficient detail to
reasonably determine the impact on Entergy Arkansas' and Entergy Gulf
States' regulated operations.
Transition to Competition Liabilities
In conjunction with the transition to competition of the electric
utility industry in certain jurisdictions in which the domestic utility
companies operate, regulatory mechanisms have been established to mitigate
potential stranded costs. These mechanisms include the transition cost
account at Entergy Arkansas, which is discussed further in Note 2 to the
financial statements. Also included is a provision in the Texas transition
legislation that allows depreciation on transmission and distribution
assets to be directed toward generation assets. The liabilities recorded
as a result of these mechanisms are classified as "transition to
competiton" deferred credits.
Domestic Operating Company Deregulated Operations
Entergy Gulf States does not apply regulatory accounting principles to
its wholesale jurisdiction, steam department, Louisiana retail deregulated
portion of River Bend, and the 30% interest in River Bend formerly owned by
Cajun. The Louisiana retail deregulated portion of River Bend is operated
under a deregulated asset plan representing a portion (approximately 24%)
of River Bend plant costs, generation, revenues, and expenses established
under a 1992 LPSC order. The plan allows Entergy Gulf States to sell the
electricity from the deregulated assets to Louisiana retail customers at
4.6 cents per KWH or off-system at higher prices, with certain provisions
for sharing such incremental revenue above 4.6 cents per KWH between
ratepayers and shareholders.
The results of these deregulated operations before interest charges for
the years ended December 31, 1999, 1998, and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating revenues $ 166,509 $ 178,303 $ 155,471
Operating expenses
Fuel, operating, and maintenance 126,917 137,579 89,987
Depreciation 35,141 39,497 36,351
--------- --------- ---------
Total operating expense 162,058 177,076 126,338
Income tax expense 628 1,154 9,416
--------- --------- ---------
Net income from deregulated utility operations $ 3,823 $ 73 $ 19,717
========= ========= =========
</TABLE>
The net investment associated with these deregulated operations as of
December 31, 1999 and 1998 was approximately $835 million and $864 million,
respectively.
Impairment of Long-Lived Assets
Entergy periodically reviews long-lived assets whenever events or
changes in circumstances indicate that recoverability of these assets is
uncertain. Generally, the determination of recoverability is based on the
net cash flows expected to result from such operations and assets.
Projected net cash flows depend on the future operating costs associated
with the assets, the efficiency and availability of the assets and
generating units, and the future market and price for energy over the
remaining life of the assets.
Assets regulated under traditional cost-of-service ratemaking, and
thereby subject to SFAS 71 accounting, are generally not subject to
impairment because this form of regulation assures that all allowed costs
are subject to recovery. However, certain deregulated assets and other
operations of the domestic utility companies totaling approximately $1.2
billion (pre-tax) could be affected in the future. Those assets include
Entergy Arkansas' and Entergy Louisiana's retained shares of Grand Gulf 1,
Entergy Gulf States' Louisiana deregulated asset plan, the Texas
jurisdictional abeyed portion of the River Bend plant and the portion of
River Bend transferred from Cajun, and wholesale operations. Additionally,
as noted above, the discontinuation of SFAS 71 regulatory accounting
principles would require that Entergy review the affected assets for
impairment.
Derivative Financial Instruments and Commodity Derivatives
As a part of its overall risk management strategy, Entergy uses a
variety of derivative financial instruments and commodity derivatives,
including interest rate swaps and natural gas and electricity futures,
forwards, and options.
Entergy accounts for derivative financial instruments used to mitigate
interest rate risk in accordance with hedge accounting. Gains or losses
from rate swaps used for such purposes that are sold or terminated are
deferred and amortized over the remaining life of the debt instrument being
hedged by the interest rate swap. If the debt instrument being hedged by
the interest rate swaps is extinguished, any gain or loss attributable to
the swap would be recognized in the period of the transaction. Additional
information concerning Entergy's interest rate swaps outstanding as of
December 31, 1999 is included in Note 7 to the financial statements.
