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ENTERGY MISSISSIPPI, LLC - Quarter Report: 2004 June (Form 10-Q)

__________________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
   
  For the Quarterly Period Ended June 30, 2004
 

OR

  TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ____________ to ____________

Commission
File Number
Registrant, State of Incorporation,
Address of Principal Executive Offices and Telephone Number
I.R.S. Employer
Identification No.

1-11299 ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
72-1229752
1-10764 ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue, 40th Floor
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900
1-27031 ENTERGY GULF STATES, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
74-0662730
1-8474 ENTERGY LOUISIANA, INC.
(a Louisiana corporation)
4809 Jefferson Highway
Jefferson, Louisiana 70121
Telephone (504) 840-2734
72-0245590
1-31508 ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830
0-5807 ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street, Building 505
New Orleans, Louisiana 70112
Telephone (504) 670-3674
72-0273040
1-9067 SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
72-0752777

__________________________________________________________________________________________

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

X

No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

 

Yes

No

Entergy Corporation

X

 
Entergy Arkansas, Inc.  

X

Entergy Gulf States, Inc.  

X

Entergy Louisiana, Inc.  

X

Entergy Mississippi, Inc.  

X

Entergy New Orleans, Inc.  

X

System Energy Resources, Inc.  

X

Common Stock Outstanding

 

Outstanding at July 30, 2004

Entergy Corporation

($0.01 par value)

226,908,516

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2003, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed by the individual registrants with the SEC, and should be read in conjunction therewith.

 

 

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2004

 

 

Page Number

   
Definitions

1

Entergy Corporation and Subsidiaries  
  Management's Financial Discussion and Analysis  
    Results of Operations

4

    Liquidity and Capital Resources

8

    Significant Factors and Known Trends

11

    Critical Accounting Estimates

17

  Consolidated Statements of Income

19

  Consolidated Statements of Cash Flows

20

  Consolidated Balance Sheets

22

  Consolidated Statements of Retained Earnings, Comprehensive Income, and
Paid-In Capital

24

  Selected Operating Results

25

  Notes to Consolidated Financial Statements

26

Entergy Arkansas, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

37

    Liquidity and Capital Resources

38

    Significant Factors and Known Trends

39

    Critical Accounting Estimates

41

  Income Statements

42

  Statements of Cash Flows

43

  Balance Sheets

44

  Selected Operating Results

46

Entergy Gulf States, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

47

    Liquidity and Capital Resources

50

    Significant Factors and Known Trends

51

    Critical Accounting Estimates

53

  Statements of Operations

54

  Statements of Cash Flows

55

  Balance Sheets

56

  Statements of Retained Earnings and Comprehensive Income

58

  Selected Operating Results

59

Entergy Louisiana, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

60

    Liquidity and Capital Resources

62

    Significant Factors and Known Trends

64

    Critical Accounting Estimates

65

  Income Statements

66

  Statements of Cash Flows

67

  Balance Sheets

68

  Selected Operating Results

70

Entergy Mississippi, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

71

    Liquidity and Capital Resources

73

    Significant Factors and Known Trends

74

Critical Accounting Estimates

76

  Income Statements

77

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2004

 

 

Page Number

   
  Statements of Cash Flows

79

  Balance Sheets

80

  Selected Operating Results

82

Entergy New Orleans, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

83

    Liquidity and Capital Resources

85

    Significant Factors and Known Trends

86

    Critical Accounting Estimates

88

  Income Statements

89

  Statements of Cash Flows

91

  Balance Sheets

92

  Selected Operating Results

94

System Energy Resources, Inc.  
  Management's Financial Discussion and Analysis  
    Results of Operations

95

    Liquidity and Capital Resources

95

    Significant Factors and Known Trends

96

    Critical Accounting Estimates

96

  Income Statements

97

  Statements of Cash Flows

99

  Balance Sheets

100

Notes to Respective Financial Statements

102

Item 4. Controls and Procedures

113

Part II. Other Information  
  Item 1. Legal Proceedings

114

  Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

115

  Item 4. Submission of Matters to a Vote of Security Holders

116

  Item 5. Other Information

117

  Item 6. Exhibits and Reports on Form 8-K

122

Signature

126

 

 

FORWARD-LOOKING INFORMATION

From time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some of those factors (in addition to others described elsewhere in this report and in subsequent securities filings) include:

  • resolution of pending and future rate cases and negotiations, including various performance-based rate discussions, and other regulatory decisions, including those related to Entergy's System Agreement and utility supply plan
  • Entergy's ability to reduce its operation and maintenance costs, particularly at its Non-Utility Nuclear generating facilities, including the uncertainty of negotiations with unions to agree to such reductions
  • the performance of Entergy's generating plants, and particularly the capacity factors at its nuclear generating facilities
  • prices for power generated by Entergy's unregulated generating facilities, the ability to extend or replace the existing purchased power agreements for those facilities, including the Non-Utility Nuclear plants, and the prices and availability of power Entergy must purchase for its utility customers
  • Entergy's ability to develop and execute on a point of view regarding prices of electricity, natural gas, and other energy-related commodities
  • Entergy-Koch's profitability in trading physical and financial natural gas and power as well as other energy-related contracts
  • changes in the number of participants in the energy trading market, and in their creditworthiness and risk profile
  • changes in the financial markets, particularly those affecting the availability of capital and Entergy's ability to refinance existing debt and to fund investments and acquisitions
  • actions of rating agencies, including changes in the ratings of debt and preferred stock, and changes in the rating agencies' ratings criteria
  • changes in inflation and interest rates
  • Entergy's ability to purchase and sell assets at attractive prices and on other attractive terms
  • changes in ownership of joint ventures
  • volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities
  • changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, the establishment of a regional transmission organization that includes Entergy's utility service territory, and the establishment of market power criteria by the FERC
  • changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown of Indian Point or other nuclear generating facilities
  • uncertainty regarding the establishment of permanent sites for spent nuclear fuel storage and disposal
  • resolution of pending or future applications for license extensions of nuclear generating facilities
  • changes in law resulting from proposed energy legislation
  • changes in environmental, tax, and other laws, including requirements for reduced emissions of sulfur, nitrogen, carbon, mercury, and other substances
  • the economic climate, and particularly growth in Entergy's service territory
  • variations in weather, hurricanes, and other disasters
  • advances in technology
  • the potential effects of threatened or actual terrorism and war
  • the success of Entergy's strategies to reduce current tax payments
  • the effects of litigation and government investigations
  • changes in accounting standards, corporate governance, and securities law requirements
  • Entergy's ability to attract and retain talented management and directors.

 

 

 

 

 

 

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DEFINITIONS

Certain abbreviations or acronyms used in the text are defined below:

Abbreviation or Acronym

Term

   

ALJ

Administrative Law Judge

ANO 1 and 2

Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear)

APSC

Arkansas Public Service Commission

BCF

One billion cubic feet of natural gas

BCF/D

One billion cubic feet of natural gas per day

Board

Board of Directors of Entergy Corporation

capacity factor

Actual plant output divided by maximum potential plant output for the period

City Council or Council

Council of the City of New Orleans, Louisiana

DOE

United States Department of Energy

domestic utility companies

Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively

EPA

United States Environmental Protection Agency

EPDC

Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation

electricity marketed

Total physical volume marketed by Entergy-Koch in the U.S. and Europe during the period

electricity volatility

Measure of price fluctuation over time using standard deviation of daily price differences for into-Cinergy power prices for the upcoming month

Energy Commodity Services

Entergy's business segment that is focused almost exclusively on providing energy commodity trading and gas transportation and storage services through Entergy-Koch, LP and also includes Entergy's non-nuclear wholesale assets business

Entergy

Entergy Corporation and its direct and indirect subsidiaries

Entergy Corporation

Entergy Corporation, a Delaware corporation

Entergy-Koch

Entergy-Koch, L.P., a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.

FEMA

Federal Emergency Management Agency

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 NYPA by Entergy's Non-Utility Nuclear business

Form 10-K

The combined Annual Report on Form 10-K for the year ended December 31, 2003 of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

gain/loss days

Ratio of the number of days when Entergy-Koch recognized a net gain from commodity trading activities to the number of days when Entergy-Koch recognized a net loss from commodity trading activities

gas marketed

Total physical volume marketed by Entergy-Koch in the U.S. and Europe during the period

gas volatility

Measure of price fluctuation over time using standard deviation of daily price differences for Henry Hub natural gas prices for the upcoming month

DEFINITIONS (Continued)

Abbreviation or Acronym

Term

Grand Gulf 1

Unit No. 1 of the Grand Gulf Nuclear Generating Station

GWh

Gigawatt hour(s), which equals one million kilowatt-hours

Indian Point 2

Indian Point Energy Center Unit 2 - nuclear power plant, 984 MW facility located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's Non-Utility Nuclear business

Indian Point 3

Indian Point Energy Center Unit 3 - nuclear power plant, 994 MW facility located in Westchester County, New York, purchased in November 2000 from NYPA by Entergy's Non-Utility Nuclear business

kW

Kilowatt

kWh

Kilowatt-hour(s)

LDEQ

Louisiana Department of Environmental Quality

LPSC

Louisiana Public Service Commission

Mcf

1,000 cubic feet of gas

miles of pipeline

Total miles of transmission and gathering pipeline

MMBtu

One million British Thermal Units

MPSC

Mississippi Public Service Commission

MW

Megawatt(s), which equals one thousand kilowatt(s)

MWh

Megawatt-hours

Net debt ratio

Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents

Net MW in operation

Installed capacity owned or operated

Net revenue

Operating revenue net of fuel, fuel-related, and purchased power expenses; other regulatory credits; and amortization of rate deferrals

Non-Utility Nuclear

Entergy's business segment that owns and operates five nuclear power plants and sells electric power produced by those plants to wholesale customers

NRC

Nuclear Regulatory Commission

NYPA

New York Power Authority

Pilgrim

Pilgrim Nuclear Station, 688 MW facility located in Plymouth, Massachusetts, purchased in July 1999 from Boston Edison by Entergy's Non-Utility Nuclear business

production cost

Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas

PPA

Purchased power agreement

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

River Bend

River Bend Steam Electric Generating Station (nuclear)

RTO

Regional transmission organization

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board

SMEPA

South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf 1

DEFINITIONS (Concluded)

Abbreviation or Acronym

Term

   

spark spread

The dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity

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.

throughput

Gas in BCF/D transported through a pipeline during the period

TWh

Terawatt-hour(s), which equals one billion kilowatt-hours

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

UK

The United Kingdom of Great Britain and Northern Ireland

U.S. Utility

Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution

Vermont Yankee

Vermont Yankee nuclear power plant, 510 MW facility located in Vernon, Vermont, purchased in July 2002 from Vermont Yankee Nuclear Power Corporation by Entergy's Non-Utility Nuclear business

Waterford 3

Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana

weather-adjusted usage

Electric usage excluding the effects of deviations from normal weather

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Entergy's consolidated earnings applicable to common stock for the second quarter and six months ended June 30, 2004 and 2003 were as follows:

Second Quarter

Six Months Ended

Operating Segment

 

2004

 

2003

2004

2003

(In Thousands)

   

 

 

 

U.S. Utility  

$194,964 

 

$121,716 

$310,621 

$229,505 

Non-Utility Nuclear  

62,994 

 

44,860 

131,828 

241,845 

Energy Commodity Services  

9,494 

 

48,575 

19,303 

142,366 

Parent & Other  

(2,270)

 

(9,510)

10,591 

(13,068)

Total  

$265,182 

 

$205,641 

$472,343 

$600,648 

Entergy's income before taxes is discussed below according to the operating segments listed above. Earnings for the six months ended June 30, 2003 include the $142.9 million net-of-tax cumulative effect of changes in accounting principle that increased earnings in the first quarter of 2003, almost entirely resulting from the implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. See Note 7 to the consolidated financial statements herein for more information concerning Entergy's operating segments and their financial results in 2004 and 2003.

Refer to SELECTED OPERATING RESULTS OF ENTERGY CORPORATION AND SUBSIDIARIES for further information with respect to operating statistics.

U.S. UTILITY

The increase in earnings for the U.S. Utility for the second quarter of 2004 compared to the second quarter of 2003 from $121.7 million to $195 million was primarily due to a $107.7 million ($65.6 million net-of-tax) accrual in 2003 of the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the consolidated financial statements for more details regarding the River Bend abeyed plant costs. The $7.7 million increase in earnings that remains after considering the effect of the 2003 accrual is primarily due to increases in net revenue and other income and a decrease in interest charges, partially offset by an increase in other operation and maintenance expenses.

The increase in earnings for the U.S. Utility for the six months ended June 30, 2004 compared to the same period in 2003 from $229.5 million to $310.6 million was primarily due to the $107.7 million ($65.6 million net-of-tax) accrual in 2003 discussed above. Also contributing to the increase was the $21.3 million net-of-tax cumulative effect of a change in accounting principle that reduced earnings at Entergy Gulf States in the first quarter of 2003 upon implementation of SFAS 143. The $5.7 million decrease in earnings that remains after considering the effects of the 2003 cumulative effect of accounting change and the 2003 accrual is primarily due to a decrease in net revenue and an increase in other operation and maintenance expenses, partially offset by an increase in other income and a decrease in interest charges.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.

  

 

Amount

  

 

(In Millions)

 

 

 

2003 net revenue

 

$1,081.4 

Volume/weather

 

9.3 

Summer capacity charges  

7.3 

Other

 

2.6 

2004 net revenue

 

$1,100.6 

The volume/weather variance resulted from increased usage in the service territories primarily during the unbilled sales period. Billed usage increased a total of 366 GWh in the industrial, commercial, and governmental sectors.

The summer capacity charges variance is due to the amortization in the second quarter of 2003 at Entergy Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. Entergy Gulf States' amortization began in June 2002 and ended in May 2003. Entergy Louisiana's amortization began in August 2002 and ended in July 2003.

Other regulatory charges (credits)

Other regulatory charges decreased primarily due to the cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003 and the amortization of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.

  

 

Amount

  

 

(In Millions)

 

 

 

2003 net revenue

 

$2,048.2 

Deferred fuel cost revisions

 

(46.3)

Price applied to unbilled sales

 

(42.7)

Volume/weather

 

41.1 

Summer capacity charges  

15.7 

Base rates

 

11.1 

Other

 

(1.7)

2004 net revenue

 

$2,025.4 

The deferred fuel cost revisions variance resulted primarily from a revision in 2003 to an unbilled sales pricing estimate to more closely align the fuel component of that pricing with expected recoverable fuel costs at Entergy Louisiana. Deferred fuel cost revisions also decreased net revenue due to a revision in 2004 to the estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider.

The price applied to unbilled sales variance resulted from a decrease in fuel price in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs.

The volume/weather variance resulted from increased usage in the service territories primarily during the unbilled sales period. Billed usage increased a total of 564 GWh in the industrial, commercial, and governmental sectors. The increase, however, was partially offset by a decrease of 376 GWh in the residential sector primarily due to milder weather as compared to the same period in 2003.

The summer capacity charges variance is due to the amortization in 2003 at Entergy Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. Entergy Gulf States' amortization began in June 2002 and ended in May 2003. Entergy Louisiana's amortization began in August 2002 and ended in July 2003.

Base rates increased net revenue due to a base rate increase at Entergy New Orleans that became effective in June 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues include an increase in fuel cost recovery revenues of $156.5 million primarily due to higher fuel rates resulting from increases in the market prices of non-associated purchased power and natural gas and collections of previous deferrals of fuel costs. As such, this revenue increase is offset by increased fuel and purchased power expenses.

Other regulatory charges decreased primarily due to the cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003 in addition to the amortization of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana.

Other Income Statement Variances

Other operation and maintenance expenses increased for the second quarter and six months ended June 30, 2004 primarily due to lower customer service support costs in 2003.

Other income increased for the second quarter and six months ended June 30, 2004 primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the consolidated financial statements for more details regarding the River Bend abeyed plant costs. Other income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.

Interest and other charges decreased for the second quarter and six months ended June 30, 2004 primarily due to a decrease in interest on long-term debt as a result of the net retirement and refinancing of long-term debt in 2003. See Note 5 to the consolidated financial statements in the Form 10-K and Note 4 to the consolidated financial statements herein for detail of long-term debt.

NON-UTILITY NUCLEAR

Following are key performance measures for Non-Utility Nuclear for the second quarter and six months ended June 30, 2004 and 2003:

   

Second Quarter

 

Six Months Ended

   

2004

 

2003

 

2004

 

2003

   

 

 

 

 

 

 

 

Net MW in operation at June 30  

4,001

 

3,955

 

4,001

 

3,955

Generation in GWh for the period  

8,196

 

7,337

 

16,882

 

15,430

Capacity factor for the period  

93.6%

 

84.1%

 

96.3%

 

88.9%

Average realized price per MWh  

$41.33

 

$39.81

 

$40.49

 

$39.01

Second Quarter 2004 Compared to Second Quarter 2003

The increase in earnings for Non-Utility Nuclear from $44.9 million to $63.0 million was due to higher revenues, which increased by $47 million, resulting from increased generation in 2004 due to fewer planned and unplanned outages in 2004 and power uprates completed in 2003, and higher contract pricing.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

The decrease in earnings for Non-Utility Nuclear from $241.8 million to $131.8 million was primarily due to the $160.3 million net-of-tax cumulative effect of a change in accounting principle recognized in the first quarter of 2003 upon implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. Income before the cumulative effect of accounting change increased by $50.3 million. The increase was due to higher revenues, which increased by $82 million, resulting from increased generation in 2004 due to fewer planned and unplanned outages in 2004 and power uprates completed in 2003, and higher contract pricing. Lower operation and maintenance expenses, which decreased by $26 million, also contributed to the increase in income.

ENERGY COMMODITY SERVICES

Following are key performance measures for Entergy-Koch's operations for the second quarter and six months ended June 30, 2004 and 2003:

 

 

 

Second Quarter

 

Six Months Ended

 

 

 

2004

 

2003

 

2004

 

2003

Entergy-Koch Trading

 

 

 

 

 

 

 

 

 

  Gas volatility

 

 

33%

 

45%

 

43%

 

71%

  Electricity volatility

 

 

29%

 

52%

 

33%

 

72%

  Gas marketed (BCF/D)

 

 

4.6

 

5.3

 

6.0

 

6.6

  Electricity marketed (GWh)

 

 

88,417

 

100,865

 

206,348

 

224,345

  Gain/loss days

 

 

2.0

 

1.4

 

1.6

 

1.4

Gulf South Pipeline

 

 

 

 

 

 

 

 

 

  Throughput (BCF/D)

 

 

1.90

 

1.90

 

2.06

 

2.10

  Production cost ($/MMBtu)

 

 

$0.164

 

$0.138

 

$0.156

 

$0.123

Second Quarter 2004 Compared to Second Quarter 2003

The decrease in earnings for Energy Commodity Services from $48.6 million to $9.5 million was primarily due to lower earnings from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was lower by $38 million primarily as a result of:

    • The loss of disproportionate income sharing, which accounted for $22 million of second quarter 2003 earnings and is discussed in the paragraph below.
    • Lower earnings at Entergy-Koch Trading (EKT), resulting from reduced volatility, which also resulted in lower point-of-view trading profits.

As discussed in the Form 10-K, Entergy accounts for its 50% share in Entergy-Koch under the equity method of accounting. Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. Certain terms of the partnership arrangement allocated income from various sources, and the taxes on that income, on a significantly disproportionate basis through 2003. Losses and distributions from operations are allocated to the partners equally. Substantially all of Entergy-Koch's profits were allocated to Entergy in 2003, 2002, and 2001. Effective January 1, 2004, a revaluation of Entergy-Koch's assets for legal capital account purposes occurred, and profit allocations changed after the revaluation. The profit allocations other than for weather trading and international trading became equal. Profit allocations for weather trading and international trading remain disproportionate to the ownership interests. The weather trading and international trading allocations are unequal only within a specified range, such that the overall earnings allocation should not materially differ from 50/50. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners.

Review of Strategic Alternatives for Entergy-Koch Investment

On August 2, 2004, Entergy Corporation announced that it had essentially completed a review of strategic alternatives for enhancing the value of Entergy-Koch, LP. As a result of the review Entergy believes that Entergy-Koch Trading would be more valuable if owned by a third party, and therefore Entergy believes that this business may be saleable at an attractive price.  Because of this, Entergy and Koch Industries have been engaged in discussions with numerous potential buyers. Advanced negotiations are underway with one party, and interest continues to be expressed by several others. Entergy and Koch Industries intend to pursue the sale of Gulf South Pipeline upon reaching a definitive agreement to sell Entergy-Koch Trading. Strategic alternatives also considered included maintaining the current Entergy-Koch ownership structure; adding one or more new owners to the venture; or modifying the current ownership structure. There can be no assurance that a third-party sale of Entergy-Koch Trading or Gulf South Pipeline will occur or what the terms of a sale would be.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

The decrease in earnings for Energy Commodity Services from $142.4 million to $19.3 million was primarily due to lower earnings from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was lower by $115 million primarily as a result of:

    • The loss of disproportionate income sharing, which accounted for $61 million of earnings for the six months ended June 30, 2003, as discussed above.
    • Lower earnings at EKT, resulting from reduced volatility, which also resulted in lower point-of-view trading profits.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 38.0% and 37.3%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 36.0% and 37.8%, respectively. The decrease in the effective income tax rate for the six months ended June 30, 2004 is primarily due to the favorable settlement of various tax audit issues and higher pre-tax income in 2003 decreasing the effect of flow-through and permanent differences. The favorable settlement is reported in Parent and Other and is the primary reason for the increase in earnings for that part of Entergy's business in 2004.

Liquidity and Capital Resources

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to the information presented in the Form 10-K.

Capital Structure

In May 2004, Entergy Corporation renewed its 364-day bank credit facility into two separate facilities, a 364-day credit facility and a 3-year credit facility. The 364-day credit facility has a borrowing capacity of $485 million and expires in May 2005. As of June 30, 2004, no borrowings were outstanding on this facility. The 3-year credit facility has a borrowing capacity of $965 million and expires in May 2007. As of June 30, 2004, $145 million in borrowings were outstanding on this facility. Entergy also has the ability to issue letters of credit against the 3-year facility, and $40 million had been issued against this facility at June 30, 2004. Although the Entergy Corporation 364-day credit facility expires in May 2005, Entergy has the discretionary option to extend the period to repay the amount then outstanding for an additional 364-day term. Because of this option, which Entergy intends to exercise if it does not renew the credit line or obtain an alternative source of financing, the debt outstanding on the credit facilities is reflected in long-term debt on the balance sheet.

In April 2004, Entergy Arkansas renewed its 364-day credit facility, increasing the amount to $85 million, until April 2005. In May 2004, Entergy Mississippi renewed its credit facility for the same amount, $25 million, which will expire in May 2005. As of June 30, 2004, the amounts outstanding on the Entergy Arkansas and Entergy Mississippi credit facilities were $85 million and $25 million, respectively.

In May 2004, Entergy Louisiana extended the maturity date of its credit facility to July 2004. In July 2004, Entergy Louisiana renewed the facility and Entergy New Orleans entered into a separate credit facility with the same lender. Both facilities will expire in April 2005. Entergy Louisiana can borrow up to $15 million and Entergy New Orleans can borrow up to $14 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $15 million.

As discussed in the Form 10-K, in August 2001, EntergyShaw, LLC entered into a turnkey construction agreement with an Entergy subsidiary, Entergy Power Ventures, L.P. (EPV), and with Northeast Texas Electric Cooperative, Inc. (NTEC), providing for the construction by EntergyShaw of a 550 MW electric power plant located in Harrison County, Texas. EntergyShaw is an unconsolidated joint venture in which Entergy owns a 50% member interest. Entergy guaranteed the obligations of EntergyShaw to construct the power plant, 70% of which is owned by EPV. The power plant commenced commercial operation in June 2003, the base warranty period for the construction expired in June 2004, and Entergy's maximum liability on the guarantee has now been reduced to approximately $20 million. Management does not expect any material liability on the warranty.

Capital Expenditure Plans and Other Uses of Capital

See the table in the Form 10-K under "Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," which sets forth the amounts of Entergy's planned construction and other capital investments by operating segment for 2004 through 2006. Entergy Louisiana now expects to complete the purchase of the Perryville plant in the first quarter 2005 for $183.5 million. Therefore, Entergy now expects to spend approximately $385 million for Capital Commitments in the U.S. Utility segment in 2004 and approximately $479 million for Capital Commitments in the U.S. Utility segment in 2005.

