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ENTERGY MISSISSIPPI, LLC - Quarter Report: 2005 March (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 March 31, 2005

 

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

Ö

 

Entergy Arkansas, Inc.

 

Ö

Entergy Gulf States, Inc.

 

Ö

Entergy Louisiana, Inc.

 

Ö

Entergy Mississippi, Inc.

 

Ö

Entergy New Orleans, Inc.

 

Ö

System Energy Resources, Inc.

 

Ö

Common Stock Outstanding

 

Outstanding at April 29, 2005

Entergy Corporation

($0.01 par value)

211,998,084

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, 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
March 31, 2005

 

 

Page Number

   

Definitions

1

Entergy Corporation and Subsidiaries

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

4

   

Liquidity and Capital Resources

6

   

Significant Factors and Known Trends

8

   

Critical Accounting Estimates

12

 

Consolidated Statements of Income

13

 

Consolidated Statements of Cash Flows

14

 

Consolidated Balance Sheets

16

 

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

18

 

Selected Operating Results

19

 

Notes to Consolidated Financial Statements

20

Entergy Arkansas, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

29

   

Liquidity and Capital Resources

30

   

Significant Factors and Known Trends

31

   

Critical Accounting Estimates

33

 

Income Statements

34

 

Statements of Cash Flows

35

 

Balance Sheets

36

 

Selected Operating Results

38

Entergy Gulf States, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

39

   

Liquidity and Capital Resources

40

   

Significant Factors and Known Trends

41

   

Critical Accounting Estimates

44

 

Income Statements

45

 

Statements of Cash Flows

47

 

Balance Sheets

48

 

Statements of Retained Earnings and Comprehensive Income

50

 

Selected Operating Results

51

Entergy Louisiana, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

52

   

Liquidity and Capital Resources

53

   

Significant Factors and Known Trends

54

   

Critical Accounting Estimates

56

 

Income Statements

58

 

Statements of Cash Flows

59

 

Balance Sheets

60

 

Selected Operating Results

62

Entergy Mississippi, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

63

   

Liquidity and Capital Resources

64

   

Significant Factors and Known Trends

65

Critical Accounting Estimates

66

 

Income Statements

68

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2005

 

Page Number

   
 

Statements of Cash Flows

69

 

Balance Sheets

70

 

Selected Operating Results

72

Entergy New Orleans, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

73

   

Liquidity and Capital Resources

74

   

Significant Factors and Known Trends

74

   

Critical Accounting Estimates

76

 

Income Statements

77

 

Statements of Cash Flows

79

 

Balance Sheets

80

 

Selected Operating Results

82

System Energy Resources, Inc.

 
 

Management's Financial Discussion and Analysis

 
   

Results of Operations

83

   

Liquidity and Capital Resources

83

   

Significant Factors and Known Trends

84

   

Critical Accounting Estimates

84

 

Income Statements

85

 

Statements of Cash Flows

87

 

Balance Sheets

88

Notes to Respective Financial Statements

90

Item 4. Controls and Procedures

98

Part II. Other Information

 
 

Item 1. Legal Proceedings

99

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

99

 

Item 5. Other Information

99

 

Item 6. Exhibits

101

Signature

103

 

FORWARD-LOOKING INFORMATION

 

In this filing and 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 proceedings, including those related to Entergy's System Agreement and Entergy's utility supply plan
  • Entergy's ability to manage its operation and maintenance costs
  • 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, the ability to meet credit support requirements, 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
  • changes in the financial markets, particularly those affecting the availability of capital and Entergy's ability to refinance existing debt, execute its share repurchase program, and 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, interest rates, and foreign currency exchange rates
  • Entergy's ability to purchase and sell assets at attractive prices and on other attractive terms
  • 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 application of market power criteria by the FERC
  • changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown of nuclear generating facilities, particularly those in the northeastern United States
  • uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel storage and disposal
  • resolution of pending or future applications for license extensions or modifications 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 and the occurrence of hurricanes and other storms and disasters
  • advances in technology
  • the potential effects of threatened or actual terrorism and war
  • the effects 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

   

AFUDC

Allowance for Funds Used During Construction

ALJ

Administrative Law Judge

ANO 1 and 2

Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear), owned by Entergy Arkansas

APSC

Arkansas Public Service Commission

Board

Board of Directors of Entergy Corporation

Cajun

Cajun Electric Power Cooperative, Inc.

