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<SEC-DOCUMENT>0000065984-01-000070.txt : 20010319
<SEC-HEADER>0000065984-01-000070.hdr.sgml : 20010319
ACCESSION NUMBER: 0000065984-01-000070
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 20
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010316
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: 1570555
BUSINESS ADDRESS:
STREET 1: 639 LOYOLA AVE
CITY: NEW ORLEANS
STATE: LA
ZIP: 70113
BUSINESS PHONE: 5045764000
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: 1570556
BUSINESS ADDRESS:
STREET 1: 425 WEST CAPITOL AVE
STREET 2: 40TH FLOOR
CITY: LITTLE ROCK
STATE: AR
ZIP: 72201
BUSINESS PHONE: 501-377-4000
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: 1570557
BUSINESS ADDRESS:
STREET 1: 350 PINE ST
CITY: BEAUMONT
STATE: TX
ZIP: 77701
BUSINESS PHONE: 409-838-6631
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: 1570558
BUSINESS ADDRESS:
STREET 1: 4809 JEFFERSON HGWY
CITY: JEFFERSON
STATE: LA
ZIP: 70121
BUSINESS PHONE: 504-840-2734
MAIL ADDRESS:
STREET 1: 4809 JEFFERSON HIGHWAY
CITY: JEFFERSON
STATE: LA
ZIP: 70121
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: 1570559
BUSINESS ADDRESS:
STREET 1: 308 EAST PEARL STREET
CITY: JACKSON
STATE: MS
ZIP: 39201
BUSINESS PHONE: 601-368-5000
MAIL ADDRESS:
STREET 1: 308 EAST PEARL STREET
CITY: JACKSON
STATE: MS
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: 1570560
BUSINESS ADDRESS:
STREET 1: 1600 PERDIDO ST
STREET 2: BLDG 505
CITY: NEW ORLEANS
STATE: LA
ZIP: 70112
BUSINESS PHONE: 504-670-3674
MAIL ADDRESS:
STREET 1: 1600 PERDIDO ST
STREET 2: BLDG 505
CITY: NEW ORLEANS
STATE: LA
ZIP: 70112
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: 1570561
BUSINESS ADDRESS:
STREET 1: ECHELON ONE
STREET 2: 1340 ECHELON PKWY
CITY: JACKSON
STATE: MS
ZIP: 39213
BUSINESS PHONE: 601-368-5000
MAIL ADDRESS:
STREET 1: ECHELON ONE
STREET 2: 1340 ECHELON PKWY
CITY: JACKSON
STATE: MS
ZIP: 39213
FORMER COMPANY:
FORMER CONFORMED NAME: MIDDLE SOUTH ENERGY INC
DATE OF NAME CHANGE: 19860803
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<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, 2000
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
1-27031 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 Street, Building 505
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 - 220,062,294 New York Stock Exchange, Inc.
shares outstanding at February 28, 2001 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.
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
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 $8.5 billion based on the reported
last sale price of such stock on the New York Stock Exchange on February
28, 2001. 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 11,
2001, 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 36
Item 3. Legal Proceedings 36
Item 4. Submission of Matters to a Vote of Security Holders 36
Directors and Executive Officers of Entergy Corporation 37
Part II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters 39
Item 6. Selected Financial Data 40
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 40
Item 7A.Quantitative and Qualitative Disclosures About Market
Risk 40
Item 8. Financial Statements and Supplementary Data 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 210
Part III
Item 10.Directors and Executive Officers of the Registrants 210
Item 11.Executive Compensation 214
Item 12.Security Ownership of Certain Beneficial Owners and
Management 228
Item 13.Certain Relationships and Related Transactions 230
Part IV
Item 14.Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 232
Signatures 233
Report of Independent Accountants on Financial Statement Schedules 241
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
The following constitutes a "Safe Harbor" statement under the Private
Securities Litigation Reform Act of 1995: Investors are cautioned that
forward-looking statements contained herein with respect to the revenues,
earnings, performance, strategies, prospects and other aspects of 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. and their affiliated
companies may involve risks and uncertainties. A number of factors could
cause actual results or outcomes to differ materially from those indicated
by such forward-looking statements. These factors include, but are not
limited to, risks and uncertainties relating to: the effects of weather,
the performance of generating units and transmission systems, the
possession of nuclear materials, fuel and purchased power prices and
availability, the effects of regulatory decisions and changes in law,
litigation, capital spending requirements, the onset of competition,
including the ability to recover net regulatory assets and other potential
stranded costs, the effects of recent developments in the California
electricity market on the utility industry nationally, advances in
technology, changes in accounting standards, corporate restructuring and
changes in capital structure, consummation of the business combination with
FPL Group, Inc., consummation of the Koch Industries joint venture, the
success of new business ventures, changes in the markets for electricity
and other energy-related commodities, changes in interest rates and in
financial and foreign currency markets generally, the economic climate and
growth in Entergy's service territories, changes in corporate strategies,
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.
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 #1
EPA United States 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
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.
<PAGE>
DEFINITIONS (Continued)
Abbreviation or Acronym Term
Entergy New Orleans Entergy New Orleans, Inc.
Entergy Nuclear Entergy Nuclear, Inc.
Entergy Nuclear
Operations Entergy Nuclear Operations, 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
FitzPatrick James A. FitzPatrick nuclear power plant, 825 MW
facility located near Oswego, New York, purchased
in November 2000 from New York Power Authority by
Entergy's domestic non-utility nuclear business
FPL Group FPL Group, Inc., a Florida corporation and parent
company of Florida Power & Light Company
FUCO 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
Indian Point 3 Indian Point 3 nuclear power plant, 980 MW
facility located in Westchester County, New York,
purchased in November 2000 from New York Power
Authority by Entergy's domestic non-utility
nuclear business
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 business combination transaction pursuant to
which the outstanding shares of FPL Group and the
outstanding shares of Entergy Corporation will be
converted into 1.00 and 0.585 shares,
respectively, of a new company
Merger Agreement Agreement and Plan of Merger dated July 30, 2000
by and between FPL Group, Entergy Corporation, WCB
Holding Corporation, Ranger Acquisition
Corporation and Ring Acquisition 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
NERC North American Electric Reliability Council
NISCO Nelson Industrial Steam Company
NRC Nuclear Regulatory Commission
NYPA New York Power Authority
<PAGE>
DEFINITIONS (Concluded)
Abbreviation or Acronym Term
Pilgrim Pilgrim Nuclear Station, 670 MW facility located
in Plymouth, Massachusetts, purchased in July 1999
from Boston Edison by Entergy's domestic non-
utility nuclear 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
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.
Tons/hr Tons per hour, used as a measure of steam
production
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
Entergy Corporation
Entergy Corporation is a Delaware corporation which, through its
subsidiaries, engages principally in the following businesses: domestic
utility, power marketing and trading, global power development, and
domestic non-utility nuclear. Power marketing and trading, global power
development, and domestic non-utility nuclear are sometimes referred to
as the competitive businesses. In 2000, Entergy placed the management of
the power marketing and trading business under the global power
development business, and the jointly-managed businesses are referred to
as Entergy Wholesale Operations. Entergy Corporation 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 direct and indirect ownership
of 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.
In December 2000, Entergy's shareholders approved a business combination
between Entergy Corporation and FPL Group, the objective of which is the
creation of a new company. See "Business Combination with FPL Group" for
further discussion of the terms and timing of this transaction.
Domestic Utility
The domestic utility is Entergy's predominant business segment,
providing 74% of its revenue and 87% of its net income in 2000, and
holding 81% of its assets as of December 31, 2000. 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, 2000, these
utility companies provided retail electric service to approximately 2.6
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 2000,
the domestic utility companies' combined retail electric sales volumes as
a percentage of total electric sales volumes were: residential - 28.3%;
commercial - 21.8%; and industrial - 38.8%. Retail electric revenues
from these sectors as a percentage of total electric revenues were:
residential - 35.0%; commercial - 23.5%; and industrial - 30.2%. Sales
to governmental and municipal sectors and to nonaffiliated utilities
accounted for the balances of energy sales and electric revenues. The
major industrial customers of the domestic utility companies are in the
chemical, petroleum refining, paper, and food products industries. State
or local regulatory authorities regulate the retail rates and services of
Entergy's domestic retail utility subsidiaries.
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
Grand Gulf-related 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
Prior to 2001, Entergy conducted 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.
On January 31, 2001, Entergy contributed its power marketing
and trading business to a new limited partnership, Entergy-Koch, L.P.
The joint venture is with Koch Industries, Inc., which contributed to the
venture its 9,000-mile Koch Gateway Pipeline (which has been renamed the
Gulf South Pipeline), gas storage facilities including the Bistineau
storage facility near Shreveport, Louisiana, and Koch Energy Trading,
which markets and trades electricity, gas, weather derivatives, and other
energy-related commodities and services (the joint venture's trading
activities are now conducted under the name Axia Energy). The parties
have equal ownership interests in Entergy-Koch, L.P., which is governed
by an eight-member board of directors. Entergy appointed four members of
the board. The partnership agreement allocates the substantial majority
of Entergy-Koch, L.P.'s earnings through 2003 to Entergy. Losses are
generally allocated equally. Entergy Power was not transferred to the
joint venture, and it was placed under the management of the global power
development business.
Global Power Development
Entergy's global power development business is focused on acquiring
or developing power generation projects in North America and Western
Europe. The Latin American projects owned by the global power
development business are not a core part of its strategy, and Entergy is
considering various strategies to maximize the value of these
investments, including possibly selling them. The global power
development business owns interests in the following electric generation
assets that are currently operating or are under construction:
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% operational
United Kingdom - Damhead Creek, 800 MW 100% operational
U.S. (AR) - Ritchie Unit 2, 544 MW 100% operational
U.S. (AR) - Independence Unit 2, 840 MW 14% operational
U.S. (LA) - Riverside, 425 MW 50% under construction
U.S. (MS) - Warren Power, 300 MW 100% under construction
Damhead Creek commenced commercial operation in 2001. Entergy Power owns
Ritchie Unit 2 and the interest in Independence Unit 2. Entergy owns its
interest in Riverside through a 50% interest in RS Cogen, LLC, and the
remaining 50% interest is owned by PPG Industries, an industrial customer
of Entergy Gulf States. Entergy's global power development business has
several other development projects in the planning stages, including
announced projects in the United States, Spain, and Bulgaria.
In preparation for its global power development plans, Entergy has
obtained an option to acquire turbines from GE Power Systems. See
"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL
RESOURCES" for further information on the turbines. Furthermore, the
global power development business entered into a 50/50 joint venture with
The Shaw Group Inc. that is named EntergyShaw, L.L.C. EntergyShaw
provides management, engineering, procurement, construction, and
commissioning services for electric power plants. EntergyShaw plans to
operate in the rapidly growing electric power generation market and
provide services for Entergy's global power development plans. In June
2000, Entergy also acquired a 75% interest in Highland Energy Company, an
energy aggregation, marketing, and producer services company.
In June 2000, the global power development business sold its
interest in Freestone, 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.
Domestic Non-Utility Nuclear
Entergy's domestic non-utility nuclear business is focused on
acquiring, owning, operating, and selling power from 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 its affiliates.
Operations and management services, including decommissioning services,
are provided through Entergy's wholly owned subsidiary, Entergy Nuclear.
Entergy's domestic non-utility nuclear business owns the following
nuclear power plants that it has acquired from other utilities:
Power Plant Capacity Percent Ownership Location
Pilgrim Nuclear Station 670 MW 100% Plymouth, MA
James A. FitzPatrick 825 MW 100% Oswego, NY
Indian Point 3 980 MW 100% Westchester County, NY
Pilgrim has firm power purchase agreements with Boston Edison and other
utilities that expire at the end of 2004. One hundred percent of the
plant's output is committed to those parties through 2001, and that
commitment decreases to 50% by 2003. Indian Point 3 has a firm power
purchase agreement with NYPA that expires at the end of 2004 for 100% of
the plant's output. FitzPatrick has firm power purchase agreements with
NYPA that expire at the end of 2004 for 100% of the plant's output
through 2003 and approximately 45% of the plant's output in 2004. See
Note 12 to the financial statements for a further discussion of these
acquisitions by Entergy's domestic non-utility nuclear business.
In November 2000, Entergy's domestic non-utility nuclear business
agreed to purchase Consolidated Edison's (Con Edison) 957 MW Indian Point
2 nuclear power plant (IP2) located in Westchester County, New York. In
the transaction, Entergy has agreed to acquire Indian Point 1 nuclear
power plant (IP1), which has been shut down and in safe storage since the
early 1970s. Entergy will pay $600 million in cash at the closing of the
purchase and will receive the plant, nuclear fuel, and other assets,
including a purchase power agreement (PPA). Under the PPA, Con Edison
will purchase 100% of IP2's output through 2004. Con Edison will also
transfer a $430 million decommissioning trust fund, along with the
liability to decommission IP2 and IP1, to Entergy's nuclear business.
Management expects to close the acquisition by mid-2001, pending the
approvals of the NRC, the New York Public Service Commission, and other
regulatory agencies.
In January 2001, Entergy's domestic non-utility nuclear business
submitted an offer to buy Vermont Yankee, a 540 MW boiling water reactor
plant, located in Vernon, Vermont, for $50 million. Entergy's offer is
firm through the end of 2001. In February 2001, the Vermont Public
Service Board rejected a competing offer and the plant is expected to be
auctioned during the second or third quarter of 2001.
Entergy Nuclear provides services to nuclear power 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 is the responsibility of the plant owners.
In 2000, Entergy Nuclear entered into two business arrangements to
assist it in providing operation and management services. Entergy
Nuclear and Framatome Technologies intend to jointly offer operating
license renewal and life extension services to nuclear power plants in
the United States. Framatome has provided and continues to provide
license renewal services to several utilities owning nuclear power plants
in the United States. Entergy Nuclear also acquired TLG Services in
September 2000. TLG provides decommissioning, engineering, and related
services to nuclear power plant owners.
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 at the time an
investment is made to an amount equal to 50% of average consolidated
retained earnings for the previous four quarters. In June 2000, the SEC
issued an order that allows Entergy's EWG and FUCO investments to
increase from 50% to 100% of Entergy's average consolidated retained
earnings. As of December 31, 2000 Entergy's investments under this rule
totaled $770 million constituting 25% of its average consolidated
retained earnings.
Entergy's ability to guarantee obligations of its non-utility
subsidiaries is also limited by SEC regulations under PUHCA. In August
2000, the SEC issued an order, effective through December 31, 2005, that
allows Entergy to issue up to $2 billion of guarantees to its non-utility
companies, excluding guarantees outstanding as of that date that were
issued under a previous order.
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.
Business Combination with FPL Group
On July 30, 2000, Entergy Corporation and FPL Group entered into a
Merger Agreement providing for a business combination that will result in
the creation of a new company. Each outstanding share of FPL Group
common stock will be converted into one share of the new company's common
stock, and each outstanding share of Entergy Corporation common stock
will be converted into 0.585 of a share of the new company's common
stock. It is expected that FPL Group's shareholders will own
approximately 57% of the common equity of the new company and Entergy's
shareholders will own approximately 43%. The initial board of directors
of the new company will consist of eight directors designated by FPL
Group and seven directors designated by Entergy. The new company will be
given a new name that will be agreed upon between the Boards of Directors
of FPL and Entergy prior to the consummation of the Merger. The new
company will maintain its principal corporate offices and headquarters in
Juno Beach, Florida, and will maintain its utility headquarters in New
Orleans, Louisiana. The Merger Agreement generally allows Entergy to
continue business in the ordinary course consistent with past practice
and contains certain restrictions on Entergy's capital activities,
including restrictions on the issuance of securities, capital
expenditures, dispositions, incurrence or guarantee of indebtedness, and
trading or marketing of energy. Entergy generally will be permitted to
take actions pursuant to restructuring legislation in the domestic
utility companies' jurisdictions of operation and to reorganize its
transmission business. Under certain circumstances, if the Merger
Agreement is terminated, a termination fee of $215 million may be payable
by one of the parties. The Merger Agreement may be terminated if the
Merger is not consummated by April 30, 2002, unless automatically
extended until October 30, 2002 under certain circumstances. Both the
FPL Group and Entergy Boards of Directors unanimously approved the
Merger, and the shareholders of Entergy Corporation and FPL Group have
approved the Merger. The Merger is conditioned upon, among other things,
the receipt of required regulatory approvals of various local, state, and
federal regulatory agencies and commissions, including the SEC and FERC.
Entergy has filed for approval of the Merger in all of its state and
local regulatory jurisdictions (Arkansas, Louisiana, Mississippi, Texas,
and New Orleans), and at FERC, the SEC, and the NRC. In their filing with
the SEC, Entergy and FPL Group requested to remain in existence as
intermediate holding companies after the Merger is consummated. The
objective of Entergy and FPL Group is to consummate the Merger by late
2001.
In September 2000, Entergy and FPL Group announced plans to form a
joint venture between FPL Energy and Entergy Wholesale Operations.
Entergy and FPL Group management subsequently decided not to form a
separate joint venture in advance of the Merger.
Selected Data
Selected domestic utility customers and sales data for 2000 are
summarized in the following tables:
<TABLE>
<CAPTION>
Customers as of
December 31, 2000
Area Served Electric Gas
(In Thousands)
<S> <C> <C> <C>
Entergy Arkansas Portions of Arkansas and Tennessee 643 -
Entergy Gulf States Portions of Texas and Louisiana 681 89
Entergy Louisiana Portions of Louisiana 641 -
Entergy Mississippi Portions of Mississippi 401 -
Entergy New Orleans City of New Orleans, except Algiers, which
is provided electric service by Entergy Louisiana 190 150
----- ---
Total customers 2,556 239
===== ===
</TABLE>
<TABLE>
<CAPTION>
2000 - 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 19,333 35,475 29,680 12,847 5,880 - 103,216
Sales for resale:
Affiliates 6,513 1,381 228 1,276 570 9,621 -
Others 5,537 3,248 554 313 141 - 9,794
----------------------------------------------------------------------------------
Total 31,383 40,104 30,462 14,436 6,591 9,621 113,010
==================================================================================
Average use per
residential customer
(KWH) 12,449 15,861 15,436 14,629 12,784 - 14,484
==================================================================================
</TABLE>
(a) Includes the effect of intercompany eliminations.
2000 - Selected Natural Gas Sales Data
Entergy New Orleans and Entergy Gulf States sold 16,058,022 and
6,472,529 MCF, respectively, of natural gas to retail customers in 2000.
For the years ended December 31, 2000, 1999, and 1998, 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, 2000, Entergy had 14,100 employees as follows:
Full-time:
Entergy Corporation -
Entergy Arkansas 1,570
Entergy Gulf States 1,639
Entergy Louisiana 932
Entergy Mississippi 889
Entergy New Orleans 381
System Energy -
Entergy Operations 3,276
Entergy Services 2,475
Entergy Nuclear Operations 1,609
Other subsidiaries 1,113
------
Total Full-time 13,884
Part-time 216
------
Total Entergy 14,100
======
Approximately 4,560 employees are represented by the International
Brotherhood of Electrical Workers Union (IBEW), the Utility Workers Union
of America (UWUA), and the International Brotherhood of Teamsters Union
(IBT). In 2000, both Entergy Arkansas and Entergy Mississippi reached
new agreements with IBEW.
Industry Restructuring and 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 evolution has changed the ways in
which public utilities conduct their business and has changed 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 some states in which Entergy's
domestic utility companies operate. Both Texas and Arkansas adopted
legislation in 1999 aimed at separating ("unbundling") traditionally
integrated public utilities into distinct distribution, transmission,
generation, and various types of retail marketing businesses, and aimed
at introducing competition into the generation component of utility
service. The Texas legislation provides for retail open access by
January 1, 2002. In Arkansas, retail open access has been delayed by law
so that it begins no sooner than October 2003 and no later than October
2005. This delay is intended to allow further development of the
wholesale generation market, including the completion of several
independent generation projects within the state. Other jurisdictions in
which the domestic utility companies operate have not enacted retail
competition and utility unbundling legislation. Further changes in
restructuring in Entergy's service territories, including the timing of
implementation of restructuring and competition, may result from the
effects of the developments in the California power supply markets.
Changes in the wholesale and retail electricity markets in the
Entergy system will take place over a number of years, and regulators and
legislators in different jurisdictions have not coordinated these
changes. In some cases, actions by one jurisdiction may conflict with
actions by another, creating potentially incompatible obligations for
public utilities and holding companies, including the Entergy system.
Examples include:
o the LPSC's docket relating to the changes in corporate structure of
Entergy Gulf States as a result of complying with the Texas
restructuring law and its potential impact on Louisiana retail
ratepayers (described more fully in Note 2 to the financial
statements); and
o System Agreement restructuring issues (described more fully in
"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT
FACTORS AND KNOWN TRENDS - Federal Regulatory and Legislative
Activity - Proposed System Agreement Amendments").
It is too early to accurately predict how incompatible obligations will
be resolved or the effects of the changes that are taking place in the
wholesale and retail energy markets. However, 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 are resulting 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. Furthermore, these changes could result in early refinancing of
debt, the reorganization of debt, or other obligations between newly-
formed companies. Ultimately, capital structures may result that
initially are more complex than the existing capital structures of the
domestic utility companies.
Utilities, including the domestic utility companies, may be required
or encouraged to sell generating plants or interests therein, or the
output from such plants. FERC set December 15, 2001 as the date by which
all owners and operators of transmission lines should sell or turn over
operating and management responsibility for their transmission systems to
independent parties. Entergy has responded to FERC by filing plans to
transfer control of its transmission assets to a non-affiliated
transmission company subject to control by a regional transmission
organization. These changes will alter the historical structure from the
operation of the domestic utility companies' electric generation and
transmission assets as an integrated system supporting utility service
throughout their combined service territories.
As a potential 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 electric
industry competition and unbundling, including but not limited to changes
in labor relations, management and staffing, structure of operations,
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 the 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 2001 through 2003, Entergy plans to spend $8.2 billion
in a capital investment plan focused on improving service at the domestic
utility companies and growing the global power development and domestic
non-utility nuclear businesses. It is estimated that $2.6 billion will
be spent by the domestic utility companies, $3.6 billion by the global
power development business, and $2.0 billion by the domestic non-utility
nuclear business. The capital investment plan is subject to modification
based on the ongoing effects of transition to competition planning, the
ability to recover regulated utility costs in rates, and the proposed
business combination with FPL Group. Additionally, the plan is
contingent upon the ability to access the capital necessary to finance
the planned expenditures, and significant borrowings may be necessary to
implement these capital spending plans. Capital expenditures (including
nuclear fuel but excluding AFUDC) for Entergy are estimated at $3.2
billion in 2001, $2.5 billion in 2002, and $2.6 billion in 2003.
Included in these totals are estimated construction expenditures for the
domestic utility companies and System Energy as follows:
2001 2002 2003 Total
(In Millions)
Entergy Arkansas $297 $200 $205 $702
Entergy Gulf States $293 $216 $220 $729
Entergy Louisiana $222 $175 $168 $565
Entergy Mississippi $147 $128 $113 $388
Entergy New Orleans $53 $46 $48 $147
System Energy $41 $14 $12 $67
The domestic utility companies will mainly focus their planned
spending on distribution and transmission projects that will support
continued reliability improvements and transitioning to a more
competitive environment.
The global power development business will mainly focus its planned
spending on several merchant power plant projects either under
construction or in the planning stages in the U.S. and Europe, including
the purchase of gas turbines scheduled for delivery in 2001 through 2004
under an option to purchase obtained from GE Power Systems.
The domestic non-utility nuclear business will mainly focus its
planned spending on the acquisition of U.S. nuclear power plants from
other utilities, including the anticipated purchase in 2001, pending
regulatory approvals, of IP2.
Entergy Corporation's primary capital requirements are to invest
periodically in, or make loans to, its subsidiaries and to invest in new
enterprises. In February 2001, Entergy Corporation made a cash
contribution consisting of equity investment and loans of approximately
$414 million in the formation of Entergy-Koch, L.P. Entergy Corporation
also requires capital for its stock repurchase plans. In addition to
meeting capital expenditure requirements, Entergy must meet scheduled
long-term debt and preferred stock maturities and cash sinking fund
requirements. Actual capital expenditures may vary from the estimates
given 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; the transition to competition; and the proposed business
combination with FPL Group.
Management more thoroughly discusses Entergy's capital investment and
common stock repurchase plans, financing requirements, Entergy Corporation
credit support requirements, and its sources and uses of capital in
"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL
RESOURCES" and Notes 4, 5, 6, 7, 9, and 10 to the financial statements.
Certain Grand Gulf-related 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 Grand Gulf-related 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.
The LPSC and the Council commenced a proceeding at FERC in April
2000 that requests revisions to the System Agreement that the LPSC and
the Council allege are necessary to accommodate the introduction of
retail competition in Texas and Arkansas. In June 2000, Entergy's
domestic utility companies filed proposed amendments to the System
Agreement with FERC to facilitate the implementation of retail
competition in Arkansas and Texas and to provide for continued
equalization of costs among the domestic utilities in Louisiana and
Mississippi. The LPSC and the Council's complaint and Entergy's proposed
amendments are more thoroughly discussed in "MANAGEMENT'S FINANCIAL
DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS". These
proceedings have been consolidated with a previous complaint filed with
FERC by the LPSC in 1995. In that complaint, the LPSC requested, among
other things, modification of the System Agreement to exclude curtailable
load from the cost allocation determination. Hearings in these
proceedings have been scheduled for March 2001, with an initial ALJ
decision expected by June 2001. Entergy requested a final decision from
FERC by October 2001, however, neither the timing, nor the ultimate
outcome, of the proceeding can be predicted at this time.