Stock Repurchases

In late July 2004 the Board approved a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program is effective immediately and extends through the end of 2006. This repurchase program, which is incremental to the existing authority discussed in the Form 10-K to repurchase shares to fund the exercise of employee stock options, will be decreased to $1 billion should a sale of Entergy-Koch Trading not occur. The amount of the program may also vary as a result of material changes in business results or capital spending or material new investment opportunities.

Cash Flow Activity

As shown in Entergy's Statements of Cash Flows, cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Millions)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$692 

 

$1,335 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

929 

 

525 

 

Investing activities

 

(641)

 

(1,135)

 

Financing activities

 

(392)

 

351 

Effect of exchange rates on cash and cash equivalents

 

(2)

 

Net decrease in cash and cash equivalents

 

(106)

 

(258)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$586 

 

$1,077 

Operating Activities

Entergy's cash flow provided by operating activities increased by $404 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the following:

    • The U.S. Utility provided $669 million in cash from operating activities, compared to providing $509 million in 2003. The increase resulted primarily from improved recovery of fuel costs.
    • The Non-Utility Nuclear business provided $265 million in cash from operating activities, compared to providing $73 million in 2003. The increase resulted primarily from lower refueling outage cash costs and increases in generation and contract pricing that led to an increase in revenues.
    • Entergy's investment in Entergy-Koch, L.P. provided $11 million in cash from operating activities, compared to using $26 million in 2003. The Entergy-Koch investment provided more cash flow in 2004 even though dividends received from Entergy-Koch were $26 million in 2004 compared to $75 million in 2003, because tax payments related to the investment decreased by $99 million.
    • The non-nuclear wholesale asset business used $29 million in cash from operating activities, compared to using $59 million in 2003. The decrease in cash used resulted primarily from a one-time $33 million payment in 2003 related to a generation contract.

Investing Activities

Net cash used in investing activities decreased by $494 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the following:

    • System Energy used approximately $193 million in March 2003 to provide cash collateral for letters of credit that secured certain of its obligations related to the sale-leaseback of a portion of Grand Gulf 1. (In December 2003, System Energy replaced the cash-backed letters of credit with syndicated bank letters of credit that expire in May 2007.)
    • Construction expenditures were $83 million lower in 2004 than in 2003, including decreases of $15 million in the U.S. Utility business, $26 million in the Non-Utility Nuclear business, and $39 million in the non-nuclear wholesale asset business.
    • Temporary investments of $50 million with initial maturities of greater than 90 days matured in the first quarter of 2004.
    • The Non-Utility Nuclear business purchased $54 million more nuclear fuel in 2003 than in the first half of 2004 to provide for refueling outages.
    • Entergy Gulf States used $70 million and Entergy Mississippi used $73 million for other regulatory investments in 2003 as a result of fuel cost under-recoveries. In 2004, Entergy Gulf States used $31 million for regulatory investments related to fuel cost under-recovery. See Note 1 to the consolidated financial statements in the Form 10-K for discussion of the accounting treatment of these fuel cost under-recoveries.

Financing Activities

Financing activities used $392 million for the six months ended June 30, 2004 compared to providing $351 million for the six months ended June 30, 2003 primarily due to the following:

    • Retirements of long-term debt net of issuances by the U.S. Utility segment used $253 million in 2004 and issuances of long-term debt net of retirements provided $333 million in the first quarter 2003. See Note 4 to the consolidated financial statements for the details of the long-term debt activity in 2004.
    • Entergy Corporation issued $233 million of long-term notes in the first half of 2003.
    • Entergy Corporation repurchased $271 million of its common stock in 2004. As discussed in the Form 10-K, in accordance with Entergy's stock option plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.
    • Entergy Corporation paid $45 million more in common stock dividends in 2004 than in 2003. As discussed in the Form 10-K, at its July 2003 meeting the Board increased Entergy's quarterly common stock dividend per share by 29%, to $0.45.

Offsetting the factors that caused an increase in cash used in financing activities in 2004 were the following:

    • In 2004, Entergy Corporation borrowed $145 million on its 364-day credit facility, Entergy Arkansas borrowed $85 million on its credit facility, and Entergy Mississippi borrowed $25 million on its credit facility. In 2003, Entergy Corporation had decreased the net borrowings on its credit facility by $140 million.
    • The non-nuclear wholesale asset business retired the $79 million Top of Iowa wind project debt at its maturity in January 2003.

Significant Factors and Known Trends

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in the Form 10-K for discussions of rate regulation and fuel-cost recovery, market and credit risks, utility restructuring, and nuclear matters. Following are updates to the information provided in the Form 10-K.

Rate Regulation and Fuel-Cost Recovery

See the Form 10-K for the chart summarizing material rate proceedings. Following are updates to that chart. Base rates in Entergy Gulf States' Texas jurisdiction are currently set at rates approved by the PUCT in June 1999. As further discussed below in "Utility Restructuring, Retail-Texas," in June 2004 the PUCT ordered an indefinite delay in retail open access in Entergy Gulf States' Texas service territory. Entergy Gulf States intends now to file a retail electric rate case and fuel reconciliation proceeding with the PUCT in the third quarter of 2004.

Entergy Mississippi made its formula rate plan filing with the MPSC in March 2004 based on a 2003 test year. In April 2004, the MPSC approved a joint stipulation between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed annual regulatory earnings range of 9.5% to 12.1%.

In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and dockets established to consider issues concerning the companies' power purchases for the summers of 2001, 2002, and 2003. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers and $1 million to Entergy Louisiana's customers, with no change in either company's current base rates.  The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.

System Agreement Litigation

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of any of the domestic utility companies, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Market and Credit Risks

Commodity Price Risk

Power Generation

As discussed more fully in the Form 10-K, the sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business and Energy Commodity Services, unless otherwise contracted, is subject to the fluctuation of market power prices. Following is an updated summary of the amount of Non-Utility Nuclear's output that is sold forward as of June 30, 2004 under physical or financial contracts at fixed prices (2004 represents the remainder of the year):

 

2004

 

2005

 

2006

 

2007

 

2008

Non-Utility Nuclear:

 

 

 

 

 

 

 

 

 

% of planned generation sold forward

100%

 

94%

 

59%

 

36%

 

17%

Planned generation (TWh)

16

 

34

 

35

 

34

 

34

Average contracted price per MWh

$39

 

$39

 

$38

 

$38

 

$40

The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant, which is through the expiration in 2012 of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below PPA prices. Accordingly, because the price is not fixed, the table above does not report power from that plant as sold forward after October 2005. Approximately 2% of Non-Utility Nuclear's planned generation in 2005, 13% in 2006, 12% in 2007, and 12% in 2008 is under contract from Vermont Yankee after October 2005.

Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear business sells its power.  The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. Upon a significant decrease in Entergy Corporation's credit rating to specified levels below investment grade, Entergy may be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.  Entergy believes it currently has sufficient cash and bank lines of credit available to meet any reasonably foreseeable requirement to provide cash collateral and letters of credit under these agreements.

In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the Independent System Operators in their area. Following is an updated summary of the amount of the Non-Utility Nuclear business' installed capacity that is sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward, as of June 30, 2004:

 

 

2004

 

2005

 

2006

 

2007

 

2008

Non-Utility Nuclear:

 

 

 

 

 

 

 

 

 

 

Percent of capacity sold forward:

 

 

 

 

 

 

 

 

 

 

  Bundled capacity and energy contracts

 

55%

 

15%

 

13%

 

13%

 

13%

  Capacity contracts

 

41%

 

43%

 

25%

 

13%

 

0%

  Total

 

96%

 

59%

 

38%

 

26%

 

13%

Planned MW in operation

 

4,061

 

4,158

 

4,203

 

4,203

 

4,203

Average capacity contract price per kW per month

 

$1.3

 

$1.3

 

$1.3

 

$1.3

 

N/A

Blended Capacity and Energy (based on revenues)

 

 

 

 

 

 

 

 

 

 

% of planned energy and capacity sold forward

 

100%

 

93%

 

67%

 

43%

 

25%

Average contract revenue per MWh

 

$40

 

$40

 

$39

 

$39

 

$40

Marketing and Trading

Following are EKT's mark-to-market assets (liabilities) and the period within which the assets (liabilities) would be realized (paid) in cash if they are held to maturity and market prices are unchanged:

Maturities and Sources for Fair Value of Trading Contracts at
June 30, 2004

 



0-12 months

 



13-24 months

 



25+ months

 



Total

   

(In Millions)

   

 

 

 

 

 

 
Prices actively quoted  

$5.3 

 

($43.8)

 

($3.9)

 

($42.4)

Prices provided by other sources  

2.8 

 

(9.6)

 

0.4 

 

(6.4)

Prices based on models  

1.7 

 

0.2 

 

0.2 

 

2.1

Total  

$9.8 

 

($53.2) 

 

($3.3) 

 

($46.7) 

As of June 30, 2004, approximately 94% of EKT's counterparty credit exposure was associated with parties that have at least investment grade credit ratings.

Utility Restructuring

Transmission

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends, Transmission" in the Form 10-K for discussion of Entergy's contemplated independent transmission entity proposal. In April 2004, Entergy filed a proposal with the FERC to commit voluntarily to retain an independent entity ("Independent Coordinator of Transmission" or "ICT") to oversee the granting of transmission or interconnection service on Entergy's transmission system, to implement a transmission pricing structure that ensures that Entergy's retail native load customers are required to pay for only those upgrades necessary to reliably serve their needs, and to have the ICT serve as the security coordinator for the Entergy region. Assuming applicable regulatory support and approvals can be obtained, Entergy proposes to contract with the ICT to oversee the granting of transmission service on the Entergy system as well as the implementation of the proposed weekly procurement process. The proposal was structured to not transfer control of Entergy's transmission system to the ICT, but rather to vest with the ICT broad oversight authority over transmission planning and operations.

Entergy proposes to have the ICT administer a transmission expansion pricing protocol that will increase the efficiency of transmission pricing on the Entergy system and that will be designed to protect Entergy's native load customers from bearing the cost of transmission upgrades not required to reliably serve these customers' needs. Entergy intends for the ICT to determine whether transmission upgrades associated with new requests for service should be funded directly by the party requesting such service or by a broader group of transmission customers, including Entergy's native load customers. This determination would be made in accordance with protocols approved by the FERC and any party contesting such determination, including Entergy, would be required to seek review at the FERC.

Entergy has requested that the FERC provide its retail regulators sufficient time to review the proposal and provide their comments prior to the FERC ruling on the proposal. In March 2004, the APSC initiated a proceeding to review Entergy's proposal and compare the benefits of such a proposal to the alternative of Entergy joining the Southwest Power Pool RTO. The APSC sought comments from all interested parties on this issue, with initial comments due in May 2004 and reply comments due in June 2004. Various parties, including the APSC General Staff, filed comments opposing the ICT proposal. A public hearing has not been scheduled by the APSC at this time. In May 2004, Entergy Mississippi filed a petition for review with the MPSC requesting MPSC support for the ICT proposal. A hearing in that proceeding is scheduled for late August. Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the proposal is a prudent and appropriate course of action. No procedural schedule has been established for that proceeding. In addition to these proceedings, a technical conference regarding the ICT proposal was held late in July 2004.

FERC's Supply Margin Assessment

In November 2001, FERC issued an order that established a new generation market power screen (called Supply Margin Assessment) for purposes of evaluating a utility's request for market-based rate authority, applied that new screen to the Entergy System (among others), determined that Entergy and the others failed the screen within their respective control areas, and ordered these utilities to implement certain mitigation measures as a condition to their continued ability to buy and sell at market-based rates. Among other things, the mitigation measures would require that Entergy transact at cost-based rates when it sells in the hourly wholesale market within its control area. Entergy requested rehearing of the order, and FERC delayed the implementation of certain mitigation measures until such time as it had the opportunity to consider the rehearing request. In June 2003, the FERC proposed and ultimately adopted new market behavior rules and tariff provisions that would be applied to any market-based sale. Entergy modified its market-based rate tariffs to reflect the new provisions but requested rehearing of FERC's order.

In April 2004, the FERC issued its Order on Rehearing and Modifying Interim Generation Market Power Analysis and Mitigation Policy. In its Order on Rehearing, the FERC established a new interim generation market power analysis that will consider two indicative market power screens: (1) the pivotal supplier screen that is designed to measure an applicant's market power based on the applicant's share of uncommitted capacity at the time of the control area market's annual peak demand; and (2) the market share screen that is designed to evaluate an applicant's market share of uncommitted capacity on a seasonal basis. An integrated utility's native load obligation will be reflected in both screens; however, the proxy for native load obligation differs between the screens. For the uncommitted pivotal supplier screen the proxy for native load is the average of the daily native load peaks during the month in which the annual peak load day occurs; for the uncommitted market share screen the proxy for native load is the minimum peak load day for each season. In the event an applicant fails either of these screens, there will be a rebuttable presumption that market power exists. The applicant will then have the opportunity to either: (1) submit a more detailed market power analysis that reflects market prices and measures an applicant's "economic capacity" and "available economic capacity" under the "delivered price test;" or (2) propose case-specific mitigation tailored to the applicant's specific circumstances or adopt cost-based rates for sales within the applicant's control area. In its Order on Rehearing, the FERC also determined: (1) that transmission market power and the need to employ an independent entity to operate and administer an applicant's OASIS site is more properly considered in other proceedings, to the extent appropriate, and would not be considered in evaluating an applicant's generation market power for purposes of granting market-based rate authority; and (2) to eliminate the exemption from the generation market power analysis for sales within an RTO/ISO that had approved market monitoring. Several parties, including Entergy, filed for rehearing of the April 2004 Order. Among other things, Entergy argued that the market share screen is overly conservative and overstates vertically integrated utilities' ability to exercise market power. On July 8, 2004, the FERC issued an order on rehearing reaffirming the use of the pivotal supplier and market share screens and clarified certain instructions for performing such analysis. With regard to the delivered price test analysis, the FERC declined to make a determination on whether an applicant's native load obligations should be included in the delivered price analysis, but instead indicated that it would evaluate the arguments of both the applicant and intervenors as to which measure (one with or without native load obligations) more accurately reflects market conditions. Entergy is required to file its generation market power analysis pursuant to the two indicative screens in August 2004.

In a companion order, the FERC initiated a rulemaking proceeding to address, among other things, whether the FERC should retain or modify its existing four-prong test for evaluating market-based rate applications (i.e., whether the applicant has generation or transmission market power, whether the applicant can erect barriers to entry, and whether there are affiliate abuse or reciprocal dealing concerns), and whether the FERC should adopt different approaches for affiliate transactions. Initially, the FERC will hold a series of technical conferences to determine the issues that need to be considered and the procedural direction the rulemaking should take. The first of these technical conferences was held in June 2004.

Interconnection Orders

See the Form 10-K for discussion of the order on rehearing issued by FERC on March 5, 2004 that modified Order 2003 to, among other things, eliminate the requirement that the generation owners receive their money back in no more than five years and to include a requirement that the generation owners receive credits only when transmission service is taken from the specific generating facility served by the interconnection or upgrade. In addition, the order on rehearing clarified that a transmission provider continues to have the option to charge a transmission rate that is the higher of the incremental cost rate for network upgrades required to interconnect a generating facility or an embedded cost rate so as to ensure that "other transmission customers, including a Transmission Provider's native load, will not subsidize Network Upgrades required to interconnect merchant generation." Consistent with the principles articulated in the order on rehearing, Entergy incorporated into its recent ICT filing an approach to the pricing of transmission expansion that protects the transmission provider's native load customers from the effects of service requests by other transmission customers and provides more efficient price signals for resource procurement and siting decisions. In addition, the transmission expansion pricing protocol included in the ICT filing proposes that the ICT review all costs that were previously charged to interconnecting customers for interconnection facilities to determine whether, under the proposed pricing policy, such costs were properly classified as Supplemental Upgrades that are directly assigned to the interconnecting generator or whether such costs were properly Base Plan Upgrades that are rolled into transmission rates for all customers. Any payments made by an interconnecting generator that have not already been refunded to that customer through crediting for transmission service will be subject to the cost assignment by the ICT.

Also see the Form 10-K for a discussion of the proceedings involving the interconnection agreements with certain generators interconnecting to the domestic utility companies' transmission system. In June 2004, a FERC ALJ issued an Initial Decision in a proceeding involving a complaint filed by one of the generators. In the complaint, the generator was seeking to modify its previous interconnection agreement in order to obtain more favorable transmission crediting provisions contained in Entergy's current pro forma interconnection and operating agreement. In the Initial Decision, the ALJ determined that the generator is entitled to obtain the benefits of Entergy's current pro forma interconnection and operating agreement. Entergy has filed a brief on exceptions with the FERC opposing the Initial Decision.

Retail-Texas

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.

Nuclear Matters

See the Form 10-K for the discussion of the review by the Federal Emergency Management Agency (FEMA) of the emergency evacuation plans for Indian Point, and Westchester County's appeal to FEMA of FEMA's notice of certification of the Indian Point Emergency Plan. In June 2004, FEMA issued letters rejecting Westchester County's appeal and reaffirming its certification.

Critical Accounting Estimates

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy's accounting for nuclear decommissioning costs, impairment of long-lived assets, mark-to-market derivative instruments, pension and other postretirement costs, and other contingencies.

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
           
                 
    Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands, Except Share Data)
                 
OPERATING REVENUES                
Domestic electric   $1,952,049    $1,925,941    $3,653,377    $3,527,679 
Natural gas   38,146    33,698    121,962    113,936 
Competitive businesses   494,902    394,270    961,307    750,017 
TOTAL   2,485,097    2,353,909    4,736,646    4,391,632 
                 
OPERATING EXPENSES                
Operating and Maintenance:                
  Fuel, fuel-related expenses, and                 
   gas purchased for resale   488,368    496,014    1,038,495    884,055 
  Purchased power   555,439    447,017    1,004,959    817,965 
  Nuclear refueling outage expenses   39,099    40,251    80,706    79,144 
  Provision for turbine commitments, asset impairments,                
   and restructuring charges         (7,743)
  Other operation and maintenance   567,746    564,466    1,068,997    1,087,116 
Decommissioning   37,098    34,361    75,446    71,859 
Taxes other than income taxes   103,283    100,505    200,585    198,242 
Depreciation and amortization   215,640    205,446    426,289    416,492 
Other regulatory charges (credits) - net   (15,888)   4,273    (31,977)   19,526 
TOTAL   1,990,785    1,892,333    3,863,500    3,566,656 
                 
OPERATING INCOME   494,312    461,576    873,146    824,976 
                 
OTHER INCOME                
Allowance for equity funds used during construction   8,016    9,740    15,479    17,027 
Interest and dividend income   25,823    29,927    54,074    59,751 
Equity in earnings of unconsolidated equity affiliates   20,288    70,292    40,107    198,353 
Miscellaneous - net   13,571    (103,451)   18,740    (91,834)
TOTAL   67,698    6,508    128,400    183,297 
                 
INTEREST AND OTHER CHARGES                
Interest on long-term debt   116,211    121,936    235,672    244,381 
Other interest - net   13,563    16,247    19,778    29,291 
Allowance for borrowed funds used during construction   (4,970)   (7,449)   (10,124)   (13,168)
TOTAL   124,804    130,734    245,326    260,504 
                 
INCOME BEFORE INCOME TAXES AND                
CUMULATIVE EFFECT OF ACCOUNTING CHANGES   437,206    337,350    756,220    747,769 
                 
Income taxes   166,195    125,833    272,192    278,251 
                 
INCOME BEFORE CUMULATIVE EFFECT                
OF ACCOUNTING CHANGES   271,011    211,517    484,028    469,518 
                 
CUMULATIVE EFFECT OF ACCOUNTING                
CHANGES (net of income taxes of $93,754)         142,922 
                 
CONSOLIDATED NET INCOME   271,011    211,517    484,028    612,440 
                 
Preferred dividend requirements and other   5,829    5,876    11,685    11,792 
                 
EARNINGS APPLICABLE TO                
COMMON STOCK   $265,182    $205,641    $472,343    $600,648 
                 
Earnings per average common share before cumulative                
effect of accounting changes:                
  Basic   $1.16    $0.91    $2.06    $2.03 
  Diluted   $1.14    $0.89    $2.02    $1.99 
Earnings per average common share:                
  Basic   $1.16    $0.91    $2.06    $2.67 
  Diluted   $1.14    $0.89    $2.02    $2.61 
Dividends declared per common share   $0.45    $0.35    $0.90    $0.70 
                 
Average number of common shares outstanding:                
  Basic   228,714,654    226,609,159    229,489,646    225,149,356 
  Diluted   232,775,049    231,579,242    234,007,635    229,916,344 
                 
See Notes to Consolidated Financial Statements.                
                 

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
   
OPERATING ACTIVITIES        
Consolidated net income   $484,028     $612,440  
Noncash items included in net income:        
  Reserve for regulatory adjustments   2,407     (12,080)
  Other regulatory charges (credits) - net   (31,977)   19,526  
  Depreciation, amortization, and decommissioning   501,735     488,351  
  Deferred income taxes and investment tax credits   138,574     185,872  
  Cumulative effect of accounting changes   -     (142,922)
  Equity in undistributed earnings of unconsolidated equity affiliates   (13,824)   (123,352)
  Provision for turbine commitments, asset impairments, and restructuring charges   -     (7,743)
Changes in working capital:        
  Receivables   (184,375)   (268,990)
  Fuel inventory   (22,592)   (25,078)
  Accounts payable   33,120     (153,778)
  Taxes accrued   111,393     71,677  
  Interest accrued   (18,811)   (28,685)
  Deferred fuel   1,911     (96,306)
  Other working capital accounts   23,352     (81,639)
Provision for estimated losses and reserves   (2,239)   110,868  
Changes in other regulatory assets   4,217     (2,218)
Other   (97,849)   (20,680)
Net cash flow provided by operating activities   929,070     525,263  
         
INVESTING ACTIVITIES        
Construction/capital expenditures   (595,618)   (678,162)
Allowance for equity funds used during construction   15,479     17,027  
Nuclear fuel purchases   (100,229)   (126,446)
Proceeds from sale/leaseback of nuclear fuel   61,694     39,089  
Proceeds from sale of assets and businesses   21,978     25,414  
Investment in non-utility properties   (8,442)   (47,542)
Increase in other investments   (11,071)   (167,054)
Changes in other temporary investments   50,000     -  
Decommissioning trust contributions and realized change in trust assets   (44,588)   (49,597)
Other regulatory investments   (30,696)   (142,219)
Other   -     (5,603)
Net cash flow used in investing activities   (641,493)   (1,135,093)
         
See Notes to Consolidated Financial Statements.        
         
         
         
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of:        
  Long-term debt   272,977     1,482,495  
  Common stock and treasury stock   107,840     176,765  
Retirement of long-term debt   (539,779)   (996,761)
Repurchase of common stock   (271,237)   -  
Redemption of preferred stock   (2,250)   (2,250)
Changes in credit line borrowings - net   255,000     (140,000)
Dividends paid:        
  Common stock   (202,349)   (157,355)
  Preferred stock   (11,913)   (11,792)
Net cash flow provided by (used in) financing activities   (391,711)   351,102  
         
Effect of exchange rates on cash and cash equivalents   (2,401)   1,181  
         
Net decrease in cash and cash equivalents   (106,535)   (257,547)
         
Cash and cash equivalents at beginning of period   692,233     1,335,328  
         
Cash and cash equivalents at end of period   $585,698     $1,077,781  
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
  Cash paid/(received) during the period for:        
    Interest - net of amount capitalized   $259,674     $291,950  
    Income taxes   $25,729    $91,282  
         
See Notes to Consolidated Financial Statements.        