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

CPI-U

Consumer Price Index - Urban

DOE

United States Department of Energy

domestic utility companies

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

EITF

FASB's Emerging Issues Task Force

Energy Commodity Services

Entergy's business segment that includes Entergy-Koch, LP and 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, LP, a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.

EPA

United States Environmental Protection Agency

EPDC

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

FASB

Financial Accounting Standards Board

FEMA

Federal Emergency Management Agency

FERC

Federal Energy Regulatory Commission

firm liquidated damages

Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset); if a party fails to deliver or receive energy, the defaulting party must compensate the other party as specified in the contract

FSP

FASB Staff Position

Grand Gulf

Unit No. 1 of Grand Gulf Steam Electric Generating Station (nuclear), 90% owned or leased by System Energy

GWh

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

Independence

Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power

IRS

Internal Revenue Service

ISO

Independent System Operator

kV

Kilovolt

kW

Kilowatt

kWh

Kilowatt-hour(s)

LDEQ

Louisiana Department of Environmental Quality

LPSC

Louisiana Public Service Commission

Mcf

1,000 cubic feet of gas

MMBtu

One million British Thermal Units

MPSC

Mississippi Public Service Commission

DEFINITIONS (Continued)

Abbreviation or Acronym

Term

MW

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

MWh

Megawatt-hour(s)

Nelson Unit 6

Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States

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; and other regulatory credits

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

PPA

Purchased power agreement

production cost

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

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

Ritchie Unit 2

Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil)

River Bend

River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards as promulgated by the FASB

SMEPA

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

spark spread

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.

TWh

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

unit-contingent

Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as a result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power

unit-contingent with
availability guarantees

Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as a result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power unless the actual availability over a specified period of time is below an availability threshold specified in the contract

DEFINITIONS (Concluded)

Abbreviation or Acronym

Term

   

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

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

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

White Bluff

White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Entergy's consolidated earnings applicable to common stock for the first quarter 2005 and 2004 were as follows:

Operating Segment

 

2005

 

2004

 

 

(In Thousands)

 

 

 

 

 

U.S. Utility

 

$90,499 

 

$115,658 

Non-Utility Nuclear

 

77,965 

 

68,833 

Parent & Other

 

3,532 

 

22,670 

Total

 

$171,996 

 

$207,161 

Entergy's income before taxes is discussed below according to the operating segments listed above. See Note 7 to the consolidated financial statements for more information concerning Entergy's operating segments and their financial results for the first quarter of 2005 and 2004.

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

U.S. Utility

The decrease in earnings for the U.S. Utility for the first quarter of 2005 compared to the first quarter of 2004 from $115.7 million to $90.5 million was primarily due to lower net revenue and higher other operation and maintenance expenses.

Net Revenue

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 first quarter of 2005 to the first quarter of 2004.

  

 

Amount

  

 

(In Millions)

 

 

 

2004 net revenue

 

$924.7 

Volume/weather

 

(24.3)

Price applied to unbilled sales

 

(16.1)

Deferred fuel cost revisions

 

15.5 

Rate refund provisions

 

4.1 

Other

 

5.8 

2005 net revenue

 

$909.7 

The volume/weather variance resulted from decreased usage by residential customers primarily during the unbilled sales period.

The price applied to unbilled sales variance resulted from a decrease in the fuel price applied to unbilled sales. See Note 1 to the consolidated financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.

The deferred fuel cost revisions variance is 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 in the first quarter of 2004 by $11.5 million. The remainder of the variance is due to the 2004 energy cost recovery true-up, made in the first quarter of 2005, which increased net revenue by $4.0 million.

The rate refund provisions variance is due primarily to accruals recorded in the first quarter of 2004 for potential rate action at Entergy New Orleans and Entergy Gulf States. Included in the current period variance is a provision recorded at Entergy Louisiana in the first quarter of 2005 as a result of a settlement approved by the LPSC in March 2005. The settlement is discussed in Note 2 to the consolidated financial statements.