Open Access Transmission (Entergy Corporation, Entergy Arkansas, Entergy
Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans)
FERC issued Order 2000 in December 1999, which 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 that RTOs commence independent operations no later than December
15, 2001.
It appears that FERC will be flexible regarding 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 other types. However, RTOs will be required, among other things,
to be independent of 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.
In October 2000, in compliance with Order 2000, Entergy made a
filing with FERC that requested:
o authorization to establish an RTO referred to as Transco;
o authorization to transfer the domestic utility companies'
transmission assets to the Transco; and
o a determination that the partnership arrangement with the Southwest
Power Pool (SPP) that the Transco proposes to operate in would qualify
as an independent RTO. The partnership arrangement provides for
operations under the oversight of, and within, the SPP RTO.
The amounts of the domestic utility companies' net transmission utility
plant assets recorded in their financial statements are provided in Note
1 to the financial statements under the heading "Utility Plant."
The proposed Transco will be a limited liability company. The
managing member of the Transco will be a separate corporation with a
board of directors independent of Entergy. The Transco will be:
o regulated by FERC;
o composed of the transmission system transferred to it by the
domestic utility companies and other transmission owners in Entergy's
current service territory 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 member
companies who will transfer assets but not control or otherwise direct
its operation and management.
Entergy filed in December 2000 for FERC approval of the rates for
transmission service across Transco's facilities. Included in this rate
filing is a request to cancel Service Schedule MSS-2, the portion of the
System Agreement related to equalization of certain transmission costs.
In March 2001, Entergy, Entergy Services, and the domestic utility
companies requested SEC approval under PUHCA of certain elements of the
Transco plan. The domestic utility companies have also made filings with
their local regulators for Transco approval. Under its planned timeline,
Entergy expects to have the necessary regulatory approvals by the third
quarter of 2001, with the transmission asset transfers occurring before
Transco commences independent operations in December 2001. In the event
that some or all of these transmission assets cannot be transferred to
the Transco by December 2001, operational control of these assets will
move to an intermediate entity as of that date.
Retail Rate Regulation
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 will be completed 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 in monthly bills. 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, including carrying charges, 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 at least 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 settlement agreement that resolved Entergy Gulf
States' 1996 and 1998 rate proceedings, which is currently under appeal,
and various other matters are 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 1999 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 added to the net book value of the River Bend plant for
regulatory purposes. 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, including carrying
charges, not recovered in base rates. The 1999 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. In connection with
the implementation of restructuring in Texas, Entergy Gulf States
anticipates that it will file a final fuel reconciliation in March 2003
for the period ending December 31, 2001. Beginning in January 2002,
which is the scheduled start of retail open access in Texas, fuel and
purchased power cost recovery will be subject to the PUCT's rule
governing the price that Entergy Gulf States' affiliated retail electric
provider may charge residential and commercial customers, as discussed in
more detail in Note 2 to the financial statements.
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 and related carrying charges 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. In July 2000, the LPSC issued an
order requiring Entergy Gulf States to realign approximately $2.4 million
of certain Louisiana fuel costs from the fuel adjustment clause to base
rates.
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 18% of its share of
Grand Gulf 1 costs and recover the remaining 82% of its share through
rates. Under the Unit Power Sales Agreement, Entergy Louisiana's share
of Grand Gulf 1 costs is 14%. 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 files a performance-based formula rate plan by
April 15 of each year that compares the annual rate of return on common
equity (ROE) with a benchmark ROE. The benchmark ROE determined under
the formula rate plan includes the current approved ROE adjusted for a
customer satisfaction performance measure. The formula rate plan allows
for periodic adjustments in retail rates if the annually determined ROE
is outside an allowed range of the benchmark ROE. The performance-based
formula rate plan will end in 2001 after the filing for the 2000 test
year unless a continuance is ordered. 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 and related carrying
charges arising from the monthly reconciliation of actual fuel costs
incurred with fuel cost revenues billed to customers.
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
Entergy Mississippi files a performance-based formula rate plan
every 12 months that compares the annual earned rate of return to and
adjusts it 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 1999
test year is discussed in Note 2 to the financial statements. The
formula rate plan filing for the 2000 test year will be submitted in
March 2001.
Fuel Recovery
Entergy Mississippi's rate schedules include an energy cost recovery
rider to recover fuel and purchased energy costs. In December 2000, the
MPSC approved the recovery of $136.7 million of under-recoveries, plus
carrying charges, over a 24-month period effective with the first billing
cycle of January 2001. Effective with January 2001 billings, the rider
utilizes projected energy costs filed quarterly by Entergy Mississippi to
develop an energy cost rate. The energy cost rate is redetermined each
calendar quarter and includes a true-up adjustment reflecting the over-
recovery or under-recovery of the energy cost as of the second quarter
preceding the 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, 2000, the
uncollected balance of Entergy New Orleans' deferred costs was $11
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, in addition to carrying charges. The Council is
currently studying Entergy New Orleans' fuel adjustment methodologies,
with the intention of considering means of mitigating the effect on
ratepayers of sudden increases in fuel costs. The resolution commencing
the study notes that the Council does not intend to deny Entergy New
Orleans full recovery of its prudently incurred fuel and purchased power
costs.
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
are subject to the broad regulatory provisions of PUHCA, with the
exception of its EWG and FUCO subsidiaries. Except with respect to
investments in EWGs and FUCOs, 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,
including Entergy's proposed merger with FPL Group.
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, but the U.S. Congress has not passed
legislation pursuant to this report.
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
totaling 70 MW of capacity that was renewed on July 2, 1980 and expires
on February 28, 2003. In December 2000, Entergy Arkansas filed a license
extension application with FERC for these two facilities.
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 domestic non-utility nuclear business
is subject to the NRC's jurisdiction as the owner and operator of
Pilgrim, Indian Point 3 and FitzPatrick. 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. Arkansas
and Louisiana participate in the Central Interstate Low-Level Radioactive
Waste Compact (Central States Compact), and Mississippi participates in
the Southeast Low-Level Radioactive Waste Compact (Southeast Compact).
Both the Central States Compact and the Southeast Compact waste facility
development projects are on hold and further development efforts are
unknown at this time. Neither Massachusetts, where Pilgrim is located,
nor New York, where Indian Point 3 and FitzPatrick are located,
participates in any regional compact and efforts to fulfill their
responsibilities have been minimal. Two licensed 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. In June
2000, the governor of South Carolina signed legislation forming a new low-
level waste compact with the states of Connecticut and New Jersey. The
compact will start restricting acceptance of out-of-region waste in 2002
and totally ban out-of-region waste by 2008.
The Southeast Compact has filed sanctions against the host state of
North Carolina and the process is currently on hold pending resolution of
the sanctions action by the compact. In December 1998, the host state
for the Central States Compact, Nebraska, denied the compact's 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. Subject to decommissioning service agreements between Entergy
and NYPA, NYPA retains the decommissioning liability and trusts relating
to Indian Point 3 and FitzPatrick up to a specified amount. Entergy
believes that the amounts that will be available from the trusts will be
sufficient to cover the future decommissioning costs of Indian Point 3
and FitzPatrick without any additional contributions to the trusts.
Additional information with respect to decommissioning costs for ANO,
River Bend, Waterford 3, Grand Gulf 1, Pilgrim, Indian Point 3, and
FitzPatrick 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 domestic non-
utility nuclear 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 domestic non-utility nuclear business is the
operator of Pilgrim, Indian Point 3 and FitzPatrick.
ANO Matters (Entergy Corporation and Entergy Arkansas)
Cracks in steam generator tubes at ANO 2 were discovered and
repaired during an outage in March 1992. Further inspections and repairs
were conducted during subsequent refueling and mid-cycle outages and
turbine modifications were installed in May 1997 to restore most of the
output lost due to steam generator fouling and tube plugging. In October
1996, the Board authorized Entergy Arkansas and Entergy Operations to
fabricate and install replacement steam generators at ANO 2. Entergy
Operations thereafter entered into contracts for the design, fabrication,
and installation of replacement steam generators. In December 1998, the
APSC issued an order finding replacement of the ANO 2 steam generators to
be in the public interest. The steam generators were replaced during a
refueling outage in the second half of 2000. During the next scheduled
outage, an examination of both generators is planned to evaluate their
wear and to meet the requirements of industry guidelines for steam
generator program integrity.
In February 2000, Entergy Operations 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 ANO 1 until 2034. Management expects the NRC
consideration process to take two years.
In December 2000, Entergy Operations applied to the NRC for an
amendment to ANO 2's operating license that would allow for an increase
in the reactor core power rating. If granted, this amendment will allow
ANO 2 to increase its gross electrical output by approximately 90 MW.
Entergy Operations has requested action by the NRC on the amendment by
March 2002, to permit implementation of the uprate following ANO 2's next
scheduled refueling outage.
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 transmission lines; 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 and sale of certain
securities; and
o other matters.
Franchises
Entergy Arkansas holds exclusive franchises to provide electric
service in approximately 304 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
to provide electric service in 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. Retail open access is scheduled to begin in Entergy Gulf States'
Texas service territory on January 1, 2002. Refer to "MANAGEMENT'S
FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS"
and Note 2 to the financial statements for discussions of the transition
to competition in 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. A resolution to study the
advantages for ratepayers that might result from an acquisition of these
properties has been filed in a committee of the Council. The committee
has deferred consideration of that resolution until May 2001. The full
Council must approve the resolution to commence such a study before it
can become effective.
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.
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 current acid rain program, Entergy's subsidiaries will not
require additional equipment to control SO2 or NOx. The Act provides SO2
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.
Additional controls were recently implemented at certain Entergy
Gulf States generating units to achieve NOx reductions due to the ozone
non-attainment 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. To date, the cost of
additional control equipment necessary to maintain this compliance is
immaterial. In December 1999 and August 2000, Texas authorities proposed
future control strategies for public comment that would affect the
Beaumont and Houston areas, respectively. The Texas authorities
finalized regulations for the Beaumont area in April 2000. The analogous
Houston area regulations were finalized in December 2000. The final
strategies adopted by the state of Texas will cause Entergy Gulf States
to incur additional costs for NOx controls through 2007. Entergy Gulf
States has conducted studies to estimate the costs that would be incurred
based on the proposed strategies. Pursuant to these studies, Entergy
Gulf States' preliminary estimate is that compliance costs through 2003
in the Beaumont and Houston areas will be $37 million and $26 million
respectively, and that these expenditures will be sufficient for the
entire compliance period through 2007. Entergy commenced projects in
2000 to engineer, procure, and construct needed air pollution control
facilities. Cost estimates will be refined as engineering design
progresses based on the final adopted strategies approved by the EPA.
Entergy believes the future control strategies in the ozone non-
attainment regulations require emission limits that are more restrictive
than those discussed below related to utility restructuring in Texas.
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 through 2003 to meet these new standards. The
Texas portion of these costs and the costs associated with ozone non-
attainment regulations are expected to be recoverable as stranded costs
of environmental cleanup.
Oil Pollution Prevention and Response
The EPA has issued a proposed rule on oil pollution prevention and
response. This rule could affect Entergy's operation of its
approximately 3,500 transmission and distribution electrical equipment
installations that are potentially subject to this proposed rule. If the
proposed rule is issued in the form expected by the industry, Entergy
will be substantially in compliance with the rule. However, there is a
possibility that the rule could be issued in a form that would require
Entergy to develop site-specific oil spill prevention and control
countermeasure plans for the facilities subject to this rule. In
addition, secondary containment could be required around the equipment in
these facilities. Entergy participates in industry groups involved with
the proposed rule and will be monitoring the development of the proposed
rule. It is expected that the final rule will be issued in the first
half of 2001.
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 owners or operators of sites from which hazardous substances
may be or have been released. Parties that generated or transported
hazardous substances to these sites are also 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 entered into a Consent Administrative Order with
the Arkansas Department of Environmental Quality (ADEQ) in which it
agreed to conduct initial stabilization associated with contamination at
the Utilities Services, Inc. Superfund site located near Rison, Arkansas.
This site was never owned nor operated by any Entergy-affiliated company.
This site was found to have soil contaminated by polychlorinated
biphenyls (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 believes that its ultimate responsibility for
this site will not materially exceed its existing cleanup provision of $5
million. Entergy has sent a letter of intent to the ADEQ to participate
in the site characterization, and Entergy is waiting for a response from
the ADEQ. As of December 31, 2000, Entergy Arkansas had incurred
approximately $400,000 of these costs.
Entergy Gulf States
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 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 presence 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 believes that there is
insufficient basis for including the company as a PRP. If additional
evidence that the company is a PRP were discovered, Entergy Gulf States
would re-evaluate its position. Based on the size of the site, Entergy
Gulf States expects that its future expenditures for investigation and
clean-up should not exceed $250,000.
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 $16.8 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 and submitted to
the LDEQ for review in 2001. 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 $250,000.
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, 2000 for this
site was $6.2 million. Future costs are not expected to exceed the
existing provision of $1.3 million.
Entergy New Orleans
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 former Market Street power plant. During pre-construction
activities in January 2000, significant levels of lead were discovered in
the soil at this site. Entergy New Orleans notified the LDEQ of the
contamination. The contamination at this site was addressed using the
LDEQ Risk/Evaluation Corrective Action Plan. The work has been completed
and the final closure report is scheduled to be submitted in the first
quarter of 2001. The cost of this remediation was approximately $1
million.
Entergy Louisiana and Entergy New Orleans
The Southern Transformer shop located in New Orleans has served both
Entergy Louisiana and Entergy New Orleans. This transformer shop is now
being closed and an environmental assessment is being performed to
determine what remediation may be necessary. Based on preliminary
findings, Entergy Louisiana has reserved $150,000 for this project.
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, 2000 for the Thibodaux site was
approximately $580,000. Future costs are not expected to exceed the
existing provision of $240,000.
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 chose to
upgrade or close them. Completion of this work is pending LDEQ approval.
LDEQ has issued notices of deficiencies for certain of these sites. As a
result, a remaining recorded liability in the amount of $5.8 million for
Entergy Louisiana and $0.5 million for Entergy New Orleans existed at
December 31, 2000 for wastewater upgrades and closures. Management of
Entergy Louisiana and Entergy New Orleans believes these reserves are
adequate based on current estimates.
Other Regulation and Litigation
Entergy Corporation and Entergy Gulf States Merger
Several parties, including Entergy Services, appealed FERC's
approval of the merger between Entergy Corporation and Entergy Gulf
States 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 anti-competitive impacts of the merger.
Management cannot predict the timing or outcome of this proceeding.
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, and at this time management cannot
estimate the total amount of damages sought.
Asbestos and Hazardous Waste Suits (Entergy Gulf States)
Plaintiffs have filed numerous lawsuits in state and federal courts
in Texas and Louisiana seeking 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, nor can management, at this time, estimate the total amount of
damages sought. 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.
Ratepayer Lawsuits (Entergy Corporation, Entergy Gulf States, Entergy
Louisiana, and Entergy New Orleans)
Entergy Louisiana Fuel Clause Lawsuit
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
alleged violations by the defendants 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, the plaintiffs allege
that Entergy Louisiana improperly introduced certain costs into the
calculation of the fuel charges, including high-cost electricity
imprudently purchased from its affiliates and high-cost gas imprudently
purchased from independent third party suppliers. In addition,
plaintiffs seek to recover interest and attorneys' fees. Plaintiffs also
requested that the LPSC initiate a review of Entergy Louisiana's monthly
fuel adjustment charge filings and force restitution to ratepayers of all
costs that the plaintiffs allege were improperly included in those fuel
adjustment filings. A few parties have intervened in the LPSC
proceeding. In direct testimony, plaintiffs purport to quantify many of
their claims for the period 1989 through 1998 in an amount totaling
$544 million, plus interest.
Entergy Louisiana has reached an agreement in principle with the
LPSC staff for the settlement of the matter before the LPSC and has
executed a definitive agreement with the plaintiffs for the settlement of
the matter before the LPSC and the state court. The LPSC approved the
settlement agreement following a fairness hearing before an ALJ in
November 2000. Plaintiffs have sought class certification and approval
of the settlement by the state court, and a hearing on those issues is
scheduled for April 2001.
Under the terms of the settlement agreement, Entergy Louisiana
agrees to refund to customers approximately $72 million to resolve all
claims arising out of or relating to Entergy Louisiana's fuel adjustment
clause filings from January 1, 1975 through December 31, 1999, except
with respect to purchased power and associated costs included in the fuel
adjustment clause filings for the period May 1 through September 30,
1999. Entergy Louisiana previously provided reserves for the refund.
Under the terms of the settlement, Entergy Louisiana also consents to
future fuel cost recovery under a long-term gas contract based on a
formula that would likely result in an under-recovery of actual costs
under that contract for the remainder of its term, which runs through
2013. The future under-recovery cannot be precisely estimated at this
time because it will depend upon factors that are not certain, such as
the price of gas and the amount of gas purchased under the long-term
contract. In recent years, Entergy Louisiana has made purchases under
that contract totaling from $91 million to $121 million annually. Had
the proposed settlement terms been applicable to such purchases, the
under-recoveries would have ranged from $4 million to $9 million per
year.
Vidalia Project Sub-Docket
Two of the intervenors in the proceeding discussed above, Marathon
Oil Company and Louisiana Energy Users Group, requested that the LPSC
review the prudence of a contract entered into by Entergy Louisiana to
purchase energy generated by a hydroelectric facility known as the
Vidalia project through the year 2031. Note 9 to the financial
statements contains further discussions of the obligations related to the
Vidalia project. By orders entered by the LPSC in 1985 and 1990, the
LPSC approved Entergy Louisiana's entry into the Vidalia contract and
Entergy Louisiana's right to recover, through the fuel adjustment clause,
the costs of power purchased thereunder. Additionally, the wholesale
electric rates under the Vidalia power purchase contract were filed at
FERC. In December 1999, the LPSC instituted a review of the following
issues relating to the Vidalia project: (i) the LPSC's jurisdiction over
the Vidalia project; (ii) Entergy Louisiana's management of the Vidalia
contract, including opportunities to restructure or otherwise reform the
contract; (iii) the appropriateness of Entergy Louisiana's recovery of
100% of the Vidalia contract costs from ratepayers; (iv) the
appropriateness of the fuel adjustment clause as the method for
recovering all or part of the Vidalia contract costs; (v) the appropriate
regulatory treatment of the Vidalia contract in the event the LPSC
approves implementation of retail competition; and (vi) Entergy
Louisiana's communication of pertinent information to the LPSC regarding
the Vidalia project and contract. Based on its review, the LPSC will
determine whether it should disallow any of the costs of the Vidalia
project included in the fuel adjustment clause.
In March 2000, Entergy Louisiana filed testimony in this sub-docket
asserting that the prudence of the Vidalia contract already has been
approved by final orders of the LPSC and that recovery of all amounts
paid by Entergy Louisiana related to the Vidalia project pursuant to the
FERC-filed rate is appropriate. Direct testimony was filed by intervenor
Marathon Oil Company in May 2000 and by the LPSC staff and intervenor
Louisiana Energy Users Group in July 2000. In its testimony the LPSC
staff alleges that Entergy Louisiana was imprudent for not declaring to
the LPSC that the Vidalia project had become uneconomic and not
threatening to block the Vidalia project's owners' July 30, 1990 request
that the LPSC clarify the LPSC's 1985 order (approving the Entergy
Louisiana/Vidalia project power purchase agreement), unless the Vidalia
project's owners' shared with Entergy Louisiana's ratepayers some portion
of what the LPSC staff quantifies as approximately $90 million of tax
consequences available to the project. The LPSC staff's testimony does
not quantify how much of the potential tax savings Entergy Louisiana
should have demanded in exchange for not attempting to block the Vidalia
project's owners' request for clarification; however, that testimony does
suggest various alternatives by which some portion of the $90 million,
perhaps $45 million plus interest since 1990, could be returned to the
ratepayers. The direct testimony of the intervenor Louisiana Energy
Users Group alleges that Entergy Louisiana was imprudent for not
attempting to block the Vidalia project's owners' July 30, 1990 request
that the LPSC clarify the LPSC's 1985 order approving the Entergy
Louisiana/Vidalia project power purchase agreement; however, that
intervenor does not quantify the amount of damage alleged to have been
caused by this alleged imprudence. The direct testimony of the intervenor
Marathon Oil Company alleges with respect to Entergy Louisiana that
imprudent Vidalia project costs should be disallowed and that Entergy
Louisiana's customers should not be charged 100% of the Vidalia costs.
It is anticipated that hearings in this sub-docket concerning the Vidalia
contract will begin in April 2001.
Entergy New Orleans Fuel Clause Lawsuit
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' 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's 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 the plantiffs' 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. In April 2000, testimony
was filed on behalf of the plaintiffs in this proceeding. The testimony
asserts, among other things, that Entergy New Orleans and other
defendants have engaged in fuel procurement and power purchasing
practices that could have resulted in New Orleans customers being
overcharged by more than $59 million over a period of years. The
testimony also challenges the implementation of the recovery methodology.
However, it is not clear precisely what periods and damages are being
alleged. 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. Hearings are
expected to begin in October 2001.
Entergy New Orleans Rate of Return Lawsuit
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 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. In May
2000, a court of appeal granted Entergy New Orleans' exception to
jurisdiction in the case and dismissed the proceeding. The Louisiana
Supreme Court denied the plaintiff's request for a writ of certiorari.
The plaintiffs then commenced a similar proceeding before the Council.
Management cannot predict the outcome of the proceeding before the
Council.
Entergy Louisiana Formula Ratemaking Plan 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. At this time, management cannot determine the amount
of damages being sought.
July 1999 Power Outages Lawsuit
In February 2000, a lawsuit was commenced in state court in Orleans
Parish, 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. Plaintiffs have instituted a
similar proceeding before the LPSC. The defendants will vigorously
contest the plaintiff's allegations, which they believe do not support
any liability to the plaintiff for damages. At this time, management
cannot determine the amount of damages being sought.
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. The trial in this matter is scheduled to
begin in December 2001. At this time, management cannot determine the
amount of damages being sought.
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 state court petition was dismissed, 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. Recently both sides have filed
motions for summary judgment. At this time, management cannot determine
the amount of damages being sought.
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. In April 2000, the ALJ recommended denial of BP&L's
application. In May 2000, the PUCT voted to remand the proceeding back
to the ALJ to allow BP&L to provide further evidence. A pre-hearing
conference has been scheduled for May 2001.
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. The
arbitration is progressing under rules that have been adopted in both
India and the United States. 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. In March 2000, an appellate court affirmed the district
court's decision to certify the class. In response to Entergy's motion
for rehearing, the appellate court reversed the district court, denied
class certification, and remanded the case to the district court for
proceedings consistent with its ruling. This ruling reduces Entergy's
exposure in the lawsuit to an immaterial level. Entergy believes that
the lawsuit is without merit, and will vigorously defend itself against
the individual named plaintiffs.
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.
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,
2000 1999 1998 1997 1996
Entergy Arkansas 3.01 2.08 2.63 2.54 2.93
Entergy Gulf States 2.60 2.18 1.40 1.42 1.47
Entergy Louisiana 3.33 3.48 3.18 2.74 3.16
Entergy Mississippi 2.33 2.44 3.12 2.98 3.40
Entergy New Orleans 2.66 3.00 2.65 2.70 3.51
System Energy 2.41 1.90 2.52 2.31 2.21
Ratios of Earnings to Combined Fixed
Charges and Preferred Dividends
Years Ended December 31,
2000 1999 1998 1997 1996
Entergy Arkansas 2.70 1.80 2.28 2.24 2.44
Entergy Gulf States(a) 2.39 1.86 1.20 1.23 1.19
Entergy Louisiana 2.93 3.09 2.75 2.36 2.64
Entergy Mississippi 2.09 2.18 2.80 2.69 2.95
Entergy New Orleans 2.43 2.74 2.41 2.44 3.22
(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, 2000, Entergy New Orleans operating revenues and
customer data were as follows:
Electric Operating Natural Gas
Revenue Revenue
Residential 41% 52%
Commercial 37% 22%
Industrial 6% 10%
Governmental/Municipal 16% 16%
Number of Customers 190,000 150,000
Entergy Gulf States
For the year ended December 31, 2000, 98% of Entergy Gulf States'
operating revenue was derived from the electric utility business and 2%
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, 2000,
by company and by fuel type, is indicated below:
<TABLE>
<CAPTION>
Owned and Leased Capability MW(1)
Gas
Turbine
and
Internal
Company Total Fossil Nuclear Combustion Hydro
<S> <C> <C> <C> <C> <C>
Entergy Arkansas 4,576 2,758 1,714 34 70
Entergy Gulf States 6,625 5,685 940 - -
Entergy Louisiana 5,365 4,260 1,093 12 -
Entergy Mississippi 2,926 2,919 - 7 -
Entergy New Orleans 978 967 - 11 -
System Energy 1,110 - 1,110 - -
------ ------ ----- -- --
Total 21,580 16,589 4,857 64 70
====== ====== ===== == ==
</TABLE>
(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.