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $137,793    $115,112 
  Temporary cash investments - at cost,        
   which approximates market   447,905    576,813 
  Special deposits   -     308 
     Total cash and cash equivalents   585,698    692,233 
Other temporary investments     50,000 
Notes receivable   2,124    1,730 
Accounts receivable:        
  Customer   421,896    398,091 
  Allowance for doubtful accounts   (23,729)   (25,976)
  Other   279,979    246,824 
  Accrued unbilled revenues   510,036    384,860 
     Total receivables   1,188,182    1,003,799 
Deferred fuel costs   274,757    245,973 
Fuel inventory - at average cost   133,075    110,482 
Materials and supplies - at average cost   554,218    548,921 
Deferred nuclear refueling outage costs   133,679    138,836 
Prepayments and other   143,848    127,270 
TOTAL   3,015,581    2,919,244 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   1,126,916    1,053,328 
Decommissioning trust funds   2,343,123    2,278,533 
Non-utility property - at cost (less accumulated depreciation)   264,158    262,384 
Other   96,994    152,681 
TOTAL   3,831,191    3,746,926 
         
PROPERTY, PLANT AND EQUIPMENT        
Electric   28,613,785    28,035,899 
Property under capital lease   745,674    751,815 
Natural gas   249,709    236,622 
Construction work in progress   1,196,033     1,380,982 
Nuclear fuel under capital lease   233,556    278,683 
Nuclear fuel   293,690    234,421 
TOTAL PROPERTY, PLANT AND EQUIPMENT   31,332,447    30,918,422 
Less - accumulated depreciation and amortization   12,901,165    12,619,625 
PROPERTY, PLANT AND EQUIPMENT - NET   18,431,282    18,298,797 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   808,867    830,539 
  Other regulatory assets   1,399,566    1,425,145 
Long-term receivables   42,614    20,886 
Goodwill   377,172    377,172 
Other   963,295    935,501 
TOTAL   3,591,514    3,589,243 
         
TOTAL ASSETS   $28,869,568    $28,554,210 
         
See Notes to Consolidated Financial Statements.        
 
 
 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
CURRENT LIABILITIES        
Currently maturing long-term debt   $161,481    $524,372 
Notes payable   110,348    351 
Accounts payable   834,342    796,572 
Customer deposits   211,956    199,620 
Taxes accrued   173,845    224,926 
Accumulated deferred income taxes   6,278    22,963 
Nuclear refueling outage costs   14,566    8,238 
Interest accrued   120,398    139,603 
Obligations under capital leases   158,931    159,978 
Other   372,005    205,600 
TOTAL   2,164,150    2,282,223 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   5,010,674    4,779,513 
Accumulated deferred investment tax credits   409,734    420,248 
Obligations under capital leases   137,935    153,898 
Other regulatory liabilities    321,802    291,239 
Decommissioning and retirement cost liabilities   2,210,771    2,242,312 
Transition to competition   79,098    79,098 
Regulatory reserves   71,935    69,528 
Accumulated provisions   505,506    506,960 
Long-term debt   7,586,039    7,322,940 
Preferred stock with sinking fund   18,602    20,852 
Other   1,274,906    1,347,404 
TOTAL   17,627,002    17,233,992 
         
Preferred stock without sinking fund   334,337    334,337 
         
SHAREHOLDERS' EQUITY        
Common stock, $.01 par value, authorized 500,000,000        
 shares; issued 248,174,087 shares in 2004 and in 2003   2,482    2,482 
Paid-in capital   4,819,044    4,767,615 
Retained earnings   4,768,336    4,502,508 
Accumulated other comprehensive income (loss)   (95,201)   (7,795)
Less - treasury stock, at cost (21,391,009 shares in 2004 and        
 19,276,445 shares in 2003)   750,582    561,152 
TOTAL   8,744,079    8,703,658 
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $28,869,568    $28,554,210 
         
See Notes to Consolidated Financial Statements.        

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
                     
        Three Months Ended
         
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $4,605,907       $4,255,378    
  Add - Earnings applicable to common stock       265,182   $265,182   205,641   $205,641
  Deduct:                    
    Dividends declared on common stock       102,458       79,192    
    Capital stock and other expenses       295       (930)    
      Total       102,753       78,262    
Retained Earnings - End of period       $4,768,336       $4,382,757    
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (LOSS) (Net of Taxes):                    
Balance at beginning of period                    
  Accumulated derivative instrument fair value changes       ($41,997)       $16,696    
  Other accumulated comprehensive income (loss) items       48,490       (52,221)    
    Total       6,493       (35,525)    
                     
Net derivative instrument fair value changes                    
 arising during the period       (77,544)   (77,544)   794   794
                     
Foreign currency translation adjustments       693   693   1,554   1,554
                     
Net unrealized investment gains (losses)       (24,843)   (24,843)   39,730   39,730
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       ($119,541)       $17,490    
  Other accumulated comprehensive income (loss) items       24,340       (10,937)    
    Total       ($95,201)       $6,553    
Comprehensive Income           $163,488       $247,719
                     
PAID-IN CAPITAL                    
Paid-in Capital - Beginning of period       $4,792,171       $4,674,510    
  Add: Common stock issuances related to stock plans       26,873       15,642    
Paid-in Capital - End of period       $4,819,044       $4,690,152    
                     
                     
                     
                     
        Six Months Ended
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $4,502,508       $3,938,693    
  Add - Earnings applicable to common stock       472,343   $472,343   600,648   $600,648
  Deduct:                    
    Dividends declared on common stock       206,220       157,343    
    Capital stock and other expenses       295       (759)    
      Total       206,515       156,584    
Retained Earnings - End of period       $4,768,336       $4,382,757    
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (LOSS) (Net of Taxes):                    
Balance at beginning of period                    
  Accumulated derivative instrument fair value changes       ($25,811)       $17,313    
  Other accumulated comprehensive income (loss) items       18,016       (39,673)    
    Total       (7,795)       (22,360)    
                     
Net derivative instrument fair value changes                    
 arising during the period       (93,730)   (93,730)   177   177
                     
Foreign currency translation adjustments       2,401   2,401   1,710   1,710
                     
Net unrealized investment gains (losses)       3,923   3,923   27,026   27,026
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       ($119,541)       $17,490    
  Other accumulated comprehensive income (loss) items       24,340       (10,937)    
    Total       ($95,201)       $6,553    
Comprehensive Income           $384,937       $629,561
                     
PAID-IN CAPITAL                    
Paid-in Capital - Beginning of period       $4,767,615       $4,666,753    
  Add: Common stock issuances related to stock plans       51,429       23,399    
Paid-in Capital - End of period       $4,819,044       $4,690,152    
                     
                     
See Notes to Consolidated Financial Statements.                    

 

ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)    
Electric Operating Revenues:                
  Residential   $603   $619   ($16)   (3)
  Commercial   479   470    
  Industrial   558   545   13   
  Governmental   48   51   (3)   (6)
    Total retail   1,688   1,685    
  Sales for resale   104   102    
  Other   160   139   21    15 
    Total   $1,952   $1,926   $26   
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   6,911   7,170   (259)   (4)
  Commercial   6,220   6,164   56   
  Industrial   9,922   9,556   366   
  Governmental   609   664   (55)   (8)
    Total retail   23,662   23,554   108   
  Sales for resale   2,367   2,590   (223)   (9)
    Total   26,029   26,144   (115)  
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)    
Electric Operating Revenues:                
  Residential   $1,212   $1,183   $29   
  Commercial   914   865   49   
  Industrial   1,072   996   76   
  Governmental   92   96   (4)   (4)
    Total retail   3,290   3,140   150   
  Sales for resale   203   199    
  Other   160   189   (29)   (15)
    Total   $3,653   $3,528   $125   
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   14,637   15,013   (376)   (3)
  Commercial   12,107   11,986   121   
  Industrial   19,412   18,880   532   
  Governmental   1,209   1,297   (88)   (7)
    Total retail   47,365   47,176   189   
  Sales for resale   4,785   5,103   (318)   (6)
    Total   52,150   52,279   (129)  
                 
                 

 

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. COMMITMENTS AND CONTINGENCIES

Sales Warranties and Indemnities

See Notes 9 and 14 to the consolidated financial statements in the Form 10-K for information on certain warranties made by Entergy or its subsidiaries in the Saltend sales transaction.

Nuclear Insurance and Spent Nuclear Fuel

See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy's nuclear power plants.

The Property Insurance Policy was renewed on April 1, 2004 with the following changes: 1) the deductibles for Indian Point 2 and 3 (each unit has a separate parameter), FitzPatrick, Pilgrim, and Vermont Yankee increased to $2.5 million per occurrence for other than turbine/generator damage; and 2) the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for turbine/generator damage and $5 million per occurrence for other than turbine/generator damage.

Under Nuclear Electric Insurance Limited's (NEIL) Accidental Outage Coverage program, FitzPatrick's and Pilgrim's weekly indemnity decreased to $4 million and Vermont Yankee's weekly indemnity decreased to $3.5 million.

Under the property damage and accidental outage insurance programs, Entergy's nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of June 30, 2004, the maximum amount of such possible assessments per occurrence was $68.9 million for the Non-Utility Nuclear plants and $50.8 million for the U.S. Utility plants.

Decommissioning Costs

See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard for the rate-regulated business of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change. For the Non-Utility Nuclear business, the implementation of SFAS 143 resulted in an increase in earnings in 2003 of approximately $155 million net-of-tax ($0.67 per share) as a result of a one-time cumulative effect of accounting change.

In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.

As discussed in the Form 10-K, the Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning (D&D) of the DOE's past uranium enrichment operations. The Energy Policy Act calls for cessation of annual D&D assessments not later than October 24, 2007. Entergy will oppose any attempts to extend the assessments past this date, but cannot state with certainty that an extension will not be made.

CashPoint Bankruptcy

The domestic utility companies entered an agreement with CashPoint Network Services (CashPoint) under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The payment agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use this process.

On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana; enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimate of maximum exposure to loss is approximately $26 million.

Employment Litigation

Entergy Corporation and certain subsidiaries are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.

NOTE 2. RATE AND REGULATORY MATTERS

Electric Industry Restructuring and the Continued Application of SFAS 71

Previous developments and information related to electric industry restructuring are presented in Note 2 to the consolidated financial statements in the Form 10-K.

Texas

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.

Deferred Fuel Costs

In March 2004, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2004 through March 2005. The filed energy cost rate, which accounts for 12 percent of a typical residential customer's bill using 1,000 kWh per month, increased 16 percent due primarily to the elimination of a credit contained in the prior year's rate to refund previously over-recovered fuel costs. Also included in this year's energy cost calculation is a decrease in rates of $3.9 million as a result of Entergy Arkansas' proposed retail customer protections due to the operation of a revised energy association method between the retail and wholesale sectors resulting from the approval of a life-of-resources power purchase agreement with Entergy New Orleans.

In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are scheduled to occur in October 2004 with a final PUCT decision expected in the first quarter of 2005.

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court is scheduled for September 2004.

As discussed in Note 2 to the consolidated financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in April 2005.

Retail Rate Proceedings

Filings with the PUCT and Texas Cities

Recovery of River Bend Costs

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.

Filings with the LPSC

Annual Earnings Reviews (Entergy Gulf States)

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of approximately $30 million and a prospective rate reduction of approximately $50 million. Hearings concluded in May 2004.

Proposed Settlement (Entergy Gulf States and Entergy Louisiana)

In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and dockets established to consider issues concerning the companies' power purchases for the summers of 2001, 2002, and 2003. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers and $1 million to Entergy Louisiana's customers, with no change in either company's current base rates.  The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.

Retail Rates

(Entergy Gulf States)

In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. Entergy Gulf States is also seeking approval of certain proposed rate design, rate schedule and policy changes. A procedural schedule has not yet been established.

(Entergy Louisiana)

See Note 2 to the consolidated financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended up to a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding.  Additional issues and updates that will be evaluated in connection with this proceeding are likely to result in revisions to the LPSC Staff's recommendation.  These issues may reduce the amount of the recommended rate increase or cause it to become a recommendation for a rate decrease. Hearings are currently scheduled to begin in November 2004.

Filings with the City Council

Formula Rate Plan Filings

In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council in 2003. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans' gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.

Fuel Adjustment Clause Litigation

See "Fuel Adjustment Clause Litigation" in Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. Oral argument on the plaintiffs' appeal is scheduled for February 2005. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999. This proceeding has been stayed pending resolution of plaintiffs' appeal in the proceeding commenced with the City Council.

 

NOTE 3. COMMON EQUITY

Common Stock

Earnings per Share

The following tables present Entergy's basic and diluted earnings per share (EPS) calculations included on the consolidated income statement:

   

For the Three Months Ended June 30,

   

2004

 

2003

   

(In Millions, Except Per Share Data)

       

$/share

     

$/share

Earnings applicable to common stock  

$265.2 

     

$205.6

   
                 
Average number of common shares outstanding - basic  


228.7 

 


$1.16 

 


226.6

 


$0.91 

Average dilutive effect of:                
  Stock Options  

3.6 

 

(0.018)

 

4.3

 

(0.017)

  Equity Awards  

0.3 

 

(0.002)

 

0.5

 

(0.002)

  Deferred Units  

0.2 

 

(0.001)

 

0.2

 

(0.001)

Average number of common shares outstanding - diluted  


232.8 

 


$1.14 

 


231.6

 


$0.89 

           

 

   

   

For the Six Months Ended June 30,

   

2004

 

2003

   

(In Millions, Except Per Share Data)

       

$/share

     

$/share

Income before cumulative effect of accounting change less preferred dividends  


$472.3 

 

 

 


$457.7

 

 

                 
Average number of common shares outstanding - basic  


229.5 

 


$2.06 

 


225.1

 


$2.03 

Average dilutive effect of:  

 

 

 

 

 

 

 

  Stock Options  

4.0 

 

(0.035)

 

4.1

 

(0.036)

  Equity Awards  

0.3 

 

(0.003)

 

0.5

 

(0.005)

  Deferred Units  

0.2 

 

(0.002)

 

0.2

 

(0.002)

Average number of common shares outstanding - diluted  


234.0 

 


$2.02 

 


229.9

 


$1.99 

   

 

 

 

 

 

 

 

       

 

 

 

 

 

Earnings applicable to common stock  

$472.3 

 

 

 

$600.6

 

 

                 
Average number of common shares outstanding - basic  


229.5 

 


$2.06 

 


225.1

 


$2.67 

Average dilutive effect of:      

 

 

 

 

 

  Stock Options  

4.0 

 

(0.035)

 

4.1

 

(0.048)

  Equity Awards  

0.3 

 

(0.003)

 

0.5

 

(0.006)

  Deferred Units  

0.2 

 

(0.002)

 

0.2

 

(0.002)

Average number of common shares outstanding - diluted  


234.0 

 


$2.02 

 


229.9

 


$2.61 

           

 

   

Entergy's stock option and other stock compensation plans are discussed in Note 8 to the consolidated financial statements in the Form 10-K.

For the six months ended June 30, 2004, Entergy Corporation issued 2,885,436 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards and repurchased 5,000,000 shares of common stock for a total purchase price of $271.2 million.

Retained Earnings

On July 30, 2004, Entergy Corporation's Board of Directors declared a common stock dividend of $0.45 per share, payable on September 1, 2004, to holders of record as of August 12, 2004.

NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT

In May 2004, Entergy Corporation renewed its 364-day bank credit facility with two separate facilities, a 364-day credit facility and a 3-year credit facility. The 364-day credit facility has a borrowing capacity of $485 million and expires in May 2005. As of June 30, 2004, no borrowings were outstanding on this facility. The 3-year credit facility has a borrowing capacity of $965 million and expires in May 2007. As of June 30, 2004, $145 million in borrowings were outstanding on this facility. Entergy also has the ability to issue letters of credit against the 3-year facility, and $40 million had been issued against this facility at June 30, 2004. Although the Entergy Corporation 364-day credit facility expires in May 2005, Entergy has the discretionary option to extend the period to repay the amount then outstanding for an additional 364-day term. Because of this option, which Entergy intends to exercise if it does not renew the credit line or obtain an alternative source of financing, any debt outstanding under the credit facilities is reflected in long-term debt on the balance sheet. The average commitment fee for the facilities is currently 0.14% of the line amount. Commitment fees and interest rates on loans under the credit facilities can fluctuate depending on the senior debt ratings of the domestic utility companies.

The short-term borrowings of Entergy's subsidiaries are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, Entergy's subsidiaries are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. As of June 30, 2004, Entergy's subsidiaries' authorized limit was $1.6 billion and the outstanding borrowing from the money pool was $157.4 million.

Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have separate short-term credit facilities available as follows:


Company

 


Expiration Date

 

Amount of
Facility

 

Amount Drawn as of
June 30, 2004

 

 

 

 

 

 

 

Entergy Arkansas

 

April 2005

 

$85 million

 

$85 million

Entergy Louisiana

 

April 2005

 

$15 million

 

-

Entergy Mississippi

 

May 2005

 

$25 million

 

$25 million

Entergy New Orleans  

April 2005

 

$14 million

 

-

The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million. The facilities have variable interest rates and the average commitment fee is 0.15%.

The following long-term debt has been issued by Entergy in 2004:

 

Issue Date

 

Amount

 

 

 

(In Thousands)

U.S. Utility

 

 

 

Mortgage Bonds:

 

 

 

5.50% Series due April 2019, Entergy Louisiana

March 2004

 

$100,000

6.25% Series due April 2034, Entergy Mississippi

April 2004

 

$100,000

4.65% Series due May 2011, Entergy Mississippi

April 2004

 

$80,000

The following long-term debt has been retired by Entergy in 2004:

 

Retirement Date

 

Amount

 

 

 

(In Thousands)

U.S. Utility

 

 

 

Mortgage Bonds:

 

 

 

8.25% Series due April 2004, Entergy Gulf States

April 2004

 

$292,000

6.20% Series due May 2004, Entergy Mississippi

May 2004

 

$75,000

6.45% Series due April 2008, Entergy Mississippi

May 2004

 

$80,000

7.70% Series due July 2023, Entergy Mississippi

May 2004

 

$60,000

Other Long-term Debt:

 

 

 

Grand Gulf Lease Obligation payment

N/A

 

$6,348

Waterford 3 Lease Obligation payment

N/A

 

$14,809

NOTE 5. STOCK-BASED COMPENSATION

As described more fully in Note 8 to the consolidated financial statements in the Form 10-K, Entergy grants stock options to key employees of the Entergy subsidiaries. Prior to 2003, Entergy applied the recognition and measurement principles of APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for the stock option grants. Effective January 1, 2003, Entergy prospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation." Awards under Entergy's stock-based compensation plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. The following table illustrates the effect on net income and earnings per share if Entergy would have historically applied the fair value based method of accounting to stock-based employee compensation.

   

Three Months Ended June 30,

 

Six Months Ended June 30,

   

2004

 

2003

 

2004

 

2003

   

(In Thousands, Except Per Share Data)

                 

Earnings applicable to common stock

 

$265,182

 

$205,641

 

$472,343

 

$600,648

Add: Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects  



1,389

 



717

 



2,362

 



1,421

Deduct: Total stock-based employee
compensation expense determined under fair value method for all awards, net of related tax effects
 



4,271

 



6,142

 



8,126

 



12,271

                 

Pro forma earnings applicable to common stock

 

$262,300

 

$200,216

 

$466,579

 

$589,798

                 

Earnings per average common share:

               
 

Basic

 

$1.16

 

$0.91

 

$2.06

 

$2.67

 

Basic - pro forma

 

$1.15

 

$0.88

 

$2.03

 

$2.62

                   
 

Diluted

 

$1.14

 

$0.89

 

$2.02

 

$2.61

 

Diluted - pro forma

 

$1.13

 

$0.86

 

$1.99

 

$2.57

NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's pension cost, including amounts capitalized, for the three months ended June 30, 2004 and 2003, included the following components:

   

2004

 

2003

   

(In Thousands)

         
Service cost - benefits earned during the period  

$18,527 

 

$14,430 

Interest cost on projected benefit obligation  

35,979 

 

30,363 

Expected return on assets  

(38,580)

 

(36,702)

Amortization of transition asset  

(190)

 

(180)

Amortization of prior service cost  

1,413 

 

1,362 

Amortization of loss  

4,407 

 

1,146 

Net pension costs  

$21,556 

 

$10,419 

Entergy's pension cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:

   

2004

 

2003

   

(In Thousands)

         
Service cost - benefits earned during the period  

$37,262 

 

$32,146 

Interest cost on projected benefit obligation  

71,994 

 

67,504 

Expected return on assets  

(77,304)

 

(83,212)

Amortization of transition asset  

(382)

 

(402)

Amortization of prior service cost  

2,826 

 

3,056 

Amortization of loss  

8,808 

 

2,098 

Net pension costs  

$43,204 

 

$21,190 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the three months ended June 30, 2004 and 2003, included the following components:

   

2004

 

2003

   

(In Thousands)

         
Service cost - benefits earned during the period  

$8,145 

 

$10,533 

Interest cost on APBO  

13,436 

 

13,284 

Expected return on assets  

(4,625)

 

(3,828)

Amortization of transition obligation  

205 

 

2,868 

Amortization of prior service cost  

(609)

 

249 

Amortization of loss  

5,474 

 

4,440 

Net other postretirement benefit cost  

$22,026 

 

$27,546 

Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:

   

2004

 

2003

   

(In Thousands)

         
Service cost - benefits earned during the period  

$17,853 

 

$18,912 

Interest cost on APBO  

27,733 

 

26,094 

Expected return on assets  

(9,327)

 

(8,056)

Amortization of transition obligation  

1,447 

 

5,736 

Amortization of prior service cost  

(1,498)

 

498 

Amortization of loss  

11,427 

 

7,170 

Net other postretirement benefit cost  

$47,635 

 

$50,354 

Employer Contributions

Entergy previously disclosed in its 2003 Form 10-K that it expected to contribute $110 million to its pension plans in 2004. In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution to $72.8 million. As of June 30, 2004, Entergy has contributed $33.1 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $39.7 million to fund its pension plans in 2004.

Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)

As disclosed in Note 11 to the consolidated financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis at June 30, 2004, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation by $72 million and reduced the second quarter 2004 and six months ended June 30, 2004 other postretirement benefit cost by $4.5 million and $7 million, respectively. When specific guidance for the federal subsidy is issued, these estimates could change.

 

NOTE 7. BUSINESS SEGMENT INFORMATION

Entergy's reportable segments as of June 30, 2004 are U.S. Utility, Non-Utility Nuclear, and Energy Commodity Services. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Competitive Retail Services business, which has higher revenues in 2004 as its number of customers has increased, and earnings on the proceeds of sales of previously-owned businesses.

Entergy's segment financial information for the second quarters of 2004 and 2003 is as follows:

 



U. S. Utility

 


Non-Utility
Nuclear*

 

Energy
Commodity
Services *

 



All Other*

 



Eliminations

 



Consolidated

 

(In Thousands)

2004

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$1,990,644 

 

$338,745

 

$56,114

 

$117,000 

 

($17,406)

 

$2,485,097

Equity in earnings of

 

 

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

-

 

20,288

 

 

 

20,288

Income Taxes (Benefit)

123,852 

 

40,638

 

6,966

 

(5,261)

 

 

166,195

Net Income (Loss)

200,793 

 

62,994

 

9,494

 

(2,270)

 

 

271,011

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$1,960,186 

 

$292,082

 

$69,494

 

$38,031 

 

($5,884)

 

$2,353,909

Equity in earnings of

 

 

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

-

 

70,292

 

 

 

70,292

Income Taxes (Benefit)

76,787 

 

29,007

 

35,891

 

(15,852)

 

 

125,833

Net Income (Loss)

127,592 

 

44,860

 

48,575

 

(9,510)

 

 

211,517

Entergy's segment financial information for the six months ended June 30, 2004 and 2003 is as follows:

 



U. S. Utility

 


Non-Utility
Nuclear*

 

Energy
Commodity
Services *

 



All Other*

 



Eliminations

 



Consolidated

 

(In Thousands)

2004

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$3,776,162 

 

$683,593

 

$99,283

 

$210,384 

 

($32,776)

 

$4,736,646

Equity in earnings of

 

 

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

-

 

40,107

 

 

 

40,107

Income Taxes (Benefit)

196,530 

 

84,333

 

10,335

 

(19,006)

 

 

272,192

Net Income

322,306 

 

131,828

 

19,303

 

10,591 

 

 

484,028

Total Assets

22,578,669 

 

4,402,482

 

2,232,268

 

1,138,057 

 

(1,481,908)

 

28,869,568

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$3,642,558 

 

$601,887

 

$100,879

 

$52,648 

 

($6,340)

 

$4,391,632

Equity in earnings of

 

 

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

-

 

198,353

 

 

 

198,353

Income Taxes (Benefit)

158,668 

 

52,087

 

86,916

 

(19,420)

 

 

278,251

Cumulative effect of

 

 

 

 

 

 

 

 

 

 

 

 accounting changes, net of tax

(21,333)

 

160,360

 

3,895

 

 

 

142,922

Net Income (Loss)

241,297 

 

241,845

 

142,366

 

(13,068)

 

 

612,440

Total Assets

22,888,750 

 

4,157,603

 

2,364,914

 

1,592,420 

 

(2,171,226)

 

28,832,461

Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.

__________________________________

In the opinion of the management of Entergy Corporation, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the U.S. Utility segment, however, is subject to seasonal fluctuations with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.