Entergy's power marketing and trading business engages in price risk
management activities for trading purposes. To conduct these activities,
the business uses futures, forwards, swaps, and options, and uses the mark-
to-market method of accounting. Under the mark-to-market method of
accounting, forwards, futures, swaps, options, and other financial
instruments with third parties are reflected at market value in the balance
sheets. Changes in the assets and liabilities from these instruments
(resulting primarily from newly originated transactions and the impact of
price movements) are recognized currently in the statements of income. The
market prices used to value these transactions reflect management's best
estimate considering various factors including closing exchange and over-
the-counter quotations, time value, and volatility factors underlying the
commitments.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for Entergy in
2001. This statement requires that all derivatives be recognized in the
balance sheet, either as assets or liabilities, and measured at fair value.
The statement also requires the designation and reassessment of all hedging
relationships. The changes in fair value of derivatives will be recognized
in earnings or in comprehensive income, depending on the type of hedge
relationship involved. Entergy has not completed its analysis of the
effect that the adoption of SFAS 133 will have on its financial position,
results of operations, or cash flows.
In February 2000, the FASB issued an SFAS exposure draft which would
be effective for fiscal years beginning after June 15, 2001. The proposed
SFAS would require initial measurement and recognition of the liability for
closure and removal of long-lived assets, including decommissioning, at
fair value at the time the SFAS is adopted. Determination of fair value
will likely require the estimation and discounting of future cash flows
using an expected present value technique. An asset partially offsetting
the liability would be determined by further discounting the liability to
the time it was first incurred, which is initial contamination of a nuclear
plant. This asset and the related accumulated depreciation would be
presented with other plant costs on the balance sheet because the cost of
decommissioning/closing the plant would be recognized as part of the total
cost of the plant asset. Any difference between the liability recognized
and the related net asset recognized at the time the proposed SFAS is
adopted would be treated as a cumulative effective adjustment in the
statement of income, unless it is probable that the difference will
ultimately be recoverable from or refundable to customers. In that case, a
regulatory asset or liability would be recorded. Decommissioning expense
following the effective date of the proposed SFAS would be determined
independently of the regulatory treatment of such expense and could be
higher than the current level of expense being recognized. Amortization
of any regulatory asset or liability recorded at the time of adoption of
the SFAS would mitigate any impact on net income.
NOTE 2. RATE AND REGULATORY MATTERS
Electric Industry Restructuring
Arkansas
(Entergy Corporation and Entergy Arkansas)
In April 1999, the Arkansas legislature enacted a law providing for
competition in the electric utility industry through retail open access on
January 1, 2002. With retail open access, generation operations will
become a competitive business, but transmission and distribution operations
will continue to be regulated. The APSC may delay implementation of retail
open access, but not beyond June 30, 2003. The provisions of the new law:
o require utilities to separate (unbundle) their costs into generation,
transmission, distribution, and customer service functions;
o require operation of transmission facilities by an organization
independent from the generation, distribution, and retail operations;
o provide for the determination of and mitigation measures for
generation market power, which could require generation asset
divestitures;
o allow for recovery of stranded and transition costs if the costs are
approved by the APSC;
o allow for the securitization of approved stranded costs; and
o freeze residential and small business customer rates for three years
by utilities that will recover stranded costs.
Entergy Arkansas filed separate generation, transmission,
distribution, and customer service rates with the APSC in December 1999.
The rates were based on the cost-of-service study that formed the basis of
the rates included in the 1997 settlement agreement. Hearings on the rate
filing are scheduled for September 2000. If approved, these rates will
become effective July 1, 2001. Entergy Arkansas also filed notice with the
APSC in December 1999 of its intent to recover stranded costs. The APSC
and various participants in the industry, including Entergy Arkansas, are
currently in the process of implementing the legislation through various
rulemaking and other proceedings.