Entergy's domestic utility business is subject to seasonal
fluctuations, with the peak period occurring in the summer months. The
2000 peak demand of 22,052 MW occurred on August 30, 2000, which was an
all-time high for the Entergy system. 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. Domestically, based on load and capability projections and bulk
power availability, Entergy's domestic utility companies expect to meet
the need for new generation resources by means other than construction of
new base load generating capacity. Entergy's domestic utility companies
expect to meet future capacity needs by, among other things, purchasing
in the wholesale power market, including plans to contract for up to
3,000 MW of purchased power to meet the expected needs of the domestic
utility companies in the summer of 2001. Entergy also reactivated
several units in 1999 and 2000 that were in extended reserve shutdown to
assist in serving customers during periods of 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 proposed amendments to the System Agreement are
discussed more thoroughly in "RATE MATTERS AND REGULATION - Rate Matters
- - Wholesale Rate Matters - System Agreement," above.
Global Power Development Business
Entergy Power owns 665 MW of fossil-fueled capacity at the Ritchie 2
and Independence plants. In addition, Entergy's global power development
business has completed construction of two combined cycle gas turbine
merchant power plants in the UK. Saltend, a 1,200 MW plant located in
northeast England, provides up to 120 tons/hr of steam and 100 MW of
power to BP Chemical's nearby complex with the remaining electricity sold
into the UK national power pool. Commercial operation commenced in
November 2000. The second plant, an 800 MW facility known as Damhead
Creek, is located in southeast England. Commercial operation commenced
in 2001.
Entergy's global power development business has begun construction
of the Warren Power Project, a 300 MW combined-cycle gas turbine merchant
power plant in Vicksburg, Mississippi. The construction costs are
expected to be approximately $150 million. Management expects that
commercial operation of the plant will begin in the summer of 2001.
Domestic Non-Utility Nuclear Business
In November 2000, Entergy's domestic non-utility nuclear business
purchased 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. Entergy's domestic non-
utility nuclear business also owns the 670 MW Pilgrim Nuclear Station in
Plymouth, Massachusetts.
Interconnections
The electric generating facilities of Entergy's 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.
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.
The electric generating facilities of Entergy's domestic non-utility
nuclear business consist of the Pilgrim nuclear production facility, the
James A. FitzPatrick nuclear production facility, and the Indian Point 3
nuclear production facility. The Pilgrim nuclear production facility has
firm total output power purchase agreements with Boston Edison and other
utilities that expire at the end of 2004. The James A. FitzPatrick
nuclear production facility has two long-term power purchase agreements
with NYPA, one expiring at the end of 2003 and the other expiring at the
end of 2004. The Indian Point 3 nuclear production facility has a long-
term power purchase agreement with NYPA that expires at the end of 2004.
The Pilgrim plant is dispatched as a part of the New England Power
Pool (NEPOOL). The primary purpose of NEPOOL is to direct the operations
of the major generation and transmission facilities in the New England
region. The James A. FitzPatrick and Indian Point 3 plants are
dispatched by the New York Independent System Operator (NYISO). The
primary purpose of NYISO is to direct the operations of the major
generation and transmission facilities in New York State.
Gas Property
As of December 31, 2000, Entergy New Orleans distributed and
transported natural gas for distribution solely within the limits of the
City of New Orleans through a total of 1,459 miles of gas distribution
mains and 41 miles of gas transmission pipelines.
As of December 31, 2000, the gas properties of Entergy Gulf States,
which are located in and around Baton Rouge, Louisiana, were not material
to Entergy Gulf States' financial position.
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 each constitute a first
mortgage lien on substantially all of the respective physical properties
and assets of these two companies.
FUEL SUPPLY
The sources of generation and average fuel cost per KWH for the
domestic utility companies and System Energy for the years 1998-2000
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
2000 42 4.90 4 3.90 39 .56 15 1.51
1999 45 2.75 4 2.06 35 .54 16 1.59
1998 40 2.50 6 2.37 40 .53 14 1.67
Actual 2000 and projected 2001 sources of generation for the
domestic utility companies and System Energy are:
Natural Gas Fuel Oil Nuclear Coal
2000 2001 2000 2001 2000 2001 2000 2001
Entergy Arkansas (a) 11% 5% - - 53% 43% 35% 51%
Entergy Gulf States 61% 62% - - 24% 21% 15% 17%
Entergy Louisiana 56% 55% 2% - 42% 45% - -
Entergy Mississippi 42% 57% 31% 14% - - 27% 28%
Entergy New Orleans 94% 96% 6% 4% - - - -
System Energy - - - - 100%(b) 100%(b) - -
Total (a) 42% 37% 4% 1% 39% 37% 15% 24%
(a) Hydroelectric power provided an immaterial amount of generation at
Entergy Arkansas in 2000 and is expected to provide an immaterial
amount of generation in 2001.
(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. Entergy's global power
development business has entered into 15-year gas supply contracts at the
project level to supply up to 100% of the gas requirements for the
Saltend and Damhead Creek power plants located in the UK.
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. Increased demand combined with decreased supply of natural gas
caused a significant increase in the price of natural gas throughout
2000. Entergy's supplies of natural gas are expected to be adequate in
2001. 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 are disrupted or natural gas prices
significantly increase, 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 re-openers are accepted. If both parties cannot agree upon
a price, then the contract terminates. Effective April 1, 2000,
Louisiana Generating LLC assumed Cajun's ownership interest in the Big
Cajun 2 generating facilities and operates 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 coal to both White Bluff and Independence. This
contract will expire in the year 2011. Entergy Arkansas has settled its
lawsuit against the railroad that claimed breach of contract by the
railroad and requested termination of the contract.
Entergy Gulf States has transportation requirements contracts with
railroads to deliver coal to Nelson Unit 6 through December 31, 2004.
Each of the two contracts governs the movement of approximately one-half
of the plant's requirements and the base contract 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, FitzPatrick,
and Indian Point 3 are pursuant to contracts made by Entergy's domestic
non-utility nuclear business. Entergy Nuclear Fuels Company is
responsible for contracts to acquire nuclear materials, except for fuel
fabrication, for these non-utility nuclear plants.
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 Enron
North America, Inc., 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
Enron North America, Inc. which guarantees Entergy New Orleans gas
delivery at any point after the agreed gas volume has been met. The
Enron North America, Inc. gas supply is transported to Entergy New
Orleans pursuant to a transportation service agreement with Koch Gateway
Pipeline Company (now known as Gulf South Pipeline). 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 2000.
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. Gulf South
Pipeline 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 $5 million in 2000, $6 million in 1999, and $8 million in
1998 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 those terminated in the fourth quarter of
2000 are discussed in Item 1. "Business - RATE MATTERS AND REGULATION,"
in this report.
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of stockholders of Entergy Corporation was held on
December 15, 2000. The following matter was voted on and received the
specified number of votes for, abstentions, votes withheld (against), and
broker non-votes:
Approval and adoption of the Agreement and Plan of Merger dated as
of July 30, 2000, among FPL Group, Inc., Entergy, WCB Holding
Corporation, Ranger Acquisition Corporation, a wholly owned
subsidiary of WCB Holding that will merge into FPL Group, and Ring
Acquisition Corporation, a wholly owned subsidiary of WCB Holding
that will merge into Entergy: 171,904,096 votes for; 2,024,569
votes against; 910,276 abstentions; and broker non-votes are not
applicable.
During the fourth quarter of 2000, no matters were submitted to a
vote of the security holders of 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 11, 2001, ("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.
Executive Officers
Name Age Position Period
J. Wayne Leonard 50 Chief Executive Officer and Director 1999-Present
(a) 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
Donald C. Hintz 58 President of Entergy Corporation 1999-Present
(a) 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
Jerry D. Jackson 56 Executive Vice President of Entergy 1999-Present
(a) Corporation
Group President - Utility Operations 2000-Present
of Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
President and Chief Executive Officer 1999-2000
- Louisiana of Entergy Gulf States
President and Chief Executive Officer 1999-2000
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 - External 1994-1998
Affairs of Entergy Corporation
Director of Entergy Gulf States 1994-Present
Director of Entergy Louisiana 1992-Present
Director of Entergy Arkansas, Entergy 2000-Present
Mississippi, and Entergy New Orleans 1992-1999
C. John Wilder 42 Executive Vice President and Chief 1998-Present
(a) 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
Frank F. Gallaher 55 Senior Vice President, Generation, 1999-Present
(a) Transmission and Energy Management
of Entergy Corporation
President, Fossil Operations and 2000-Present
Transmission of Entergy Arkansas,
Entergy Gulf States, Entergy
Louisiana, Entergy Mississippi, and
Entergy New Orleans
Senior Vice President, Generation, 1999-2000
Transmission and Energy Management
of Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, and Entergy New Orleans
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
Richard J. Smith 49 Senior Vice President, Transition 2000-Present
(a) Management of Entergy Corporation
President of Cinergy Resources, Inc. 1999
Vice President Energy Services 1999
Vice President of Finance Services 1996-1999
Business Unit
Executive Director, Budgets and 1989-1996
Forecasts of PSI Energy
General Manager, Budgets and 1989-1996
Forecasts of Cinergy
Michael G. Thompson 60 Senior Vice President and General 1992-Present
(a) 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
Horace S. Webb 60 Senior Vice President, External 2000-Present
(a) Affairs of Entergy Corporation
Senior Vice President, External 1999-Present
Affairs of Entergy Services
Senior Vice President, Public Affairs 1992-1999
of Consolidated Edison Company
Joseph T. Henderson 43 Vice President and General Tax 1999-Present
(a) Counsel of Entergy Corporation,
Entergy Arkansas, Entergy Gulf
States, Entergy Louisiana, Entergy
Mississippi, Entergy New Orleans,
and System Energy
Associate General Tax Counsel of 1998-1999
Shell Oil Company
Senior Tax Counsel of Shell Oil 1995-1998
Company
Nathan E. Langston 52 Vice President and Chief Accounting 1998-Present
(a) 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 44 Vice President and Treasurer of 1998-Present
(a) 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
(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.
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 under the ticker
symbol ETR.
Entergy Corporation's stock price as of February 28, 2001 was
$38.83. The high and low prices of Entergy Corporation's common stock
for each quarterly period in 2000 and 1999 were as follows:
2000 1999
High Low High Low
(In Dollars)
First 26.75 15.94 31.13 27.50
Second 31.25 19.94 33.13 27.75
Third 38.13 26.94 31.56 28.19
Fourth 43.88 33.50 30.00 23.88
Consecutive quarterly cash dividends on common stock were paid to
stockholders of Entergy Corporation in 2000 and 1999. In 2000, dividends
of $0.30 per share were paid in the first three quarters, and dividends
of $0.315 per share were paid in the fourth quarter. Quarterly dividends
of $0.30 per share were paid in 1999.
As of February 28, 2001, there were 67,226 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
domestic utility companies and System Energy to Entergy Corporation
during 2000 and 1999, were as follows:
2000 1999
(In Millions)
Entergy Arkansas $44.6 $ 82.7
Entergy Gulf States $88.0 $107.0
Entergy Louisiana $62.4 $197.0
Entergy Mississippi $18.0 $ 34.1
Entergy New Orleans $ 9.5 $ 26.5
System Energy $91.8 $ 75.0
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."
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Entergy Corporation and Subsidiaries:
Report of Management 43
Management's Financial Discussion and Analysis 44
Report of Independent Accountants 64
Management's Financial Discussion and Analysis 65
Consolidated Statements of Income For the Years Ended December 31, 74
2000, 1999, and 1998
Consolidated Statements of Cash Flows For the Years Ended December 75
31, 2000, 1999, and 1998
Consolidated Balance Sheets, December 31, 2000 and 1999 77
Consolidated Statements of Retained Earnings, Comprehensive Income, 79
and Paid-In Capital for the Years Ended December 31, 2000, 1999,
and 1998
Selected Financial Data - Five-Year Comparison 80
Entergy Arkansas, Inc.:
Report of Independent Accountants 81
Management's Financial Discussion and Analysis 82
Income Statements For the Years Ended December 31, 2000, 1999, and 86
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 88
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 89
Statements of Retained Earnings for the Years Ended December 31, 91
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 92
Entergy Gulf States, Inc.:
Report of Independent Accountants 93
Management's Financial Discussion and Analysis 94
Income Statements For the Years Ended December 31, 2000, 1999, and 99
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 100
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 101
Statements of Retained Earnings for the Years Ended December 31, 103
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 104
Entergy Louisiana, Inc.:
Report of Independent Accountants 105
Management's Financial Discussion and Analysis 106
Income Statements For the Years Ended December 31, 2000, 1999, and 109
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 110
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 111
Statements of Retained Earnings for the Years Ended December 31, 113
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 114
Entergy Mississippi, Inc.:
Report of Independent Accountants 115
Management's Financial Discussion and Analysis 116
Income Statements For the Years Ended December 31, 2000, 1999, and 120
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 122
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 123
Statements of Retained Earnings for the Years Ended December 31, 125
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 126
Entergy New Orleans, Inc.:
Report of Independent Accountants 127
Management's Financial Discussion and Analysis 128
Income Statements For the Years Ended December 31, 2000, 1999, and 131
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 132
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 133
Statements of Retained Earnings for the Years Ended December 31, 135
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 136
System Energy Resources, Inc.:
Report of Independent Accountants 137
Management's Financial Discussion and Analysis 138
Income Statements For the Years Ended December 31, 2000, 1999, and 140
1998
Statements of Cash Flows For the Years Ended December 31, 2000, 142
1999, and 1998
Balance Sheets, December 31, 2000 and 1999 143
Statements of Retained Earnings for the Years Ended December 31, 145
2000, 1999, and 1998
Selected Financial Data - Five-Year Comparison 146
Notes to Financial Statements for Entergy Corporation and 147
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. Upon recommendation from the Audit Committee, the
Board of Directors appoints the independent accountants. 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 of Executive Vice President and Chief
Entergy Corporation Financial Officer
HUGH T. MCDONALD JOSEPH F. DOMINO
Chairman, President, and Chief Chairman of Entergy Gulf States, Inc.
Executive Officer of Entergy President and Chief Executive Officer -
Arkansas, Inc. Texas of Entergy Gulf States, Inc.
E. RENAE CONLEY CAROLYN C. SHANKS
Chairman of Entergy Louisiana, Inc., Chairman, President, and Chief
President and Chief Executive Officer Executive Officer of Entergy
- - Louisiana of Entergy Gulf States, Mississippi, Inc.
Inc. and Entergy Louisiana, 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
SIGNIFICANT FACTORS AND KNOWN TRENDS
Business Combination with FPL Group
On July 30, 2000, Entergy Corporation and FPL Group entered into a
Merger Agreement providing for a business combination that will result in
the creation of a new company. Each outstanding share of FPL Group common
stock will be converted into one share of the new company's common stock,
and each outstanding share of Entergy Corporation common stock will be
converted into 0.585 of a share of the new company's common stock. It is
expected that FPL Group's shareholders will own approximately 57% of the
common equity of the new company and Entergy's shareholders will own
approximately 43%. The initial board of directors of the new company will
consist of eight directors designated by FPL Group and seven directors
designated by Entergy. The new company will be given a new name that will
be agreed upon between the Boards of Directors of FPL Group and Entergy
prior to the consummation of the Merger. The new company will maintain its
principal corporate offices and headquarters in Juno Beach, Florida, and
will maintain its utility headquarters in New Orleans, Louisiana. The
Merger Agreement generally allows Entergy to continue business in the
ordinary course consistent with past practice and contains certain
restrictions on Entergy's capital activities, including restrictions on the
issuance of securities, capital expenditures, dispositions, incurrence or
guarantee of indebtedness, and trading or marketing of energy. Entergy
generally will be permitted to take actions pursuant to restructuring
legislation in the domestic utility companies' jurisdictions of operation
and to reorganize its transmission business. Under certain circumstances,
if the Merger Agreement is terminated, a termination fee of $215 million
may be payable by one of the parties. The Merger Agreement may be
terminated if the Merger is not consummated by April 30, 2002, unless
automatically extended until October 30, 2002 under certain circumstances.
Both the FPL Group and Entergy Boards of Directors unanimously approved the
Merger, and the shareholders of Entergy Corporation and FPL Group have
approved the Merger. The Merger is conditioned upon, among other things,
the receipt of required regulatory approvals of various local, state, and
federal regulatory agencies and commissions, including the SEC and FERC.
Entergy has filed for approval of the Merger in all of its state and local
regulatory jurisdictions (Arkansas, Louisiana, Mississippi, Texas, and New
Orleans), and at FERC, the SEC, and the NRC. In their filing with the SEC,
Entergy and FPL Group requested to remain in existence as intermediate
holding companies after the Merger is consummated. The objective of
Entergy and FPL Group is to consummate the Merger by late 2001.
Domestic Transition to Competition
The electric utility industry for years has been preparing for the
advent of competition in its business. 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 risks along with opportunities to enter
into new businesses and to restructure existing businesses.
For Entergy, the domestic transition to competition 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. In some cases, however,
actions by one jurisdiction may conflict with actions by another. The
Arkansas and Texas legislatures have enacted laws to bring about electric
utility competition. Entergy is continuing to work with regulatory and
legislative officials in all jurisdictions in designing the rules
surrounding a competitive electricity industry. There can be no assurance
given as to the timing or results of the transition to competition in
Entergy's service territories. Following is a summary of the status of the
transition to competition in the five retail jurisdictions:
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Jurisdiction Status of Retail Open Access % of Entergy's 2000
Revenues Derived from
Retail Electric Utility
Operations in the
Jurisdiction
Arkansas Commencement delayed by amended 12.3%
law until at least October 2003.
Texas Scheduled to commence January 1, 9.4%
2002.
Louisiana LPSC Staff report due in April 31.4%
2001. The LPSC deferred pursuing
open access in 1999.
Mississippi MPSC has recommended not pursuing 8.0%
open access at this time.
New Orleans City Council has taken no action 4.6%
on Entergy's proposal filed in
1997.
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.
With retail open access, generation operations would become a competitive
business, but transmission and distribution operations will continue to be
regulated either by federal or state regulatory commissions. In compliance
with the provisions of the deregulation law, Entergy Arkansas has:
o filed separate generation, transmission, distribution, and customer
service rates with the APSC and also filed notice of its intent to
recover stranded costs. In December 2000, the APSC approved the
unbundled rates as filed. These rates will become effective six months
prior to retail open access; and
o filed a functional, but not corporate, unbundling plan with the APSC.
The functional unbundling plan initially established separate business
units for distribution, generation, and a new retail energy service
provider. The plan contemplates the transfer of transmission assets
to the Transco discussed herein.
See Note 2 to the financial statements for additional details
concerning provisions of the retail open access law.
Texas
In June 1999, the Texas legislature enacted a law providing for
competition in the electric utility industry through retail open access.
With retail open access, generation and a new retail electric provider
operation will be competitive businesses, but transmission and distribution
operations will continue to be regulated. The new retail electric provider
will be the primary point of contact with customers. The provisions of the
new law, among other things:
o require a rate freeze through December 31, 2001 with rates reduced by
6% beyond that for residential and small commercial customers of most
incumbent utilities except Entergy Gulf States, whose rates are exempt
from the 6% reduction requirement. These rates to residential and
small commercial customers are known as the "Price to Beat", and they
may be adjusted periodically after January 1, 2002 for fuel and
purchased power costs according to PUCT rules; and
o require utilities to charge the Price to Beat rates through 2004, or
until 40% of customers in the jurisdiction have chosen an alternative
supplier, whichever comes first. However, the Price to Beat rates must
continue to be made available through 2006.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Pursuant to the provisions of the retail open access law, Entergy Gulf
States filed a business separation plan with the PUCT in January 2000, and
amended that plan in June and December 2000. The plan provides that, by
January 2002, Entergy Gulf States will be divided into:
o a Texas distribution company;
o a Texas transmission company;
o a Texas generation company;
o at least two Texas retail electricity providers; and
o a Louisiana company that will encompass distribution, generation,
transmission, and retail operations.
The plan also provides that the Louisiana company would retain the
liability for all debt obligations of Entergy Gulf States and that the
property of the Texas companies would be released from the lien of Entergy
Gulf States' mortgage. Except for the Texas retail electric providers, each
of the Texas companies would assume a portion of Entergy Gulf States' debt
obligations, which assumptions would not act to release the Louisiana
company's obligations. Except for the Texas retail electric providers,
each of the Texas companies would also grant a lien on its properties in
favor of the Louisiana company to secure its obligations to the Louisiana
company in respect of the assumed obligations. In addition, under the
plan, Entergy Gulf States will refinance or retire the Texas companies'
portion of existing debt by the end of 2004. In July 2000, the PUCT issued
an interim order to approve the amended business separation plan.
Regulatory approvals from FERC, the SEC, and the LPSC, and final approval
from the PUCT will be required before the business separation plan can be
implemented. Remaining business separation issues in Texas subsequent to
the July 2000 interim order will be addressed in the cost unbundling
proceeding before the PUCT.
The LPSC has opened a docket to identify the changes in corporate
structure of Entergy Gulf States, and their potential impact on Louisiana
retail ratepayers, resulting from restructuring in Texas and Arkansas.
Entergy Gulf States filed testimony in that proceeding in August 2000. The
LPSC staff filed testimony in that proceeding in October 2000 criticizing
Entergy Gulf States' proposal, particularly the part related to the Texas
portion of generation assets being transferred to an unregulated entity.
Entergy Gulf States filed rebuttal testimony in December 2000. A
procedural schedule has not been set. Management cannot predict the
timing or outcome of this proceeding.
Pursuant to the Texas restructuring legislation, Entergy Gulf States
filed its separated business cost data and proposed transmission,
distribution, and competition tariffs with the PUCT on March 31, 2000. On
March 6, 2001, Entergy Gulf States filed with the PUCT a non-unanimous
settlement agreement in that case that establishes the distribution
revenue requirement. The settlement agreement is between Entergy Gulf
States, the PUCT Staff, and other parties. Pursuant to a generic rule
prescribed by the PUCT, Entergy Gulf States' allowed return on equity will
be 11.25%. The generic capital structure prescribed by the PUCT is 60%
debt and 40% equity. Hearings before the PUCT on approval of the settlement
are scheduled to begin in April 2001. Management cannot predict the timing
or outcome of this proceeding.
Beginning January 1, 2002, the market power measures in the open
access law will prohibit Entergy Gulf States from owning and controlling
more than 20% of the installed generation capacity located in, or capable
of delivering electricity to, a "power region", which is defined as a
distinct region of NERC. In seeking PUCT approval of the Merger, Entergy
and FPL Group are required to demonstrate that the merged company will not
exceed this threshold. However, all the implications of this limit are
uncertain for Entergy Gulf States and Entergy. It is possible that Entergy
Gulf States could decide to divest some of its generation assets or seek to
reduce transmission constraints if Entergy Gulf States is found to have
generation market power in excess of this limit. The legislation also
requires affected utilities to sell at auction entitlements to at least 15%
of their installed generation capacity in Texas at least 60 days before
January 1, 2002. The obligation to auction capacity entitlements continues
for up to 60 months after January 1, 2002, or until 40% of current
customers have chosen an alternative supplier, whichever comes first.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
The PUCT and various participants in the industry are currently in the
process of implementing the legislation through various rulemaking and
other proceedings. The Provider of Last Resort (POLR) rule was approved
by the PUCT in October 2000, requiring that such a provider exist in every
area of the state and setting up the process by which such a provider will
be selected and its services priced. The PUCT received bids from retail
electric providers seeking to become the POLR in each area in January 2001.
The PUCT has stated its preference that the POLR not be the retail electric
provider that is affiliated with the incumbent utility in the area.
However, depending on the outcome of the bidding process, Entergy Gulf
States' affiliate retail electric provider may be required to provide POLR
service in Entergy Gulf States' service territory. This may have a material
financial impact on the Entergy Gulf States retail electric provider
depending on the terms and prices eventually approved by the PUCT for POLR
service.
See Note 2 to the financial statements for additional details concerning
provisions of the Texas retail open access law and the proceedings
occurring in Texas pursuant to that law.
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. In
January 2001, a draft response was circulated among interested parties. It
is expected that, after a comment period, a final staff response will be
presented to the LPSC in April 2001.
See above under "Texas" for discussion of the LPSC proceeding
considering Entergy Gulf States' business separation plan.
Mississippi
In May 2000, after two years of studies and hearings, the MPSC
announced that it was suspending its docket studying the opening of the
state's retail electricity markets to competition. The MPSC based its
decision on its finding that competition could raise the electric rates
paid by residential and small commercial customers. The final decision
regarding the introduction of retail competition ultimately lies with the
Mississippi Legislature, which is holding its 2001 session from January
through March. Management cannot predict when, or if, Mississippi will
deregulate its retail electricity market, but does not expect it to occur
before 2003.
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.
After studying retail gas open access, advisors to the Council issued
a final report that proposed various pilot programs and found that retail
gas open access is not in the public interest at this time. The Council
accepted an offer of settlement from Entergy New Orleans in this matter
that allows for a voluntary pilot program for a limited number of large
industrial non-jurisdictional gas customers.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Federal Regulatory and Legislative Activity
Proposed System Agreement Amendments
In June 2000, Entergy's domestic utility companies filed with FERC
proposed amendments to the System Agreement to facilitate the
implementation of retail competition in Arkansas and Texas and to provide
for continued equalization of costs among the domestic utilities in
Louisiana and Mississippi. The amendments provide the following:
o cessation of participation in all aspects of the System Agreement,
other than those related to transmission equalization, for any
jurisdictional division of a domestic utility operating in a
jurisdiction that initiates retail open access;
o certain sections of the System Agreement will no longer apply to the
sales of generating capacity, whether through the sale of the asset
or the output thereof, by a domestic utility operating in a jurisdiction
that has established a date by which it will implement retail open
access; and
o modification of the service schedule developed to track changes in
energy costs resulting from the Entergy-Gulf States Utilities merger
to include one final true-up of fuel costs upon cessation of one
company's participation in the System Agreement, after which the
service schedule will no longer be applicable for any purpose.