 

 

ENTERGY ARKANSAS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

Net Income

Second Quarter 2004 Compared to Second Quarter 2003

Net income decreased $4.3 million primarily due to an increase in other operation and maintenance expenses, partially offset by a decrease in interest charges.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net income decreased $12.1 million primarily due to a decrease in net revenue and an increase in other operation and maintenance expenses, partially offset by a decrease in interest charges.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Net revenue increased slightly, less than 1%, for the second quarter 2004 compared to the second quarter 2003, as shown below.

 

 

Amount

 

 

(In Millions)

 

 

 
2003 net revenue

 

$246.1 

Miscellaneous items

 

2.1 

2004 net revenue

 

$248.2 

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.

 

 

Amount

 

 

(In Millions)

 

 

 
2003 net revenue

 

$473.6 

Deferred fuel cost revisions

 

(16.9)

Other

 

(1.7)

2004 net revenue

 

$455.0 

Deferred fuel cost revisions decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue by $11.5 million. The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, which increased net revenue in 2003.

Other Income Statement Variances

Second Quarter 2004 Compared to Second Quarter 2003

Other operation and maintenance expenses increased primarily due to:

    • an increase of $11.3 million due to lower customer service support costs in 2003; and
    • an increase of $2.1 million in benefits costs.

Interest charges decreased primarily due to the refinancing of First Mortgage Bonds in mid-2003.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Other operation and maintenance expenses increased primarily due to:

    • an increase of $8.4 million due to lower customer service support costs in 2003; and
    • an increase of $4.7 million in benefits costs.

Interest charges decreased primarily due to the refinancing of First Mortgage Bonds in mid-2003.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 34.4% and 37.1%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 36.4% and 38.6%, respectively. The differences in the effective income tax rates for the second quarter 2003 and the six months ended June 30, 2003 versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by flow-through book and tax timing differences and the amortization of investment tax credits.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$8,834 

 

$95,513 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

78,212 

 

115,047 

 

Investing activities

 

(115,838)

 

(134,891)

 

Financing activities

 

65,412 

 

241,155 

Net increase in cash and cash equivalents

 

27,786 

 

221,311 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$36,620 

 

$316,824 

Operating Activities

Cash flow from operations decreased $36.8 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to money pool activity. Money pool activity used $92.5 million of Entergy Arkansas' operating cash flows in the six months ended June 30, 2004 and used $50.3 million in the six months ended June 30, 2003.

Entergy Arkansas' receivables from or (payables to) the money pool were as follows:

June 30,
2004

 

December 31,
2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$23,370

 

($69,153)

 

$54,606

 

$4,279

See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Net cash used by investing activities decreased $19.1 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to a decrease in construction expenditures resulting from less independent power producer-related work performed in 2004 combined with lower spending on customer support projects in 2004.

Financing Activities

Net cash provided by financing activities decreased $175.7 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to the net issuance of $262 million of First Mortgage Bonds for the six months ended June 30, 2003. The decrease was partially offset by an $85 million borrowing made on Entergy Arkansas' 364-day credit facility during the six months ended June 30, 2004.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Arkansas' uses and sources of capital. Following is an update to the information provided in the Form 10-K.

In April 2004, Entergy Arkansas renewed its 364-day credit facility through April 30, 2005 and increased the amount available to $85 million. The facility was fully drawn at June 30, 2004.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, System Agreement proceedings, market and credit risks, state and local regulatory risks, nuclear matters, and environmental risks. The following is an update to the Form 10-K.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Arkansas, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas' accounting for nuclear decommissioning costs and pension and other retirement costs. Following is an update to the information provided in the Form 10-K.

Nuclear Decommissioning Costs

In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.

 

 

ENTERGY ARKANSAS, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $405,509    $394,884    $768,969    $757,633 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   35,316    41,207    95,103    77,088 
  Purchased power   127,828    117,415    230,156    223,466 
  Nuclear refueling outage expenses   5,453    5,943    11,790    11,886 
  Other operation and maintenance   94,215    80,303    178,656    165,813 
Decommissioning   7,725    8,972    17,069    17,944 
Taxes other than income taxes   9,898    9,178    18,294    18,012 
Depreciation and amortization   50,269    48,719    99,937    99,887 
Other regulatory credits - net   (5,864)   (9,792)   (11,270)   (16,532)
TOTAL   324,840    301,945    639,735    597,564 
                 
OPERATING INCOME   80,669    92,939    129,234    160,069 
                 
OTHER INCOME                
Allowance for equity funds used during construction   2,454    2,801    4,647    4,229 
Interest and dividend income   2,989    3,122    5,011    4,627 
Miscellaneous - net   (497)   (1,171)   (1,547)   (2,513)
TOTAL   4,946    4,752    8,111    6,343 
                 
INTEREST AND OTHER CHARGES  
Interest on long-term debt   19,769    22,750    39,517    45,178 
Other interest - net   1,166    1,039    2,049    2,130 
Allowance for borrowed funds used during construction   (1,279)   (1,700)   (2,580)   (2,626)
TOTAL   19,656    22,089    38,986    44,682 
                 
INCOME BEFORE INCOME TAXES   65,959    75,602    98,359    121,730 
                 
Income taxes   22,682    28,065    35,807    47,048 
                 
NET INCOME   43,277    47,537    62,552    74,682 
                 
Preferred dividend requirements and other   1,944    1,944    3,888    3,888 
                 
EARNINGS APPLICABLE TO                
COMMON STOCK   $41,333    $45,593    $58,664    $70,794 
                 
See Notes to Respective Financial Statements.                
                 

 

ENTERGY ARKANSAS, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $62,552    $74,682 
Noncash items included in net income:        
  Other regulatory credits - net   (11,270)   (16,532)
  Depreciation, amortization, and decommissioning   117,006    117,831 
  Deferred income taxes and investment tax credits   54,552    (6,842)
Changes in working capital:        
  Receivables   (47,755)   (89,984)
  Fuel inventory   (2,586)   (1,782)
  Accounts payable   (64,605)   (9,497)
  Taxes accrued   (12,123)   72,088 
  Interest accrued   (357)   (1,227)
  Deferred fuel costs   (1,794)   (17,634)
  Other working capital accounts   (7,342)   4,815 
Provision for estimated losses and reserves   (6,517)   (4,308)
Changes in other regulatory assets   7,634    (20,226)
Other   (9,183)   13,663 
Net cash flow provided by operating activities   78,212    115,047 
         
INVESTING ACTIVITIES        
Construction expenditures   (115,882)   (135,329)
Allowance for equity funds used during construction   4,647    4,229 
Nuclear fuel purchases   (8,101)  
Proceeds from sale/leaseback of nuclear fuel   8,101   
Decommissioning trust contributions and realized        
 change in trust assets   (4,603)   (3,791)
Net cash flow used in investing activities   (115,838)   (134,891)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt     362,043 
Retirement of long-term debt     (100,000)
Changes in short-term borrowings   85,000   
Dividends paid:        
  Common stock   (15,700)   (17,000)
  Preferred stock   (3,888)   (3,888)
Net cash flow provided by financing activities   65,412    241,155 
         
Net increase in cash and cash equivalents   27,786    221,311 
         
Cash and cash equivalents at beginning of period   8,834    95,513 
         
Cash and cash equivalents at end of period   $36,620    $316,824 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $38,999    $45,167 
  Income taxes   ($5,400)   ($17,800)
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $9,528    $8,834 
  Temporary cash investments - at cost,        
   which approximates market   27,092   
     Total cash and cash equivalents   36,620    8,834 
Accounts receivable:        
  Customer   80,733    69,036 
  Allowance for doubtful accounts   (9,013)   (9,020)
  Associated companies   69,409    50,390 
  Other   29,844    30,930 
  Accrued unbilled revenues   82,850    64,732 
     Total accounts receivable   253,823    206,068 
Deferred fuel costs   12,351    10,557 
Accumulated deferred income taxes   16,146    18,362 
Fuel inventory - at average cost   9,308    6,722 
Materials and supplies - at average cost   81,431    80,506 
Deferred nuclear refueling outage costs   29,867    19,793 
Prepayments and other   61,056    23,938 
TOTAL   500,602    374,780 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   11,212    11,212 
Decommissioning trust funds   370,354    360,485 
Non-utility property - at cost (less accumulated depreciation)   1,454    1,456 
Other   4,792    4,832 
TOTAL   387,812    377,985 
         
UTILITY PLANT        
Electric   6,025,836    5,948,090 
Property under capital lease   22,664    24,047 
Construction work in progress   221,193    238,807 
Nuclear fuel under capital lease   87,917    102,691 
Nuclear fuel   14,681    7,466 
TOTAL UTILITY PLANT   6,372,291    6,321,101 
Less - accumulated depreciation and amortization   2,707,083    2,627,441 
UTILITY PLANT - NET   3,665,208    3,693,660 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   124,320    128,311 
  Other regulatory assets   373,557    437,544 
Other   50,680    45,798 
TOTAL   548,557    611,653 
         
TOTAL ASSETS   $5,102,179    $5,058,078 
         
See Notes to Respective Financial Statements.        
 
 
 
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Notes payable   $85,000   $ -
Accounts payable:        
  Associated companies   47,368   106,958
  Other   87,623   92,638
Customer deposits   40,742   37,693
Interest accrued   21,067   21,424
Obligations under capital leases   59,263   59,089
Other   18,695   16,924
TOTAL   359,758   334,726
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   1,069,433   996,455
Accumulated deferred investment tax credits   70,866   73,280
Obligations under capital leases   51,318   67,648
Other regulatory liabilities   58,188   52,923
Decommissioning   476,911   567,546
Accumulated provisions   33,632   40,149
Long-term debt   1,339,286   1,338,378
Other   205,050   192,200
TOTAL   3,304,684   3,328,579
         
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 2004        
  and 2003   470   470
Paid-in capital   591,127   591,127
Retained earnings   729,790   686,826
TOTAL   1,437,737   1,394,773
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $5,102,179   $5,058,078
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY ARKANSAS, INC.
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $ 115   $ 106   $ 9   
  Commercial   73   68    
  Industrial   77   75    
  Governmental   4   4    
    Total retail   269   253   16   
  Sales for resale                
    Associated companies   55   66   (11)   (17)
    Non-associated companies   47   48   (1)   (2)
  Other   35   28     25 
      Total   $ 406   $ 395   $ 11   
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   1,431   1,374   57   
  Commercial   1,273   1,244   29   
  Industrial   1,714   1,754   (40)   (2)
  Governmental   67   64    
     Total retail   4,485   4,436   49   
  Sales for resale                
    Associated companies   1,513   2,146   (633)   (29)
    Non-associated companies   1,260   1,375   (115)   (8)
      Total   7,258   7,957   (699)   (9)
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $ 246   $ 237   $ 9   
  Commercial   138   133    
  Industrial   145   144    
  Governmental   8   7     14 
    Total retail   537   521   16   
  Sales for resale                
    Associated companies   109   116   (7)   (6)
    Non-associated companies   92   94   (2)   (2)
  Other   31   27     15 
      Total   $ 769   $ 758   $ 11   
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   3,320   3,312    
  Commercial   2,486   2,456   30   
  Industrial   3,361   3,365   (4)  
  Governmental   131   127    
    Total retail   9,298   9,260   38   
  Sales for resale                
    Associated companies   3,185   3,754   (569)   (15)
    Non-associated companies   2,533   2,793   (260)   (9)
      Total   15,016   15,807   (791)   (5)
                 
                 
                 

 

ENTERGY GULF STATES, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

Net Income

Second Quarter 2004 Compared to Second Quarter 2003

Net income increased $75.7 million primarily due to a $107.7 million accrual ($65.6 million net-of-tax) in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. The $10.1 million increase in earnings that remains after considering the effect of the 2003 accrual is primarily due to increases in net revenue and miscellaneous income and decreased interest charges on long-term debt, in each case as explained below.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net income increased $105.7 million primarily due to:

    • a $107.7 million accrual ($65.6 million net-of-tax) in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs;
    • a one-time $21.3 million net-of-tax cumulative effect of accounting change in 2003 due to the implementation of SFAS 143;
    • increased net revenue, as explained below;
    • increased miscellaneous income due to a reduction in the loss provision for an environmental clean-up site; and
    • decreased interest charges on long-term debt.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges/(credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.

 

 

Amount

 

 

(In Millions)

 

 

 

2003 net revenue

 

$291.3 

Net wholesale revenue

 

6.1 

Summer capacity charges  

2.2 

Volume/weather

 

1.8 

Price applied to unbilled sales

 

(4.2)

Other

 

(0.8)

2004 net revenue

 

$296.4 

The net wholesale revenue variance resulted primarily from increased volume associated with sales to affiliated systems.

The summer capacity charges variance is due to the amortization in the second quarter of 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003.

The volume/weather variance resulted from increased usage primarily in the unbilled sales period, partially offset by the effect of milder weather on billed sales compared to the same period in 2003.

The price applied to unbilled sales variance results primarily from a decrease in the fuel price applied to unbilled sales.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to a decrease of $22 million in fuel cost recovery revenues partially offset by increased gross wholesale revenues of $6.9 million primarily due to increased sales to affiliated systems.

Fuel and purchased power expenses decreased primarily due to the displacement of higher-priced gas generation by lower-priced coal and nuclear generation and purchased power.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.

 

 

Amount

 

 

(In Millions)

 

 

 
2003 net revenue

 

$548.9 

Net wholesale revenue

 

14.3 

Volume/weather

 

5.7 

Summer capacity charges  

5.5 

Price applied to unbilled sales

 

(10.2)

Other

 

(5.1)

2004 net revenue

 

$559.1 

The net wholesale revenue variance resulted from increased volume associated with sales to affiliated systems and higher pricing on sales to municipal and co-op customers and adjoining utility systems.

The volume/weather variance resulted from increased usage in the industrial sector, partially offset by decreased residential usage due to the effect of milder weather on billed sales as compared to the same period in 2003.

The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003.

The price applied to unbilled sales variance results primarily from a decrease in the fuel price applied to unbilled sales.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues increased primarily due to an increase of $41 million in fuel cost recovery revenues due to higher fuel rates.

Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas, oil, and purchased power, and an increase in electric generation.

Other regulatory credits increased primarily due to:

    • the deferral of capacity costs in 2004 resulting from the Perryville interim purchased power agreement; and
    • the amortization in 2003 of deferred capacity charges for the summer of 2001, as discussed above.

Other Income Statement Variances

Second Quarter 2004 Compared to Second Quarter 2003

Miscellaneous income - net increased $119.4 million primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. Miscellaneous income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.

Interest on long-term debt decreased $8.1 million primarily due to the financing program and debt restructuring implemented in 2003, which resulted in extended maturities and lowered interest rates in Entergy Gulf States' debt portfolio.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Miscellaneous income - net increased $121.9 million primarily due to a $107.7 million accrual in June 2003 for the loss that would be associated with a final, non-appealable decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs. Miscellaneous income also increased due to a reduction in the loss provision for an environmental clean-up site. During the second quarter of 2004, the provision was reduced by approximately $10 million based upon activities performed to date and the estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.

Interest on long-term debt decreased $9.2 million primarily due to the financing program and debt restructuring implemented in 2003, which resulted in extended maturities and lowered interest rates in Entergy Gulf States' debt portfolio.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 38.2% and 47.4%, respectively. The effective income tax rate for the six months ended June 30, 2004 was 35.6%. The differences in the effective income tax rates for the second quarter of 2004 and the six months ended June 30, 2004 versus the federal statutory rate of 35% are primarily due to state income taxes partially offset by the amortization of investment tax credits. The difference in the effective income tax rate for the second quarter of 2003 versus the federal statutory rate of 35% is primarily due to flow-through book and tax timing differences and investment tax credit amortization. There was no meaningful effective income tax rate for the six months ended June 30, 2003 as a result of flow-through book and tax timing differences and investment tax credit amortization generating a tax benefit, while income before income taxes was positive.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$206,030 

 

$318,404 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

291,317 

 

54,228 

 

Investing activities

 

(152,709)

 

(223,296)

 

Financing activities

 

(327,410)

 

281,733 

Net increase (decrease) in cash and cash equivalents

 

(188,802)

 

112,665 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$17,228 

 

$431,069 

Operating Activities

Cash flow from operations increased $237.1 million in the six months ended June 30, 2004 compared to the same period of 2003 primarily due to increased collections of receivables and money pool activity which provided $96.5 million of Entergy Gulf States' operating cash flows for the six months ended June 30, 2004 compared to using $53.8 million for the six months ended June 30, 2003. Entergy Gulf States' receivables from or (payables to) the money pool were as follows:

June 30,
2004

 

December 31,
2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

($27,126)

 

$69,354

 

$71,971

 

$18,131

See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Net cash used in investing activities decreased $70.6 million for the six months ended June 30, 2004 compared to the same period of 2003 primarily due to a $39 million decrease in under-recovered fuel and purchased power expenses in Texas that have been deferred and are being collected over a period greater than twelve months. See Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for fuel costs. Also contributing to the decrease in investing activities was the maturity of $23.6 million of other temporary investments that provided cash in 2004.

Financing Activities

Financing activities used $327.4 million in the six months ended June 30, 2004 compared to providing $281.7 million in the same period of 2003 primarily due to the receipt of net proceeds of approximately $596.5 million from the issuance of long-term debt in 2003.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Gulf States' uses and sources of capital. Following is an update to the information provided in the Form 10-K.

In April 2004, Entergy Gulf States retired, at maturity, $292 million of 8.25% Series First Mortgage Bonds due April 1, 2004, using cash on hand and internally generated funds.

Entergy Gulf States has $62 million of 5.65% Series tax-exempt bonds outstanding that are subject to a mandatory tender in September 2004 for purchase from the holders at 100% of the principal amount. Entergy Gulf States expects to purchase the bonds from the holders pursuant to the mandatory tender provision, but does not expect to remarket the bonds at that time. Entergy Gulf States expects to use a combination of cash on hand and short-term borrowing to purchase the bonds.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of transition to retail competition, state and local regulatory risks, System Agreement proceedings, industrial, commercial, and wholesale customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provided in the Form 10-K.

Rate Proceedings

In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and dockets established to consider issues concerning the companies' power purchases for the summers of 2001, 2002, and 2003. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers, with no change in base rates.  The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.

In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. Entergy Gulf States is also seeking approval of certain proposed rate design, rate schedule and policy changes. A procedural schedule has not yet been established.

Transition to Retail Competition

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding. Entergy Gulf States intends now to file a retail electric rate case and fuel reconciliation proceeding with the PUCT in the third quarter of 2004.

Management cannot predict what effect, if any, the PUCT's order will have on certain prior orders addressing Entergy Gulf States' transition to retail competition. Those prior orders address, for example:

  • The non-unanimous settlement agreement approved in Entergy Gulf States' unbundled cost of service proceeding, which resolved, among other things, the regulatory treatment of the 30% share of the River Bend plant acquired from Cajun Electric Cooperative and set Entergy Gulf States' stranded costs at $ -0-.
  • The price-to-beat rates to be charged by Entergy's affiliated Texas retail electric provider.
  • Entergy Gulf States' business separation plan.

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of the Entergy Gulf States business separation proceeding at the LPSC. In May 2004, the LPSC Staff filed, and the ALJ granted, a request to postpone the procedural schedule for a brief period of time on the basis that the outcome of the then-pending PUCT proceeding to certify Entergy's transmission organization as the independent organization under Texas law could affect the LPSC's business separation proceeding.  Entergy Gulf States has provided the LPSC Staff a report addressing the effect of the PUCT's July 2004 order rejecting its application to certify the Entergy transmission organization as the independent organization, and a status conference is expected to be convened to review the effect of the PUCT's order on  the LPSC proceeding. 

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Gulf States, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Gulf States' accounting for nuclear decommissioning costs, the application of SFAS 71, and pension and other postretirement costs.

 

ENTERGY GULF STATES, INC.
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
  Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $674,283    $689,765    $1,286,654    $1,246,004 
Natural gas   11,030    10,870    37,655    38,985 
TOTAL   685,313    700,635    1,324,309    1,284,989 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   131,961    183,264    309,674    322,964 
  Purchased power   260,402    225,011    462,056    410,325 
  Nuclear refueling outage expenses   3,172    4,603    6,365    7,659 
  Other operation and maintenance   111,805    107,496    203,634    202,573 
Decommissioning   3,798    1,999    7,528    7,134 
Taxes other than income taxes   27,335    30,216    57,057    58,802 
Depreciation and amortization   48,461    47,786    94,329    97,902 
Other regulatory charges (credits) - net   (3,453)   1,110    (6,477)   2,787 
TOTAL   583,481    601,485    1,134,166    1,110,146 
                 
OPERATING INCOME   101,832    99,150    190,143    174,843 
                 
OTHER INCOME                
Allowance for equity funds used during construction   2,526    3,163    5,047    6,174 
Interest and dividend income   3,172    4,627    7,021    8,967 
Miscellaneous - net   10,614    (108,827)   12,495    (109,370)
TOTAL   16,312    (101,037)   24,563    (94,229)
                 
INTEREST AND OTHER CHARGES  
Interest on long-term debt   29,152    37,297    64,539    73,776 
Other interest - net   906    1,696    2,720    3,308 
Allowance for borrowed funds used during construction   (1,853)   (2,637)   (3,768)   (5,241)
TOTAL   28,205    36,356    63,491    71,843 
                 
INCOME (LOSS) BEFORE INCOME TAXES AND                
CUMULATIVE EFFECT OF ACCOUNTING CHANGE   89,939    (38,243)   151,215    8,771 
                 
Income taxes (benefit)   34,348    (18,119)   53,896    (4,230)
                 
INCOME (LOSS) BEFORE CUMULATIVE EFFECT                
OF ACCOUNTING CHANGE   55,591    (20,124)   97,319    13,001 
                 
CUMULATIVE EFFECT OF ACCOUNTING                
CHANGE (net of income taxes of $12,713)         (21,333)
                 
NET INCOME (LOSS)   55,591    (20,124)   97,319    (8,332)
                 
Preferred dividend requirements and other   1,123    1,171    2,273    2,381 
                 
EARNINGS (LOSS) APPLICABLE TO                
COMMON STOCK   $54,468    ($21,295)   $95,046    ($10,713)
                 
See Notes to Respective Financial Statements.                

 

ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income (loss)   $97,319    ($8,332)
Noncash items included in net income (loss):        
  Reserve for regulatory adjustments   7,236    (12,080)
  Other regulatory charges (credits) - net   (6,477)   2,787 
  Depreciation, amortization, and decommissioning   101,857    105,036 
  Deferred income taxes and investment tax credits   20,490    (17,043)
  Cumulative effect of accounting change     21,333 
Changes in working capital:        
  Receivables   19,209    (149,089)
  Fuel inventory   (442)   (2,200)
  Accounts payable   18,459    (48,421)
  Taxes accrued   52,369    24,626 
  Interest accrued   (6,144)   (1,183)
  Deferred fuel costs   15,505    (6,030)
  Other working capital accounts   8,057    3,839 
Provision for estimated losses and reserves   (11,298)   109,535 
Changes in other regulatory assets   (849)   (15,399)
Other   (23,974)   46,849 
Net cash flow provided by operating activities   291,317    54,228 
         
INVESTING ACTIVITIES        
Construction expenditures   (144,767)   (145,912)
Allowance for equity funds used during construction   5,047    6,174 
Nuclear fuel purchases   (6,672)   (39,509)
Proceeds from sale/leaseback of nuclear fuel   6,672    31,413 
Decommissioning trust contributions and realized        
  change in trust assets   (5,872)   (5,813)
Changes in other temporary investments - net   23,579     - 
Other regulatory investments   (30,696)   (69,649)
Net cash flow used in investing activities   (152,709)   (223,296)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt     596,464 
Retirement of long-term debt   (292,000)   (293,000)
Redemption of preferred stock   (2,250)   (2,250)
Dividends paid:        
  Common stock   (30,900)   (17,100)
  Preferred stock   (2,260)   (2,381)
Net cash flow provided by (used in) financing activities   (327,410)   281,733 
         
Net increase (decrease) in cash and cash equivalents   (188,802)   112,665 
         
Cash and cash equivalents at beginning of period   206,030    318,404 
         
Cash and cash equivalents at end of period   $17,228    $431,069 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $69,897    $75,664 
  Income taxes     ($9,305)
         
See Notes to Respective Financial Statements.        