Other Income Statement Variances

Other operation and maintenance expenses increased from $331.4 million for the first quarter 2004 to $365.4 million for the first quarter 2005 primarily due to:

  • an increase of $11.4 million in benefits expense;
  • an increase of $7.3 million in fossil expenses as a result of additional planned off-peak fossil generation maintenance outages; and
  • an increase of $4.6 million in nuclear expenses primarily due to higher labor, contract, and material costs associated with maintenance outages.

Depreciation and amortization expenses increased from $190.4 million for the first quarter 2004 to $204.2 million for the first quarter 2005 due primarily to an increase in plant in service.

Other income increased from $15 million for the first quarter 2004 to $25.3 million for the first quarter 2005 primarily due to:

  • an increase of $5.4 million in the allowance for equity funds used during construction as a result of higher construction expenditures; and
  • an increase of $4.4 million in interest and dividend income primarily due to higher interest on temporary cash investments.

Interest on long-term debt decreased from $101.6 million for the first quarter 2004 to $93.0 million for the first quarter 2005 primarily due to the net retirement of $319 million of long-term debt at the domestic utility companies in 2004. Refer to Note 5 to the consolidated financial statements in the Form 10-K and Note 4 to the consolidated financial statements herein for details of long-term debt.

Non-Utility Nuclear

Following are key performance measures for Non-Utility Nuclear for the first quarters of 2005 and 2004:

 

 

2005

 

2004

 

 

 

 

 

Net MW in operation at March 31

 

4,058

 

4,001

Average realized price per MWh

 

$41.56

 

$39.70

Generation in GWh for the quarter

 

8,267

 

8,687

Capacity factor for the quarter

 

93.2%

 

98.9%

The increase in earnings for Non-Utility Nuclear for the first quarter of 2005 compared to the first quarter of 2004 from $68.8 million to $78.0 million was primarily due to miscellaneous income of $15.8 million net-of-tax resulting from a reduction in the decommissioning liability for a plant, as discussed in Note 1 to the consolidated financial statements. Also contributing to the increase in earnings was higher contract pricing. The increase in earnings was partially offset by the effects of lower generation associated with a planned refueling outage at a plant.

Parent & Other

The decrease in earnings for Parent & Other from $22.7 million for the first quarter of 2004 to $3.5 million for the first quarter of 2005 was primarily due to the absence of earnings from Entergy's investment in Entergy-Koch due to the sale of Entergy-Koch's energy trading and pipeline businesses in the fourth quarter of 2004, as discussed in the Form 10-K. Also contributing to the decrease in earnings was the favorable settlement of a tax audit issue, which increased earnings in the first quarter of 2004.

Income Taxes

The effective income tax rates for the first quarters of 2005 and 2004 were 34.7% and 33.2%, respectively. The difference in the effective income tax rate for the first quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to a downward revision in the estimate of federal income tax expense for prior tax periods and investment tax credit amortization partially offset by state income taxes and regulatory plant differences on utility plant items. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to the favorable settlement of a tax audit issue and investment tax credit amortization partially offset by state income taxes and regulatory plant differences on utility plant items.

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 that discussion.

The Form 10-K reported that Entergy expected to contribute $185.9 million in 2005 to its pension plans. Entergy has elected to make additional contributions, and now expects to contribute $253.3 million to its pension plans in 2005. Entergy made $6.2 million of this contribution in the first quarter 2005.

Capital Structure

Entergy's capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentage as of March 31, 2005 is primarily the result of increased debt outstanding due to additional borrowings on Entergy Corporation's credit facilities along with a decrease in shareholders' equity, primarily due to repurchases of common stock, both of which are discussed below.

 

 

March 31,
2005

December 31,
2004

 

March 31,
2004

 

December 31,
2003

 

 

 

 

 

 

 

Net debt to net capital

 

48.1%

45.3%

 

44.8%

 

45.9%

Effect of subtracting cash from debt

 

1.5%

2.1%

 

2.5%

 

1.6%

Debt to capital

 

49.6%

47.4%

 

47.3%

 

47.5%

Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders' equity, and preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy's financial condition.