Previously, in April 2000, the LPSC and the Council filed a complaint
with FERC seeking revisions to the System Agreement. The LPSC and the
Council allege that the revisions are necessary to accommodate the
introduction of retail competition in Texas and Arkansas and to protect
Entergy's Louisiana customers from any adverse impact that may occur due to
the introduction of retail competition in some jurisdictions but not
others. The LPSC and the Council requested that FERC cap certain of the
System Agreement obligations of Entergy Gulf States, Entergy Louisiana, and
Entergy New Orleans and fix these companies' access to pool energy at the
average level existing for the three years prior to the date that retail
competition is initiated in Texas and Arkansas. Alternatively, the LPSC
and the Council requested that FERC require Entergy to provide wholesale
power contracts to these companies to satisfy their energy requirements at
costs no higher than would have been incurred if retail competition were
not implemented. The LPSC and the Council requested that the relief be
made available for at least eight years after implementation of retail
competition or the withdrawal of Entergy Arkansas and Entergy Gulf States
from the System Agreement, or until retail competition is implemented in
Louisiana and New Orleans. In addition, among other things, the LPSC and
the Council asserted in their complaint that:
o unless the requested relief is granted, the restructuring legislation
adopted in Texas and Arkansas, to the extent such legislation requires,
or has the effect of, altering the rights of parties under the System
Agreement, will violate provisions of the U.S. Constitution; and
o the failure of the domestic utility companies to honor a right of
first refusal at cost with respect to any sale of generating capacity
and associated energy under the System Agreement, and any attempt to
eliminate a right of first refusal from the System Agreement, would
violate the Federal Power Act and constitute a breach of the System
Agreement.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
The proceedings relating to Entergy's proposed amendments have been
consolidated with the complaint by the LPSC and the Council. Several other
parties have also intervened in the proceedings. If FERC considers
Entergy's proposed amendments, the LPSC and the Council have asserted that
FERC also needs to reconsider the charges to the domestic utility companies
under the Unit Power Sales Agreement. Entergy has requested a final
decision from FERC by October 2001. A procedural schedule has been
established, with the hearing beginning in March 2001 and an initial ALJ
decision scheduled in June 2001. These proceedings have been consolidated
with a previous complaint filed with FERC by the LPSC in 1995. In that
complaint, the LPSC requests, among other things, modification of the
System Agreement to exclude curtailable load from the cost allocation
determination. Neither the timing, nor the ultimate outcome of these
proceedings at FERC, can be predicted at this time.
Open Access Transmission and Entergy's Transco Proposal
FERC issued Order 2000 in December 1999, which 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 that RTOs commence independent operations no later than December
15, 2001.
It appears that FERC will be flexible regarding 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 other
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.
In October 2000, in compliance with Order 2000, Entergy made a filing
with FERC that requested:
o authorization to establish an RTO referred to as Transco;
o authorization to transfer the domestic utility companies' transmission
assets to the Transco; and
o a determination that the partnership arrangement with the Southwest
Power Pool (SPP) that the Transco proposes to operate in would qualify
as an independent RTO. The partnership arrangement provides for
operations under the oversight of, and within, the SPP RTO.
The amounts of the domestic utility companies' net transmission utility
plant assets recorded in their financial statements are provided in Note 1
to the financial statements under the heading "Utility Plant."
The proposed Transco will be a limited liability company. The
managing member of the Transco will be a separate corporation with a board
of directors independent of Entergy. The Transco will be:
o regulated by FERC;
o composed of the transmission system transferred to it by the domestic
utility companies and other transmission owners in Entergy's current
service territory 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 member
companies who will transfer assets but not control or otherwise direct
its operation and management.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
Entergy filed in December 2000 for FERC approval of the rates for
transmission service across the Transco's facilities. Included in this
rate filing is a request to cancel the service schedule in the System
Agreement related to equalization of certain transmission costs. In March
2001, Entergy, Entergy Services, and the domestic utility companies
requested SEC approval under PUHCA of certain elements of the Transco plan.
The domestic utility companies have also made filings with their local
regulators seeking authorization to implement the Transco plan. Under its
planned timeline, Entergy expects to have the necessary regulatory
approvals by the third quarter of 2001, with the transmission asset
transfers occurring before Transco commences independent operations in
December 2001.
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 2000 without final action on a deregulation bill by a
committee of the House or Senate, and has not taken final action on such a
bill in its 2001 session thus far.
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 an immaterial amount of
operating income in recent years from large industrial customers who have
completed cogeneration projects. Material losses to cogeneration are not
expected in 2001.
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. Entergy Mississippi's 2000 filing indicated
that no change in rate levels was warranted. Entergy Louisiana and Entergy
Gulf States had the following rate activity in 2000:
Filing Rate Activity Implementation Date
Entergy Louisiana 4th annual $6.4 million refund July 2000
performance-based rate plan
Entergy Louisiana 5th annual $24.8 million base August 2000
performance-based rate plan rate reduction*
Entergy Gulf States 2nd, 3rd, $83 million refund, July to September 2000
4th, and 5th annual earnings including interest
reviews
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
* Entergy Louisiana is proposing to increase prospectively the allowed
rate of return on common equity from 10.5% to 11.6%, which, if approved by
the LPSC, would reduce the amount of the rate reduction.
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
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 domestic non-
utility nuclear 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 1998, California implemented electricity deregulation legislation.
The law required the major investor-owned utilities in the state to
effectively divest their generation assets by requiring them to sell their
output to the Power Exchange. The Power Exchange is an independent spot
market power pool in which electricity is bought and sold at wholesale
prices. The deregulation law requires the investor-owned utilities to buy
power from the Power Exchange at market set rates, but freezes the amount
that those utilities can recover from their customers. Therefore, the
investor-owned utilities' short positions were not covered by generation
assets and were exposed to increases in the Power Exchange prices. The
jurisdictions in which Entergy's domestic utility companies operate
currently allow recovery of all prudently incurred fuel and purchased power
costs through various recovery mechanisms. In addition, the deregulation
legislation enacted in Arkansas and Texas allows for adjustments to the
prices that the distribution businesses will be allowed to recover based on
changes in fuel and purchased power costs.
In 2000, the California Power Exchange prices that the California
investor-owned utilities have to pay for their electricity supplies soared
above the amounts that they are allowed to recover from their customers.
The California utilities therefore have accumulated billions of dollars of
under-recovered purchased power expenses. These under-recovered costs have
caused the California utilities to default on certain of their credit
obligations and have spawned several lawsuits and legislative and
regulatory activity. The ultimate effect of these events on the investor-
owned utilities in California and the electric energy industry nationwide
is uncertain.
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 must 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. This result is because some of the costs or commitments
incurred under a regulated pricing system might be impaired or not
recovered in a competitive market. These costs are referred to as stranded
costs.
Nearly all of Entergy's exposure to potential 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, 2000, the amount of these potentially strandable
costs for Entergy reflected in the financial statements is approximately
$1.8 billion at Entergy Arkansas, $3.2 billion at Entergy Gulf States,
$2.4 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 financial statements for Entergy is approximately $1.0
billion at Entergy Arkansas, $0.3 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. These amounts can increase due to
increased capital spending; however, in the normal course of business,
depreciation, amortization, and payments under the contractual obligations
should reduce these amounts. The actual amount of these costs and
obligations that will be identified as stranded will be determined in
regulatory proceedings. 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
In June 2000, Entergy Arkansas filed an application to continue the
stranded cost mitigation efforts agreed upon in the 1997 settlement
agreement approved by the APSC. The filing included a stranded cost
estimate intended to support Entergy Arkansas' recommendation that the
mitigation efforts continue. The filing presents an estimated range of
stranded costs based upon the comparison of possible generation asset
market values to the generation assets' book values and contractual
obligations. The range of possible generation asset market values used in
the estimate was determined using generation asset sales from other
jurisdictions. Rebuttal testimony filed by Entergy Arkansas in November
2000 estimates that stranded costs in Arkansas could be from $227.8
million to $1.58 billion. The wide range in the estimate is because of
the wide range in the comparable asset sales used in the estimate.
In the non-unanimous settlement agreement filed with the PUCT by
Entergy Gulf States in March 2001, the parties agree that Entergy Gulf
States will not implement a charge to recover stranded costs in Texas. A
rider to recover nuclear decommissioning costs will be implemented.
Hearings before the PUCT for approval of the settlement are scheduled to
begin in April 2001.
Management believes that definitive outcomes have not yet been
determined regarding the transition to competition in each of Entergy's
jurisdictions. 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. Until the
regulatory proceedings in Arkansas and Texas provide a greater level of
certainty, both Entergy Arkansas and Entergy Gulf States will continue to
apply SFAS 71 to their regulated operations. Final approval of the
settlement agreement in Texas will likely result in Entergy Gulf States
discontinuing application of SFAS 71 to its Texas generation 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. The impact
of approval of the Texas settlement agreement will depend upon a final
determination of the market value of generation assets in Texas. 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 strandable cost amounts given above. The
specifics of the accounting application of SFAS 71 are discussed more
thoroughly in Note 1 to the financial statements.
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;
o the foreign currency exchange rate risk associated with certain of its
contractual obligations; and
o the interest rate and equity price risk associated with its
investments in decommissioning trust funds.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
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 the market risk of a loss in fair value 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.
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 a cross-product correlation matrix that measures the tendency of
different basis products to move together; and
o an inter-temporal correlation matrix that measures the tendency of
commodities with different delivery periods to move together.
Power marketing and trading's VAR was approximately $2.9 million as of
December 31, 2000 and $3.3 million as of December 31, 1999. During 2000,
the average month-end VAR was $4.2 million, with a high month-end VAR of
$8.5 million and a low month-end VAR of $2.5 million.
Management's calculation of VAR 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.
In November 2000, System Fuels and Entergy's domestic non-utility
nuclear business entered into foreign currency forward contracts to hedge
the Euro denominated payments due under certain purchase contracts. The
notional amounts of the foreign currency forward contracts were 82.8
million Euro ($73.2 million) and the forward currency rates range from
.8690 to .8981. The maturities of these forward contracts depend on the
contractual payment dates and range in time from August 2001 to February
2004. The mark-to-market valuation of the forward contracts at December
31, 2000 was a net asset of $5.9 million. The counterparty banks obligated
on these agreements are rated by Standard and Poor's Rating Services at A-1
or above on their short-term obligations and AA- on their long-term
obligations.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
SIGNIFICANT FACTORS AND KNOWN TRENDS
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. The following details information about
the interest rate swaps as of December 31, 2000:
Average
Notional Fixed Maturity Fair value
Amount Pay Rate
Saltend $443.3 million 6.44% 2013 ($16.6 million)
Damhead Creek $414.5 million 6.52% 2010 ($18.4 million)
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 $314 million of fixed-rate, fixed-income securities as of
December 31, 2000. These securities have an average coupon rate of 6.7%,
an average duration of 5.8 years, and an average maturity of 8.8 years.
The Pilgrim trust fund also holds equity securities worth approximately
$116 million as of December 31, 2000. These securities are held in a fund
that 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.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be implemented by Entergy
in 2001. See Note 1 to the financial statements for a discussion of the
expected effect of this pronouncement on Entergy.
<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, 2000, 1999,
and 1998 was:
2000 1999 1998
(In Millions)
Entergy $1,967.8 $1,389.0 $1,835.7
Entergy Arkansas $ 421.6 $ 352.6 $ 448.7
Entergy Gulf States $ 403.9 $ 387.6 $ 491.3
Entergy Louisiana $ 270.4 $ 410.4 $ 342.4
Entergy Mississippi $ 182.3 $ 142.4 $ 125.0
Entergy New Orleans $ 30.5 $ 60.2 $ 40.3
System Energy $ 395.6 $ 102.8 $ 298.8
Entergy's consolidated cash flow from operations increased in 2000
primarily due to the domestic utility companies and System Energy providing
an additional $277.5 million and the competitive businesses providing an
additional $223.7 million to operating cash flows for the year ended
December 31, 2000.
Fuel cost recovery activity in 2000 significantly affected the
operating cash flows for the domestic utility companies. Historically high
natural gas and purchased power costs in 2000 caused the domestic utility
companies' fuel payments to increase significantly during the year. In the
case of Entergy Arkansas, the Texas portion of Entergy Gulf States, and
Entergy Mississippi, the 2000 under-recoveries have been treated as
regulatory investments in the cash flow statements because those companies
are allowed by their regulatory jurisdictions to recover the fuel costs
accumulated in 2000 over longer than a twelve month period, and the
companies will earn a return on the under-recovered balances.
Entergy Arkansas' and Entergy Gulf States' operating cash flows were
also affected by increases in their net income for the year ended December
31, 2000. The increase in operating cash flow for Entergy Gulf States was
partially offset by the increased use of cash for fuel costs related to the
Louisiana jurisdiction and refunds of $83 million paid to Louisiana
customers during the third quarter of 2000 as a result of earnings reviews
settled with the LPSC, as discussed further in Note 2 to the financial
statements. The decrease in operating cash flow for Entergy Louisiana and
Entergy New Orleans was partially caused by the increased use of cash
related to fuel costs in 2000.
The operating cash flows of the domestic utility companies and System
Energy were affected by money pool activity for 2000 as a result of the use
of a portion of the proceeds from debt issuances in 2000 to pay down
payables to the money pool in the following amounts:
Entergy Arkansas $ 9.9 million
Entergy Gulf States $36.1 million
Entergy Louisiana $91.5 million
Entergy Mississippi $16.7 million
Entergy New Orleans $ 3.9 million
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
System Energy's operating cash flow increased in part due to payments of
$78.9 million received on its money pool receivables from affiliated
companies.
The money pool is an inter-company funding arrangement designed to
reduce the domestic utility companies' and System Energy's dependence on
external short-term borrowings. The money pool provides a means by which,
on a daily basis, the excess funds of Entergy Corporation, the domestic
utility companies, and System Energy may be used by the domestic utility
companies or System Energy to fulfill short-term cash requirements. See
"Capital Resources - Sources of Capital" below for a discussion of the
limitations on these borrowings.
The increase in operating cash flow for the competitive businesses is
attributable to the following:
o the operations of Pilgrim, Indian Point 3, and FitzPatrick that
primarily caused an increase of $73.9 million in operating cash flow
from the domestic non-utility nuclear business; and
o net income generated by and improved operations in the power
marketing and trading and global power development businesses in
2000, which resulted in an additional $40.2 million and $91.0 million
of operating cash flow, respectively, compared with net losses from
their operations in 1999.
Pilgrim was purchased in July 1999 and provided operating cash flow for all
of 2000 compared with only six months in 1999. Indian Point 3 and
FitzPatrick were purchased in November 2000 and provided operating cash
flow for two months in 2000.
Entergy's consolidated cash flow from operations for 1999 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. 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 or 2000. 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 its money pool receivables from affiliated companies.
In 1999, competitive businesses used $9.3 million of operating cash
flow from operations compared with providing $151.7 million of operating
cash flow for 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 were 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.
Investing Activities
Net cash used in investing activities increased for 2000 due to
increased construction expenditures, decreased proceeds from sales of
businesses, decreased net proceeds from maturities of notes receivable, and
higher fuel costs.
The increased construction expenditures were primarily due to:
o spending on customer service and reliability improvements by the
domestic utility companies;
o costs incurred related to the December 2000 ice storms, primarily at
Entergy Arkansas; and
o costs incurred for replacement of the steam generators at ANO 2.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The following items also contributed to the overall increase in cash
used in 2000:
o the maturity of notes receivable in August 1999 when only a portion of
the proceeds were reinvested in other temporary investments;
o payments made by Entergy's global power development business in 2000
for turbines; and
o the under-recovery of deferred fuel costs incurred in 2000 at certain
of the domestic utility companies due to significantly higher market
prices of fuel and purchased power expenses. Entergy Arkansas, the
Texas portion of Entergy Gulf States, and Entergy Mississippi have
treated these costs as regulatory investments because those companies
are allowed by their regulatory jurisdictions to recover the fuel
cost regulatory asset accumulated in 2000 over longer than a twelve
month period, and the companies will earn a return on the
under-recovered balances.
Partially offsetting the overall increase in cash used is the maturity of
other temporary investments and proceeds from the sale of the Freestone
power project in 2000.
Investing activities used cash in 1999 compared to 1998 due to the
sales in 1998 of London Electricity and CitiPower, and higher construction
expenditures in 1999 compared with 1998. 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. The maturity and
reinvestment of a portion of the proceeds of notes receivable in August
1999, and the sales in 1999 of Entergy Security, Entergy Power Edesur
Holding, LTD and several other telecommunications businesses partially
offset the overall decrease in 1999.
Financing Activities
Financing activities provided cash for 2000 primarily due to:
o new long-term debt issuances by Entergy Arkansas, Entergy Gulf States,
Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans; and
o increased borrowings under the Entergy Corporation credit facility.
Partially offsetting the overall cash provided were the following in
2000:
o increased repurchases of Entergy Corporation common stock;
o redemption of Entergy Gulf States' preference stock; and
o decreased borrowings under the credit facilities for the construction
of the Saltend and Damhead Creek power projects by Entergy's global
power development business.
Net cash used in financing activities decreased in 1999 compared to
1998 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.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Partially offsetting the 1999 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
Entergy's sources to meet its capital requirements include:
o internally generated funds;
o cash on hand;
o debt or preferred stock issuances;
o common stock issuances;
o bank financing under new or existing facilities;
o short-term borrowings; and
o sales of assets.
Entergy requires capital resources for:
o working capital purposes, including the financing of fuel and
purchased power costs;
o construction and other capital expenditures;
o debt and preferred stock maturities;
o common stock repurchases;
o capital investments;
o funding of subsidiaries; and
o dividend and interest payments.
Sources of Capital
All of the domestic utility companies issued new debt in 2000. The
net proceeds of these issuances have been or will be used for general
corporate purposes including capital expenditures, the retirement of short-
term indebtedness incurred for working capital or other purposes, and, in
the case of Entergy Gulf States, the mandatory redemption of preference
stock. The domestic utility companies and System Energy expect to continue
refinancing or redeeming higher cost debt and preferred stock prior to
maturity, to the extent market conditions and interest and dividend rates
are favorable. The domestic utility companies plan to issue debt in 2001
for similar purposes as in 2000. In addition, rising fuel prices in 2000
and the resulting increases in the domestic utility companies' fuel costs
have increased these companies' needs for working capital financing in
2001. Entergy Arkansas' liquidity was also affected by incurring
approximately $195 million of restoration costs associated with ice storms
in December 2000. See Note 2 to the financial statements for more
information regarding the December 2000 ice storms.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
All debt and common and preferred stock issuances by the domestic
utility companies and System Energy require prior 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 2001. The domestic utility companies
may also establish special purpose trusts or limited partnerships as
financing subsidiaries for the purpose of issuing preferred securities.
On January 31, 2001, Entergy Mississippi issued $70 million of 6.25%
Series First Mortgage Bonds due February 1, 2003. Proceeds of the issuance
will be used for general corporate purposes, including the retirement of
short-term indebtedness incurred from money pool borrowings for capital
expenditures and working capital needs.
On February 23, 2001, Entergy New Orleans issued $30 million of 6.65%
Series First Mortgage Bonds due March 1, 2004. Proceeds of the issuance
will be used for general corporate purposes, including the retirement of
short-term indebtedness incurred from money pool borrowings for capital
expenditures and working capital needs.
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each
obtained 364-day credit facilities in 2001, and the lines have been fully
drawn. Entergy Arkansas will primarily use the proceeds to pay for costs
incurred in the December 2000 ice storms. Entergy Louisiana and Entergy
Mississippi will use the proceeds for general corporate purposes and
working capital needs. The facilities have variable interest rates and the
average commitment fee is 0.13%. The amounts and dates obtained for the
facilities follow:
Amount of
Company Facility Date Obtained
Entergy Arkansas $ 63 million January 31, 2001
Entergy Louisiana $ 30 million January 31, 2001
Entergy Mississippi $ 25 million February 2, 2001
In 2001, Entergy, Entergy Mississippi, and Entergy New Orleans
requested an increase from the SEC in their current authorized short-term
borrowing limits, which includes borrowings under the money pool. The
increases requested are as follows:
Company Current Limit Requested Limit
Entergy Mississippi $ 103 million $ 160 million
Entergy New Orleans $ 35 million $ 100 million
Other Entergy subsidiaries $ 265 million $ 420 million
SEC approval of the request will increase the current SEC authorized short-
term borrowing limits for the domestic utility companies and System Energy,
which are effective through November 30, 2001, from $1.078 billion to
$1.2 billion. Note 4 to the financial statements contains details of the
amount of short-term indebtedness outstanding for Entergy, the domestic
utility companies, and System Energy as of December 31, 2000.
In 2000, long-term debt on Entergy's balance sheet were increased by
approximately $750 million by the issuance of notes payable to NYPA in the
Indian Point 3 and FitzPatrick acquisition. Also in 2000, the global power
development business increased its borrowings under the Damhead Creek
credit facility by approximately $164 million to finance construction of
the plant. Damhead Creek commenced commercial operation in 2001. Note 7
to the financial statements more thoroughly discusses these long-term debts.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Uses of Capital
For the years 2001 through 2003, Entergy plans to spend $8.2 billion
in a capital investment plan focused on improving service at the domestic
utility companies and growing its global power development and domestic non-
utility nuclear businesses. The estimated allocation in the plan is $2.6
billion to the domestic utility companies, $3.6 billion to the global power
development business, and $2.0 billion to the domestic non-utility nuclear
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.
The capital investment plan discussed above is subject to modification
based on the ongoing effects of transition to competition planning, the
ability to recover the regulated utility costs in rates, and the proposed
business combination with FPL Group. The Merger Agreement generally allows
Entergy to continue business in the ordinary course consistent with past
practice and contains certain restrictions on Entergy's activities,
including restrictions on the issuance of securities, capital expenditures,
dispositions, incurrence or guarantee of indebtedness, and trading or
marketing of energy. Entergy does not believe that these covenants will
constrain its capital investment plan. Under certain circumstances, if the
Merger Agreement is terminated, a termination fee of $215 million may be
payable by one of the parties. Additionally, the plan is contingent upon
the ability to access the capital necessary to finance the planned
expenditures, and significant borrowings may be necessary to implement
these capital spending plans.
PUHCA Restrictions on Uses of Capital
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 at the time an
investment is made to an amount equal to 50% of average consolidated
retained earnings for the previous four quarters. In June 2000, the SEC
issued an order that allows Entergy's EWG and FUCO investments to increase
from 50% to 100% of Entergy's average consolidated retained earnings. As
of December 31, 2000 Entergy's investments subject to this rule totaled
$770 million constituting 25% of its average consolidated retained
earnings.
Entergy's ability to guarantee obligations of its non-utility
subsidiaries is also limited by SEC regulations under PUHCA. In August
2000, the SEC issued an order, effective through December 31, 2005, that
allows Entergy to issue up to $2 billion of guarantees to its non-utility
companies, excluding guarantees outstanding as of that date that were
issued under a previous order.
Under PUHCA, the SEC imposes a limit equal to 15% of consolidated
capitalization on the amount that may be invested in "energy-related"
businesses without specific SEC approval. Entergy has made investments in
energy-related businesses, including power marketing and trading.
Entergy's available capacity to make additional investments at December 31,
2000 was approximately $1.8 billion.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Other Uses of Capital by Entergy Corporation
Under the terms of the Merger Agreement, Entergy will use its
commercially reasonable efforts to purchase in open market transactions
$430 million of its common stock prior to the close of the Merger. As of
December 31, 2000, Entergy has repurchased 4.2 million shares for an
aggregate amount of $145.6 million after the signing of the Merger
Agreement. Prior to the date of the Merger Agreement, Entergy had been
repurchasing shares under two Board authorizations. 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. This stock repurchase plan provided for open market
purchases 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 for the repurchase of Entergy common stock through
December 31, 2001. Shares were repurchased on a discretionary basis.
Prior to the date of the Merger Agreement, Entergy had repurchased 25.3
million shares for an aggregate amount of $652.5 million under these two
Board authorizations.
In 2000, Entergy Corporation paid $271.0 million in cash dividends on
its common stock and received dividend payments and returns of capital
totaling $918.3 million from subsidiaries. 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. Under the Merger Agreement, Entergy
can continue to pay dividends at existing levels with increases permitted
up to 5% over the amount of the previous twelve-month period. In October
2000 and January 2001, the Board declared quarterly dividends of $0.315 per
share on Entergy's common stock. This dividend level is an increase of 5%
over the dividend level for the twelve-month period prior to the Merger
Agreement.
Global Power Development Business
Included in the capital investment plan for Entergy's global power
development business are payments under an option it obtained in October
1999 to acquire twenty-four GE7FA advanced technology gas turbines, four
steam turbines, and eight GE7EA advanced technology gas turbines. In the
sale of the Freestone power project in June 2000, Entergy sold the rights
to acquire four of the GE7EA turbines and two of the steam turbines.