 

ENTERGY GULF STATES, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
  (In Thousands)
       
CURRENT ASSETS            
Cash and cash equivalents:            
  Cash       $16,620    $20,754 
  Temporary cash investments - at cost,            
   which approximates market       608    185,276 
     Total cash and cash equivalents       17,228    206,030 
Other temporary investments         23,579 
Accounts receivable:            
  Customer       118,373    115,729 
  Allowance for doubtful accounts       (4,262)   (4,856)
  Associated companies       11,542    76,726 
  Other       38,156    27,243 
  Accrued unbilled revenues       146,266    114,442 
    Total accounts receivable       310,075    329,284 
Deferred fuel costs       133,640    118,449 
Accumulated deferred income taxes         6,116 
Fuel inventory - at average cost       51,305    50,863 
Materials and supplies - at average cost       103,564    99,357 
Prepayments and other       24,573     51,236 
TOTAL       640,385    884,914 
             
OTHER PROPERTY AND INVESTMENTS        
Decommissioning trust funds       276,621    267,917 
Non-utility property - at cost (less accumulated depreciation)       140,628    139,911 
Other       21,941    21,852 
TOTAL       439,190    429,680 
             
UTILITY PLANT        
Electric       8,323,686    8,208,394 
Property under capital lease       6,272    11,009 
Natural gas       75,060    69,180 
Construction work in progress       278,410    325,888 
Nuclear fuel under capital lease       50,896    63,684 
TOTAL UTILITY PLANT       8,734,324    8,678,155 
Less - accumulated depreciation and amortization       3,979,340    3,953,275 
UTILITY PLANT - NET       4,754,984    4,724,880 
             
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:            
  SFAS 109 regulatory asset - net       440,755    442,062 
  Other regulatory assets       324,120    320,363 
Long-term receivables       25,726    19,375 
Other       41,645    33,588 
TOTAL       832,246    815,388 
             
TOTAL ASSETS       $6,666,805    $6,854,862 
             
See Notes to Respective Financial Statements.            
 
 
 
ENTERGY GULF STATES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
 
    2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Currently maturing long-term debt       $62,000   $354,000
Accounts payable:            
  Associated companies       126,149   84,000
  Other       132,870   156,166
Customer deposits       50,077   47,044
Taxes accrued       526   -
Accumulated deferred income taxes       1,200   -
Nuclear refueling outage costs       14,566   8,238
Interest accrued       30,432   36,970
Obligations under capital leases       32,860   34,075
Other       14,788   14,755
TOTAL       465,468   735,248
             
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued       1,463,224   1,422,776
Accumulated deferred investment tax credits       141,469   144,323
Obligations under capital leases       24,308   40,618
Other regulatory liabilities       15,339   13,885
Decommissioning and retirement cost liabilities       309,617   298,785
Transition to competition       79,098   79,098
Regulatory reserves       64,579   57,343
Accumulated provisions       66,995   75,868
Long-term debt       1,989,422   1,989,613
Preferred stock with sinking fund       18,602   20,852
Other       221,814   233,985

TOTAL 

      4,394,467   4,377,146
             
SHAREHOLDERS' EQUITY        
Preferred stock without sinking fund       47,327   47,327
Common stock, no par value, authorized 200,000,000            
shares; issued and outstanding 100 shares in 2004 and 2003       114,055   114,055
Paid-in capital       1,157,484   1,157,484
Retained earnings       483,836   419,690
Accumulated other comprehensive income       4,168   3,912
TOTAL       1,806,870   1,742,468
             
Commitments and Contingencies            
             
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $6,666,805   $6,854,862
             
See Notes to Respective Financial Statements.            

 

ENTERGY GULF STATES, INC.
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
                     
         
        Three Months Ended
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $453,368        $453,111     
                     
  Add: Net Income (Loss)       55,591    $55,591    (20,124)   ($20,124)
                     
  Deduct:                    
    Dividends declared on common stock       24,000        9,700     
    Preferred dividend requirements and other       1,123    1,123    1,171    1,171 
        25,123        10,871     
                     
Retained Earnings - End of period      
$483,836 
     
$422,116 
   
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (Net of Taxes):                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       $3,369        $2,095     
                     
Net derivative instrument fair value changes                     
 arising during the period       799    799    658    658 
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes      
$4,168 
     
$2,753 
   
Comprehensive Income          
$55,267 
     
($20,637)
                     
                     
        Six Months Ended
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $419,690        $449,929     
                     
  Add: Net Income (Loss)       97,319    $97,319    (8,332)   ($8,332)
                     
  Deduct:                    
    Dividends declared on common stock       30,900        17,100     
    Preferred dividend requirements and other       2,273    2,273    2,381    2,381 
        33,173        19,481     
                     
Retained Earnings - End of period      
$483,836  
     
$422,116 
   
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (Net of Taxes):                    
Balance at beginning of period:                    
 Accumulated derivative instrument fair value changes       $3,912        $3,286     
                     
Net derivative instrument fair value changes                    
 arising during the period       256    256    (533)   (533)
                     
Balance at end of period:                    
 Accumulated derivative instrument fair value changes      
$4,168 
     
$2,753 
   
Comprehensive Income          
$95,302 
     
($11,246)
                     
                     
See Notes to Respective Financial Statements.                    
 
ENTERGY GULF STATES, INC.
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $185   $200   ($15)   (8)
  Commercial   155   158   (3)   (2)
  Industrial   233   239   (6)   (3)
  Governmental   9   11   (2)   (18)
      Total retail   582   608   (26)   (4)
  Sales for resale                
    Associated companies   8   3     167 
    Non-associated companies   47   46   1    2 
  Other   37   33   4    12 
      Total   $674   $690   ($16)   (2)
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   2,068   2,203   (135)   (6)
  Commercial   1,985   1,973   12    1 
  Industrial   4,049   3,941   108    3 
  Governmental   103   126   (23)   (18)
      Total retail   8,205   8,243   (38)   - 
  Sales for resale                
    Associated companies   239   92   147    160 
    Non-associated companies   984   1,101   (117)   (11)
      Total   9,428   9,436   (8)   - 
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $369   $361   $8    2 
  Commercial   297   279   18    6 
  Industrial   445   412   33    8 
  Governmental   18   20   (2)   (10)
      Total retail   1,129   1,072   57    5 
  Sales for resale                 
    Associated companies   21   15   6    40 
    Non-associated companies   92   87   5    6 
  Other   45   72   (27)   (38)
      Total   $1,287   $1,246   $41    3 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   4,256   4,426   (170)   (4)
  Commercial   3,847   3,815   32    1 
  Industrial   7,972   7,599   373    5 
  Governmental   214   248   (34)   (14)
      Total retail   16,289   16,088   201    1 
  Sales for resale                
    Associated companies   550   261   289    111 
    Non-associated companies   2,006   2,075   (69)   (3)
      Total   18,845   18,424   421    2 
                 

 

ENTERGY LOUISIANA, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2004 Compared to Second Quarter 2003

Net income decreased $2.0 million primarily due to increased other operation and maintenance expenses, partially offset by increased other income and decreased interest charges.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net income decreased $24.6 million primarily due to decreased net revenue and increased other operation and maintenance expenses, partially offset by decreased interest charges.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.

 

 

Amount

 

 

(In Millions)

 

 

 

2003 net revenue

 

$253.7 

Volume/weather

 

(7.9)

Summer capacity charges  

5.1 

Other

 

2.2 

2004 net revenue

 

$253.1 

 

The volume/weather variance resulted from decreased usage primarily during the unbilled sales period and the effect of milder weather on billed sales during the second quarter of 2004 compared to the second quarter of 2003.

The summer capacity charges variance is due to the amortization in the second quarter of 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in the second quarter of 2004. The amortization of these capacity charges began in August 2002 and ended in July 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues decreased primarily due to:

    • a decrease of $7.9 million due to unfavorable volume/weather, as discussed above; and
    • a decrease of $8.4 million in gross wholesale revenue due to decreased sales to affiliated systems.

Fuel and purchased power expenses decreased primarily due to decreased deferred fuel expense as a result of lower fuel revenues, partially offset by increases in the market prices of natural gas and purchased power.

Other regulatory charges decreased primarily due to:

    • the amortization in 2003 of $5.1 million of deferred capacity charges, as discussed above; and
    • the deferral in the second quarter of 2004 of $3.4 million of capacity charges related to generation resource planning as allowed by the LPSC.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.

 

 

Amount

 

 

(In Millions)

 

 

 
2003 net revenue

 

$490.5 

Price applied to unbilled sales

 

(32.8)

Deferred fuel cost revisions

 

(29.4)

Volume/weather

 

12.1 

Summer capacity charges  

10.2 

Other

 

(0.3)

2004 net revenue

 

$450.3 

The price applied to unbilled sales variance is due to a decrease in the price included in unbilled sales in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs.

The deferred fuel cost revisions variance resulted from a revised unbilled sales pricing estimate made in the first quarter of 2003 to more closely align the fuel component of that pricing with expected recoverable fuel costs.

The volume/weather variance resulted primarily from increased usage during the unbilled sales period, partially offset by the effect of milder weather on billed sales in 2004 compared to 2003.

The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in August 2002 and ended in July 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues increased primarily due to:

    • an increase of $58.2 million in fuel cost recovery revenues due to higher fuel rates; and
    • an increase of $12.1 million due to favorable volume/weather, as discussed above.

The increase was partially offset by the following:

    • a decrease of $32.8 million in the price applied to unbilled sales, as discussed above; and
    • a decrease of $21.0 million in gross wholesale revenue due to decreased sales to affiliated systems.

Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas and purchased power, partially offset by decreased generation.

Other regulatory charges decreased primarily due to:

    • the amortization in 2003 of $10.2 million of deferred capacity charges, as discussed above; and
    • the deferral in 2004 of $5.8 million of capacity charges related to resource planning as allowed by the LPSC.

Other Income Statement Variances

Second Quarter 2004 Compared to Second Quarter 2003

Other operation and maintenance expenses increased primarily due to lower customer service support costs in 2003.

Other income increased primarily due to the settlement of existing asbestos and pollution liabilities.

Interest charges decreased primarily due to the redemption of $150 million of First Mortgage Bonds in June 2003, partially offset by the issuance of $100 million of First Mortgage Bonds in March 2004.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Other operation and maintenance expenses increased primarily due to lower customer service support costs in 2003.

Interest charges decreased primarily due to the redemption of $150 million of First Mortgage Bonds in June 2003, partially offset by the issuance of $100 million of First Mortgage Bonds in March 2004.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 38.5% and 39.5%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 38.1% and 38.9%, respectively. The differences in the effective income tax rates for the second quarter and six months ended June 30, 2004 versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by the amortization of investment tax credits. The differences in the effective income tax rates for the second quarter and six months ended June 30, 2003 are primarily due to book and tax differences related to utility plant items and state income taxes.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$8,787 

 

$311,800 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

89,012 

 

137,959 

 

Investing activities

 

(98,594)

 

(105,456)

 

Financing activities

 

53,144 

 

(250,263)

Net increase (decrease) in cash and cash equivalents

 

43,562 

 

(217,760)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$52,349 

 

$94,040 

Operating Activities

Cash flow from operations decreased $48.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to money pool activity, which used $84.9 million of Entergy Louisiana's operating cash flows in the first six months of 2004 compared to providing $3.1 million in the first six months of 2003, and decreased net income, partially offset by the increased collection of deferred fuel costs. Entergy Louisiana's receivables from or (payables to) the money pool were as follows:

June 30,
2004

 

December 31,
2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$43,577

 

($41,317)

 

$15,751

 

$18,854

See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Cash used by investing activities decreased $6.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased spending on transmission and nuclear projects, partially offset by increased spending at certain fossil plants.

Financing Activities

Entergy Louisiana provided $53.1 million of cash from financing activities in the first six months of 2004 compared to using $250.3 million of cash in the first six months of 2003 primarily due to:

    • the issuance of $100 million of 5.5% Series First Mortgage Bonds in March 2004;
    • the retirement of $150 million of 8.5% Series First Mortgage Bonds in June 2003;
    • a principal payment of $14.8 million in 2004 for the Waterford Lease Obligation compared to a principal payment of $33.2 million in 2003; and
    • a decrease of $35.8 million in common stock dividends paid.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana's uses and sources of capital. Following is an update to the information provided in the Form 10-K.

Entergy Louisiana now expects to complete the purchase of the Perryville plant in the first quarter 2005 for $183.5 million. Therefore, Entergy Louisiana now expects to spend approximately $271 million for construction and capital investment in 2004 and approximately $559 million for construction and capital investment in 2005.

In May 2004, Entergy Louisiana extended the maturity date of its 364-day credit facility from May 2004 to July 2004. In July 2004, Entergy Louisiana renewed the facility and Entergy New Orleans entered into a separate credit facility with the same lender. Both facilities will expire in April 2005. Entergy Louisiana can borrow up to $15 million and Entergy New Orleans can borrow up to $14 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $15 million.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state rate regulation, System Agreement proceedings, industrial and commercial customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the Form 10-K.

Rate Proceedings

See "Management's Financial Discussion and Analysis - Rate Proceedings" in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding.  Additional issues and updates that will be evaluated in connection with this proceeding are likely to result in revisions to the LPSC Staff's recommendation.  These issues may reduce the amount of the recommended rate increase or cause it to become a recommendation for a rate decrease.  Hearings are currently set for November 2004.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Louisiana, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana's accounting for nuclear decommissioning costs and pension and other retirement costs.

ENTERGY LOUISIANA, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
  Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $555,511    $569,580    $1,043,557    $1,031,941 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                 
   gas purchased for resale   129,885    148,691    267,664    218,999 
  Purchased power   178,102    164,215    335,832    315,902 
  Nuclear refueling outage expenses   3,455    2,745    6,632    5,490 
  Other operation and maintenance   93,671    89,604    171,369    164,572 
Decommissioning   5,443    5,142    10,799    10,285 
Taxes other than income taxes   18,259    17,790    34,333    34,513 
Depreciation and amortization   47,951    47,140    94,537    94,972 
Other regulatory charges (credits) - net   (5,612)   2,949    (10,284)   6,542 
TOTAL   471,154    478,276    910,882    851,275 
                 
OPERATING INCOME   84,357    91,304    132,675    180,666 
                 
OTHER INCOME                
Allowance for equity funds used during construction   1,519    1,598    2,869    3,133 
Interest and dividend income   1,931    2,390    3,658    5,532 
Miscellaneous - net   1,282    (743)   144    (1,875)
TOTAL   4,732    3,245    6,671    6,790 
                 
INTEREST AND OTHER CHARGES  
Interest on long-term debt   17,878    19,368    34,336    41,650 
Other interest - net   1,074    837    2,058    1,666 
Allowance for borrowed funds used during construction   (905)   (1,229)   (1,881)   (2,341)
TOTAL   18,047    18,976    34,513    40,975 
                 
INCOME BEFORE INCOME TAXES   71,042    75,573    104,833    146,481 
                 
Income taxes   27,329    29,860    39,908    56,961 
                  
NET INCOME   43,713    45,713    64,925    89,520 
                 
Preferred dividend requirements and other   1,678    1,678    3,357    3,357 
                 
EARNINGS APPLICABLE TO                
COMMON STOCK   $42,035    $44,035    $61,568    $86,163 
                 
See Notes to Respective Financial Statements.                

 

ENTERGY LOUISIANA, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $64,925    $89,520 
Noncash items included in net income:        
  Other regulatory charges (credits) - net   (10,284)   6,542 
  Depreciation, amortization, and decommissioning   105,336    105,257 
  Deferred income taxes and investment tax credits   30,803    35,840 
Changes in working capital:        
  Receivables   (50,835)   (30,413)
  Accounts payable   (58,301)   (14,356)
  Taxes accrued   32,834    43,727 
  Interest accrued   (3,503)   (6,776)
  Deferred fuel costs   (17,039)   (93,958)
  Other working capital accounts   (6,575)   6,170 
Provision for estimated losses and reserves   2,953    5,005 
Changes in other regulatory assets   (11,137)   20,030 
Other   9,835    (28,629)
Net cash flow provided by operating activities   89,012    137,959 
         
INVESTING ACTIVITIES        
Construction expenditures   (93,864)   (98,056)
Allowance for equity funds used during construction   2,869    3,133 
Decommissioning trust contributions and realized        
 change in trust assets   (7,599)   (10,533)
Net cash flow used in investing activities   (98,594)   (105,456)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt   99,210     - 
Retirement of long-term debt   (14,809)   (183,206)
Dividends paid:        
  Common stock   (27,900)   (63,700)
  Preferred stock   (3,357)   (3,357)
Net cash flow provided by (used in) financing activities   53,144    (250,263)
         
Net increase (decrease) in cash and cash equivalents   43,562    (217,760)
         
Cash and cash equivalents at beginning of period   8,787    311,800 
         
Cash and cash equivalents at end of period   $52,349    $94,040 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
  Interest - net of amount capitalized   $38,446    $34,938 
         
See Notes to Respective Financial Statements.        

 

ENTERGY LOUISIANA, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
     
    2004   2003
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $1,832    $8,787 
  Temporary cash investments - at cost,        
   which approximates market   50,517   
      Total cash and cash equivalents   52,349    8,787 
Accounts receivable:        
  Customer   79,662    93,393 
  Allowance for doubtful accounts   (3,226)   (4,487)
  Associated companies   51,563    9,074 
  Other   8,945    12,334 
  Accrued unbilled revenues   162,369    138,164 
     Total accounts receivable   299,313    248,478 
Deferred fuel costs   47,648    30,609 
Materials and supplies - at average cost   77,404    74,349 
Deferred nuclear refueling outage costs   12,507    19,226 
Prepayments and other   66,103    67,623 
TOTAL   555,324    449,072 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   14,230    14,230 
Decommissioning trust funds   162,120    151,996 
Non-utility property - at cost (less accumulated depreciation)   21,241    21,307 
Other   2,116    2,177 
TOTAL   199,707    189,710 
         
UTILITY PLANT        
Electric   5,906,478    5,836,914 
Property under capital lease   250,102    250,102 
Construction work in progress   159,432    172,405 
Nuclear fuel under capital lease   48,605     65,066 
TOTAL UTILITY PLANT   6,364,617    6,324,487 
Less - accumulated depreciation and amortization   2,744,102    2,686,778 
UTILITY PLANT - NET   3,620,515    3,637,709 
          
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   156,539    156,111 
  Other regulatory assets   232,738    217,689 
Long-term receivables   10,139    1,511 
Other   24,357    22,737 
TOTAL   423,773    398,048 
         
TOTAL ASSETS   $4,799,319    $4,674,539 
         
See Notes to Respective Financial Statements.        
 
 
 
ENTERGY LOUISIANA, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
 
    2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Currently maturing long-term debt   $-    $14,809 
Accounts payable:        
  Associated companies   30,357    101,191 
  Other   134,408    121,875 
Customer deposits   63,597    61,215 
Accumulated deferred income taxes   5,430    566 
Interest accrued   16,726    20,229 
Obligations under capital leases   35,506    35,506 
Other    4,483    5,110 
TOTAL   290,507    360,501 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   1,774,475    1,728,156 
Accumulated deferred investment tax credits   98,694    101,258 
Obligations under capital leases   13,100    29,560 
Other regulatory liabilities   19,168    12,204 
Decommissioning and retirement cost liabilities   373,691    352,120 
Accumulated provisions   89,487    86,534 
Long-term debt   987,714    887,687 
Other   50,277    47,981 
TOTAL   3,406,606    3,245,500 
         
         
SHAREHOLDERS' EQUITY        
Preferred stock without sinking fund   100,500    100,500 
Common stock, no par value, authorized 250,000,000        
 shares; issued 165,173,180 shares in 2004 and 2003   1,088,900    1,088,900 
Capital stock expense and other   (1,718)   (1,718)
Retained earnings   34,524    856 
Less - treasury stock, at cost (18,202,573 shares in 2004 and 2003)   120,000    120,000 
TOTAL   1,102,206    1,068,538 
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $4,799,319    $4,674,539 
         
See Notes to Respective Financial Statements.        

 

ENTERGY LOUISIANA, INC.
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $162   $173   ($11)   (6)
  Commercial   116   118   (2)   (2)
  Industrial   191   179   12    7 
  Governmental   9   11   (2)   (18)
      Total retail   478   481   (3)   (1)
  Sales for resale                
    Associated companies   28   36   (8)   (22)
    Non-associated companies   3   3   -    - 
  Other   47   50   (3)   (6)
      Total   $556   $570   ($14)   (2)
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   1,888   2,022   (134)   (7)
  Commercial   1,357   1,362   (5)   - 
  Industrial   3,274   3,051   223    7 
  Governmental   104   125   (21)   (17)
      Total retail   6,623   6,560   63    1 
  Sales for resale                
    Associated companies   316   492   (176)   (36)
    Non-associated companies   45   26   19    73 
      Total   6,984   7,078   (94)   (1)
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $332   $324   $8    3 
  Commercial   230   218   12    6 
  Industrial   377   343   34    10 
  Governmental   18   20   (2)   (10)
      Total retail   957   905   52    6 
  Sales for resale                
    Associated companies   38   60   (22)   (37)
    Non-associated companies   7   7   -    - 
  Other   42   60   (18)   (30)
      Total   $1,044   $1,032   $12    1 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   3,895   4,037   (142)   (4)
  Commercial   2,640   2,619   21    1 
  Industrial   6,406   6,341   65    1 
  Governmental   213   255   (42)   (16)
      Total retail   13,154   13,252   (98)   (1)
  Sales for resale                
    Associated companies   422   788   (366)   (46)
    Non-associated companies   105   69   36    52 
      Total   13,681   14,109   (428)   (3)
                 
                 

 

ENTERGY MISSISSIPPI, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2004 Compared to Second Quarter 2003

Net income decreased $1.5 million primarily due to increases in other operation and maintenance expenses, depreciation and amortization expenses, and taxes other than income taxes, partially offset by increased net revenue.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net income decreased $5.2 million primarily due to increases in other operation and maintenance expenses, depreciation and amortization expenses, and taxes other than income taxes.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.

   

Amount

   

(In Millions)

     

2003 net revenue

 

$112.9 

Volume/weather

 

4.4 

Other

 

(0.8)

2004 net revenue

 

$116.5 

The volume/weather variance resulted from increased usage primarily during the unbilled sales period.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to:

    • an increase of $32.9 million in fuel cost recovery revenues due to higher fuel rates;
    • an increase of $6.0 million in gross wholesale revenue primarily due to increased sales to affiliated systems; and
    • an increase of $4.4 million in the volume/weather variance, as discussed above.

These increases were partially offset by a decrease of $15.8 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July 2003.

Fuel and purchased power expenses increased primarily due to an increase in recovery of fuel and purchased power costs and increased generation, partially offset by a decrease in the average price of purchased power.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net revenue was relatively unchanged comparing the six months ended June 30, 2004 to the six months ended June 30, 2003, as shown below:

   

Amount

   

(In Millions)

     

2003 net revenue

 

$204.9 

Miscellaneous items

 

(0.9)

2004 net revenue

 

$204.0 

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to:

    • an increase of $62.3 million in fuel cost recovery revenues due to higher fuel rates; and
    • an increase of $4.9 million in gross wholesale revenue due to increased net generation resulting in more energy available for resale sales.

These increases were partially offset by a decrease of $33.0 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July 2003.

Fuel and purchased power expenses increased primarily due to an increase in recovery of fuel and purchased power costs and an increase in the market prices of natural gas and oil, partially offset by a decrease in the average price of purchased power.

Other Income Statement Variances

Second Quarter 2004 Compared to Second Quarter 2003

Other operation and maintenance expenses increased primarily due to an increase of $2.9 million in customer service costs and uncollectible accounts write-offs.

Taxes other than income taxes increased primarily due to a higher assessment of ad valorem and franchise taxes compared to prior year.

Depreciation and amortization expenses increased due to an increase in plant in service.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Other operation and maintenance expenses increased primarily due to an increase of $5.8 million in customer service costs and uncollectible accounts write-offs.

Taxes other than income taxes increased primarily due to a higher assessment of ad valorem and franchise taxes compared to prior year.

Depreciation and amortization expenses increased due to an increase in plant in service.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 37.0% and 36.4%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 35.8% and 35.5%, respectively.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$63,838 

 

$147,721 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

51,564 

 

73,477 

 

Investing activities

 

(69,180)

 

(154,380)

 

Financing activities

 

(28,296)

 

(52,022)

Net decrease in cash and cash equivalents

 

(45,912)

 

(132,925)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$17,926 

 

$14,796 

Operating Activities

Cash flow from operations decreased $21.9 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased recovery of deferred fuel and purchased power costs.