Texas
(Entergy Corporation and Entergy Gulf States)
In June 1999, the Texas legislature enacted a law providing for
competition in the electric utility industry through retail open access.
The law provides for retail open access by most electric utilities,
including Entergy Gulf States, on January 1, 2002. With retail open
access, generation and a new retail provider operation will be competitive
businesses, but transmission and distribution operations will continue to
be regulated. The new retail provider function will be the primary point
of contact with the customers for most services beyond initiation of
electric service and restoration of service following an outage. The
provisions of the new law:
o require a rate freeze through January 1, 2002 with frozen rates beyond
that for residential and small commercial customers of incumbent
utilities;
o require utilities to separate (unbundle) their generation,
transmission and distribution, and retail electric provider functions.
Entergy Gulf States filed its plan in January 2000 with the PUCT to
separate its functions. The plan included separate transmission and
distribution companies;
o require operation in a non-discriminatory manner of transmission and
distribution facilities by an organization independent from the
generation and retail operations by the time competition is implemented;
o allow for recovery of stranded costs incurred in purchasing power and
providing electric generation service if the costs are approved by the
PUCT;
o allow securitization of regulatory assets and stranded costs;
o provide for the determination of and mitigation measures for
generation market power; and
o require utilities to file separated data and proposed transmission,
distribution, and competition tariffs by April 1, 2000.
The market power measures include a limit on the ownership of
generation assets by a power generation company within a specified region.
The implications of this limit are uncertain for Entergy Gulf States and
the Entergy system. However, it is possible that Entergy Gulf States could
be required to divest some of its generation assets if Entergy Gulf States
is found to have generation market power. The legislation also requires
affected utilities to sell at auction, at least 60 days before January 1,
2002, entitlements to at least 15% of their installed generation capacity
in Texas. The obligation to auction capacity entitlements continues for up
to 60 months after January 1, 2002, or until 40% of customers in the
jurisdiction have chosen an alternative supplier, whichever comes first.
The PUCT and various participants in the industry are currently in the
process of implementing the legislation through various rulemaking and
other proceedings. Two significant rules have been issued by the PUCT:
o A code of conduct was approved by the PUCT in December 1999 to ensure
that utilities do not allow affiliates to have a business advantage over
competitors. The rules allow the continuation of shared services
affiliates, such as Entergy Operations and Entergy Services. Entergy
adopted an internal code of conduct to ensure compliance with the new
rules.
o Rules governing the separated costs filing have been issued. Included
is a provision establishing, as an alternative to a market-based return
on equity, a presumptively reasonable return on equity for a distribution
utility at 200 basis points over its cost of debt. The provision allows
the utility to provide evidence that the return should be higher. The
rules also provide that the utility may propose a performance-based
enhancement to the authorized rate of return, based on distribution and
transmission company independence. Management does not agree with the
arbitrary level set in the rule and will seek a higher return in its
separated costs filing. A workshop has been held by the PUCT to discuss
opportunities to seek a performance-based return.
Louisiana
(Entergy Corporation, Entergy Gulf States, and Entergy Louisiana)
In September 1996, Entergy Gulf States and Entergy Louisiana filed
proposals with the LPSC designed to achieve an orderly transition to retail
electric competition in Louisiana, while protecting certain classes of
ratepayers from bearing the burden of cost shifting. In 1997 and 1998, the
LPSC identified areas and issues for consideration in the generic
rulemaking docket on competition in the electric utility industry. In
March 1999, the LPSC deferred making a decision on whether electric
restructuring in Louisiana is in the public interest, but approved the
development of a Louisiana specific plan for possible future
implementation. The LPSC staff, outside consultants, and counsel were
directed to work together to analyze and resolve outstanding issues and
recommend a plan for the implementation of retail competition for
consideration by the LPSC by January 1, 2001. The LPSC staff, outside
consultants, counsel, and industry members are working together to develop
a plan to be submitted to the LPSC.