Deliveries of the remaining turbines are scheduled for 2001 through 2004.
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. In addition, management expects
that up to $225 million of the turbine acquisitions will be supported by
Entergy Corporation guarantees.
In 2000, Entergy's global power development business began
construction of the Warren Power Project, a 300 MW combined-cycle gas
turbine merchant power plant in Vicksburg, Mississippi. The construction
costs are expected to be approximately $150 million. Management expects
that commercial operation of the plant will begin in the summer of 2001.
Domestic Non-Utility Nuclear Business
In November 2000, Entergy's domestic non-utility nuclear business
purchased 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. Entergy paid NYPA $50 million in
cash at the closing of the purchase, and will pay seven annual installments
of approximately $108 million commencing one year from the date of the
closing, and eight annual installments of $20 million commencing eight
years from the date of the closing. Entergy currently projects that these
installments will be paid primarily from the proceeds of the sale of power
from the plants and that Entergy will provide an additional $100 million of
funding.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the terms of the agreement with NYPA, the installment
payments due by Entergy to NYPA must be secured by a letter of credit from
an eligible financial institution. On November 21, 2000, upon closing of
the acquisition of the NYPA plants, Entergy delivered a $577 million letter
of credit, with NYPA as beneficiary, in accordance with the terms of such
agreement. The letter of credit was backed by cash collateral, and this
cash is reflected in the balance sheet as "Special deposits." In February
2001, Entergy replaced $440 million of the cash collateral with an Entergy
Corporation guarantee. Most of the cash released by this guarantee was used
to fund Entergy's cash contribution made for its interest in the
Entergy/Koch Industries joint venture discussed below under "Joint
Ventures."
Included in the domestic non-utility nuclear business' capital
investment plan is the acquisition of Consolidated Edison's (Con Edison)
957 MW Indian Point 2 nuclear power plant (IP2) located in Westchester
County, New York. In November 2000, Entergy's domestic non-utility nuclear
business signed an agreement with Con Edison to purchase the plant.
Entergy will pay $600 million in cash at the closing of the purchase and
will receive the plant, nuclear fuel, and other assets, including a
purchase power agreement (PPA). The financing of the purchase may require
the support of an Entergy Corporation guarantee. On the second anniversary
of the IP2 acquisition, Entergy's domestic non-utility nuclear business
will also begin to pay NYPA $10 million per year for up to 10 years in
accordance with the Indian Point 3 purchase agreement. Under the PPA, Con
Edison will purchase 100% of IP2's output through 2004. Con Edison will
also transfer a $430 million decommissioning trust fund, along with the
liability to decommission IP2 and Indian Point 1, to Entergy's domestic non-
utility nuclear business. Management expects to close the acquisition by
mid-2001, pending the approvals of the NRC, the New York Public Service
Commission, and other regulatory agencies.
Joint Ventures
On January 31, 2001, subsidiaries of Entergy and Koch Industries, Inc.
formed a new limited partnership called Entergy-Koch, L.P. Entergy
contributed its power marketing and trading business in the United States
and the United Kingdom and made other contributions, including equity and
loans, totaling $414 million. Koch Energy, Inc. contributed to the venture
its 9,000-mile Koch Gateway Pipeline, gas storage facilities including the
Bistineau storage facility near Shreveport, Louisiana, and Koch Energy
Trading, which markets and trades electricity, gas, weather derivatives and
other energy-related commodities and services.
Entergy's global power development business has a 50% interest in RS
Cogen LLC, a joint venture with PPG Industries. In August 2000, RS Cogen
LLC completed a $242 million non-recourse financing for a 425 MW natural
gas-fired, combined-cycle power plant, known as the Riverside project. In
September 2000, construction of the plant began at estimated construction
costs approximately equal to the amount of the financing arrangement.
Management expects that commercial operation of the plant will begin in
2002.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
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>
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 (pages 74
through 79 and pages 147 through 209) present fairly, in all material
respects, the financial position of Entergy Corporation and its
subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Entergy's consolidated earnings applicable to common stock were $679.3
million for the year ended December 31, 2000 resulting in increases in
basic and diluted earnings per share of 33% and 32%, respectively. The
increase in earnings per share was also affected by Entergy's share
repurchase program. Entergy's consolidated earnings applicable to common
stock were $552.5 million for the year ended December 31, 1999 resulting in
a decrease in basic and diluted earnings per share of 25% compared with
1998.
The changes in earnings applicable to common stock by operating
segments for 2000 and 1999 as compared to the prior year are as follows:
Increase/(Decrease)
Operating Segments 2000 1999
(In Thousands)
Domestic Utility and System Energy $ 75,684 $ 29,020
Power Marketing & Trading 20,133 15,049
Domestic Non-Utility Nuclear 33,453 16,768
Global Power Development 46,246 (23,550)
Entergy London and CitiPower - (120,852)
Other, including parent company (48,681) (103,045)
-------- ---------
Total $126,835 $(186,610)
======== =========
Other for 1998 included the results of operations for Efficient
Solutions, Inc., Entergy Security, Inc., Entergy Power Edesur
Holdings, and several telecommunications businesses that were sold
between late 1998 and mid-1999. It also included the gains on the
1998 sales of Entergy London and CitiPower. See Note 14 to the
financial statements for additional business segment information.
The increase in 2000 earnings at the domestic utility companies and
System Energy was primarily due to:
o an increase in energy usage by customers;
o an increase in revenues as a result of a warmer than normal spring and
summer and a colder than normal winter;
o a decrease of $21.4 million in interest and other charges;
o a decrease of $45.5 million in reserves recorded in 2000 for potential
rate actions; and
o a $10.9 million decrease in preferred dividend requirements primarily
due to the retirement of Entergy Gulf States' preference stock.
The increases were partially offset by:
o an increase of $95.8 million in operation and maintenance expense;
o an increase of $44.5 million in depreciation and amortization expense;
o an increase of $23.5 million in taxes other than income taxes; and
o an increase in the effective income tax rate.
The increase at the power marketing and trading business in 2000 was
primarily due to:
o improved trading performance in electricity;
o increased long-term marketing of electricity; and
o trading gains in natural gas in the current year due to natural gas
prices reaching record high levels compared to trading losses in the
prior year.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The increase at the domestic non-utility nuclear business in 2000 was
primarily due to the ownership of Pilgrim for the entire year compared to
only six months in 1999, and the increase for 1999 was due to the purchase
of Pilgrim in July 1999.
The increase at the global power development business in 2000 was
primarily due to $55.1 million of liquidated damages received from the
Saltend contractor as compensation for lost operating margin from the plant
due to construction delays.
Other decreased in 2000 primarily due to the write-down of Entergy's
investments in Latin America to their fair market values. Other decreased
in 1999 primarily due to the non-recurring gains recorded on business sales
in 1998.
Entergy's income before taxes is discussed in two business categories,
"Domestic Utility Companies and System Energy" and "Competitive
Businesses". Competitive Businesses primarily includes power marketing and
trading, domestic non-utility nuclear, global power development, and
several businesses that were sold in 1998 and 1999.
Domestic Utility Companies and System Energy
The changes in electric operating revenues for Entergy's domestic
utility companies for 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues ($94.2) $81.2
Rate riders (17.1) (164.1)
Fuel cost recovery 792.5 188.7
Sales volume/weather 107.1 5.3
Other revenue (including unbilled) 135.8 74.3
Sales for resale 24.2 (50.3)
------ ------
Total $948.3 $135.1
====== ======
Base revenues
Base revenues decreased in 2000 primarily due to the non-recurring
effect on 1999 revenues of the reversal of regulatory reserves associated
with the accelerated amortization of accounting order deferrals discussed
below.
In 1999, base revenues increased 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 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.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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 related to the Louisiana
jurisdiction, Entergy Louisiana, and Entergy New Orleans in 1999 for
potential rate actions or rate refunds.
Rate riders
Rate rider revenues do not impact earnings since 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, resulting in a corresponding decrease in the
amortization of rate deferrals. 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.
Fuel cost recovery
The domestic utility companies are allowed to recover certain fuel and
purchased power costs through fuel mechanisms included in electric rates
that are recorded as fuel cost recovery revenues. The difference between
revenues collected and current fuel and purchased power costs is recorded
as deferred fuel costs on Entergy's financial statements such that these
costs generally have no net effect on earnings.
Fuel cost recovery revenues increased in 2000 primarily due to:
o increased fuel recovery factors at Entergy Arkansas, Entergy Gulf
States in the Texas jurisdiction, and Entergy Mississippi; and
o higher fuel and purchased power costs at Entergy Louisiana and Entergy
New Orleans due to the increased market price of natural gas.
Along with the increase in fuel cost recovery revenue, fuel and
purchased power expenses increased by $794.2 million in 2000 primarily due
to:
o an increase in the market prices of purchased power, natural gas, and
fuel oil; and
o an increase in volume due to an increase in demand.
The increase in fuel and purchased power expenses was partially offset by a
$23.5 million adjustment to the Entergy Arkansas deferred fuel balance to
record deferred fuel costs that Entergy Arkansas expects to recover in the
future through its fuel adjustment clause.
In 1999, fuel cost recovery revenues increased primarily due to:
o an increased fuel factor and a new fuel surcharge implemented by
Entergy Gulf States in the 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.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1999, fuel and purchased power expenses increased due to:
o higher natural 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 effects on revenue
Electric operating revenues also increased in 2000 due to:
o increased sales volume due to increased usage by industrial,
commercial, and residential customers;
o increased sales due to weather conditions in 2000;
o increased generation and subsequent sales from River Bend in 2000 as a
result of a refueling outage in 1999; and
o higher fuel prices included in unbilled revenues.
Electric sales vary seasonally in response to weather, and usually
peak in the summer. The effect of colder than normal winter weather
conditions in 2000 contributed to the increase in electric sales. In 2000,
electricity sales volume in the domestic utility companies' service
territories increased 1,522.7 GWH due to the impact of weather conditions.
Electric sales volume also increased 1,173.9 GWH due to higher demand by
industrial, commercial, and residential customers. The number of customers
in the domestic utility companies' service territories remained constant
during these periods.
Electric operating revenues also increased in 1999 primarily due to a
change in estimated unbilled revenues, which more closely aligned the fuel
component of unbilled revenues with regulatory treatment. This increase
was partially offset by a decline in sales for resale due to the loss of
certain municipal and co-op customer contracts at Entergy Arkansas.
Other operation and maintenance expenses
Other operation and maintenance expenses increased $95.8 million in
2000 primarily due to:
o increased property insurance expenses of $22.8 million primarily due
to storm damage accruals related to the December 2000 ice storms at
Entergy Arkansas and due to changes in storm damage reserve
amortization at Entergy Arkansas, Entergy Louisiana, and Entergy
Mississippi in accordance with regulatory treatment;
o increased customer service expenses of $11.4 million primarily related
to spending on vegetation management at Entergy Arkansas;
o increased nuclear expenses of $17.2 million primarily from Entergy
Arkansas and Entergy Gulf States;
o an increase of $28.4 million primarily due to an increase in legal and
contract expenses for the transition to retail open access at Entergy
Arkansas and Entergy Gulf States and for legal services employed for
rate-related proceedings at Entergy Louisiana; and
o an increase of $21.9 million in plant maintenance expense primarily at
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy
Mississippi.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The increase in other operation and maintenance expenses in 2000 was
partially offset by the following:
o a $9.5 million larger nuclear insurance refund in 2000 compared to
1999; and
o a decrease in injury and damages claims of $12.3 million.
In 1999, other operation and maintenance expenses increased $68.3
million primarily due to:
o increased customer service and reliability improvements throughout the
system;
o increases in storm damage accruals, employee pension and benefits, and
environmental expenses; and
o increases in maintenance work at Entergy Arkansas and Entergy
Mississippi.
Depreciation and amortization
Depreciation and amortization expenses increased $44.5 million in 2000
primarily due to:
o the review of plant-in-service dates for consistency with regulatory
treatment that reduced depreciation expense by $17.7 million in August
1999;
o increased depreciation of $14.0 million associated with the principal
payment on the sale and leaseback of Grand Gulf 1; and
o net capital additions primarily at Entergy Louisiana and Entergy
Mississippi.
In 1999, depreciation and amortization expenses decreased $32.8
million 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.
Interest charges
Interest charges decreased $21.4 million in 2000 primarily due to an
adjustment in 1999 at System Energy to the interest recorded for the
potential refund to customers of its proposed rate increase pending at
FERC. System Energy's proposed rate increase is discussed in Note 2 to the
financial statements.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1999, interest charges decreased due to the retirement and
refinancing of long-term debt, partially offset by the interest recorded on
the potential refund of System Energy's proposed rate increase.
Competitive Businesses
The changes in operating revenues for the competitive businesses by
operating segments in 2000 and 1999 are as follows:
Increase/(Decrease)
2000 1999
(In Millions)
Power Marketing & Trading $(117.9) $(605.7)
Domestic Non-Utility Nuclear 188.4 104.6
Global Power Development 201.4 0.1
Entergy London and CitiPower - (2,215.1)
Other (16.9) (108.2)
------ ---------
Total $255.0 $(2,824.3)
====== =========
The decrease in 2000 for the power marketing and trading business
results from decreased electricity and gas trading volumes. Although
revenues decreased, the power marketing and trading business had an
increase in operating income for the year ended December 31, 2000,
primarily due to:
o decreased purchased power expenses as discussed below;
o improved trading performance in electricity;
o increased long-term marketing of electricity; and
o trading gains in natural gas in the current year due to natural gas
prices reaching record high levels compared to trading losses in the
prior year.
The decrease in 1999 for the power marketing and trading business
resulted primarily from decreased electricity trading volume due to
significantly warmer weather in 1998 than in 1999. 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
smaller operating loss for this business for the year ended December 31,
1999 as compared to 1998.
The increase in 2000 for the domestic non-utility nuclear business was
primarily from the operation of the Pilgrim, Indian Point 3, and
FitzPatrick plants. Pilgrim was purchased in July 1999 and Indian Point 3
and FitzPatrick were purchased in November 2000. The increase in 1999 for
the domestic non-utility nuclear business was primarily from the operation
of Pilgrim.
The increase in 2000 for the global power development business was
primarily due to the results from its interest in Highland Energy, which
was acquired in June 2000, and the results from the Saltend plant, which
began commercial operation in late November 2000. However, the impact on
net income from increased revenues from the global power development
business is offset by increased fuel and purchased power as discussed
below.
The decrease in 1999 for Entergy London and CitiPower was due to the
sale of these businesses in 1998.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fuel and purchased power expenses
Fuel costs constitute the largest expense for the competitive
businesses. Fuel and purchased power expenses increased $20.4 million in
2000, primarily due to Highland Energy's operations and increased expenses
for the domestic non-utility nuclear business from Pilgrim contributing for
all of 2000 compared with only six months in 1999, along with the
acquisition of Indian Point 3 and FitzPatrick in November 2000.
Partially offsetting the overall increase in 2000 in fuel and
purchased power expenses is the decrease of $206.9 million from the power
marketing and trading business attributable to decreased electricity and
gas trading volumes.
Fuel and purchased power expenses decreased in 1999 primarily due to:
o the sales of London Electricity and CitiPower;
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 were partially offset by increased gas trading volume in
the power marketing and trading business.
Other operation and maintenance expenses
Other operation and maintenance expenses increased $98.6 million in
2000 primarily from the operation of Pilgrim for all of 2000 compared with
only six months in 1999, partially offset by a decrease in the elimination
of mark-to-market profits on intercompany power transactions.
Other operation and maintenance expenses decreased $349.7 million in
1999 primarily due to the sales of London Electricity and CitiPower. 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 domestic non-utility nuclear business resulting
primarily from the operation of Pilgrim for six months in 1999.
Other income
Other income decreased $38.5 million for the year ended December 31,
2000 primarily due to a $42.5 million ($27.6 million net of tax) write-down
in 2000 to their estimated fair values of investments in Latin American
projects. The decrease is also due to the absence of the following items
that occurred in 1999:
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 million net of tax) gain on the sale of Entergy
Hyperion Telecommunications in June 1999;
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; and
o a more favorable experience on warranty reserves in 1999 for the
businesses sold during 1998.
<PAGE>
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Partially offsetting the overall decrease was the following in 2000:
o liquidated damages of $55.1 million ($38.6 million net of tax)
received from the Saltend contractor as compensation for lost operating
margin from the Saltend plant due to construction delays;
o an increase of $16.2 million in interest and dividend income; and
o a $20.5 million ($13.3 million net of tax) gain in June 2000 on the
sale of the global power development business' investment in the
Freestone project located in Fairfield, Texas.
Other income decreased in 1999 primarily due 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 in 1999 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 gains on sales of businesses in 1999, as listed above;
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.
Interest charges
Other interest charges increased $29.0 million in 2000 primarily due
to:
o the accretion of the decommissioning liability associated with
Pilgrim; and
o increased interest expense of $16.0 million related to borrowings on
Entergy Corporation's short-term credit facility.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 were 40.3%,
37.5%, and 25.3%, respectively. The increase in 2000 was primarily due to
the recognition in 1999 of deferred tax benefits related to the expected
utilization of foreign tax credits resulting in lower income taxes.
The effective income tax rate increased in 1999, partially offset by
the recognition of foreign tax credits discussed above, primarily due to
the following in 1998:
o the 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.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
2000 1999 1998
(In Thousands, Except Share Data)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $7,219,686 $6,271,414 $6,136,322
Natural gas 165,872 110,355 115,355
Steam products - 15,852 43,167
Competitive businesses 2,630,590 2,375,607 5,199,928
----------- ---------- -----------
TOTAL 10,016,148 8,773,228 11,494,772
----------- ---------- -----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 2,645,835 2,082,875 1,706,028
Purchased power 2,662,881 2,442,484 4,585,444
Nuclear refueling outage expenses 70,511 76,057 83,885
Other operation and maintenance 1,901,314 1,705,545 1,988,040
Decommissioning 39,484 45,988 46,750
Taxes other than income taxes 370,344 339,284 362,153
Depreciation and amortization 746,125 698,881 938,179
Other regulatory charges - net 3,681 14,833 35,136
Amortization of rate deferrals 30,392 115,627 237,302
----------- ---------- -----------
TOTAL 8,470,567 7,521,574 9,982,917
----------- ---------- -----------
OPERATING INCOME 1,545,581 1,251,654 1,511,855
----------- ---------- -----------
OTHER INCOME
Allowance for equity funds used during construction 32,022 29,291 12,465
Gain (loss) on sale of assets - net (20,466) 71,926 274,941
Miscellaneous - net 190,129 154,423 85,618
----------- ---------- -----------
TOTAL 201,685 255,640 373,024
----------- ---------- -----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 477,071 476,877 735,601
Other interest - net 85,635 82,471 65,047
Distributions on preferred securities of subsidiaries 18,838 18,838 42,628
Allowance for borrowed funds used during construction (24,114) (22,585) (10,761)
----------- ---------- -----------
TOTAL 557,430 555,601 832,515
----------- ---------- -----------
INCOME BEFORE INCOME TAXES 1,189,836 951,693 1,052,364
Income taxes 478,921 356,667 266,735
----------- ---------- -----------
CONSOLIDATED NET INCOME 710,915 595,026 785,629
Preferred dividend requirements and other 31,621 42,567 46,560
----------- ---------- -----------
EARNINGS APPLICABLE TO
COMMON STOCK $679,294 $552,459 $739,069
=========== ========== ===========
Earnings per average common share:
Basic $3.00 $2.25 $3.00
Diluted $2.97 $2.25 $3.00
Dividends declared per common share $1.22 $1.20 $1.50
Average number of common shares outstanding:
Basic 226,580,449 245,127,460 246,396,469
Diluted 228,541,307 245,326,883 246,572,328
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Consolidated net income $710,915 $595,026 $785,629
Noncash items included in net income:
Amortization of rate deferrals 30,392 115,627 237,302
Reserve for regulatory adjustments 18,482 10,531 130,603
Other regulatory charges - net 3,681 14,833 35,136
Depreciation, amortization, and decommissioning 785,609 744,869 984,929
Deferred income taxes and investment tax credits 124,457 (189,465) (64,563)
Allowance for equity funds used during construction (32,022) (29,291) (12,465)
(Gain) loss on sale of assets - net 20,466 (71,926) (274,941)
Changes in working capital (net of effects from acquisitions and dispositions):
Receivables (437,146) 9,246 24,176
Fuel inventory (20,447) (1,359) 28,439
Accounts payable 543,606 35,233 31,229
Taxes accrued 20,871 158,733 58,505
Interest accrued 45,789 (56,552) (37,937)
Deferred fuel (38,001) 10,583 63,991
Other working capital accounts 102,336 45,285 43,209
Provision for estimated losses and reserves 6,019 (59,464) (133,880)
Changes in other regulatory assets (66,903) (36,379) (13,684)
Other 149,743 93,494 (49,996)
---------- ---------- ----------
Net cash flow provided by operating activities 1,967,847 1,389,024 1,835,682
---------- ---------- ----------
INVESTING ACTIVITIES
Construction/capital expenditures (1,493,717) (1,195,750) (1,143,612)
Allowance for equity funds used during construction 32,022 29,291 12,465
Nuclear fuel purchases (121,127) (137,649) (102,747)
Proceeds from sale/leaseback of nuclear fuel 117,154 137,093 128,210
Proceeds from sale of businesses 61,519 351,082 2,275,014
Investment in other nonregulated/nonutility properties (238,062) (81,273) (85,014)
Proceeds from other temporary investments 321,351 956,356 -
Purchase of other temporary investments - (321,351) (947,444)
Decommissioning trust contributions and realized change in trust assets (63,805) (61,766) (73,641)
Other regulatory investments (385,331) (81,655) (82,984)
Other (44,016) (42,258) -
---------- ---------- ----------
Net cash flow used in investing activities (1,814,012) (447,880) (19,753)
---------- ---------- ----------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from the issuance of:
Long-term debt 904,522 1,113,370 1,904,074
Common stock 41,908 15,320 19,341
Retirement of:
Long-term debt (181,329) (1,195,451) (3,151,680)
Repurchase of common stock (550,206) (245,004) (2,964)
Redemption of preferred stock (157,658) (98,597) (17,481)
Changes in short-term borrowings - net 267,000 (165,506) 205,412
Dividends paid:
Common stock (271,019) (291,483) (373,441)
Preferred stock (32,400) (43,621) (46,809)
---------- ---------- ----------
Net cash flow provided by (used in) financing activities 20,818 (910,972) (1,463,548)
---------- ---------- ----------
Effect of exchange rates on cash and cash equivalents (5,948) (948) 1,567
---------- ---------- ----------
Net increase in cash and cash equivalents 168,705 29,224 353,948
Cash and cash equivalents at beginning of period 1,213,719 1,184,495 830,547
---------- ---------- ----------
Cash and cash equivalents at end of period $1,382,424 $1,213,719 $1,184,495
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $505,414 $601,739 $833,728
Income taxes $345,361 $373,537 $273,935
Noncash investing and financing activities:
Change in unrealized appreciation/(depreciation) of
decommissioning trust assets ($11,577) $41,582 $46,325
Decommissioning trust fund acquired in Pilgrim acquisition - $428,284 -
Acquisition of Indian Point 3 and FitzPatrick
Fair value of assets acquired $917,667 - -
Initial cash paid at closing $50,000 - -
Liabilities assumed and notes issued to seller $867,667 - -
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $157,550 $108,198
Temporary cash investments - at cost,
which approximates market 640,038 1,105,521
Special deposits 584,836 -
----------- -----------
Total cash and cash equivalents 1,382,424 1,213,719
----------- -----------
Other temporary investments - at cost,
which approximates market - 321,351
Notes receivable 3,608 2,161
Accounts receivable:
Customer 497,821 290,331
Allowance for doubtful accounts (9,947) (9,507)
Other 395,518 213,939
Accrued unbilled revenues 415,409 298,616
----------- -----------
Total receivables 1,298,801 793,379
----------- -----------
Deferred fuel costs 568,331 240,661
Fuel inventory - at average cost 93,679 73,231
Materials and supplies - at average cost 425,357 392,403
Rate deferrals 16,581 30,394
Deferred nuclear refueling outage costs 46,544 58,119
Prepayments and other 122,690 78,567
----------- -----------
TOTAL 3,958,015 3,203,985
----------- -----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 214 214
Decommissioning trust funds 1,315,857 1,246,023
Non-utility property - at cost (less accumulated depreciation) 334,270 317,165
Non-regulated investments 331,604 198,003
Other - at cost (less accumulated depreciation) 22,298 16,714
----------- -----------
TOTAL 2,004,243 1,778,119
----------- -----------
UTILITY PLANT
Electric 25,137,562 23,163,161
Plant acquisition adjustment 390,664 406,929
Property under capital lease 769,370 768,500
Natural gas 190,989 186,041
Construction work in progress 936,785 1,500,617
Nuclear fuel under capital lease 277,673 286,476
Nuclear fuel 157,603 87,693
----------- -----------
TOTAL UTILITY PLANT 27,860,646 26,399,417
Less - accumulated depreciation and amortization 11,364,021 10,898,661
----------- -----------
UTILITY PLANT - NET 16,496,625 15,500,756
----------- -----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals - 16,581
SFAS 109 regulatory asset - net 980,266 1,068,006
Unamortized loss on reacquired debt 183,627 198,631
Deferred fuel costs 95,661 -
Other regulatory assets 792,515 637,870
Long-term receivables 29,575 32,260
Other 1,024,700 533,732
----------- -----------
TOTAL 3,106,344 2,487,080
----------- -----------
TOTAL ASSETS $25,565,227 $22,969,940
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $464,215 $194,555
Notes payable 388,023 120,715
Accounts payable 1,204,227 707,678
Customer deposits 172,169 161,909
Taxes accrued 451,811 445,677
Accumulated deferred income taxes 225,649 72,640
Nuclear refueling outage costs 10,209 11,216
Interest accrued 172,033 129,028
Obligations under capital leases 156,907 178,247
Other 192,908 125,749
----------- -----------
TOTAL 3,438,151 2,147,414
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 3,249,083 3,310,340
Accumulated deferred investment tax credits 494,315 519,910
Obligations under capital leases 201,873 205,464
FERC settlement - refund obligation 30,745 37,337
Other regulatory liabilities 218,172 199,139
Decommissioning 749,708 703,453
Transition to competition 191,934 157,034
Regulatory reserves 396,789 378,307
Accumulated provisions 390,116 279,425
Other 853,137 527,027
----------- -----------
TOTAL 6,775,872 6,317,436
----------- -----------
Long-term debt 7,732,093 6,612,583
Preferred stock with sinking fund 65,758 69,650
Preference stock - 150,000
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated deferrable debentures 215,000 215,000
SHAREHOLDERS' EQUITY
Preferred stock without sinking fund 334,688 338,455
Common stock, $.01 par value, authorized 500,000,000
shares; issued 248,094,614 shares in 2000 and
247,082,345 shares in 1999 2,481 2,471
Paid-in capital 4,660,483 4,636,163
Retained earnings 3,190,639 2,786,467
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (73,998) (68,782)
Net unrealized investment losses (1,035) (5,023)
Less - treasury stock, at cost (28,490,031 shares in 2000 and
8,045,434 shares in 1999) 774,905 231,894
----------- -----------
TOTAL 7,338,353 7,457,857
----------- -----------
Commitments and Contingencies (Notes 2, 9, 10, and 11)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $25,565,227 $22,969,940
=========== ===========
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,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Retained Earnings - Beginning of period $2,786,467 $2,526,888 $2,157,912
Add - Earnings applicable to common stock 679,294 $679,294 552,459 $552,459 739,069 $739,069
Deduct:
Dividends declared on common stock 275,929 294,352 369,498
Capital stock and other expenses (807) (1,472) 595
---------- ---------- ----------
Total 275,122 292,880 370,093
---------- ---------- ----------
Retained Earnings - End of period $3,190,639 $2,786,467 $2,526,888
========== ========== ==========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period ($73,805) ($46,739) ($69,817)
Foreign currency translation adjustments (5,216) (5,216) (22,043) (22,043) 23,078 23,078
Net unrealized investment gains (losses) 3,988 3,988 (5,023) (5,023) - -
-------- -------- --------
Balance at end of period ($75,033) ($73,805) ($46,739)
======== -------- ======== -------- ======== --------
Comprehensive Income $678,066 $525,393 $762,147
======== ======== ========
PAID-IN CAPITAL
Paid-in Capital - Beginning of period $4,636,163 $4,630,609 $4,613,572
Add:
Common stock issuances related to stock plans 24,320 5,554 17,037
---------- ---------- ----------
Paid-in Capital - End of period $4,660,483 $4,636,163 $4,630,609
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 (1) 1997 (2) 1996 (3)
(In Thousands, Except Percentages and Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $10,016,148 $ 8,773,228 $11,494,772 $ 9,538,926 $ 7,163,526
Consolidated net income $ 710,915 $ 595,026 $ 785,629 $ 300,899 $ 490,563
Earnings per share
Basic $ 3.00 $ 2.25 $ 3.00 $ 1.03 $ 1.83
Diluted $ 2.97 $ 2.25 $ 3.00 $ 1.03 $ 1.83
Dividends declared per share $ 1.22 $ 1.20 $ 1.50 $ 1.80 $ 1.80
Return on average common equity 9.62% 7.77% 10.71% 3.71% 6.41%
Book value per share, year-end $ 31.89 $ 29.78 $ 28.82 $ 27.23 $ 28.51
Total assets $25,565,227 $22,969,940 $22,836,694 $27,000,700 $22,956,025
Long-term obligations (4) $ 8,214,724 $ 7,252,697 $ 7,349,349 $10,154,330 $ 8,335,150
</TABLE>
(1) Includes the effects of the sales 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.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Domestic Electric Operating Revenues:
Residential $2,524,529 $2,231,091 $2,299,317 $2,271,363 $2,277,647
Commercial 1,699,699 1,502,267 1,513,050 1,581,878 1,573,251
Industrial 2,177,236 1,878,363 1,829,085 2,018,625 1,987,640
Governmental 185,286 163,403 172,368 171,773 169,287
---------------------------------------------------------------
Total retail 6,586,750 5,775,124 5,813,820 6,043,639 6,007,825
Sales for resale 423,519 397,844 448,842 359,881 376,011
Other (1) 209,417 98,446 (126,340) 135,311 67,104
---------------------------------------------------------------
Total $7,219,686 $6,271,414 $6,136,322 $6,538,831 $6,450,940
===============================================================
Billed Electric Energy
Sales (GWH):
Residential 31,998 30,631 30,935 28,286 28,303
Commercial 24,657 23,775 23,177 21,671 21,234
Industrial 43,956 43,549 43,453 44,649 44,340
Governmental 2,605 2,564 2,659 2,507 2,449
---------------------------------------------------------------
Total retail 103,216 100,519 100,224 97,113 96,326
Sales for resale 9,794 9,714 11,187 9,707 10,583
---------------------------------------------------------------
Total 113,010 110,233 111,411 106,820 106,909
===============================================================
(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 (pages 86 through 91
and pages 147 through 209) present fairly, in all material respects, the
financial position of Entergy Arkansas, Inc. at December 31, 2000 and 1999,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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
of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased in 2000 primarily due to increased electric
operating revenues and lower regulatory charges, partially offset by
increased operation and maintenance expenses.