Entergy Mississippi's receivables from the money pool were as follows:

June 30,
2004

 

December 31,
2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$12,000

 

$22,076

 

$855

 

$8,702

Money pool activity provided $10.1 million of Entergy Mississippi's operating cash flow for the six months ended June 30, 2004 and provided $7.8 million of operating cash flow for the six months ended June 30, 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Net cash used in investing activities decreased $85.2 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to cash used in 2003 for other regulatory investments of $72.6 million as a result of under-recovered fuel and purchased power costs combined with other temporary investments of $7.5 million that provided cash in 2004 upon maturity.

Financing Activities

Net cash used in financing activities decreased $23.7 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to a $25 million draw on Entergy Mississippi's short-term bank credit facility.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Mississippi's uses and sources of capital. Following are updates to the information provided in the Form 10-K.

Entergy Mississippi issued $180 million of First Mortgage Bonds in 2004 as follows:

Issue Date

 

Description

 

Maturity

 

Amount

           

(In Thousands)

 

 

 

 

 

 

 

April 2004

 

6.25% Series

 

April 2034

 

$100,000

April 2004

 

4.65% Series

 

May 2011

 

80,000

 

 

 

 

 

 

$180,000

Together with other available funds, proceeds from the issuances in April 2004 were used to retire or redeem the following:

Retirement Date

 

Description

 

Maturity

 

Amount

           

(In Thousands)

 

 

 

 

 

 

 

May 2004  

6.20% Series

 

May 2004

 

$75,000

May 2004

 

6.45% Series

 

April 2008

 

80,000

May 2004

 

7.70% Series

 

July 2023

 

60,000

 

 

 

 

 

 

$215,000

In May 2004, Entergy Mississippi renewed its credit facility for the same amount, $25 million, which is due to expire in May 2005. The facility was fully drawn at June 30, 2004.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state and local rate regulation, System Agreement proceedings, market and credit risks, state and local regulatory risks, and litigation risks. The following are updates to the Form 10-K.

State and Local Rate Regulation

As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, Entergy Mississippi made its anticipated formula rate plan filing with the MPSC in March 2004 based on a 2003 test year. In April 2004, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed annual regulatory earnings range of 9.5% to 12.1%.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Mississippi, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi's accounting for pension and other retirement costs.

ENTERGY MISSISSIPPI, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
     
    Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $289,573    $261,899    $526,402    $489,268 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   73,171    30,436    132,345    62,389 
  Purchased power   100,591    118,925    193,293    221,873 
  Other operation and maintenance   44,835    41,849    81,883    77,561 
Taxes other than income taxes   13,764    11,835    26,562    22,983 
Depreciation and amortization   15,716    14,585    30,625    29,612 
Other regulatory charges (credits) - net   (661)   (356)   (3,188)   129 
TOTAL   247,416    217,274    461,520    414,547 
                 
OPERATING INCOME   42,157    44,625    64,882    74,721 
                 
OTHER INCOME                
Allowance for equity funds used during construction   867    1,011    1,634    1,807 
Interest and dividend income   830    211    1,546    571 
Miscellaneous - net   162    (416)   (478)   (1,353)
TOTAL   1,859    806    2,702    1,025 
                 
INTEREST AND OTHER CHARGES      
Interest on long-term debt   11,047    10,322    21,976    21,956 
Other interest - net   540    832    940    1,634 
Allowance for borrowed funds used during construction   (596)   (874)   (1,203)   (1,603)
TOTAL   10,991    10,280    21,713    21,987 
                 
INCOME BEFORE INCOME TAXES   33,025    35,151    45,871    53,759 
                 
Income taxes   12,217    12,801    16,425    19,093 
                 
NET INCOME   20,808    22,350    29,446    34,666 
                 
Preferred dividend requirements and other   842    842    1,685    1,685 
                 
EARNINGS APPLICABLE TO                 
COMMON STOCK   $19,966    $21,508    $27,761    $32,981 
                 
See Notes to Respective Financial Statements.                
                 

 

ENTERGY MISSISSIPPI, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $29,446    $34,666 
Noncash items included in net income:        
  Other regulatory charges (credits) - net   (3,188)   129 
  Depreciation and amortization   30,625    29,612 
  Deferred income taxes and investment tax credits   61,417    23,099 
Changes in working capital:        
  Receivables   (8,986)   (19,480)
  Fuel inventory   1,072    (32)
  Accounts payable   486    (16,341)
  Taxes accrued   (60,754)   (18,446)
  Interest accrued   (1,528)   (7,171)
  Deferred fuel costs   15,042    33,122 
  Other working capital accounts   3,427    4,765 
Provision for estimated losses and reserves   (771)   (530)
Changes in other regulatory assets   (3,448)   357 
Other   (11,276)   9,727 
Net cash flow provided by operating activities   51,564    73,477 
         
INVESTING ACTIVITIES        
Construction expenditures   (78,320)   (83,617)
Allowance for equity funds used during construction   1,634    1,807 
Changes in other temporary investments - net   7,506    - 
Changes in regulatory investments   -    (72,570)
Net cash flow used in investing activities   (69,180)   (154,380)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt   178,625    292,563 
Retirement of long-term debt   (218,136)   (330,000)
Changes in short-term borrowings   25,000    - 
Dividends paid:        
  Common stock   (12,100)   (12,900)
  Preferred stock   (1,685)   (1,685)
Net cash flow used in financing activities   (28,296)   (52,022)
         
Net decrease in cash and cash equivalents   (45,912)   (132,925)
         
Cash and cash equivalents at beginning of period   63,838    147,721 
         
Cash and cash equivalents at end of period   $17,926    $14,796 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
  Interest - net of amount capitalized   $21,843    $29,502 
  Income taxes   $2,950    - 
         
See Notes to Respective Financial Statements.        

 

ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
     
  2004   2003
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $4,015    $6,381 
  Temporary cash investment - at cost,        
   which approximates market   13,911    57,457 
     Total cash and cash equivalents   17,926    63,838 
Other temporary investments   -    7,506 
Accounts receivable:        
  Customer   72,883    59,729 
  Allowance for doubtful accounts   (1,377)   (1,375)
  Associated companies   13,275    25,935 
  Other   5,711    6,400 
  Accrued unbilled revenues   40,392    31,209 
      Total accounts receivable   130,884    121,898 
Deferred fuel costs   74,036    89,078 
Fuel inventory - at average cost   4,005     5,077 
Materials and supplies - at average cost   17,427    17,682 
Prepayments and other   9,006     9,583 
TOTAL   253,284    314,662 
         
OTHER PROPERTY AND INVESTMENTS         
Investment in affiliates - at equity   5,531    5,531 
Non-utility property - at cost (less accumulated depreciation)   6,466    6,466 
TOTAL   11,997     11,997 
          
UTILITY PLANT        
Electric   2,318,008    2,243,852 
Property under capital lease   116    136 
Construction work in progress   96,601    108,829 
TOTAL UTILITY PLANT   2,414,725     2,352,817 
Less - accumulated depreciation and amortization   857,261    837,492 
UTILITY PLANT - NET   1,557,464    1,515,325 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   23,954    28,964 
  Other regulatory assets   73,228    58,287 
Long-term receivable   4,753    - 
Other   26,075    20,064 
TOTAL   128,010     107,315 
         
TOTAL ASSETS   $1,950,755    $1,949,299 
         
See Notes to Respective Financial Statements.        
 
 
 
ENTERGY MISSISSIPPI, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
     
  2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Currently maturing long-term debt   $ -   $75,000 
Notes payable   25,000    - 
Accounts payable:        
  Associated companies   72,093    62,705 
  Other   19,310    28,212 
Customer deposits   36,000    33,861 
Taxes accrued   29,298    39,041 
Accumulated deferred income taxes   1,685    7,120 
Interest accrued   12,244    13,772 
Obligations under capital leases   36    41 
Other   3,023    2,567 
TOTAL   198,689    262,319 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   396,062    385,395 
Accumulated deferred investment tax credits   14,390    15,092 
Obligations under capital leases   80    95 
Accumulated provisions   6,105    6,876 
Long-term debt   695,118    654,956 
Other   60,166    60,082 
TOTAL   1,171,921    1,122,496 
         
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 2004 and 2003   199,326    199,326 
Capital stock expense and other   (59)   (59)
Retained earnings   330,497    314,836 
TOTAL   580,145    564,484 
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $1,950,755    $1,949,299 
         
See Notes to Respective Financial Statements.        

 

ENTERGY MISSISSIPPI, INC.
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $ 102   $ 94   $ 8    9 
  Commercial   92   84   8    10 
  Industrial   49   45   4    9 
  Governmental   9   8   1    13 
      Total retail   252   231   21    9 
  Sales for resale                 
    Associated companies   8   4   4    100 
    Non-associated companies   8   5   3    60 
  Other   22   22   -    - 
      Total   $ 290   $ 262   $ 28    11 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   1,074   1,063   11    1 
  Commercial   1,060   1,033   27    3 
  Industrial   746   708   38    5 
  Governmental   91   96   (5)   (5)
      Total retail   2,971   2,900   71    2 
  Sales for resale                
    Associated companies   65   5   60    1,200 
    Non-associated companies   101   82   19    23 
      Total   3,137   2,987   150    5 
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                
  Residential   $ 196   $ 184   $ 12    7 
  Commercial   173   159   14    9 
  Industrial   91   85   6    7 
  Governmental   17   16   1    6 
      Total retail   477   444    33    7 
  Sales for resale                
    Associated companies   11   9   2    22 
    Non-associated companies   13   10   3    30 
  Other   25   26   (1)   (4)
      Total   $ 526   $ 489   $ 37    8 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   2,299   2,316   (17)   (1)
  Commercial   2,064   2,044   20    1 
  Industrial   1,422   1,380   42    3 
  Governmental   182   190   (8)   (4)
      Total retail   5,967   5,930   37    1 
  Sales for resale                
    Associated companies   78   24   54    225 
    Non-associated companies   167   152   15    10 
      Total   6,212   6,106   106    2 
                 

 

 

 

 

ENTERGY NEW ORLEANS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2004 Compared to Second Quarter 2003

Net income increased $2.7 million primarily due to an increase in net revenue, partially offset by an increase in interest charges.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net income increased $14.2 million primarily due to an increase in net revenue, partially offset by an increase in interest charges.

Net Revenue

Second Quarter 2004 Compared to Second Quarter 2003

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 2004 to the second quarter of 2003.

   

Amount

   

(In Millions)

     
2003 net revenue  

$61.3 

Price applied to unbilled electric sales  

3.8 

Volume/weather  

2.7 

Base rates  

2.4 

2003 deferral  

(4.1)

Other  

1.1 

2004 net revenue  

$67.2 

The price applied to unbilled electric sales variance results primarily from an increase in the fuel price applied to unbilled sales.

The volume/weather variance resulted from increased electric usage primarily during the unbilled sales period, partially offset by the effects of milder weather on billed sales in the second quarter of 2004 as compared to the same period in 2003.

The increase in base rates was effective June 2003. The rate increase is discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.

The 2003 deferral variance is due to a regulatory credit recorded in 2003 to defer expenses related to uncollectible accounts. The City Council approved collection of the expense over a five-year period that began in June 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues increased primarily due to an increase of $21.4 million in gross wholesale revenue as a result of increased sales to affiliates and an increase of $3.4 million in gas fuel cost recovery revenues due to higher fuel rates. The increase is also attributable to the increase in base rates and favorable volume/weather, as discussed above.

Fuel and purchased power expenses increased primarily due to an increase in electricity generated and power purchases.

Other regulatory credits decreased primarily due to the deferral of uncollectible accounts in the second quarter of 2003, as discussed above.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2004 to the six months ended June 30, 2003.

   

Amount

   

(In Millions)

     
2003 net revenue  

$100.6 

Base rates  

11.1 

Volume/weather  

9.9 

Price applied to unbilled electric sales  

4.7 

Rate refund provision  

(4.1)

2003 deferral  

(4.1)

Other  

2.7 

2004 net revenue  

$120.8 

The increase in base rates was effective June 2003. The rate increase is discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.

The increase in volume/weather resulted from increased electric usage primarily during the unbilled sales period partially offset by the effect of milder weather on billed sales in 2004.

The price applied to unbilled electric sales variance is due to an increase in the fuel price applied to unbilled sales.

Rate refund provisions decreased net revenue due to higher accruals in February 2004 primarily as a result of a resolution adopted by the City Council. The resolution is discussed in Note 2 to the domestic utility companies and System Energy financial statements.

The 2003 deferral variance is due to a regulatory credit recorded in 2003 to defer expenses related to uncollectible accounts. The City Council approved collection of the expense over a five-year period that began in June 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues increased primarily due to an increase of $46.9 million in gross wholesale revenue as a result of increased sales to affiliates. The increase is also attributable to the increase in base rates and favorable volume/weather, as discussed above.

Fuel and purchased power expenses increased primarily due to an increase in electricity generated and power purchases.

Other regulatory credits decreased primarily due to the deferral of uncollectible accounts in the second quarter of 2003, as discussed above.

Other Income Statement Variances

Second Quarter 2004 Compared to Second Quarter 2003

Interest charges increased primarily due to a true-up in May 2003 of interest accruals previously made for potential rate actions and refunds. The true-up decreased interest charges in 2003.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Other operation and maintenance expenses decreased primarily due to a decrease of $3.8 million as a result of lower contract costs, decreased loss reserves, and lower company labor costs and a decrease of $1.6 million in fossil expenses as a result of the timing of contract work offset by emergency generator repairs. The decrease was partially offset by an increase of $4.7 million in customer service support costs as a result of increased uncollectible receivables write-offs.

Interest charges increased primarily due to a true-up in May 2003 of interest accruals previously made for potential rate actions and refunds. The true-up decreased interest charges in 2003.

Income Taxes

The effective income tax rates for the second quarters of 2004 and 2003 were 38.9% and 39.3%, respectively. The effective income tax rates for the six months ended June 30, 2004 and 2003 were 38.6% and 42.6%, respectively. The differences in the effective income tax rates for the periods presented versus the federal statutory rate of 35% are primarily due to book and tax differences related to utility plant items and state income taxes.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$4,669 

 

$66,247 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

20,014 

 

(34,208)

 

Investing activities

 

(22,258)

 

(28,768)

 

Financing activities

 

(1,524)

 

(482)

Net decrease in cash and cash equivalents

 

(3,768)

 

(63,458)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$901 

 

$2,789 

Operating Activities

Entergy New Orleans provided $20.0 million of cash flow from operating activities for the six months ended June 30, 2004 compared to using $34.2 million of cash for the six months ended June 30, 2003 primarily due to increased net income, the timing of receivable collections, and the effect of higher fuel costs in 2003, partially offset by money pool activity.

Entergy New Orleans' receivables from or (payables to) the money pool were as follows:

June 30,
2004

 

December 31, 2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

($1,805)

 

$1,783

 

($13,741)

 

$3,500

Money pool activity provided $3.6 million of Entergy New Orleans' operating cash flows for the six months ended June 30, 2004 and provided $17.2 million of Entergy New Orleans' operating cash flows for the six months ended June 30, 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Net cash used in investing activities decreased $6.5 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to decreased capital expenditures of $5.6 million related to a turbine inspection project at a fossil plant in 2003.

Financing Activities

Net cash used in financing activities increased $1.0 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to common stock dividends paid in 2004 of $0.8 million.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy New Orleans' uses and sources of capital. Following is an update to the information provided in the Form 10-K.

In July 2004, Entergy New Orleans entered into a credit facility and Entergy Louisiana renewed its credit facility with the same lender. Both facilities will expire in April 2005. Entergy New Orleans can borrow up to $14 million and Entergy Louisiana can borrow up to $15 million under their respective credit facilities, but at no time can the total amount borrowed by the two companies combined exceed $15 million.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of System Agreement proceedings, market and credit risks, state and local regulatory risks, environmental risks, and litigation risks. The following is an update to the Form 10-K.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ's Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in substantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy New Orleans, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ's Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation and requested historical documents, records, and information from Entergy Arkansas, which Entergy Arkansas has provided to the APSC.

Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. Procedural schedules have not been established yet in the APSC investigations.

Also in April 2004, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the System Agreement for one or more of the domestic utility companies. Entergy New Orleans and Entergy Louisiana appealed the City Council's resolution on the basis that the imposition of this requirement with respect to the System Agreement, a FERC-approved tariff, exceeds the City Council's jurisdiction and authority. In July 2004, the City Council answered the appeal and filed a third party demand and counterclaim against Entergy, the domestic utility companies, Entergy Services, and System Energy, seeking a declaratory judgment that Entergy and its subsidiaries cannot terminate the System Agreement until obligations owed under the March 2003 Agreement in Principle are satisfied.

Formula Rate Plan Filings

In conformance with the City Council's May 2003 resolution discussed in the Form 10-K, in April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans' accounting for pension and other retirement costs.

ENTERGY NEW ORLEANS, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
                 
  Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $159,221    $131,236    $271,797    $220,021 
Natural gas   27,116    22,829    84,307    74,950 
TOTAL   186,337    154,065    356,104    294,971 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   53,078    39,349    109,589    92,843 
  Purchased power   65,398    57,622    124,317    103,741 
  Other operation and maintenance   27,235    26,988    48,551    50,436 
Taxes other than income taxes   10,069    10,030    20,064     20,380 
Depreciation and amortization   6,969    6,942    13,800    14,407 
Other regulatory charges (credits) - net   708    (4,177)   1,416    (2,259)
TOTAL   163,457    136,754    317,737    279,548 
                 
OPERATING INCOME   22,880    17,311    38,367    15,423 
                 
OTHER INCOME                
Allowance for equity funds used during construction   197    904    415    1,152 
Interest and dividend income   157    44    327    354 
Miscellaneous - net   1,106    (103)   812    (549)
TOTAL   1,460    845    1,554    957 
                 
INTEREST AND OTHER CHARGES          
Interest on long-term debt   3,844    4,483    7,710    8,950 
Other interest - net   539    (1,200)   955    (543)
Allowance for borrowed funds used during construction   (190)   (926)   (412)   (1,180)
TOTAL   4,193    2,357    8,253    7,227 
                 
INCOME BEFORE INCOME TAXES   20,147    15,799    31,668    9,153 
                 
Income taxes   7,828    6,219    12,235    3,900 
                 
NET INCOME   12,319    9,580    19,433    5,253 
                 
Preferred dividend requirements and other   241    241    482    482 
                 
EARNINGS APPLICABLE TO                
COMMON STOCK   $12,078    $9,339    $18,951    $4,771 
                 
See Notes to Respective Financial Statements.                
                 

 

ENTERGY NEW ORLEANS, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
OPERATING ACTIVITIES        
Net income   $19,433    $5,253 
Noncash items included in net income:        
  Other regulatory charges (credits) - net   1,416    (2,259)
  Depreciation and amortization   13,800    14,407 
  Deferred income taxes and investment tax credits   19,510    10,489 
Changes in working capital:        
  Receivables   (2,936)   (33,045)
  Fuel inventory   5,580    1,208 
  Accounts payable   (16,799)   6,900 
  Taxes accrued   (1,637)   (5,603)
  Interest accrued   (413)   (442)
  Deferred fuel costs   (9,802)   (11,805)
  Other working capital accounts   6,138    (17,255)
Provision for estimated losses and reserves   (269)   (2,454)
Changes in other regulatory assets   698    (3,708)
Other   (14,705)   4,106 
Net cash flow provided by (used in) operating activities   20,014    (34,208)
         
INVESTING ACTIVITIES        
Construction expenditures   (23,279)   (29,920)
Allowance for equity funds used during construction   415    1,152 
Changes in other temporary investments - net   606     - 
Net cash flow used in investing activities   (22,258)   (28,768)
         
FINANCING ACTIVITIES        
Dividends paid:        
  Common stock   (800)   - 
  Preferred stock   (724)   (482)
Net cash flow used in financing activities   (1,524)   (482)
         
Net decrease in cash and cash equivalents   (3,768)   (63,458)
         
Cash and cash equivalents at beginning of period   4,669    66,247 
         
Cash and cash equivalents at end of period   $901    $2,789 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $8,782    $8,541 
  Income taxes   ($5,010)    - 
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $901    $28 
  Temporary cash investments - at cost,        
   which approximates market     4,641 
      Total cash and cash equivalents   901    4,669 
Other temporary investments     606 
Accounts receivable:        
  Customer   52,360    44,663 
  Allowance for doubtful accounts   (3,217)   (3,104)
  Associated companies   5,120    24,697 
  Other   6,515    10,057 
  Accrued unbilled revenues   39,584    21,113 
      Total accounts receivable   100,362    97,426 
Deferred fuel costs   7,082   
Accumulated deferred income taxes     460 
Fuel inventory - at average cost     5,580 
Materials and supplies - at average cost   9,199    8,660 
Prepayments and other   7,543    8,050 
TOTAL   125,087    125,451 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   3,259    3,259 
         
UTILITY PLANT        
Electric   681,825    666,122 
Natural gas GAS 174,217    167,011 
Construction work in progress   39,962    45,061 
TOTAL UTILITY PLANT   896,004    878,194 
Less - accumulated depreciation and amortization   429,638    420,745 
UTILITY PLANT - NET   466,366    457,449 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  Other regulatory assets   26,368    27,222 
Long term receivables   3,541    - 
Other   8,452    6,438 
TOTAL   38,361    33,660 
          
TOTAL ASSETS   $633,073    $619,819 
         
See Notes to Respective Financial Statements.        
 
 
 
ENTERGY NEW ORLEANS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Accounts payable:        
  Associated companies   $33,107   $35,008
  Other   27,820   42,718
Customer deposits   16,606   15,575
Taxes accrued   2,297   -
Accumulated deferred income taxes   2,453   -
Interest accrued   5,799   6,212
Deferred fuel costs   -   2,720
Energy Efficiency Program provision   6,473   6,356
Other   12,335   2,088
TOTAL   106,890   110,677
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   47,716   39,486
Accumulated deferred investment tax credits   4,216   4,441
SFAS 109 regulatory liability - net   39,423   40,543
Other regulatory liabilities   -   954
Accumulated provisions   551   820
Long-term debt   229,253   229,217
Other   35,138   41,346
TOTAL   356,297   356,807
         
         
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 2004        
  and 2003   33,744   33,744
Paid-in capital   36,294   36,294
Retained earnings   80,068   62,517
TOTAL   169,886   152,335
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $633,073   $619,819
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY NEW ORLEANS, INC.
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
                 
    Three Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)    
Electric Operating Revenues:                
  Residential   $41   $44   ($3)   (7)
  Commercial   42   42   -    - 
  Industrial   8   7   1    14 
  Governmental   18   18   -    - 
      Total retail   109   111   (2)   (2)
  Sales for resale                
    Associated companies   30   9   21    233 
    Other   20   11   9    82 
      Total   $159   $131   $28    21 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   450   508   (58)   (11)
  Commercial   545   552   (7)   (1)
  Industrial   138   101   37    37 
  Governmental   245   252   (7)   (3)
      Total retail   1,378   1,413   (35)   (2)
  Sales for resale                
    Associated companies   390   101   289    286 
    Non-associated companies   6   6    -     - 
      Total   1,774   1,520   254    17 
                 
                 
    Six Months Ended   Increase/    
Description   2004   2003   (Decrease)   %
    (In Millions)    
Electric Operating Revenues:                
  Residential   $71   $76   ($5)   (7)
  Commercial   76   77   (1)   (1)
  Industrial   14   13   1    8 
  Governmental   31   32   (1)   (3)
      Total retail   192   198   (6)   (3)
  Sales for resale                
    Associated companies   57   10   47    470 
    Non-associated companies   1   1   -    - 
  Other   22   11   11    100 
      Total   $272   $220   $52    24 
                 
Billed Electric Energy                
 Sales (GWh):                
  Residential   867   922   (55)   (6)
  Commercial   1,070   1,052   18    2 
  Industrial   250   193   57    30 
  Governmental   470   477   (7)   (1)
      Total retail   2,657   2,644   13    - 
  Sales for resale                
    Associated companies   750   124   626    505 
    Non-associated companies   15   14   1    7 
      Total   3,422   2,782   640    23 
                 
                 

SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf 1. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf 1 pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. Net income increased $2.7 million and $3.6 million for the second quarter and six months ended June 30, 2004, respectively, compared to the same periods in 2003 primarily due to an increase in rate base in 2004 resulting in higher operating income.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$52,536 

 

$113,159 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

98,371 

 

162,389 

 

Investing activities

 

(24,944)

 

(209,712)

 

Financing activities

 

(69,943)

 

(58,775)

Net increase (decrease) in cash and cash equivalents

 

3,484 

 

(106,098)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$56,020 

 

$7,061 

Operating Activities

Cash flow from operations decreased $64 million for the six months ended June 30, 2004 compared to the same period in 2003 primarily due to money pool activity as explained below and the cessation of the Entergy Mississippi GGART. System Energy collected $21.7 million in 2003 from Entergy Mississippi in conjunction with the GGART, which provided for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligations. The MPSC authorized the cessation of the GGART effective July 1, 2003. See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the GGART. Partially offsetting the decrease in operating cash flows was a decrease in interest paid during the first quarter of 2004.