Mississippi
(Entergy Corporation and Entergy Mississippi)
Since 1996, Entergy Mississippi and the MPSC have been addressing
issues regarding an orderly transition to a more competitive retail market
for electricity. As a result, the MPSC issued, for informational purposes
and to spur discussion, a proposed transition plan in June 1998. The plan
provided for retail competition in Mississippi to begin January 1, 2001 and
for recovery of allowable stranded costs through a non-bypassable charge
during a transition period between January 2001 and the end of 2004. In
preparing for competition, the MPSC has conducted hearings on:
o market power and reliability studies filed by the two investor-owned
utilities in Mississippi;
o certification requirements and load dispatch and control rules;
o cost of service issues;
o holding company issues;
o rules and regulations that possibly could be promulgated, after
appropriate state legislation, to implement retail electric
competition;
o stranded costs; and
o rate caps and performance-based rates.
In February 2000, legislation was introduced in Mississippi to establish a
study committee to consider retail competition and provide a report to the
legislature by December 1, 2000. If this legislation passes, the
transition plan discussed above would be put on hold until this report has
been reviewed. Management does not expect deregulation in Mississippi to
occur prior to 2003.
New Orleans
(Entergy Corporation and Entergy New Orleans)
Entergy New Orleans filed an electric transition to competition plan
in September 1997. This plan is similar to those filed for the other
domestic utility companies. No procedural schedule has been established
for consideration of that plan by the Council.
In October 1998, the Council established a procedural schedule to
determine if natural gas retail competition is in the public interest. In
April 1999, Entergy New Orleans filed a plan that would allow for gas
retail open access in New Orleans. The plan outlines the conditions under
which Entergy New Orleans could support gas retail open access should the
Council find it in the public interest. Hearings on retail competition for
gas service were held in November 1999. No further action has been taken
by the Council.
Retail Rate Proceedings
Filings with the APSC (Entergy Corporation and Entergy Arkansas)
Entergy Arkansas is operating under the terms of a settlement
agreement approved by the APSC in December 1997 that provides for the
following:
o accelerated payment of Entergy Arkansas' Grand Gulf purchased power
obligation in an amount totaling $165.3 million over the period from
January 1999 to June 2004;
o collecting earnings in excess of an 11% return on equity in a
transition cost account to offset stranded costs when retail access is
implemented;
o a rate freeze until at least July 1, 2001; and
o rate decreases totaling $200 million over the two-year period 1998-
1999. The net income effect from the rate reductions was approximately
$22 million.
During 1999, Entergy Arkansas' operating expenses reflected reserves of
$15.4 million ($9.5 million net of taxes) to record the 1999 accrual of
excess earnings and an adjustment of the 1998 accrual. As of December 31,
1999, the transition cost account balance was $109.9 million. Additional
reserves may also be required in 2000 based on earnings reviews.
In March 1999, Entergy Arkansas filed its annually redetermined energy
cost rate with the APSC in accordance with the Energy Cost Recovery Rider
formula and special circumstances agreement. The filing reflected that an
increase was warranted to offset an under-recovery of the energy costs for
1998. The increased energy cost rate is effective April 1999 through March
2000.
Filings with the PUCT and Texas Cities
Rate Proceedings (Entergy Corporation and Entergy Gulf States)
In June 1999, the PUCT approved the settlement agreement that Entergy
Gulf States entered into in February 1999. The settlement agreement
resolved Entergy Gulf States' 1996 and 1998 rate proceedings and all of the
settling parties' pending appeals in other matters, except for the appeal
in the River Bend abeyed cost recovery proceeding discussed below. The
Office of Public Utility Counsel, an intervenor in the proceeding, has
appealed certain aspects of this settlement to Travis County District
Court. Entergy Gulf States cannot predict the impact of the appeal.
The settlement agreement provides for the following:
o an annual $4.2 million base rate red