Net income decreased in 1999 primarily due to decreased electric
operating revenues and increased operation and maintenance expenses,
partially offset by lower regulatory charges.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues ($6.5) $4.5
Rate riders (21.8) (68.2)
Fuel cost recovery 61.8 36.4
Sales volume/weather 30.8 3.8
Other revenue (including unbilled) 47.6 (25.2)
Sales for resale 108.8 (18.1)
------ ------
Total $220.7 ($66.8)
====== ======
Rate riders
Rate rider revenues have no material effect on net income because
specific incurred expenses offset them.
In 2000, rate rider revenues decreased as a result of the decreased
ANO Decommissioning and Grand Gulf rate riders, both of which became
effective in January 2000. The ANO Decommissioning rider allows Entergy
Arkansas to recover the decommissioning costs associated with ANO 1 and 2.
The Grand Gulf rate rider allows Entergy Arkansas to recover its
recoverable share of operating costs for Grand Gulf 1.
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.
Fuel cost recovery
Entergy Arkansas is allowed to recover certain fuel and purchased
power costs through fuel mechanisms included in electric rates that are
recorded as fuel cost recovery revenues. The difference between revenues
collected and current fuel and purchased power costs is recorded as
deferred fuel costs on Entergy Arkansas' financial statements such that
these costs generally have no net effect on earnings.
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fuel cost recovery revenues increased in 2000 primarily due to an
increase in the energy cost rate in April 2000, which is determined
annually by a formula in the energy cost recovery rider (Rider ECR) in
April 2000. The increase in the energy cost rate allows Entergy Arkansas
to recover previously deferred fuel expenses. Rider ECR is discussed
further in Note 2 to the financial statements.
Fuel cost recovery revenues increased in 1999 due to an increase in
the energy cost recovery rider, effective in April 1999, and the completion
of a customer refund obligation in 1998, which lowered 1998 fuel cost
recovery.
Sales volume/weather
Sales volume increased in 2000 primarily due to increased usage by
industrial, commercial, and residential customers, as well as the effect of
more favorable weather on the residential and commercial sectors.
Other revenue (including unbilled)
In 2000, other revenue increased primarily as a result of a change in
estimated unbilled revenues and a $13.4 million adjustment to third quarter
1999 unbilled revenues that excluded fuel recovery and rate rider revenues
from the unbilled balance in accordance with regulatory treatment. The
change in estimate is discussed below. Unbilled revenues also increased
due to greater unbilled volume and the addition of unbilled revenue for
wholesale customers to the unbilled balance.
In 1999, other revenue decreased primarily as a result of a change in
estimated unbilled revenues in the second quarter 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. Comparative impacts are also affected by
seasonal impacts on demand.
Sales for resale
In 2000, sales for resale increased primarily due to an increase in
the market price of electricity.
In 1999, sales for resale decreased due to the loss of certain
municipal and co-op customer contracts.
Expenses
Fuel and purchased power expenses
In 2000, fuel and purchased power expenses increased primarily due to:
o an increase in the market price of natural gas;
o an increase in the market price of purchased power; and
o increased purchased power volume due to increased demand for
electricity and to offset decreased nuclear generation due to
maintenance, inspection, and refueling outages during the year.
The increased fuel and purchased power expenses were partially offset by a
$23.5 million adjustment to the deferred fuel balance as a result of the
1999 and 2000 ECR filings. This adjustment reflects deferred costs that
Entergy Arkansas expects to recover in the future.
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In 1999, fuel and purchased power expenses increased primarily due to:
o higher-priced gas generation as a result of refueling outages at ANO 1
and ANO 2, a mid-cycle maintenance outage at ANO 2, 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.
Other operation and maintenance
Other operation and maintenance expenses increased for 2000 primarily
due to:
o an increase in property damage expense of $14.5 million due to
December 2000 ice storms;
o an increase in nuclear expenses of $7.9 million related to maintenance
and inspection outages and the steam generator replacement project at
ANO 2;
o an increase in spending of $7.1 million on vegetation management;
o an increase in plant maintenance expense of $5.0 million; and
o an increase in spending of $4.5 million for outside services employed
related primarily to legal and contract services for transition work.
Other operation and maintenance expenses increased for 1999 primarily
due to:
o an increase in customer service costs of $12.9 million related to tree
trimming around power lines;
o an increase in plant maintenance costs of $7.9 million;
o an increase in employee pension and benefits costs of $5.0 million;
and
o an increase in administrative and general salaries expense of $4.5
million.
Decommissioning
Decommissioning expense decreased primarily due to a true-up of the
decommissioning liability in June 2000 for previous over-accruals.
Other regulatory charges (credits)
In 2000, other regulatory credits increased primarily due to:
o a $16.6 million under-recovery of Grand Gulf 1 costs as a result of a
decreased rate rider that became effective in January 2000 as ordered
by the APSC;
o the recording of a regulatory asset for certain transition costs
expected to be recovered in a customer transition tariff; and
o accruals in 1999 of excess earnings in the transition cost account.
Accruals previously made in 2000 for estimated excess earnings were
reversed in order to offset expenses related to the December ice storms.
<PAGE>
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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.
The transition cost account and the December 2000 ice storms are
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.
Other
Interest charges
Interest charges increased in 2000 due to the issuance of $100 million
of long-term debt in March 2000.
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.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 were 42.3%,
43.8%, and 39.1%, respectively.
The effective income tax rate increased in 1999 primarily due to
accelerated tax depreciation deductions for which deferred taxes have not
been previously normalized, reflecting a shorter tax life on certain
assets.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $1,762,635 $1,541,894 $1,608,698
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 258,294 257,946 204,318
Purchased power 560,793 455,425 419,947
Nuclear refueling outage expenses 25,884 29,857 32,046
Other operation and maintenance 427,409 389,462 358,006
Decommissioning 3,845 10,670 15,583
Taxes other than income taxes 39,662 36,669 37,223
Depreciation and amortization 169,806 161,234 165,853
Other regulatory charges (credits) - net (33,078) 5,230 45,658
Amortization of rate deferrals - - 75,249
---------- ---------- ----------
TOTAL 1,452,615 1,346,493 1,353,883
---------- ---------- ----------
OPERATING INCOME 310,020 195,401 254,815
---------- ---------- ----------
OTHER INCOME
Allowance for equity funds used during construction 15,020 12,866 5,921
Gain (loss) on sale of assets (8) - 1,777
Miscellaneous - net 4,339 3,622 12,292
---------- ---------- ----------
TOTAL 19,351 16,488 19,990
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 88,140 80,800 86,772
Other interest - net 8,360 11,123 4,813
Distributions on preferred securities of subsidiary 5,100 5,100 5,100
Allowance for borrowed funds used during construction (9,788) (8,459) (4,205)
---------- ---------- ----------
TOTAL 91,812 88,564 92,480
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 237,559 123,325 182,325
Income taxes 100,512 54,012 71,374
---------- ---------- ----------
NET INCOME 137,047 69,313 110,951
Preferred dividend requirements and other 7,776 10,854 10,201
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $129,271 $58,459 $100,750
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $137,047 $69,313 $110,951
Noncash items included in net income:
Amortization of rate deferrals - - 75,249
Other regulatory charges (credits) - net (33,078) 5,230 45,658
Depreciation, amortization, and decommissioning 173,651 171,904 181,436
Deferred income taxes and investment tax credits 39,776 22,421 (12,293)
Allowance for equity funds used during construction (15,020) (12,866) (5,921)
(Gain) loss on sale of assets 8 - (1,777)
Changes in working capital:
Receivables (47,647) 40,375 61,143
Fuel inventory (6,512) (4,633) 8,317
Accounts payable 141,172 56,985 (7,911)
Taxes accrued 1,731 (30,054) (8,742)
Interest accrued 5,246 (2,908) (3,541)
Deferred fuel costs 35,993 38,814 (17,575)
Other working capital accounts 17,162 2,444 (6,845)
Provision for estimated losses and reserves (895) (8,116) 2,032
Changes in other regulatory assets (85,452) 45,898 (13,029)
Other 58,378 (42,249) 41,499
--------- --------- ---------
Net cash flow provided by operating activities 421,560 352,558 448,651
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (369,370) (238,009) (190,459)
Allowance for equity funds used during construction 15,020 12,866 5,921
Nuclear fuel purchases (44,722) (32,517) (45,845)
Proceeds from sale/leaseback of nuclear fuel 44,722 32,517 42,055
Decommissioning trust contributions and realized
change in trust assets (15,761) (17,746) (25,929)
Other regulatory investments (97,343) (39,243) (39,860)
--------- --------- ---------
Net cash flow used in investing activities (467,454) (282,132) (254,117)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 99,381 - -
Retirement of:
Long-term debt (220) (39,607) (151,424)
Redemption of preferred stock - (22,666) (9,000)
Dividends paid:
Common stock (44,600) (82,700) (92,600)
Preferred stock (7,691) (11,696) (10,407)
--------- --------- ---------
Net cash flow provided by (used in) financing activities 46,870 (156,669) (263,431)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 976 (86,243) (68,897)
Cash and cash equivalents at beginning of period 6,862 93,105 162,002
--------- --------- ---------
Cash and cash equivalents at end of period $7,838 $6,862 $93,105
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $91,291 $94,872 $95,050
Income taxes $60,291 $61,273 $91,407
Noncash investing and financing activities:
Change in unrealized appreciation/(depreciation) of
decommissioning trust assets ($3,920) $22,980 $26,782
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $7,838 $6,862
Accounts receivable:
Customer 98,550 73,357
Allowance for doubtful accounts (1,667) (1,768)
Associated companies 22,286 26,816
Other 26,221 11,625
Accrued unbilled revenues 65,887 53,600
---------- ----------
Total receivables 211,277 163,630
---------- ----------
Deferred fuel costs 102,970 41,620
Fuel inventory - at average cost 9,809 3,297
Materials and supplies - at average cost 80,682 85,612
Deferred nuclear refueling outage costs 23,541 28,119
Prepayments and other 5,540 6,480
---------- ----------
TOTAL 441,657 335,620
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 11,217 11,215
Decommissioning trust funds 355,852 344,011
Non-utility property - at cost (less accumulated depreciation) 1,469 1,463
Other - at cost (less accumulated depreciation) 3,032 3,033
---------- ----------
TOTAL 371,570 359,722
---------- ----------
UTILITY PLANT
Electric 5,274,066 4,854,433
Property under capital lease 40,289 44,471
Construction work in progress 87,389 267,091
Nuclear fuel under capital lease 107,023 85,725
Nuclear fuel 6,720 9,449
---------- ----------
TOTAL UTILITY PLANT 5,515,487 5,261,169
Less - accumulated depreciation and amortization 2,449,821 2,401,021
---------- ----------
UTILITY PLANT - NET 3,065,666 2,860,148
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 162,952 192,344
Unamortized loss on reacquired debt 44,428 48,193
Other regulatory assets 221,805 106,959
Other 4,775 14,125
---------- ----------
TOTAL 433,960 361,621
---------- ----------
TOTAL ASSETS $4,312,853 $3,917,111
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $100 $220
Notes payable 667 667
Accounts payable:
Associated companies 94,776 81,958
Other 231,313 102,959
Customer deposits 29,775 26,320
Taxes accrued 40,263 38,532
Accumulated deferred income taxes 55,127 38,649
Interest accrued 27,624 22,378
Obligations under capital leases 45,962 55,150
Other 14,942 11,598
---------- ----------
TOTAL 540,549 378,431
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 715,891 713,622
Accumulated deferred investment tax credits 88,264 94,852
Obligations under capital leases 101,350 75,045
Other regulatory liabilities 84,642 88,563
Transition to competition 119,553 109,933
Accumulated provisions 42,393 43,288
Other 64,267 51,015
---------- ----------
TOTAL 1,216,360 1,176,318
---------- ----------
Long-term debt 1,239,712 1,130,801
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 2000
and 1999 470 470
Paid-in capital 591,127 591,127
Retained earnings 548,285 463,614
---------- ----------
TOTAL 1,256,232 1,171,561
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,312,853 $3,917,111
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY ARKANSAS, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
Retained Earnings, January 1 $463,614 $487,855 $479,705
Add:
Net income 137,047 69,313 110,951
Deduct:
Dividends declared:
Preferred stock 7,776 9,223 10,201
Common stock 44,600 82,700 92,600
Capital stock expenses and other - 1,631 -
-------- -------- --------
Total 52,376 93,554 102,801
-------- -------- --------
Retained Earnings, December 31 (Note 8) $548,285 $463,614 $487,855
======== ======== ========
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY ARKANSAS, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 1997 1996
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $1,762,635 $1,541,894 $1,608,698 $1,715,714 $1,743,433
Net income $ 137,047 $ 69,313 $ 110,951 $ 127,977 $ 157,798
Total assets $4,312,853 $3,917,111 $4,006,651 $4,106,877 $4,153,817
Long-term obligations (1) $1,401,062 $1,265,846 $1,335,248 $1,419,728 $1,439,355
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt),
preferred securities of subsidiary trust, and noncurrent capital
lease obligations.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $561,363 $533,245 $562,325 $551,821 $546,100
Commercial 307,320 288,677 288,816 332,715 323,328
Industrial 353,046 335,824 330,016 372,083 364,943
Governmental 14,935 14,606 14,640 18,200 16,989
-----------------------------------------------------------
Total retail 1,236,664 1,172,352 1,195,797 1,274,819 1,251,360
Sales for resale:
Associated companies 245,541 178,150 149,603 213,845 248,211
Non-associated companies 234,873 193,449 240,090 215,249 207,887
Other 45,557 (2,057) 23,208 11,801 35,975
-----------------------------------------------------------
Total $1,762,635 $1,541,894 $1,608,698 $1,715,714 $1,743,433
===========================================================
Billed Electric Energy
Sales (GWH):
Residential 6,791 6,493 6,613 5,988 6,023
Commercial 5,063 4,880 4,773 4,445 4,390
Industrial 7,240 7,054 6,837 6,647 6,487
Governmental 239 237 233 239 234
-----------------------------------------------------------
Total retail 19,333 18,664 18,456 17,319 17,134
Sales for resale:
Associated companies 6,513 7,592 6,500 9,557 10,471
Non-associated companies 5,537 4,868 5,948 6,828 6,720
-----------------------------------------------------------
Total 31,383 31,124 30,904 33,704 34,325
===========================================================
</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 (pages 99 through 103
and pages 147 through 209) present fairly, in all material respects, the
financial position of Entergy Gulf States, Inc. at December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased in 2000 primarily due to increased sales volume,
increased unbilled revenue, increased wholesale revenue, and decreased
regulatory reserves.
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.
Revenues and Sales
Electric operating revenues
The changes in electric operating revenues for the twelve months ended
December 31, 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues ($83.2) $146.4
Fuel cost recovery 342.5 104.9
Sales volume/weather 40.7 1.0
Other revenue (including unbilled) 29.8 31.3
Sales for resale 58.7 21.2
------ ------
Total $388.5 $304.8
====== ======
Base revenues
In 2000, base revenues decreased primarily due to the reversal in 1999
of regulatory reserves discussed below associated with the accelerated
amortization of accounting order deferrals and rate refunds in conjunction
with the Texas rate settlement.
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 in 1999 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 earnings reviews.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The LPSC and PUCT rate issues are discussed in Note 2 to the financial
statements.
Fuel cost recovery
Entergy Gulf States is allowed to recover certain fuel and purchased
power costs through fuel mechanisms included in electric rates that are
recorded as fuel cost recovery revenues. The difference between revenues
collected and current fuel and purchased power costs is recorded as
deferred fuel costs on Entergy Gulf States' financial statements such that
these costs generally have no net effect on earnings.
In 2000, fuel cost recovery revenues increased primarily due to
increased market prices for fuel and purchased power, resulting in an
increased recovery of $226.7 million in the Louisiana jurisdiction. Fuel
cost recovery revenues increased in the Texas jurisdiction by $82.4 million
due to a higher fuel recovery factor that became effective in September
1999 and by $33.4 million due to a fuel surcharge implemented in January
2000.
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/weather
In 2000, sales volume increased due to more favorable weather
affecting residential and commercial customers, as well as an increase in
the number of residential and commercial customers.
Other revenue
In 2000, other revenue increased primarily due to increased unbilled
revenues due to the effect of a change in estimate on unbilled revenue,
more favorable weather, and increased sales volume.
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.
Sales for resale
In 2000, sales for resale increased primarily due to increased sales
volume including sales of energy from the non-regulated piece of River Bend
to affiliated companies. Sales for resale also increased due to increased
generation, particularly nuclear generation, resulting in more energy
available for resale. Nuclear generation was down in 1999 as a result of a
nuclear refueling outage.
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.
Gas and steam operating revenues
Gas operating revenues increased in 2000 due to an increase in the
market price for natural gas as well as increased sales volume in the
residential and commercial sectors.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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.
In 2000 and in 1999, steam operating revenues decreased primarily due
to a new lease arrangement that began in June 1999 for the Louisiana
Station generating facility. Under the terms of this new lease, revenues
and expenses are now classified as other income. The previous
classifications were steam operating revenues and other operation and
maintenance expenses.
Expenses
Fuel and purchased power
In 2000, fuel and purchased power expenses increased primarily due to:
o higher market prices for gas and purchased power;
o increased nuclear generation; and
o an adjustment in March 2000 of $11.5 million to the Texas jurisdiction
deferred fuel balance as a result of a fuel reconciliation settlement
with the PUCT.
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.
Other operation and maintenance expenses
In 2000, other operation and maintenance expenses increased primarily
due to increased expenses of $12.6 million on outside services employed
related to legal and contract services for transition work and increased
nuclear plant operations costs of $5.8 million. These increases were
largely offset by decreases in pension and benefits costs of $7.3 million
and decreased environmental reserves of $5.7 million.
In 1999, other operation and maintenance expenses increased primarily
due to increased spending of $8.4 million for vegetation management,
increased miscellaneous customer expenses of $2.5 million, and due to
increased property and environmental reserves of $4.9 million. These
increases were offset primarily by decreases of $8.8 million for pension
and benefits expenses.
Depreciation and amortization
In 2000, depreciation and amortization increased primarily due to a
review of plant-in-service dates for consistency with regulatory treatment
reducing depreciation expense by $6.7 million in 1999, as well as
additional depreciation expense related to net capital additions in 2000.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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 2000, other regulatory credits decreased due to:
o the amortization of the Year 2000 regulatory asset deferred in 1999;
and
o the completion of the amortization of the deferred financing costs in
accordance with the December 1998 rate order settlement with the PUCT.
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
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 2000, the amortization of rate deferrals decreased primarily due to
the large reduction in the rate deferral balance upon the PUCT's approval
in June 1999 of the Texas rate settlement. This settlement increased
amortization expense in 1999 but was offset by increased revenues.
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.
Other
Other income
In 2000, other income decreased primarily due to decreased non-utility
operating income from Louisiana Station as well as the 1999 adjustment to
the depreciation balance of River Bend abeyed plant.
<PAGE>
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Interest charges
In 2000, interest charges increased as a result of the issuance of
$300 million of long term debt in 2000.