System Energy's receivables from the money pool were as follows:

June 30,
2004

 

December 31,
2003

 

June 30,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$48,082

 

$19,064

 

$1,279

 

$7,046

Money pool activity used $29 million of System Energy's operating cash flows for the six months ended June 30, 2004 and provided $5.8 million for the same period in 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

The decrease of $184.8 million in net cash used in investing activities for the six months ended June 30, 2004 compared to the same period in 2003 was primarily due to cash collateral of $193 million provided in 2003. System Energy had three-year letters of credit in place that were scheduled to expire in March 2003 securing certain of its obligations related to the sale-leaseback of a portion of Grand Gulf 1. System Energy replaced the letters of credit with new three-year letters of credit totaling approximately $198 million that were backed by cash collateral. In December 2003, System Energy replaced the cash-backed letters of credit with syndicated bank letters of credit that expire in May 2007. Offsetting the cash collateral provided in 2003 was an increase in construction expenditures due to the reclassification of inventory items to capital in addition to facilities upgrades projects begun in late-2003.

Financing Activities

The increase of $11.2 million in net cash used by financing activities for the six months ended June 30, 2004 compared to the same period in 2003 was primarily due to:

    • $13.2 million in bond premium and costs related to System Energy refunding the bonds associated with its Grand Gulf Lease Obligation in May 2004; and
    • $3 million of increased dividends paid.

The increase was partially offset by a decrease of $5 million in the January 2004 principal payment made on the Grand Gulf 1 sale-leaseback compared to the January 2003 principal payment.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of System Energy's uses and sources of capital.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of market risks, nuclear matters, litigation risks, and environmental risks.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy's accounting for nuclear decommissioning costs and pension and other retirement costs.

SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
  Three Months Ended   Six Months Ended
    2004   2003   2004   2003
    (In Thousands)   (In Thousands)
                 
OPERATING REVENUES                
Domestic electric   $132,720    $144,764    $259,888    $286,749 
                 
OPERATING EXPENSES                
Operation and Maintenance:                
  Fuel, fuel-related expenses, and                
   gas purchased for resale   10,278    10,006    17,524    20,184 
  Nuclear refueling outage expenses   2,891    3,174    6,518    6,166 
  Other operation and maintenance   23,127    25,198    44,638    45,944 
Decommissioning   5,805    5,450    11,505    10,900 
Taxes other than income taxes   6,211    6,710    12,156     12,684 
Depreciation and amortization   25,829    25,658    52,370    52,246 
Other regulatory charges (credits) - net   (1,006)   14,539    (2,175)   28,857 
TOTAL   73,135    90,735    142,536    176,981 
                 
OPERATING INCOME   59,585    54,029    117,352    109,768 
                 
OTHER INCOME                
Allowance for equity funds used during construction   453    263    867    532 
Interest and dividend income   1,569    1,692    2,925    3,618 
Miscellaneous - net   (151)   (168)   (372)   (742)
TOTAL   1,871    1,787    3,420    3,408 
                 
INTEREST AND OTHER CHARGES          
Interest on long-term debt   15,949    14,373    31,189    29,074 
Other interest - net   146    537    356    1,110 
Allowance for borrowed funds used during construction   (146)   (82)   (281)   (177)
TOTAL   15,949    14,828    31,264    30,007 
                 
INCOME BEFORE INCOME TAXES   45,507    40,988    89,508    83,169 
                 
Income taxes   19,975    18,168    39,309    36,614 
                 
NET INCOME   $25,532    $22,820    $50,199    $46,555 
                 
See Notes to Respective Financial Statements.                

 

SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $50,199    $46,555 
Noncash items included in net income:        
  Other regulatory charges (credits) - net   (2,175)   28,857 
  Depreciation, amortization, and decommissioning   63,875    63,146 
  Deferred income taxes and investment tax credits   (166,003)   (18,621)
Changes in working capital:        
  Receivables   (18,986)   17,636 
  Accounts payable   (6,032)   (5,172)
  Taxes accrued   194,383    45,380 
  Interest accrued   (17,109)   (24,539)
  Other working capital accounts   (3,605)   (7,477)
Provision for estimated losses and reserves   (1,886)   (282)
Changes in other regulatory assets   11,319    16,328 
Other   (5,609)   578 
Net cash flow provided by operating activities   98,371    162,389 
         
INVESTING ACTIVITIES        
Construction expenditures   (22,011)   (6,254)
Allowance for equity funds used during construction   867    532 
Nuclear fuel purchases   (45,460)   - 
Proceeds from sale/leaseback of nuclear fuel   45,640     - 
Decommissioning trust contributions and realized        
  change in trust assets   (10,462)   (11,043)
Changes in other temporary investments - net   6,482    - 
Increase in other cash investments    -    (192,947)
Net cash flow used in investing activities   (24,944)   (209,712)
         
FINANCING ACTIVITIES        
Retirement of long-term debt   (6,348)   (11,375)
Other financing activities   (13,195)   - 
Dividends paid:        
  Common stock   (50,400)   (47,400)
Net cash flow used in financing activities   (69,943)   (58,775)
         
Net increase (decrease) in cash and cash equivalents   3,484    (106,098)
         
Cash and cash equivalents at beginning of period   52,536    113,159 
         
Cash and cash equivalents at end of period   $56,020    $7,061 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
  Interest - net of amount capitalized   $46,318    $52,783 
         
See Notes to Respective Financial Statements.        
         
         

 

 
SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
June 30, 2004 and December 31, 2003
(Unaudited)
             
    2004   2003
  (In Thousands)
             
CURRENT ASSETS            
Cash and cash equivalents:            
  Cash       $280   $2,918
  Temporary cash investments - at cost,            
   which approximates market       55,740   49,618
      Total cash and cash equivalents       56,020   52,536
Other temporary investments       -   6,482
Accounts receivable:            
  Associated companies       91,325   72,477
  Other       1,915   1,777
      Total accounts receivable       93,240   74,254
Materials and supplies - at average cost       50,913   63,047
Deferred nuclear refueling outage costs       15,684   2,979
Prepayments and other       69,594   1,031
TOTAL       285,451   200,329
             
OTHER PROPERTY AND INVESTMENTS        
Decommissioning trust funds       187,091   172,916
             
UTILITY PLANT        
Electric       3,235,177   3,205,895
Property under capital lease       466,521   466,521
Construction work in progress       23,983   31,344
Nuclear fuel under capital lease       80,395   47,242
TOTAL UTILITY PLANT       3,806,076   3,751,002
Less - accumulated depreciation and amortization       1,727,799   1,672,658
UTILITY PLANT - NET       2,078,277   2,078,344
             
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:            
  SFAS 109 regulatory asset - net       102,722   115,633
  Other regulatory assets       311,607   301,233
Other       14,051   12,269
TOTAL       428,380   429,135
             
TOTAL ASSETS       $2,979,199   $2,880,724
             
See Notes to Respective Financial Statements.            
 
 
 
SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
June 30, 2004 and December 31, 2003
(Unaudited)
             
    2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Currently maturing long-term debt       $25,266   $6,348
Accounts payable:            
  Associated companies       9,529   -
  Other       14,694   30,255
Taxes accrued       -   55,585
Accumulated deferred income taxes       5,873   942
Interest accrued       12,514   29,623
Obligations under capital leases       31,266   31,266
Other       1,680   1,971
TOTAL       100,822   155,990
             
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued       421,782   290,964
Accumulated deferred investment tax credits       77,350   79,088
Obligations under capital leases       49,129   15,976
Other regulatory liabilities       224,741   213,093
Decommissioning       323,964   312,459
Accumulated provisions       1,896   3,782
Long-term debt       857,176   882,401
Other       29,304   33,735
TOTAL       1,985,342   1,831,498
             
             
SHAREHOLDER'S EQUITY        
Common stock, no par value, authorized 1,000,000 shares;            
 issued and outstanding 789,350 shares in 2004 and 2003       789,350   789,350
Retained earnings       103,685   103,886
TOTAL       893,035   893,236
             
Commitments and Contingencies            
             
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY       $2,979,199   $2,880,724
             
See Notes to Respective Financial Statements.            

 

ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY

NOTES TO RESPECTIVE FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1. COMMITMENTS AND CONTINGENCIES

Nuclear Insurance and Spent Nuclear Fuel (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants. The following are updates to the Form 10-K.

The Property Insurance Policy renewed on April 1, 2004 with the following changes: the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for turbine/generator damage and $5 million per occurrence for other than turbine/generator damage.

Under the property damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of June 30, 2004, the maximum amount of such possible assessments per occurrence were $15.1 million for Entergy Arkansas, $11.1 million for Entergy Gulf States, $13.0 million for Entergy Louisiana, $0.06 million for Entergy Mississippi, $0.06 million for Entergy New Orleans, and $11.5 million for System Energy.

Decommissioning and Other Retirement Costs (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard for the rate-regulated business of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings in the first quarter of 2003 by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change.

In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.

In accordance with ratemaking treatment and as required by SFAS 71, the depreciation provisions for the domestic utility companies and System Energy include a component for removal costs that are not asset retirement obligations under SFAS 143. In accordance with regulatory accounting principles, Entergy has recorded a regulatory asset (liability) to reflect its estimate of the difference between estimated incurred removal costs and estimated removal costs recovered in rates previously recorded as a component of accumulated depreciation.

As discussed in the Form 10-K, the Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning (D&D) of the DOE's past uranium enrichment operations. The Energy Policy Act calls for cessation of annual D&D assessments not later than October 24, 2007. Entergy will oppose any attempts to extend the assessments past this date, but cannot state with certainty that an extension will not be made.

CashPoint Bankruptcy (Entergy Arkansas, Entergy Louisiana, Entergy Gulf States, Entergy New Orleans, and Entergy Mississippi)

The domestic utility companies entered an agreement with CashPoint Network Services (CashPoint) under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The payment agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use this process.

On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimates of maximum exposure to loss are as follows:

 

 

Amount

 

 

(In Millions)

 

 

 
Entergy Arkansas  

$2

Entergy Gulf States  

8

Entergy Louisiana  

9

Entergy Mississippi  

4.5

Entergy New Orleans  

2.5

Environmental Issues

(Entergy Gulf States)

See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information related to the designation of Entergy Gulf States as a PRP for the cleanup of certain hazardous waste disposal sites. During the second quarter of 2004, the reserve balance previously recorded was reduced to approximately $1.5 million based upon activities performed to date and the best estimate of the remaining likely exposure associated with the ten-year groundwater monitoring study.

(Entergy Louisiana and Entergy New Orleans)

During 1993, the LDEQ issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana and Entergy New Orleans have determined that certain of their power plant wastewater impoundments were affected by these regulations and have chosen to upgrade or close them. Recorded liabilities in the amounts of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at June 30, 2004 for wastewater upgrades and closures. Completion of this work is awaiting LDEQ approval.

City Franchise Ordinances (Entergy New Orleans)

Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties.

Employment Litigation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.

Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)

Numerous lawsuits have been filed in federal and state courts in Texas, Louisiana, and Mississippi primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, Entergy New Orleans, and Entergy Mississippi, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Generally, many other defendants are named in these lawsuits as well. Presently there are approximately 480 lawsuits involving just over 10,000 claims. Reserves have been established that should be adequate to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement, while new coverage is being secured to minimize anticipated future potential exposures. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial position or results of operation of the domestic utility companies involved in these lawsuits.

 

NOTE 2. RATE AND REGULATORY MATTERS

Electric Industry Restructuring and the Continued Application of SFAS 71

Previous developments and information related to electric industry restructuring are presented in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.

Texas (Entergy Gulf States)

See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT determined, among other things, that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. After a hearing held in June 2004 on the merits, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have filed motions for rehearing on the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.

Deferred Fuel Costs

(Entergy Arkansas)

In March 2004, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2004 through March 2005. The filed energy cost rate, which accounts for 12 percent of a typical residential customer's bill using 1,000 kWh per month, increased 16 percent due primarily to the elimination of a credit contained in the prior year's rate to refund previously over-recovered fuel costs. Also included in this year's energy cost calculation is a decrease in rates of $3.9 million as a result of Entergy Arkansas' proposed retail customer protections due to the operation of a revised energy association method between the retail and wholesale sectors resulting from the approval of a life-of-resources power purchase agreement with Entergy New Orleans.

(Entergy Gulf States)

In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are scheduled to occur in October 2004 with a final PUCT decision expected in the first quarter of 2005.

See Note 2 to the domestic utility and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court is scheduled for September 2004.

(Entergy Louisiana)

As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in April 2005.

Retail Rate Proceedings

Filings with the PUCT and Texas Cities (Entergy Gulf States)

Recovery of River Bend Costs

See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.

Filings with the LPSC

Annual Earnings Reviews (Entergy Gulf States)

See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of approximately $30 million and a prospective rate reduction of approximately $50 million. Hearings concluded in May 2004.

Proposed Settlement (Entergy Gulf States and Entergy Louisiana)

In June 2004, Entergy Gulf States and Entergy Louisiana filed a settlement offer with the LPSC that would resolve, among other dockets, Entergy Gulf States' ninth post-merger analysis and the purchased power for the summers of 2001, 2002, and 2003 dockets discussed in the Form 10-K. The proposed settlement includes an offer to refund approximately $64 million to Entergy Gulf States' Louisiana customers and $1 million to Entergy Louisiana's customers, with no change in either company's current base rates.  The settlement also proposes a performance-based rate structure. The LPSC has decided to treat the proposal as a contested settlement proposal and is expected to address the proposed settlement following a hearing and pre-hearing procedures.

Retail Rates

(Entergy Gulf States)

In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. Entergy Gulf States is also seeking approval of certain proposed rate design, rate schedule and policy changes. A procedural schedule has not yet been established.

(Entergy Louisiana)

See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In August 2004, the LPSC Staff filed testimony in which it recommended a $19.5 million rate increase for Entergy Louisiana, assuming that the Perryville acquisition is approved in time for the Perryville costs to be included in rates set in this proceeding.  Additional issues and updates that will be evaluated in connection with this proceeding are likely to result in revisions to the LPSC Staff's recommendation.  These issues may reduce the amount of the recommended rate increase or cause it to become a recommendation for a rate decrease.  Hearings are currently set for November 2004.

Filings with the City Council (Entergy New Orleans)

Formula Rate Plan Filings

In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council in 2003. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted.

Fuel Adjustment Clause Litigation

See "Fuel Adjustment Clause Litigation" in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. Oral argument on the plaintiffs' appeal is scheduled for February 2005. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999. This proceeding has been stayed pending resolution of plaintiffs' appeal in the proceeding commenced with the City Council.

 

NOTE 3. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT

The short-term borrowings of the domestic utility companies and System Energy are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, the domestic utility companies and System Energy are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce the domestic utility companies' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. The following are the combined short-term borrowings from the money pool and external borrowings, and the SEC-authorized limits for short-term borrowings for the domestic utility companies and System Energy as of June 30, 2004:

   

Authorized

 

Borrowings

   

(In Millions)

         
Entergy Arkansas  

$235

 

$85.0

Entergy Gulf States  

$340

 

$27.1

Entergy Louisiana  

$225

 

-

Entergy Mississippi  

$160

 

$25.0

Entergy New Orleans  

$100

 

$1.8

System Energy  

$140

 

-

Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have separate short-term credit facilities available as follows:


Company

 


Expiration Date

 

Amount of
Facility

 

Amount Drawn as of
June 30, 2004

 

 

 

 

 

 

 

Entergy Arkansas

 

April 2005

 

$85 million

 

$85 million

Entergy Louisiana

 

April 2005

 

$15 million

 

-

Entergy Mississippi

 

May 2004

 

$25 million

 

$25 million

Entergy New Orleans

 

April 2005

 

$14 million

 

-

The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million. The facilities have variable interest rates and the average commitment fee is 0.15%.

The following long-term debt has been issued by the domestic utility companies and System Energy in 2004:

 

Issue Date

 

Amount

   

 

(In Thousands)

Mortgage Bonds:

 

 

 

5.50% Series due April 2019, Entergy Louisiana

March 2004

 

$100,000

6.25% Series due April 2034, Entergy Mississippi

April 2004

 

$100,000

4.65% Series due May 2011, Entergy Mississippi

April 2004

 

$80,000

The following long-term debt has been retired by the domestic utility companies and System Energy in 2004:

 

Retirement Date

 

Amount

 

 

 

(In Thousands)

Mortgage Bonds and Certain Lease Obligation Payments:

 

 

 

Grand Gulf Lease Obligation payment, System Energy

N/A

 

$6,348

Waterford 3 Lease Obligation payment, Entergy Louisiana

N/A

 

$14,809

8.25% Series due April 2004, Entergy Gulf States

April 2004

 

$292,000

6.20% Series due May 2004, Entergy Mississippi

May 2004

 

$75,000

6.45% Series due April 2008, Entergy Mississippi

May 2004

 

$80,000

7.70% Series due July 2023, Entergy Mississippi

May 2004

 

$60,000

 

NOTE 4. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the second quarters of 2004 and 2003, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2004

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$2,923 

 

$2,416 

 

$1,715 

 

$946 

 

$424 

 

$824 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

8,616 

 

7,108 

 

5,178 

 

2,890 

 

1,041 

 

1,231 

Expected return on assets

 

(9,288)

 

(9,931)

 

(6,937)

 

(3,694)

 

(625)

 

(1,053)

Amortization of transition asset

 

 

 

 

 

 

(79)

Amortization of prior service cost

 

417 

 

465 

 

189 

 

141 

 

57 

 

18 

Amortization of loss

 

762 

 

32 

 

82 

 

132 

 

151 

 

193 

Net pension cost

 

$3,430 

 

$90 

 

$227 

 

$415 

 

$1,048 

 

$1,134 

 

 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2003

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

   

(In Thousands)

Service cost - benefits earned  

 

 

 

 

 

 

 

 

 

 

 

 during the period  

$2,730 

 

$1,719 

 

$1,377 

 

$567 

 

$360 

 

$693 

Interest cost on projected  

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation  

8,265 

 

6,036 

 

4,449 

 

1,914 

 

918 

 

996 

Expected return on assets

 

(10,506)

 

(9,228)

 

(6,771)

 

(2,724)

 

(681)

 

(942)

Amortization of transition asset

 

 

 

 

 

 

(81)

Amortization of prior service cost

 

462 

 

417 

 

162 

 

102 

 

60 

 

21 

Net pension cost  

$951 

 

($1,056)

 

($783)

 

($141)

 

$657 

 

$687 

The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2004

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$5,926 

 

$4,870 

 

$3,440 

 

$1,900 

 

$850 

 

$1,670 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation

 

17,232 

 

14,218 

 

10,362 

 

5,782 

 

2,082 

 

2,464 

Expected return on assets

 

(18,534)

 

(19,822)

 

(13,732)

 

(7,384)

 

(1,552)

 

(2,088)

Amortization of transition asset

 

 

 

 

 

 

(160)

Amortization of prior service cost

 

834 

 

930 

 

378 

 

282 

 

114 

 

36 

Amortization of loss

 

1,632 

 

674 

 

376 

 

414 

 

208 

 

304 

Net pension cost

 

$7,090 

 

$870 

 

$824 

 

$994 

 

$1,702 

 

$2,226 

 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2003

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

   

(In Thousands)

Service cost - benefits earned  

 

 

 

 

 

 

 

 

 

 

 

 during the period  

$4,696 

 

$4,394 

 

$3,144 

 

$2,098 

 

$740 

 

$1,328 

Interest cost on projected  

 

 

 

 

 

 

 

 

 

 

 

 benefit obligation  

14,216 

 

15,432 

 

10,158 

 

7,104 

 

1,886 

 

1,910 

Expected return on assets

 

(18,070)

 

(23,596)

 

(15,462)

 

(10,106)

 

(1,398)

 

(1,804)

Amortization of transition asset

 

 

 

 

 

 

(156)

Amortization of prior service cost

 

794 

 

1,070 

 

372 

 

380 

 

120 

 

38 

Net pension cost  

$1,636 

 

($2,700)

 

($1,788)

 

($524)

 

$1,348 

 

$1,316 

Components of Net Other Postretirement Benefit Cost

The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 2004 and 2003, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2004

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$827 

 

$1,415 

 

$614 

 

$245 

 

$178 

 

$341 

Interest cost on APBO

 

2,394 

 

2,871 

 

1,644 

 

703 

 

810 

 

371 

Expected return on assets

 

(1,529)

 

(1,256)

 

 

(631)

 

(558)

 

(316)

Amortization of transition obligation

 

(132)

 

1,147 

 

300 

 

(43)

 

529 

 

Amortization of prior service cost

 

63 

 

 

56 

 

26 

 

20 

 

(83)

Amortization of loss

 

1,112 

 

514 

 

457 

 

349 

 

99 

 

99 

Net other postretirement benefit cost

 

$2,735 

 

$4,691 

 

$3,071 

 

$649 

 

$1,078 

 

$416 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2003

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$1,923 

 

$1,491 

 

$1,104 

 

$528 

 

$324 

 

$471 

Interest cost on APBO

 

2,718 

 

2,775 

 

1,788 

 

885 

 

891 

 

363 

Expected return on assets

 

(1,158)

 

(1,098)

 

 

(522)

 

(492)

 

(258)

Amortization of transition obligation

 

987 

 

1,452 

 

744 

 

375 

 

669 

 

54 

Amortization of prior service cost

 

63 

 

69 

 

36 

 

21 

 

24 

 

Amortization of loss

 

858 

 

255 

 

342 

 

300 

 

105 

 

99 

Net other postretirement benefit cost

 

$5,391 

 

$4,944 

 

$4,014 

 

$1,587 

 

$1,521 

 

$735 

The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2004 and 2003, included the following components:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2004

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$2,459 

 

$2,944 

 

$1,333 

 

$721 

 

$382 

 

$729 

Interest cost on APBO

 

5,227 

 

5,812 

 

3,344 

 

1,581 

 

1,637 

 

759 

Expected return on assets

 

(3,131)

 

(2,491)

 

 

(1,284)

 

(1,124)

 

(626)

Amortization of transition obligation

 

477 

 

2,295 

 

600 

 

211 

 

1,058 

 

Amortization of prior service cost

 

63 

 

 

56 

 

26 

 

20 

 

(175)

Amortization of loss

 

2,185 

 

1,163 

 

1,020 

 

697 

 

256 

 

231 

Net other postretirement benefit cost

 

$7,280 

 

$9,723 

 

$6,353 

 

$1,952 

 

$2,229 

 

$925 

 

 

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

2003

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 during the period

 

$3,280 

 

$2,632 

 

$1,922 

 

$930 

 

$534 

 

$838 

Interest cost on APBO

 

5,340 

 

5,434 

 

3,470 

 

1,740 

 

1,776 

 

702 

Expected return on assets

 

(2,384)

 

(2,216)

 

 

(1,100)

 

(1,026)

 

(544)

Amortization of transition obligation

 

1,976 

 

2,904 

 

1,488 

 

750 

 

1,338 

 

108 

Amortization of prior service cost

 

124 

 

138 

 

72 

 

42 

 

46 

 

12 

Amortization of loss

 

1,264 

 

338 

 

470 

 

448 

 

142 

 

132 

Net other postretirement benefit cost

 

$9,600 

 

$9,230 

 

$7,422 

 

$2,810 

 

$2,810 

 

$1,248 

Employer Contributions

In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution. The domestic utility companies and System Energy expect to contribute the following to pension plans in 2004:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

 

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

Expected 2004 pension contributions

 

 

 

 

 

 

 

 

 

 

 

 

  disclosed in Form 10-K

 

$5,342

 

$37

 

$8,630

 

$2,989

 

$4,678

 

$5,369

Revised expected 2004 pension

 

 

 

 

 

 

 

 

 

 

 

 

  contributions

 

$5,342

 

$17

 

$3,907

 

$1,823

 

$2,118

 

$3,742

Contributions made in the six months
  ended June 30, 2004

 


$1,739

 


$7

 


$1,575

 


$668

 


$854

 


$1,410

Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)

As disclosed in Note 11 to the domestic utility companies and System Energy's financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis at June 30, 2004, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation (APBO), second quarter 2004 other postretirement benefit cost, and six months ended June 30, 2004 other postretirement benefit cost for the domestic utility companies and System Energy as follows:

 

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

Entergy

 

System

 

 

Arkansas

 

Gulf States

 

Louisiana

 

Mississippi

 

New Orleans

 

Energy

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reduction in 12/31/2003 APBO

 

($13,806)

 

($15,272)

 

($9,493)

 

($4,611)

 

($4,994)

 

($1,879)

Reduction in second quarter 2004

 

 

 

 

 

 

 

 

 

 

 

 

  other postretirement benefit cost

 

($777)

 

($821)

 

($605)

 

($250)

 

($261)

 

($161)

Reduction in six months ended
  June 30, 2004 other
  postretirement benefit cost

 



($1,275)

 



($1,375)

 



($837)

 



($406)

 



($405)

 



($214)

When specific guidance for the federal subsidy is issued, these estimates could change.