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.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 are 36.5%,
37.6%, and 40.6%, 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 previously normalized, reflecting a shorter tax life on certain
assets.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $2,470,884 $2,082,358 $1,777,584
Natural gas 40,356 28,998 33,058
Steam products - 15,852 43,167
---------- ---------- ----------
TOTAL 2,511,240 2,127,208 1,853,809
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 895,361 634,726 538,388
Purchased power 455,300 365,245 317,684
Nuclear refueling outage expenses 16,663 16,307 14,293
Other operation and maintenance 423,031 419,713 411,372
Decommissioning 6,273 7,588 3,437
Taxes other than income taxes 120,428 111,872 120,782
Depreciation and amortization 189,149 185,254 195,935
Other regulatory credits - net (13,860) (24,092) (5,485)
Amortization of rate deferrals 5,606 89,597 21,749
---------- ---------- ----------
TOTAL 2,097,951 1,806,210 1,618,155
---------- ---------- ----------
OPERATING INCOME 413,289 320,998 235,654
---------- ---------- ----------
OTHER INCOME
Allowance for equity funds used during construction 7,617 6,306 2,143
Gain on sale of assets 2,327 2,046 1,816
Miscellaneous - net 12,736 18,073 14,903
---------- ---------- ----------
TOTAL 22,680 26,425 18,862
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 143,053 138,602 149,767
Other interest - net 8,458 6,994 21,016
Distributions on preferred securities of subsidiary 7,438 7,438 7,437
Allowance for borrowed funds used during construction (6,926) (5,776) (1,870)
---------- ---------- ----------
TOTAL 152,023 147,258 176,350
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 283,946 200,165 78,166
Income taxes 103,603 75,165 31,773
---------- ---------- ----------
NET INCOME 180,343 125,000 46,393
Preferred dividend requirements and other 9,998 17,423 19,011
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $170,345 $107,577 $27,382
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $180,343 $125,000 $46,393
Noncash items included in net income:
Amortization of rate deferrals 5,606 89,597 21,749
Reserve for regulatory adjustments (49,571) (97,953) 130,603
Other regulatory credits - net (13,860) (24,092) (5,485)
Depreciation, amortization, and decommissioning 195,422 192,842 199,372
Deferred income taxes and investment tax credits 54,279 (1,495) (29,174)
Allowance for equity funds used during construction (7,617) (6,306) (2,143)
Gain on sale of assets (2,327) (2,046) (1,816)
Changes in working capital:
Receivables (131,643) 9,791 65,527
Fuel inventory 1,013 (8,070) 7,426
Accounts payable 130,435 42,370 (6,135)
Taxes accrued 30,570 46,018 7,462
Interest accrued 14,969 (14,061) (2,523)
Deferred fuel costs (26,291) 40,851 55,985
Other working capital accounts 20,896 (10,954) 11,006
Provision for estimated losses and reserves (1,991) 8,496 (4,207)
Changes in other regulatory assets (47,777) (59,242) (3,226)
Other 51,424 56,817 458
-------- -------- --------
Net cash flow provided by operating activities 403,880 387,563 491,272
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (277,635) (199,076) (136,960)
Allowance for equity funds used during construction 7,617 6,306 2,143
Nuclear fuel purchases (34,735) (53,293) (1,977)
Proceeds from sale/leaseback of nuclear fuel 34,154 53,293 15,932
Decommissioning trust contributions and realized
change in trust assets (12,051) (10,853) (11,899)
Other regulatory investments (127,377) (42,412) (43,124)
-------- -------- --------
Net cash flow used in investing activities (410,027) (246,035) (175,885)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 298,819 122,906 21,600
Retirement of:
Long-term debt (185) (197,960) (212,090)
Redemption of preferred stock (157,658) (25,931) (8,481)
Dividends paid:
Common stock (88,000) (107,000) (109,400)
Preferred stock (10,862) (16,967) (19,055)
-------- -------- --------
Net cash flow provided by (used in) financing activities 42,114 (224,952) (327,426)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 35,967 (83,424) (12,039)
Cash and cash equivalents at beginning of period 32,312 115,736 127,775
-------- -------- --------
Cash and cash equivalents at end of period $68,279 $32,312 $115,736
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $136,154 $161,326 $173,599
Income taxes $23,259 $28,410 $46,620
Noncash investing and financing activities:
Change in unrealized appreciation/(depreciation) of
decommissioning trust assets ($3,172) $14,054 $10,410
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $10,726 $8,607
Temporary cash investments - at cost,
which approximates market 57,553 23,705
---------- ----------
Total cash and cash equivalents 68,279 32,312
---------- ----------
Accounts receivable:
Customer 125,412 73,215
Allowance for doubtful accounts (2,131) (1,828)
Associated companies 27,660 1,706
Other 22,837 15,030
Accrued unbilled revenues 136,384 90,396
---------- ----------
Total receivables 310,162 178,519
---------- ----------
Deferred fuel costs 288,126 134,458
Fuel inventory - at average cost 37,258 38,271
Materials and supplies - at average cost 100,018 112,585
Rate deferrals 5,606 5,606
Prepayments and other 22,332 21,750
---------- ----------
TOTAL 831,781 523,501
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds 243,555 234,677
Non-utility property - at cost (less accumulated depreciation) 194,422 187,759
Other - at cost (less accumulated depreciation) 14,826 13,681
---------- ----------
TOTAL 452,803 436,117
---------- ----------
UTILITY PLANT
Electric 7,574,905 7,365,407
Property under capital lease 38,564 46,210
Natural gas 56,163 52,473
Construction work in progress 144,814 145,492
Nuclear fuel under capital lease 57,472 70,801
---------- ----------
TOTAL UTILITY PLANT 7,871,918 7,680,383
Less - accumulated depreciation and amortization 3,664,415 3,534,473
---------- ----------
UTILITY PLANT - NET 4,207,503 4,145,910
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals - 5,606
SFAS 109 regulatory asset - net 403,934 385,405
Unamortized loss on reacquired debt 37,903 40,576
Other regulatory assets 169,405 140,157
Long-term receivables 29,586 32,260
Other 17,349 23,490
---------- ----------
TOTAL 658,177 627,494
---------- ----------
TOTAL ASSETS $6,150,264 $5,733,022
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $122,750 $ -
Accounts payable:
Associated companies 66,312 79,962
Other 258,529 114,444
Customer deposits 37,489 33,360
Taxes accrued 132,368 101,798
Accumulated deferred income taxes 94,032 27,960
Nuclear refueling outage costs 10,209 11,216
Interest accrued 43,539 28,570
Obligations under capital leases 42,524 51,973
Other 19,418 14,557
---------- ----------
TOTAL 827,170 463,840
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 1,115,119 1,098,882
Accumulated deferred investment tax credits 171,000 178,500
Obligations under capital leases 53,512 65,038
Other regulatory liabilities 16,916 20,089
Decommissioning 142,604 139,194
Transition to competition 72,381 47,101
Regulatory reserves 60,965 110,536
Accumulated provisions 67,404 69,395
Other 98,501 117,804
---------- ----------
TOTAL 1,798,402 1,846,539
---------- ----------
Long-term debt 1,808,879 1,631,581
Preferred stock with sinking fund 30,758 34,650
Preference stock - 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 47,677 51,444
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 100 shares in 2000 and 1999 114,055 114,055
Paid-in capital 1,153,195 1,153,131
Retained earnings 285,128 202,782
---------- ----------
TOTAL 1,600,055 1,521,412
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,150,264 $5,733,022
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY GULF STATES, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
Retained Earnings, January 1 $202,782 $202,205 $284,165
Add:
Net income
180,343 125,000 46,393
Deduct:
Dividends declared:
Preferred and preference stock 9,933 16,784 19,011
Common stock 88,000 107,000 109,400
Preferred and preference stock
redemption and other 64 639 (58)
-------- -------- --------
Total 97,997 124,423 128,353
-------- -------- --------
Retained Earnings, December 31 (Note 8) $285,128 $202,782 $202,205
======== ======== ========
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY GULF STATES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 1997 1996
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $2,511,240 $2,127,208 $1,853,809 $2,147,829 $2,019,181
Net income (loss) $ 180,343 $ 125,000 $ 46,393 $ 59,976 $ (3,887)
Total assets $6,150,264 $5,733,022 $6,293,744 $6,488,637 $6,421,179
Long-term obligations (1) $1,978,149 $1,966,269 $1,993,811 $2,098,752 $2,226,329
</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>
2000 1999 1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $717,453 $607,875 $605,759 $624,862 $612,398
Commercial 505,346 430,291 422,944 452,724 444,133
Industrial 870,594 718,779 704,393 740,418 685,178
Governmental 32,939 28,475 35,930 33,774 31,023
-----------------------------------------------------------
Total retail 2,126,332 1,785,420 1,769,026 1,851,778 1,772,732
Sales for resale:
Associated companies 93,675 38,416 14,172 14,260 20,783
Non-associated companies 112,522 109,132 112,182 59,015 76,173
Other (1) 138,355 149,390 (117,796) 136,458 56,300
-----------------------------------------------------------
Total $2,470,884 $2,082,358 $1,777,584 $2,061,511 $1,925,988
===========================================================
Billed Electric Energy
Sales (GWH):
Residential 9,405 8,929 8,903 8,178 8,035
Commercial 7,660 7,310 6,975 6,575 6,417
Industrial 17,960 17,684 18,158 18,038 16,661
Governmental 450 425 560 481 438
-----------------------------------------------------------
Total retail 35,475 34,348 34,596 33,272 31,551
Sales for resale:
Associated companies 1,381 677 380 414 656
Non-associated companies 3,248 3,408 3,701 1,503 2,148
-----------------------------------------------------------
Total Electric Department 40,104 38,433 38,677 35,189 34,355
===========================================================
</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 (pages 109 through 113
and pages 147 through 209) present fairly, in all material respects, the
financial position of Entergy Louisiana, Inc. at December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased in 2000 primarily due to increased depreciation
and amortization costs, increased other operation and maintenance expenses,
and decreased unbilled revenue and other regulatory credits, partially
offset by decreased provisions for rate refunds.
Net income increased in 1999 primarily due to increased unbilled
revenue and other regulatory credits, and decreased nuclear refueling
outage expenses and interest charges, partially offset by increased
provisions for rate refunds.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues ($4.7) ($48.7)
Fuel cost recovery 270.8 63.6
Sales volume/weather 23.9 (5.3)
Other revenue (including unbilled) (13.5) 74.5
Sales for resale (20.7) 11.6
------ -----
Total $255.8 $95.7
====== =====
Base revenues
In 2000, base revenues decreased primarily due to additional formula
rate plan reductions in the residential, commercial, and industrial
sectors, partially offset by lower accruals for potential rate refunds.
In 1999, base revenues decreased primarily due to accruals for
potential rate refunds.
Fuel cost recovery revenues
Entergy Louisiana is allowed to recover certain fuel and purchased
power costs through fuel mechanisms included in electric rates that are
recorded as fuel cost recovery revenues. The difference between revenues
collected and current fuel and purchased power costs is recorded as
deferred fuel costs on Entergy Louisiana's financial statements such that
these costs generally have no net effect on earnings.
In 2000, fuel cost recovery revenues increased as a result of higher
fuel and purchased power expenses primarily due to the increased market
price of natural gas.
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.
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales volume/weather
In 2000, sales volume increased primarily due to more favorable
weather in the residential and commercial sectors, and increased usage by
industrial customers.
In 1999, sales volume decreased primarily due to less favorable
weather, partially offset by increased usage by residential and industrial
customers.
Other revenue (including unbilled)
In 2000, other revenue decreased primarily due to the effect of a
change in estimate on 1999 unbilled revenues, in addition to rent received
for electric property in 1999.
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.
Sales for resale
In 2000, sales for resale decreased as a result of increased sales to
retail customers resulting in less electricity available 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.
Expenses
Fuel and purchased power expenses
In 2000, fuel and purchased power expenses increased due to an
increase in the market price of natural gas.
In 1999, fuel and purchased power expenses increased due to:
o higher natural 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.
Other operation and maintenance expenses
Other operation and maintenance expenses increased in 2000 primarily
due to:
o an increase in expenses from maintenance and planned maintenance
outages at Waterford 3 and certain fossil plants of $17.9 million;
o an increase of $11 million in outside services employed for legal
services for potential rate actions; and
o an increase in property insurance reserves of $5 million primarily
due to changes in storm damage reserves effective August 1999.
<PAGE>
ENTERGY LOUISIANA, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The overall increase in other operation and maintenance expenses in
2000 was partially offset by the following:
o a decrease in injury and damages claims of $3.5 million;
o a decrease of $3 million in benefits expense; and
o higher nuclear insurance refunds of $1.8 million.
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.
Depreciation and amortization
In 2000, depreciation and amortization expenses increased primarily
due to a review of plant-in-service dates for consistency with regulatory
treatment reducing depreciation expense by $3.4 million in August 1999, as
well as depreciation expense related to net capital additions in 2000.
Other regulatory charges (credits)
In 2000, other regulatory credits decreased due to the LPSC-required
deferral in 1999 of Year 2000 costs and the amortization of these costs in
2000. The deferred costs are being recovered over a five-year period.
Other
Other income
In 2000, other income increased primarily due to interest recorded on
deferred fuel costs.
Interest charges
In 2000 and 1999, interest on long-term debt decreased primarily due
to the refinancing and net redemption of $77 million of long-term debt in
1999. The decrease in 2000 is partially offset by interest expense
incurred on the issuance of $150 million of long-term debt in May 2000.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 were 40.9%,
38.9%, and 37.8%, respectively.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $2,062,437 $1,806,594 $1,710,908
---------- ---------- ----------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 560,329 421,763 383,413
Purchased power 537,589 418,878 372,763
Nuclear refueling outage expenses 13,542 15,756 21,740
Other operation and maintenance 318,841 289,348 289,522
Decommissioning 10,422 8,786 8,786
Taxes other than income taxes 77,190 75,447 70,621
Depreciation and amortization 171,204 161,754 162,937
Other regulatory charges (credits) - net 960 (5,280) (1,755)
---------- ---------- ----------
TOTAL 1,690,077 1,386,452 1,308,027
---------- ---------- ----------
OPERATING INCOME 372,360 420,142 402,881
---------- ---------- ----------
OTHER INCOME
Allowance for equity funds used during construction 4,328 4,925 1,887
Gain on sale of assets - - 2,340
Miscellaneous - net 6,604 2,206 2,644
---------- ---------- ----------
TOTAL 10,932 7,131 6,871
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on long-term debt 98,655 103,937 109,463
Other interest - net 6,788 7,010 7,127
Distributions on preferred securities of subsidiary 6,300 6,300 6,300
Allowance for borrowed funds used during construction (3,775) (4,112) (1,729)
---------- ---------- ----------
TOTAL 107,968 113,135 121,161
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 275,324 314,138 288,591
Income taxes 112,645 122,368 109,104
---------- ---------- ----------
NET INCOME 162,679 191,770 179,487
Preferred dividend requirements and other 9,514 9,955 13,014
---------- ---------- ----------
EARNINGS APPLICABLE TO
COMMON STOCK $153,165 $181,815 $166,473
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $162,679 $191,770 $179,487
Noncash items included in net income:
Reserve for regulatory adjustments 11,456 - -
Other regulatory charges (credits) - net 960 (5,280) (1,754)
Depreciation, amortization, and decommissioning 181,626 170,540 171,723
Deferred income taxes and investment tax credits 16,350 (15,487) 26,910
Allowance for equity funds used during construction (4,328) (4,925) (1,887)
Gain on sale of assets - - (2,340)
Changes in working capital:
Receivables (97,154) (41,565) (7,972)
Accounts payable (11,848) 95,120 (5,878)
Taxes accrued (2,555) 7,659 (7,040)
Interest accrued 15,300 (33,066) 18,731
Deferred fuel costs (81,890) (9,959) 4,530
Other working capital accounts 38,064 56,714 16,983
Provision for estimated losses and reserves 6,114 5,442 6,410
Changes in other regulatory assets 25,400 38,577 (11,443)
Other 10,249 (45,146) (44,099)
-------- -------- --------
Net cash flow provided by operating activities 270,423 410,394 342,361
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (203,049) (130,933) (105,306)
Allowance for equity funds used during construction 4,328 4,925 1,887
Nuclear fuel purchases (38,270) (11,308) (38,141)
Proceeds from sale/leaseback of nuclear fuel 38,270 11,308 39,701
Decommissioning trust contributions and realized
change in trust assets (12,299) (13,678) (11,648)
-------- -------- --------
Net cash flow used in investing activities (211,020) (139,686) (113,507)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 148,736 298,092 112,556
Retirement of:
Long-term debt (100,000) (386,707) (150,786)
Redemption of preferred stock - (50,000) -
Dividends paid:
Common stock (62,400) (197,000) (138,500)
Preferred stock (9,514) (10,389) (13,014)
-------- -------- --------
Net cash flow used in financing activities (23,178) (346,004) (189,744)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 36,225 (75,296) 39,110
Cash and cash equivalents at beginning of period 7,734 83,030 43,920
-------- -------- --------
Cash and cash equivalents at end of period $43,959 $7,734 $83,030
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $89,627 $144,731 $98,801
Income taxes $105,354 $132,924 $86,830
Noncash investing and financing activities:
Change in unrealized appreciation/(depreciation) of
decommissioning trust assets ($2,979) $4,585 $5,928
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents:
Cash $14,138 $7,734
Temporary cash investments - at cost,
which approximates market 29,821 -
---------- ----------
Total cash and cash equivalents 43,959 7,734
---------- ----------
Notes Receivable 1,510 3
Accounts receivable:
Customer 111,292 79,335
Allowance for doubtful accounts (1,771) (1,615)
Associated companies 30,518 14,601
Other 13,698 10,762
Accrued unbilled revenues 152,700 106,200
---------- ----------
Total receivables 306,437 209,283
---------- ----------
Deferred fuel costs 84,051 2,161
Accumulated deferred income taxes - 12,520
Materials and supplies - at average cost 77,389 84,027
Deferred nuclear refueling outage costs 16,425 11,336
Prepayments and other 9,996 6,011
---------- ----------
TOTAL 539,767 333,075
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 14,230 14,230
Decommissioning trust funds 110,263 100,943
Non-utility property - at cost (less accumulated depreciation) 21,700 21,433
---------- ----------
TOTAL 146,193 136,606
---------- ----------
UTILITY PLANT
Electric 5,357,920 5,178,808
Property under capital lease 238,427 236,271
Construction work in progress 85,299 108,106
Nuclear fuel under capital lease 63,923 51,930
---------- ----------
TOTAL UTILITY PLANT 5,745,569 5,575,115
Less - accumulated depreciation and amortization 2,429,495 2,294,394
---------- ----------
UTILITY PLANT - NET 3,316,074 3,280,721
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 204,810 230,899
Unamortized loss on reacquired debt 33,244 35,856
Other regulatory assets 50,881 50,191
Other 10,882 17,302
---------- ----------
TOTAL 299,817 334,248
---------- ----------
TOTAL ASSETS $4,301,851 $4,084,650
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Currently maturing long-term debt $35,088 $116,388
Accounts payable:
Associated companies 71,948 137,869
Other 144,841 90,768
Customer deposits 60,227 61,096
Taxes accrued 23,307 25,863
Accumulated deferred income taxes 20,545 -
Interest accrued 35,536 20,236
Obligations under capital leases 34,274 28,387
Other 102,614 59,737
---------- ----------
TOTAL 528,380 540,344
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 757,362 792,290
Accumulated deferred investment tax credits 117,393 123,155
Obligations under capital leases 29,649 23,543
Other regulatory liabilities 12,442 15,421
Regulatory reserves 11,456 -
Accumulated provisions 64,201 58,087
Other 61,724 34,564
---------- ----------
TOTAL 1,054,227 1,047,060
---------- ----------
Long-term debt 1,276,696 1,145,463
Preferred stock with sinking fund 35,000 35,000
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 2000
and 1999 1,088,900 1,088,900
Capital stock expense and other (2,171) (2,171)
Retained earnings 150,319 59,554
---------- ----------
TOTAL 1,337,548 1,246,783
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,301,851 $4,084,650
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY LOUISIANA, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
Retained Earnings, January 1 $59,554 $74,739 $46,766
Add:
Net income 162,679 191,770 179,487
Deduct:
Dividends declared:
Preferred stock 9,514 9,805 13,014
Common stock 62,400 197,000 138,500
Capital stock expenses - 150 -
-------- ------- -------
Total 71,914 206,955 151,514
-------- ------- -------
Retained Earnings, December 31 (Note 8) $150,319 $59,554 $74,739
======== ======= =======
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY LOUISIANA, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 1997 1996
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $2,062,437 $1,806,594 $1,710,908 $1,803,272 $1,828,867
Net income $ 162,679 $ 191,770 $ 179,487 $ 141,757 $ 190,762
Total assets $4,301,851 $4,084,650 $4,181,041 $4,175,400 $4,279,278
Long-term obligations (1) $1,411,345 $1,274,006 $1,530,590 $1,522,043 $1,545,889
</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>
2000 1999 1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $716,708 $620,146 $598,573 $606,173 $609,308
Commercial 441,338 386,042 367,151 379,131 374,515
Industrial 767,052 646,517 597,536 708,356 727,505
Governmental 38,772 33,738 32,795 34,171 33,621
-----------------------------------------------------------
Total retail 1,963,870 1,686,443 1,596,055 1,727,831 1,744,949
Sales for resale:
Associated companies 20,763 27,253 16,002 3,817 5,065
Non-associated companies 39,704 53,923 53,538 55,345 58,685
Other 38,100 38,975 45,313 16,279 20,168
-----------------------------------------------------------
Total $2,062,437 $1,806,594 $1,710,908 $1,803,272 $1,828,867
===========================================================
Billed Electric Energy
Sales (GWH):
Residential 8,648 8,354 8,477 7,826 7,893
Commercial 5,367 5,221 5,265 4,906 4,846
Industrial 15,184 15,052 14,781 16,390 17,647
Governmental 481 468 481 460 457
-----------------------------------------------------------
Total retail 29,680 29,095 29,004 29,582 30,843
Sales for resale:
Associated companies 228 415 386 104 143
Non-associated companies 554 831 855 805 982
-----------------------------------------------------------
Total 30,462 30,341 30,245 30,491 31,968
===========================================================
</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 (pages 120 through 125
and pages 147 through 209) present fairly, in all material respects, the
financial position of Entergy Mississippi, Inc. at December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased in 2000 primarily due to increases in other
operation and maintenance expenses, interest expense, depreciation expense,
and an increase in the effective income tax rate. These decreases were
partially offset by increases in unbilled revenues and sales volume.
Net income decreased in 1999 primarily due to a decrease in unbilled
revenues and an increase in other operation and maintenance expenses.
Revenues and Sales
The changes in electric operating revenues for the twelve months ended
December 31, 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues ($3.8) ($9.7)
Grand Gulf rate rider 4.7 (95.9)
Fuel cost recovery 54.8 (11.6)
Sales volume/weather 9.6 4.1
Other revenue (including unbilled) 23.9 (12.1)
Sales for resale 15.4 (18.3)
------ -------
Total $104.6 ($143.5)
====== =======
Base revenues
Base revenues decreased in 2000 primarily due to an annual rate
reduction of $13.3 million under the formula rate plan, which was effective
May 1999.
Base revenues decreased in 1999 primarily due to the May 1999 rate
reduction and an annual rate reduction of $6.6 million under the formula
rate plan, which was effective May 1998. The formula rate plan reduction
is discussed in more detail in Note 2 to the financial statements.
Grand Gulf rate rider
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
Entergy Mississippi is allowed to recover certain fuel and purchased
power costs through fuel mechanisms included in electric rates, recorded as
fuel cost recovery revenues. The difference between revenues collected and
current fuel and purchased power costs is recorded as deferred fuel costs
on Entergy Mississippi's financial statements such that these costs
generally have no net effect on earnings.
In 2000, fuel cost recovery revenues increased primarily due to the
MPSC's review and subsequent increase of Entergy Mississippi's energy cost
recovery rider effective in January 2000.
In 1999, fuel cost recovery revenues decreased primarily due to the
MPSC's review and subsequent decrease of Entergy Mississippi's energy cost
recovery rider effective in January 1999.
Sales volume/weather
In 2000, sales volume increased as a result of increased usage in the
residential and commercial sectors, as well as the effect of more favorable
weather in the residential sector.
In 1999, sales volume increased as a result of sales growth in the
residential and commercial sectors, partially offset by unfavorable
weather.
Other revenue (including unbilled)
In 2000, other revenue increased primarily due to the effect of
favorable weather in 2000 and the effect of a change in estimate on 1999
unbilled revenues.
In 1999, other revenue decreased primarily due to the effect of a
change in estimate on unbilled revenues. The changed estimate more closely
aligned the fuel component of unbilled revenues with regulatory treatment.
Sales for resale
In 2000, sales for resale increased primarily due to an increase in
the average price of energy supplied for resale sales. The increase was
partially offset by less energy available for resale sales due to plant
outages early in 2000, which resulted in lower sales volume.
In 1999, sales for resale decreased as a result of decreased oil
generation due to plant outages. 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 2000, fuel and purchased power expenses increased primarily due to
an increase in the market prices of oil and natural gas.
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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 in 1999 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.
Other operation and maintenance
In 2000, other operation and maintenance expenses increased primarily
due to:
o an increase in property insurance expense of $9.3 million primarily
due to a change in storm damage reserve amortization in accordance
with regulatory treatment; and
o an increase in maintenance of electric plant of $7.0 million.