__________________________________

In the opinion of the management of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the domestic utility companies and System Energy is subject to seasonal fluctuations, however, with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of June 30, 2004, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Resources (individually "Registrant" and collectively the "Registrants") management, including their respective Chief Executive Officers (CEO) and Chief Financial Officers (CFO). The evaluations assessed the effectiveness of the Registrants' disclosure controls and procedures. Based on the evaluations, each CEO and CFO has concluded that, as to the Registrant or Registrants for which they serve as CEO or CFO, the Registrants' disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

In management's evaluation of the Registrants' disclosure controls and procedures, management identified the following initiative as a change that is reasonably likely to affect the Registrants' internal control over financial reporting. Over the last two years, Entergy has been working on an initiative to streamline financial processes, automate and enhance internal controls, and implement or update the systems that support these processes.  During the first quarter 2004, the first phase of this effort was completed, the primary focus of which was an upgrade of the existing financial information systems, data warehouse, and financial reporting tools, as well as an update of Entergy's chart of accounts. The implemented product suite includes additional controls and edits which are applied to transactions at the point of entry. Entergy plans to implement subsequent phases of this initiative later in 2004 and 2005, replacing several custom-built computer applications with capabilities now available within the newly-implemented core financial information systems, such as inter-company cost allocation processes.

ENTERGY CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See "PART I, Item 1, Litigation" in the Form 10-K for a discussion of legal proceedings affecting Entergy. Following are updates to that discussion.

Entergy New Orleans Rate of Return Lawsuit (Entergy Corporation and Entergy New Orleans)

See "PART I, Item 1, Entergy New Orleans Rate of Return Lawsuit" in the Form 10-K for a discussion of the motion filed by the City Council Advisors to bifurcate the hearing for the motions filed by the plaintiffs. In April 2004, the City Council adopted a resolution granting the Advisors' motion to bifurcate and setting for hearing in January 2005 the merits of the issue of the proper effect to be given to the 1922 Ordinance in setting lawful rates.

Texas Power Price Lawsuit (Entergy Corporation, Entergy Arkansas and Entergy Gulf States)

See "Part I, Item 1, Texas Power Price Lawsuit" in the Form 10-K for a discussion of the litigation pending in state court in Chambers County, Texas by Texas residents on behalf of a purported class apparently of the Texas retail customers of Entergy Gulf States who were billed and paid for electric power from January 1, 1994 to the present. Originally Entergy Gulf States was not a named defendant but was alleged to be a co-conspirator. The court has granted the request of Entergy Gulf States to intervene in the suit to protect its interests. In addition, the Entergy defendants have filed a motion seeking to have the court dismiss all claims due to lack of subject matter jurisdiction. A hearing has been scheduled for August 20, 2004.

Entergy Gulf States Merger Savings Lawsuit (Entergy Corporation and Entergy Gulf States)

See "PART I, Item 1, Entergy Gulf States Merger Savings Lawsuit" in the Form 10-K for a discussion of the litigation commenced in the district court of Jefferson County, Texas regarding the 1993 agreement entered by parties to the Entergy-Gulf States Utilities merger docket in Texas and the alleged failure of Entergy Gulf States to pass 100% of Texas retail non-fuel merger-related savings to Entergy Gulf States' ratepayers in Texas beginning on January 1, 2002. In June 2004, in response to Entergy's petition for mandamus relief, the Texas Supreme Court concluded that the matters at issue in the lawsuit fall within the PUCT's exclusive jurisdiction and ordered the district court to dismiss the lawsuit.

Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf States and Entergy Louisiana)

See "PART I, Item 1, Fiber Optic Cable Litigation" in the Form 10-K for a discussion of the litigation pending in the United States District Court in Beaumont, Texas pertaining to the alleged installment by defendants of fiber optic cable across plaintiffs' property without obtaining appropriate easements. In April 2004, the court entered an order denying the plaintiffs' request for class certification. Management expects that the plaintiffs will appeal this decision to the U.S. Fifth Circuit Court of Appeals.

With respect to the lawsuit against Entergy Louisiana, Entergy Services, ETHC and Entergy Technology Company pending in state court in St. James Parish, Louisiana purportedly on behalf of all property owners in Louisiana who have conveyed easements to the defendants, the state district judge has entered an order certifying a class. Entergy is seeking appellate review of this order.

Power Generation Mexico, Inc. Lawsuit (Entergy Corporation)

See "PART I, Item 1, Power Generation Mexico, Inc. Lawsuit " in the Form 10-K for a discussion of the lawsuit filed by Power Generation Mexico, Inc. (PGI) against Entergy Power Development Corporation (EPDC), Entergy Power Netherlands Company, B.V., and Entergy Corporation in the San Francisco Superior Court. In April 2004, the parties agreed to a settlement of the proceeding that includes mutual dismissals. Entergy agreed to pay an immaterial amount to the plaintiff.

Michoud Plant Wildlife Inspection (Entergy New Orleans)

In March 2004, agents of the United States Fish and Wildlife Service conducted an inspection of Entergy New Orleans' Michoud power plant and found a number of dead brown pelicans near the facility's water intake structure and fish-return trough. Brown pelicans are an endangered species in Louisiana. The United States Attorney's Office for the Eastern District of Louisiana issued a grand jury subpoena to an Entergy New Orleans employee in May 2004 to give evidence regarding the cause of death of the pelicans. The Attorney's Office then agreed to meet with Entergy New Orleans rather than requiring the employee to testify. As a result of that meeting, Entergy New Orleans is conducting an internal investigation of the matter and will submit a report to the Attorney's Office. Entergy New Orleans also has constructed an engineered walkway and cover over the intake structure and feeding trough to eliminate pelican access to the area. The Endangered Species Act allows the Attorney's Office to seek criminal or civil penalties for actions that "take" an endangered species. While management of Entergy New Orleans believes that the facts of this case do not support the imposition of criminal penalties, a civil penalty is possible. The amount of the civil penalty under the Act can total $25,000 per violation. An estimate of liability cannot be provided at this time due to the uncertainty of the method of penalty calculation that may be implemented by the Attorney's Office.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities (1)

Period

 

Total Number of
Shares Purchased

 

Average Price Paid
per Share

 

Total Number of
Shares Purchased as Part of a Publicly
Announced Plan

 

Maximum Number of Shares that May
Yet be Purchased Under the Plan

 

 

 

 

 

 

 

 

 

4/01/2004-4/30/2004

 

630,000

 

$56.02

 

630,000

 

5,846,000

5/01/2004-5/31/2004

 

3,055,500

 

$53.34

 

3,055,500

 

N/A (1)

6/01/2004-6/30/2004

 

830,500

 

$54.19

 

-

 

N/A (1)

Total

 

4,516,000

 

$53.87

 

3,685,500

 

 

(1)

In accordance with Entergy's stock option plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. See Note 8 to the consolidated financial statements in the Form 10-K for additional discussion of the stock option plans. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans, and this authorization does not have an expiration date. Under this authorization, on June 1, 2002, Entergy publicly announced a plan to repurchase up to 10,000,000 shares of common stock over a period of two years to reduce the increase in outstanding common shares caused by option exercises. As stated above, although the time stated in the publicly announced plan ended on May 31, 2004, the authorization to repurchase shares does not have an expiration date, and depending on market conditions Entergy may continue to repurchase shares to fund the exercise of stock options.

 

On August 2, 2004 Entergy announced a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program is effective as of the date of the announcement and extends through the end of 2006. This repurchase program, which is incremental to the existing authority to repurchase shares to fund the exercise of employee stock options, will be decreased to $1 billion should a sale of Entergy-Koch Trading not occur. The amount of the program may also vary as a result of material changes in business results or capital spending or material new investment opportunities.

 

Item 4. Submission of Matters to a Vote of Security Holders

Election of Board of Directors

Entergy Corporation

The annual meeting of stockholders of Entergy Corporation was held on May 14, 2004. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes:

 

  1. Election of Directors:


    Name of Nominee

     


    Votes For

     


    Votes Withheld

     

     

     

     

     

    Maureen S. Bateman

     

    200,022,233

     

    3,166,728

    W. Frank Blount

     

    196,135,034

     

    7,053,927

    Simon D. deBree

     

    199,808,452

     

    3,380,509

    Claiborne P. Deming

     

    200,065,223

     

    3,123,738

    Alexis M. Herman

     

    188,786,147

     

    14,402,814

    Donald C. Hintz

     

    197,324,888

     

    5,864,073

    J. Wayne Leonard

     

    197,260,266

     

    5,928,695

    Robert v.d. Luft

     

    197,203,987

     

    5,984,974

    Kathleen A. Murphy

     

    200,019,351

     

    3,169,610

    Paul W. Murrill

     

    197,242,749

     

    5,946,212

    James R. Nichols

     

    197,427,848

     

    5,761,113

    William A. Percy, II

     

    200,014,675

     

    3,174,286

    Dennis H. Reilley

     

    200,037,320

     

    3,151,641

    Wm. Clifford Smith

     

    193,065,884

     

    10,123,077

    Bismark A. Steinhagen

     

    197,534,237

     

    5,654,724

    Steven V. Wilkinson

     

    199,830,264

     

    3,358,697

  2. Ratify the appointment of independent public accountants, Deloitte & Touche LLP for the year 2004: 199,733,246 votes for; 1,964,403 votes against; 1,491,312 abstentions; and broker non-votes are not applicable.

  3. Stockholder proposal regarding limiting benefits payable under severance agreements: 84,233,133 votes for; 70,223,869 votes against; 26,670,872 abstentions; and 22,061,087 broker non-votes.

  4. Stockholder proposal regarding cumulative voting: 37,768,147 votes for; 133,262,410 votes against; 14,337,077 abstentions; and 17,821,327 broker non-votes.

  5. Stockholder proposal regarding compensation for the top five executives: 12,578,235 votes for; 170,184,091 votes against; 2,605,306 abstentions; and 17,821,329 broker non-votes.

Entergy Arkansas

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

Entergy Gulf States

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.

Entergy Louisiana

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

Entergy Mississippi

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

Entergy New Orleans

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

System Energy

A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.

A consent in lieu of a meeting of common stockholders was executed on June 30, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.

Item 5. Other Information

Property and Other Generation Resources

See "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the agreement that Entergy Louisiana signed in January 2004 to acquire the Perryville power plant from a subsidiary of Cleco Corporation. As reported in the Form 10-K, the plant's owner is in Chapter 11 bankruptcy proceedings. In April 2004, the bankruptcy court approved Entergy Louisiana's agreement to acquire the plant. In March 2004, Entergy Gulf States and Entergy Louisiana filed with the LPSC for its approval of the acquisition and long-term cost-of-service power purchase agreement, and hearings are scheduled for November 2004. In July 2004, Entergy Louisiana agreed to negotiate an amendment to this agreement to remove certain interconnection facilities and address some other matters. None of these amendments are expected to change the terms of the acquisition materially. In July 2004, a petition was filed with FERC for a declaratory order disclaiming jurisdiction over the acquisition as amended. Entergy Louisiana now expects the Perryville acquisition to close in the first quarter of 2005.

In April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Entergy Arkansas filed a response in May 2004 stating that Entergy will seek to reverse the production cost-related portions of the ALJ's Initial Decision in the System Agreement proceeding at FERC, that the Perryville acquisition is part of Entergy's request for proposal generation planning process, that Entergy Arkansas is not in a position to indemnify its retail customers from actions taken by FERC, and that the Perryville acquisition is expected to reduce the domestic utility companies' overall production costs. A procedural schedule has not been established yet in the APSC investigation.

Also see "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the affiliate purchase transactions that resulted from Entergy's requests for proposals for supply-side resources. In the proceeding at the FERC to review the justness and reasonableness of the affiliate agreements, in March 2004 the FERC staff filed testimony that claims Entergy conveyed undue preference to its affiliates in the bidding process. Hearings in the proceeding commenced in June 2004 and are expected to be completed in the third quarter 2004.

Wholesale Rate Matters

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in this report for updates of the information contained in " PART I, Item 1, Wholesale Rate Matters" regarding the System Agreement, Transmission, FERC's Supply Margin Assessment, and Interconnection Orders.

FERC Reviews of Transmission

In August 2002, the FERC initiated audits and reviews of Entergy's compliance with Order Nos. 888 and 889 and its Open Access Transmission Tariff, and in March, 2004 a separate audit was initiated concerning Entergy's administration of the Generator Operating Limits ("GOL") processes.  Entergy has responded to numerous FERC data requests and the FERC staff members have interviewed several employees.  The FERC staff has provided Entergy with preliminary draft reports of their findings and recommendations on the issues that they have been examining. The GOL draft audit report identifies and alleges certain input and modeling errors in the implementation of the GOL process (which was replaced in April 2004) and preliminarily recommends, among other things, that Entergy employ an independent third party to conduct certain transmission access modeling. Entergy believes that these recommendations are based on a number of inaccuracies and has and will continue to provide comments on the various findings and the recommendations.  Separately, the FERC investigation staff has provided to Entergy its preliminary findings in a non-public draft report identifying certain areas of concern related to Entergy's compliance with certain provisions of its open access transmission tariff, including the time it took for Entergy to process requests to interconnect generating facilities to Entergy's transmission system and the processing of system impact studies related to the granting of transmission service. Entergy has submitted a preliminary response denying the allegations and is in the process of preparing a more comprehensive response to the specific concerns identified by the investigation staff but, at this point, believes that it has complied with the provisions of its open access transmission tariff, including the interconnection and system impact study provisions. These draft reports are not final reports; they may be modified by the FERC staff based on Entergy's responses or otherwise.  In addition, Entergy has the ability to appeal the final reports to the full FERC.

Regulation of the Nuclear Power Industry

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. See "PART I, Item 1, Nuclear Waste Policy Act of 1982," for further discussion of this Act. The fees payable to the DOE may be adjusted in the future to assure full recovery of the DOE's costs, and Entergy cannot state with certainty that the fees will not be increased in the future.

The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. DOE will now proceed with the licensing and, if the license is granted by the NRC and if Congress appropriates adequate funds to DOE to complete the project, eventual construction of the repository will begin and receipt of spent fuel may begin as early as approximately 2010, according to the DOE. Considerable uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy's facilities for storage or disposal, and could be several years after 2015. Additional uncertainty was added on July 9, 2004, when the U.S. Court of Appeals vacated a portion of the EPA nuclear waste disposal standard regarding the required compliance period for the repository. It is not known what impact this will have on the Yucca Mountain schedule, but further delays are possible as the EPA and NRC work to reestablish a standard. As a result of the delays in establishing a permanent repository, future expenditures will be required to increase spent fuel storage capacity at Entergy's nuclear plant sites.

Environmental Regulation

See "PART I, Item 1, Clean Air Act and Subsequent Amendments, Ozone Non-attainment" in the Form 10-K for information related to Louisiana and Texas emission control strategies to address continued ozone non-attainment status of areas in and around Houston-Galveston, Texas; Beaumont-Port Arthur, Texas; and Baton Rouge, Louisiana. The EPA has now reclassified the Beaumont-Port-Arthur area from "moderate" to "serious" and has reclassified the Baton Rouge area from "serious" to "severe". These actions require that Texas and Louisiana revise their respective plans to restrict the emission of certain air pollutants and to make progress toward eventual attainment of national standards. The Louisiana plan revisions were due in June 2004; however, because of legal and environmental regulatory disputes over a requirement for reformulated gasoline in the Baton Rouge area unrelated to Entergy's interests in the state implementation plan, the State has chosen to delay the submittal.  The Texas plan revisions must be submitted in April 2005. The content or impact of these developing plans is not fully known, but Entergy Gulf States continues to monitor events in these areas. If new NOx control equipment is required to be installed, the cost could be as much as $2.2 million for the facilities in Louisiana in 2004 and early 2005. Information recently published by the State of Texas in support of the state implementation plan indicates that new NOx control equipment will not be required at Entergy Gulf States' Texas facilities.

In April 2004, the EPA issued a final rule, effective June 15, 2005, stating that areas designated as non-attainment under a new "8-hour ozone standard" shall have one year to adjust to the new requirements. For Louisiana, the Baton Rouge area is to be classified as a marginal non-attainment area under the new standard with an attainment date of June 2007. For Texas, the Beaumont-Port Arthur area was designated as a marginal non-attainment area under the new standard with an attainment date of June 2007 and the Houston-Galveston area was designated as moderate non-attainment under the new standard with an attainment date of June 2010. Entergy continues to monitor these regulatory activities and to plan for necessary future action at its facilities.

See "PART I, Item 1, Clean Water Act, 316(b) Cooling Water Intake Structures" in the Form 10-K for information related to the draft permit issued by the New York State Department of Environmental Conservation (NYDEC) indicating that closed cycle cooling would be considered the "best technology available" for minimizing perceived adverse environmental impacts attributable to the intake and discharge of cooling water at Indian Point 2 and 3, if Entergy moves forward to obtain license extensions for these facilities. Entergy has filed an action in New York state court seeking a determination that the state cooling water intake structure regulation underpinning the NYDEC's draft permit for Indian Point 2 and 3 was improperly promulgated and is thus void. Entergy also continues to contest the contents of the draft permit in an administrative process before the NYDEC.

Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of Regulation S-K of the SEC as follows:

 

Ratios of Earnings to Fixed Charges

 

Twelve Months Ended

 

December 31,

 

June 30,

 

1999

 

2000

 

2001

 

2002

 

2003

 

2004

                       

Entergy Arkansas

2.08

 

3.01

 

3.29

 

2.79

 

3.17

 

3.10

Entergy Gulf States

2.18

 

2.60

 

2.36

 

2.49

 

1.51

 

2.40

Entergy Louisiana

3.48

 

3.33

 

2.76

 

3.14

 

3.93

 

3.66

Entergy Mississippi

2.44

 

2.33

 

2.14

 

2.48

 

3.06

 

2.93

Entergy New Orleans

3.00

 

2.66

 

(b)

 

(c)

 

1.73

 

2.92

System Energy

1.90

 

2.41

 

2.12

 

3.25

 

3.66

 

3.71

 

 

Ratios of Earnings to Combined Fixed Charges
and Preferred Dividends

 

Twelve Months Ended

 

December 31,

 

June 30,

 

1999

 

2000

 

2001

 

2002

 

2003

 

2004

                       

Entergy Arkansas

1.80

 

2.70

 

2.99

 

2.53

 

2.79

 

2.71

Entergy Gulf States (a)

1.86

 

2.39

 

2.21

 

2.40

 

1.45

 

2.28

Entergy Louisiana

3.09

 

2.93

 

2.51

 

2.86

 

3.46

 

3.20

Entergy Mississippi

2.18

 

2.09

 

1.96

 

2.27

 

2.77

 

2.65

Entergy New Orleans

2.74

 

2.43

 

(b)

 

(c)

 

1.59

 

2.69

(a)

"Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock for the twelve months ended December 31, 1999.

(b)

Earnings for the twelve months ended December 31, 2001, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively.

(c)

Earnings for the twelve months ended December 31, 2002, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits*

 

3 (ii)(a) -

By-Laws of Entergy Corporation as amended May 13, 2004, and as presently in effect.

     

**

4 & 10 (a) -

Facility Lease No. 1, dated as of May 1, 2004, between Wachovia Bank and Sterling C. Correia, as Owner Trustees, and System Energy (B-3(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182).

     

**

4 & 10 (b) -

Facility Lease No. 2, dated as of May 1, 2004, between Wachovia Bank and Sterling C. Correia, as Owner Trustees, and System Energy (B-4(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182).

     
 

4(c) -

Credit Agreement, dated as of May 13, 2004, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Mellon Bank, N.A., Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Deutsche Bank AG New York Branch, KBC Bank N.V., Lehman Brothers Bank, FSB, Mizuho Corporate Bank Limited, The Bank of Nova Scotia, UFJ Bank Limited, and West LB AG, New York Branch, and Citibank, N.A., as Administrative Agent.

     
 

4(d) -

Credit Agreement, dated as of May 13, 2004, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Mellon Bank, N.A., Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Deutsche Bank AG New York Branch, KBC Bank N.V., Lehman Brothers Bank, FSB, Mizuho Corporate Bank Limited, The Bank of Nova Scotia, UFJ Bank Limited, and West LB AG, New York Branch, Citibank, N.A., as Administrative Agent and LC Issuing Bank, and ABN AMRO Bank, N.V., as LC Issuing Bank.

     

**

10(c) -

Collateral Trust Indenture, dated as of May 1, 2004, among GG1C Funding Corporation, System Energy, and Deutsche Bank Trust Company Americas, as Trustee (A-3(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182), as supplemented by Supplemental Indenture No. 1 dated May 1, 2004 (A-4(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182).

     
 

10 (d) -

Consulting Agreement effective May 4, 2004 between Hintz & Associates, LLC and Entergy Services, Inc.

     
 

31(a) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.

     
 

31(b) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.

     
 

31(c) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.

     
 

31(d) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States.

     
 

31(e) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States and Entergy Louisiana.

     
 

31(f) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.

     
 

31(g) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.

     
 

31(h) -

Rule 13a-14(a)/15d-14(a) Certification for System Energy.

     
 

31(i) -

Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.

     
 

31(j) -

Rule 13a-14(a)/15d-14(a) Certification for System Energy.

     
 

32(a) -

Section 1350 Certification for Entergy Corporation.

     
 

32(b) -

Section 1350 Certification for Entergy Corporation.

     
 

32(c) -

Section 1350 Certification for Entergy Arkansas.

     
 

32(d) -

Section 1350 Certification for Entergy Gulf States.

     
 

32(e) -

Section 1350 Certification for Entergy Gulf States and Entergy Louisiana.

     
 

32(f) -

Section 1350 Certification for Entergy Mississippi.

     
 

32(g) -

Section 1350 Certification for Entergy New Orleans.

     
 

32(h) -

Section 1350 Certification for System Energy.

     
 

32(i) -

Section 1350 Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.

     
 

32(j) -

Section 1350 Certification for System Energy.

     
 

99(a) -

Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

     
 

99(b) -

Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

     
 

99(c) -

Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

     
 

99(d) -

Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

     
 

99(e) -

Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

     
 

99(f) -

System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined.

___________________________

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.

*

Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, 2004, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended June 30, 2004.

   

**

Incorporated herein by reference as indicated.

 

(b)

Reports on Form 8-K

   
 

Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

     
   

A Current Report on Form 8-K, dated March 11, 2004, was submitted to the SEC on April 13, 2004 reporting information under Item 5. "Other Events and Regulation FD Disclosure".

   
 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated April 12, 2004, was submitted to the SEC on April 12, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

   
 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated April 26, 2004, was submitted to the SEC on April 26, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

   

 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated April 30, 2004, was submitted to the SEC on April 30, 2004, reporting information under Item 5. "Other Events and Regulation FD Disclosure".

   
 

Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

     
   

A Current Report on Form 8-K, dated May 18, 2004, was submitted to the SEC on May 18, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

   
 

Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans

     
   

A Current Report on Form 8-K, dated June 3, 2004, was submitted to the SEC on June 3, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".

   
 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated June 8, 2004, was submitted to the SEC on June 8, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".

   

 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated July 14, 2004, was submitted to the SEC on July 14, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

   
 

Entergy Corporation

     
   

A Current Report on Form 8-K, dated August 2, 2004, was submitted to the SEC on August 2, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

ENTERGY CORPORATION
ENTERGY ARKANSAS, INC.
ENTERGY GULF STATES, INC.
ENTERGY LOUISIANA, INC.
ENTERGY MISSISSIPPI, INC.
ENTERGY NEW ORLEANS, INC.
SYSTEM ENERGY RESOURCES, INC.

 

/s/ Nathan E. Langston
Nathan E. Langston
Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer)

 

Date: August 5, 2004