In 1999, other operation and maintenance expenses increased primarily
due to:
o planned and unplanned plant outages in 1999 of $9.1 million;
o an increase in customer service and reliability improvement spending
of $4.0 million;
o an increase in employee benefit expense of $3.8 million; and
o an increase in casualty reserves of $4.2 million.
Depreciation and Amortization
In 2000, depreciation and amortization expenses increased due to a
review of plant-in-service dates for consistency with regulatory treatment
reducing depreciation expense by $2.6 million in August 1999. Capital
additions in 1999 and 2000 also contributed to the increase.
Other regulatory credits
In 2000, other regulatory credits decreased due to a decrease in the
deferral of Grand Gulf 1 expenses associated with the System Energy rate
increase.
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.
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.
<PAGE>
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other
Interest and other charges
Interest on long-term debt increased in 2000 primarily due to the
issuance of $120 million of long-term debt in February 2000.
Interest on long-term debt decreased in 1999 primarily due to the
refinancing of certain long-term debt.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 were 37.0%,
29.7%, and 30.9%, respectively.
The increase in the effective income tax rate in 2000 is due to the
effect that the distribution of the Entergy Corporation income tax benefit
had on the 1999 effective income tax rate. In 1999, a tax benefit was
booked related to the 1998 tax return.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $937,371 $832,819 $976,300
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 221,075 185,063 241,415
Purchased power 366,491 332,015 286,769
Other operation and maintenance 168,432 152,817 131,752
Taxes other than income taxes 45,436 44,013 44,888
Depreciation and amortization 49,046 42,870 45,133
Other regulatory credits - net (6,872) (12,044) (3,186)
Amortization of rate deferrals - - 104,969
-------- -------- --------
TOTAL 843,608 744,734 851,740
-------- -------- --------
OPERATING INCOME 93,763 88,085 124,560
-------- -------- --------
OTHER INCOME
Allowance for equity funds used during construction 2,385 1,569 188
Gain on sale of assets 19 - 1,025
Miscellaneous - net 8,680 6,781 4,891
-------- -------- --------
TOTAL 11,084 8,350 6,104
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 41,583 35,265 37,756
Other interest - net 3,294 3,574 3,171
Allowance for borrowed funds used during construction (1,871) (1,529) (932)
-------- -------- --------
TOTAL 43,006 37,310 39,995
-------- -------- --------
INCOME BEFORE INCOME TAXES 61,841 59,125 90,669
Income taxes 22,868 17,537 28,031
-------- -------- --------
NET INCOME 38,973 41,588 62,638
Preferred dividend requirements and other 3,370 3,370 3,370
-------- -------- --------
EARNINGS APPLICABLE TO
COMMON STOCK $35,603 $38,218 $59,268
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $38,973 $41,588 $62,638
Noncash items included in net income:
Amortization of rate deferrals - - 104,969
Other regulatory credits - net (6,872) (12,044) (3,186)
Depreciation and amortization 49,046 42,870 45,133
Deferred income taxes and investment tax credits 51,081 18,066 (12,494)
Allowance for equity funds used during construction (2,385) (1,569) (188)
Gain (loss) on sale of assets (19) - (1,025)
Changes in working capital:
Receivables (30,628) 24,208 6,253
Fuel inventory 338 (771) 384
Accounts payable 3,064 54,317 (31,967)
Taxes accrued (4,106) 29,955 (26,301)
Interest accrued 3,062 (4,595) 323
Deferred fuel costs 47,939 (45,830) 12,858
Other working capital accounts 6,160 10,072 8,652
Provision for estimated losses and reserves (568) 4,173 (6,915)
Changes in other regulatory assets (9,929) (30,179) (38,295)
Other 37,105 12,152 4,202
-------- -------- --------
Net cash flow provided by operating activities 182,261 142,413 125,041
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (121,252) (94,717) (58,705)
Allowance for equity funds used during construction 2,385 1,569 188
Other regulatory investments (160,611) - -
-------- -------- --------
Net cash flow used in investing activities (279,478) (93,148) (58,517)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 118,913 153,629 78,703
Retirement of:
Long-term debt - (163,278) (80,020)
Changes in short-term borrowing, net - (6) (13)
Dividends paid:
Common stock (18,000) (34,100) (66,000)
Preferred stock (3,370) (3,363) (3,370)
-------- -------- --------
Net cash flow provided by (used in) financing activities 97,543 (47,118) (70,700)
-------- -------- --------
Net increase in cash and cash equivalents 326 2,147 (4,176)
Cash and cash equivalents at beginning of period 4,787 2,640 6,816
-------- -------- --------
Cash and cash equivalents at end of period $5,113 $4,787 $2,640
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid/(received) during the period for:
Interest - net of amount capitalized $39,569 $41,567 $39,291
Income taxes ($23,763) ($29,850) $64,204
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $5,113 $4,787
Accounts receivable:
Customer 44,517 35,675
Allowance for doubtful accounts (1,044) (886)
Associated companies 10,741 1,370
Other 9,964 2,391
Accrued unbilled revenues 33,600 28,600
---------- ----------
Total receivables 97,778 67,150
---------- ----------
Deferred fuel costs 64,950 47,939
Fuel inventory - at average cost 3,436 3,774
Materials and supplies - at average cost 18,485 17,068
Prepayments and other 3,004 7,114
---------- ----------
TOTAL 192,766 147,832
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 5,531 5,531
Non-utility property - at cost (less accumulated depreciation) 6,851 6,965
---------- ----------
TOTAL 12,382 12,496
---------- ----------
UTILITY PLANT
Electric 1,885,501 1,763,636
Property under capital lease 290 384
Construction work in progress 44,085 66,789
---------- ----------
TOTAL UTILITY PLANT 1,929,876 1,830,809
Less - accumulated depreciation and amortization 733,977 709,543
---------- ----------
UTILITY PLANT - NET 1,195,899 1,121,266
---------- ----------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
SFAS 109 regulatory asset - net 25,544 24,051
Unamortized loss on reacquired debt 15,122 16,345
Deferred fuel costs 95,661 -
Other regulatory assets 140,679 132,243
Other 5,886 5,784
---------- ----------
TOTAL 282,892 178,423
---------- ----------
TOTAL ASSETS $1,683,939 $1,460,017
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Associated companies $92,980 $84,382
Other 26,933 32,470
Customer deposits 26,368 23,303
Taxes accrued 31,862 35,968
Accumulated deferred income taxes 47,734 526
Interest accrued 13,099 10,038
Obligations under capital leases 79 95
Other 2,540 2,137
---------- ----------
TOTAL 241,595 188,919
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 306,295 298,477
Accumulated deferred investment tax credits 19,408 20,908
Obligations under capital leases 211 290
Accumulated provisions 6,806 7,374
Other 31,339 3,368
---------- ----------
TOTAL 364,059 330,417
---------- ----------
Long-term debt 584,467 464,466
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 2000
and 1999 199,326 199,326
Capital stock expense and other (59) (59)
Retained earnings 244,170 226,567
---------- ----------
TOTAL 493,818 476,215
---------- ----------
Commitments and Contingencies (Notes 2, 9, and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,683,939 $1,460,017
========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY MISSISSIPPI, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
Retained Earnings, January 1 $226,567 $222,449 $229,181
Add:
Net income 38,973 41,588 62,638
Deduct:
Dividends declared:
Preferred stock 3,370 3,370 3,370
Common stock 18,000 34,100 66,000
-------- -------- --------
Total 21,370 37,470 69,370
-------- -------- --------
Retained Earnings, December 31 (Note 8) $244,170 $226,567 $222,449
======== ======== ========
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY MISSISSIPPI, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 1997 1996
(In Thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 937,371 $ 832,819 $ 976,300 $ 937,395 $ 958,430
Net Income $ 38,973 $ 41,588 $ 62,638 $ 66,661 $ 79,211
Total assets $1,683,939 $1,460,017 $1,350,929 $1,439,561 $1,521,466
Long-term obligations (1) $ 584,678 $ 464,756 $ 464,000 $ 464,156 $ 406,054
</TABLE>
(1) Includes long-term debt (excluding currently maturing debt) and
noncurrent capital lease obligations.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $340,691 $311,003 $367,895 $342,818 $358,264
Commercial 275,010 250,929 284,787 274,195 281,626
Industrial 161,065 151,659 170,910 173,152 185,351
Governmental 25,612 23,528 26,670 26,882 29,093
-------------------------------------------------
Total retail 802,378 737,119 850,262 817,047 854,334
Sales for resale:
Associated companies 82,844 63,004 80,357 78,233 58,749
Non-associated companies 27,058 31,546 32,442 21,276 22,814
Other 25,091 1,150 13,239 20,839 22,533
-------------------------------------------------
Total $937,371 $832,819 $976,300 $937,395 $958,430
=================================================
Billed Electric Energy
Sales (GWH):
Residential 4,976 4,753 4,800 4,323 4,355
Commercial 4,307 4,156 4,015 3,673 3,508
Industrial 3,188 3,246 3,163 3,089 3,063
Governmental 376 363 347 333 346
-------------------------------------------------
Total retail 12,847 12,518 12,325 11,418 11,272
Sales for resale:
Associated companies 1,276 1,774 2,424 1,918 1,368
Non-associated companies 313 426 484 412 521
-------------------------------------------------
Total 14,436 14,718 15,233 13,748 13,161
=================================================
</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 (pages 131 through 135
and pages 147 through 209) present fairly, in all material respects, the
financial position of Entergy New Orleans, Inc. at December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income decreased slightly in 2000 primarily due to increased other
operation and maintenance expenses.
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.
Revenues and Sales
Electric operating revenues
The changes in electric operating revenues for the twelve months
ended December 31, 2000 and 1999 are as follows:
Increase/(Decrease)
Description 2000 1999
(In Millions)
Base revenues $4.0 ($11.3)
Fuel cost recovery 62.6 (4.6)
Sales volume/weather 2.1 1.7
Other revenue (including unbilled) 4.2 5.5
Sales for resale 15.4 3.7
----- -----
Total $88.3 ($5.0)
===== =====
Base revenues
In 2000, base revenues increased primarily due to a decrease in
provision for rate refunds accrued for potential rate matters.
In 1999, base revenues decreased primarily due to base rate reductions
effective January 1999 and rate refund provisions accrued for potential
rate matters.
Fuel cost recovery
Entergy New Orleans is allowed to recover certain fuel and purchased
power costs through fuel mechanisms included in electric rates, recorded as
fuel cost recovery revenues. The difference between revenues collected and
current fuel and purchased power costs is recorded as deferred fuel costs
on Entergy New Orleans' financial statements such that these costs
generally have no effect on earnings.
In 2000, fuel cost recovery increased primarily due to the increased
market price of natural gas.
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.
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other revenue (including unbilled)
In 2000 and 1999, other revenue increased primarily due to the effect
of favorable weather and higher fuel and purchased power costs on unbilled
revenues.
Sales for resale
In 2000, sales for resale increased due to an increase in the average
price of electricity supplied for resale sales, coupled with an increase in
affiliated sales volume.
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 2000, gas operating revenues increased primarily due to the
increased market price of natural gas.
Expenses
Fuel and purchased power expenses
In 2000, fuel and purchased power expenses increased primarily due to
the increased market price of natural gas.
Other operation and maintenance expenses
In 2000, other operation and maintenance expenses increased primarily
due to:
o an increase in uncollectible accounts expense for miscellaneous accounts
receivable of $1.3 million;
o an increase in maintenance of fossil plants of $1.1 million; and
o an increase in advertising expenses of $1.3 million.
In 1999, other operation and maintenance expenses increased primarily
due to:
o an increase in spending for customer service and reliability
improvements of $3.0 million; and
o an increase in customer collection expenses of $2.2 million.
Taxes other than income taxes
In 2000, taxes other than income taxes increased primarily due to
increased local franchise taxes as a result of higher revenue.
<PAGE>
ENTERGY NEW ORLEANS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other regulatory credits
In 2000, other regulatory credits decreased due to an over-recovery of
Grand Gulf 1 related costs in 2000 compared to an under-recovery in 1999
and the deferral of Year 2000 costs in 1999.
In 1999, other regulatory credits increased due to a greater under-
recovery of Grand Gulf 1 costs in 1999.
Amortization of rate deferrals
In 2000 and 1999, amortization of rate deferrals decreased due to a
scheduled rate change in the amortization of Grand Gulf 1 phase-in
expenses. The Grand Gulf 1 phase-in plan will be completed in 2001.
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.
The Grand Gulf 1 rate deferral plan is discussed in more detail in
Note 2 to the financial statements.
Interest and other charges
In 2000, interest on long-term debt increased primarily due to the
issuance of $30 million of long-term debt in July 2000.
Income taxes
The effective income tax rates for 2000, 1999, and 1998 were 41.2%,
40.7%, and 38.4% 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.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $514,774 $426,431 $431,453
Natural gas 125,516 81,357 82,297
-------- -------- --------
TOTAL 640,290 507,788 513,750
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 253,869 135,242 138,142
Purchased power 173,371 166,579 164,435
Other operation and maintenance 87,254 83,197 79,023
Taxes other than income taxes 45,132 39,621 40,417
Depreciation and amortization 23,550 21,219 21,878
Other regulatory credits - net (7,058) (9,036) (4,540)
Amortization of rate deferrals 24,786 28,430 35,336
-------- -------- --------
TOTAL 600,904 465,252 474,691
-------- -------- --------
OPERATING INCOME 39,386 42,536 39,059
-------- -------- --------
OTHER INCOME
Allowance for equity funds used during construction 1,190 1,084 284
Gain on sale of assets - - 458
Miscellaneous - net 2,530 2,263 951
-------- -------- --------
TOTAL 3,720 3,347 1,693
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 14,429 13,277 13,717
Other interest - net 1,462 1,403 1,075
Allowance for borrowed funds used during construction (900) (788) (219)
-------- -------- --------
TOTAL 14,991 13,892 14,573
-------- -------- --------
INCOME BEFORE INCOME TAXES 28,115 31,991 26,179
Income taxes 11,597 13,030 10,042
-------- -------- --------
NET INCOME 16,518 18,961 16,137
Preferred dividend requirements and other 965 965 965
-------- -------- --------
EARNINGS APPLICABLE TO
COMMON STOCK $15,553 $17,996 $15,172
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $16,518 $18,961 $16,137
Noncash items included in net income:
Amortization of rate deferrals 24,786 28,430 35,336
Other regulatory credits - net (7,058) (9,036) (4,540)
Depreciation and amortization 23,550 21,219 21,878
Deferred income taxes and investment tax credits (639) (3,131) (7,498)
Allowance for equity funds used during construction (1,190) (1,084) (284)
Gain on sale of assets - - (458)
Changes in working capital:
Receivables (45,580) (7,258) 3,148
Fuel inventory (911) 179 (861)
Accounts payable 29,592 23,319 (4,136)
Taxes accrued 5,394 429 (5,270)
Interest accrued 1,163 37 (130)
Deferred fuel costs (13,751) (13,293) 8,193
Other working capital accounts (223) 6,607 (5,122)
Provision for estimated losses and reserves (365) (531) (6,295)
Changes in other regulatory assets (11,637) (11,482) (6,964)
Other 10,812 6,796 (2,805)
-------- -------- --------
Net cash flow provided by operating activities 30,461 60,162 40,329
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (48,902) (46,239) (21,691)
Allowance for equity funds used during construction 1,190 1,084 284
-------- -------- --------
Net cash flow used in investing activities (47,712) (45,155) (21,407)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 29,564 - 29,438
Retirement of:
Long-term debt - - (30,000)
Dividends paid:
Common stock (9,500) (26,500) (9,700)
Preferred stock (965) (1,206) (965)
-------- -------- --------
Net cash flow provided by (used in) financing activities 19,099 (27,706) (11,227)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,848 (12,699) 7,695
Cash and cash equivalents at beginning of period 4,454 17,153 9,458
-------- -------- --------
Cash and cash equivalents at end of period $6,302 $4,454 $17,153
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $14,331 $14,281 $14,592
Income taxes - net $9,207 $12,476 $26,197
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash $6,302 $4,454
Accounts receivable:
Customer 67,264 28,658
Allowance for doubtful accounts (770) (846)
Associated companies 2,800 404
Other 3,709 6,225
Accrued unbilled revenues 26,838 19,820
-------- --------
Total receivables 99,841 54,261
-------- --------
Deferred fuel costs 28,234 14,483
Fuel inventory - at average cost 4,204 3,293
Materials and supplies - at average cost 9,630 10,127
Rate deferrals 10,974 24,788
Prepayments and other 1,416 2,528
-------- --------
TOTAL 160,601 113,934
-------- --------
OTHER PROPERTY AND INVESTMENTS
Investment in subsidiary companies - at equity 3,259 3,259
-------- --------
UTILITY PLANT
Electric 572,061 541,525
Natural gas 134,826 133,568
Construction work in progress 36,489 29,780
-------- --------
TOTAL UTILITY PLANT 743,376 704,873
Less - accumulated depreciation and amortization 394,271 382,797
-------- --------
UTILITY PLANT - NET 349,105 322,076
-------- --------
DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:
Rate deferrals - 10,974
Unamortized loss on reacquired debt 974 1,187
Other regulatory assets 44,676 33,039
Other 616 1,277
-------- --------
TOTAL 46,266 46,477
-------- --------
TOTAL ASSETS $559,231 $485,746
======== ========
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Associated companies $24,637 $24,350
Other 57,566 28,261
Customer deposits 18,311 17,830
Taxes accrued 5,823 429
Accumulated deferred income taxes 6,543 10,863
Interest accrued 6,119 4,956
Other 3,211 5,524
-------- --------
TOTAL 122,210 92,213
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 43,754 43,878
Accumulated deferred investment tax credits 5,868 6,378
SFAS 109 regulatory liability - net 12,607 7,528
Other regulatory liabilities 537 1,753
Accumulated provisions 8,471 8,836
Other 12,356 7,733
-------- --------
TOTAL 83,593 76,106
-------- --------
Long-term debt 199,031 169,083
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 2000
and 1999 33,744 33,744
Paid-in capital 36,294 36,294
Retained earnings 64,579 58,526
-------- --------
TOTAL 154,397 148,344
-------- --------
Commitments and Contingencies (Notes 2 and 9)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $559,231 $485,746
======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
ENTERGY NEW ORLEANS, INC.
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
Retained Earnings, January 1 $58,526 $67,030 $61,558
Add:
Net income 16,518 18,961 16,137
Deduct:
Dividends declared:
Preferred stock 965 965 965
Common stock 9,500 26,500 9,700
------- ------- -------
Total 10,465 27,465 10,665
------- ------- -------
Retained Earnings, December 31 (Note 8) $64,579 $58,526 $67,030
======= ======= =======
See Notes to Financial Statements.
<PAGE>
ENTERGY NEW ORLEANS, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON
2000 1999 1998 1997 1996
(In Thousands)
Operating revenues $640,290 $507,788 $513,750 $504,822 $504,277
Net Income $ 16,518 $ 18,961 $ 16,137 $ 15,451 $ 26,776
Total assets $559,231 $485,746 $471,904 $498,150 $549,996
Long-term obligations (1) $199,031 $169,083 $169,018 $168,953 $168,888
(1) Includes long-term debt (excluding currently maturing debt).
2000 1999 1998 1997 1996
(Dollars In Thousands)
Electric Operating Revenues:
Residential $188,314 $158,822 $164,765 $145,688 $151,577
Commercial 170,684 146,328 149,353 143,113 149,649
Industrial 25,479 25,584 26,229 24,616 24,663
Governmental 73,028 63,056 62,332 58,746 58,561
-------------------------------------------------
Total retail 457,505 393,790 402,679 372,163 384,450
Sales for resale:
Associated companies 31,629 14,207 10,451 10,342 2,649
Non-associated companies 8,504 10,545 10,590 8,996 9,882
Other 17,136 7,889 7,733 18,630 6,273
-------------------------------------------------
Total $514,774 $426,431 $431,453 $410,131 $403,254
=================================================
Billed Electric Energy
Sales (GWH):
Residential 2,178 2,102 2,141 1,971 1,998
Commercial 2,260 2,208 2,149 2,072 2,073
Industrial 384 514 514 484 481
Governmental 1,058 1,071 1,037 994 974
-------------------------------------------------
Total retail 5,880 5,895 5,841 5,521 5,526
Sales for resale:
Associated companies 570 441 370 316 66
Non-associated companies 141 180 199 160 212
-------------------------------------------------
Total 6,591 6,516 6,410 5,997 5,804
=================================================
<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 (pages 140 through 145
and pages 147 through 209) present fairly, in all material respects, the
financial position of System Energy Resources, Inc. at December 31, 2000
and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 1, 2001
<PAGE>
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Income
Net income increased in 2000 due to increased interest earnings from
the money pool, an inter-company funding arrangement, and decreased
interest expense associated with the potential refund of System Energy's
proposed rate increase. This increase in net income was partially offset
by a higher effective income tax rate in 2000.
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.
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 2000 primarily due to an increase in
recoverable expenses.
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 2000, fuel expenses increased primarily due to increased nuclear
fuel burn as a result of Grand Gulf 1 being operational 358 days, as
compared to 295 days in 1999.
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.
Depreciation and amortization
In 2000, depreciation expense increased due to higher depreciation
associated with the principal payment on 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.
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.
<PAGE>
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Other regulatory charges
In both 2000 and 1999, other regulatory charges increased due to the
implementation of the GGART at Entergy Arkansas and Entergy Mississippi, as
discussed above.
Other
Other income
Other income increased in 2000 and 1999 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
Interest on long-term debt decreased in 2000 and 1999 as a result of
the retirement and refinancing of higher-cost long-term debt. In 2000,
System Energy retired $75 million of debenture bonds. In 1999, System
Energy retired $160 million of first mortgage bonds and refinanced $102
million of governmental bonds at an annual interest rate of 5.9%.
Other interest decreased in 2000 primarily due to decreased interest
expense recorded on the potential refund of System Energy's proposed rate
increase. Other interest increased in 1999 due to interest on the
potential refund of System Energy's proposed rate increase.
Income taxes
The effective income tax rates in 2000, 1999, and 1998 were 46.4%,
39.5%, and 42.1%, respectively.
The effective income tax rate for 2000, increased primarily due to
increased pre-tax income and the amortization of investment tax credits
related to Grand Gulf 2 in 1999.
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES
Domestic electric $656,749 $620,032 $602,373
-------- -------- --------
OPERATING EXPENSES
Operating and Maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 42,369 37,336 41,740
Nuclear refueling outage expenses 14,423 14,136 15,737
Other operation and maintenance 88,257 87,450 86,696
Decommissioning 18,944 18,944 18,944
Taxes other than income taxes 30,517 27,212 26,839
Depreciation and amortization 127,904 113,862 125,331
Other regulatory charges - net 63,590 57,656 4,443
-------- -------- --------
TOTAL 386,004 356,596 319,730
-------- -------- --------
OPERATING INCOME 270,745 263,436 282,643
-------- -------- --------
OTHER INCOME
Allowance for equity funds used during construction 1,482 2,540 2,042
Miscellaneous - net 20,446 16,309 13,309
-------- -------- --------
TOTAL 21,928 18,849 15,351
-------- -------- --------
INTEREST AND OTHER CHARGES
Interest on long-term debt 87,689 102,764 109,735
Other interest - net 30,830 45,218 6,325
Allowance for borrowed funds used during construction (854) (1,920) (1,805)
-------- -------- --------
TOTAL 117,665 146,062 114,255
-------- -------- --------
INCOME BEFORE INCOME TAXES 175,008 136,223 183,739
Income taxes 81,263 53,851 77,263
-------- -------- --------
NET INCOME $93,745 $82,372 $106,476
======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $93,745 $82,372 $106,476
Noncash items included in net income:
Reserve for regulatory adjustments 54,598 108,484 68,236
Other regulatory charges - net 63,590 57,656 4,443
Depreciation, amortization, and decommissioning 146,848 132,806 144,275
Deferred income taxes and investment tax credits (71,212) (86,860) (28,222)
Allowance for equity funds used during construction (1,482) (2,540) (2,042)
Changes in working capital:
Receivables 87,212 (172,354) 9,690
Accounts payable (7,401) (11,688) (2,859)
Taxes accrued 13,147 (21,424) 1,131
Interest accrued 4,008 (2,022) (300)
Other working capital accounts 20,754 (4,425) (2,228)
Provision for estimated losses and reserves (1,328) 45 (1,704)
Changes in other regulatory assets 58,592 (18,492) 25,066
Other (65,491) 41,250 (23,159)
-------- -------- --------
Net cash flow provided by operating activities 395,580 102,808 298,803
-------- -------- --------
INVESTING ACTIVITIES
Construction expenditures (36,555) (28,848) (30,692)
Allowance for equity funds used during construction 1,482 2,540 2,042
Nuclear fuel purchases - (39,975) (30,523)
Proceeds from sale/leaseback of nuclear fuel - 39,975 30,523
Decommissioning trust contributions and realized
change in trust assets (23,694) (22,139) (24,166)
-------- -------- --------
Net cash flow used in investing activities (58,767) (48,447) (52,816)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt - 101,835 212,976
Retirement of:
Long-term debt (77,947) (282,885) (300,341)
Dividends paid:
Common stock (91,800) (75,000) (72,300)
-------- -------- --------
Net cash flow used in financing activities (169,747) (256,050) (159,665)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 167,066 (201,689) 86,322
Cash and cash equivalents at beginning of period 35,152 236,841 150,519