As discussed in the Form 10-K, Entergy Corporation has in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility, which expires in December 2009, has a borrowing capacity of $500 million, of which $75 million was outstanding at March 31, 2005. The three-year credit facility, which expires in May 2007, has a borrowing capacity of $965 million, of which $383 million was outstanding at March 31, 2005. Entergy also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities, and $62.5 million had been issued against the three-year facility at March 31, 2005. The total unused capacity for these facilities as of March 31, 2005 was $944.5 million.

In April 2005, Entergy Arkansas renewed its 364-day credit facility through April 2006 and Entergy Mississippi renewed its 364-day credit facility through May 2006. Also, Entergy Louisiana and Entergy New Orleans extended their 364-day credit facilities through July 2005. Prior to expiration, it is expected that Entergy Louisiana and Entergy New Orleans will renew their 364-day credit facilities through May 2006. As of March 31, 2005, no borrowings were outstanding on these credit facilities.

See Note 4 to the consolidated financial statements for additional discussion of Entergy's short-term credit facilities.

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 2005 through 2007.

In March 2005, Entergy Mississippi signed an agreement to purchase for $88 million the Attala power plant, a 480 MW natural gas-fired, combined-cycle generating facility owned by Central Mississippi Generating Company (CMGC). Entergy Mississippi plans to invest approximately $20 million in facility upgrades at the Attala plant plus $3 million in transaction costs, bringing the total capital cost of the project to approximately $111 million. The Attala plant will be 100 percent owned by Entergy Mississippi, and the acquisition is expected to close in late 2005 or early 2006. The purchase of the plant is contingent upon obtaining necessary approvals from various federal agencies, state permitting agencies, and the MPSC, including MPSC approval of investment cost recovery. Entergy Mississippi and CMGC had previously executed a purchased power agreement in July 2004 for 100 percent of the plant's output, and this agreement will expire upon the close of the acquisition or in March 2008, whichever occurs earlier. The planned construction and other capital investments table in the Form 10-K includes the estimated cost of the Attala acquisition as a 2006 capital commitment.

Regarding the planned Perryville plant acquisition by Entergy Louisiana, the FERC has denied rehearing of its October 2004 order disclaiming jurisdiction over the acquisition. Also, the LPSC hearing on the acquisition scheduled for March 2005 was held and in April 2005 the LPSC approved the acquisition and the long-term cost-of-service purchased power agreement under which Entergy Gulf States will purchase 75 percent of the plant's output. Entergy Louisiana expects the Perryville acquisition to close in mid-2005.

Cash Flow Activity

As shown in Entergy's Statements of Cash Flows, cash flows for the three months ended March 31, 2005 and 2004 were as follows:

 

 

2005

 

2004

 

 

(In Millions)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$619 

 

$507 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

502 

 

399 

 

Investing activities

 

(568)

 

(137)

 

Financing activities

 

(74)

 

41 

Effect of exchange rates on cash and cash equivalents

 

 

(2)

Net increase (decrease) in cash and cash equivalents

 

(140)

 

301 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$479 

 

$808

Operating Cash Flow Activity

Entergy's cash flow provided by operating activities increased by $103 million in the first quarter of 2005 compared to the first quarter of 2004 primarily due to an increase in cash flow provided by the U.S. Utility segment. The U. S. Utility provided $390 million in operating cash flow in 2005, compared to providing $301 million in the first quarter of 2004. The increase resulted primarily from the timing of receivable collections and payments to vendors.

Investing Activities

Net cash used in investing activities increased by $431 million in the first quarter of 2005 compared to the first quarter of 2004 primarily due to the following activity:

  • Construction expenditures were $29 million higher in 2005 than in 2004, including increases of $14 million in the U.S. Utility business and $16 million in the Non-Utility Nuclear business.
  • The non-nuclear wholesale assets business received $22 million in 2004 from the sale of the Crete power plant.
  • The non-nuclear wholesale assets business received a return of invested capital of $34 million in 2005 from the Top Deer wind power joint venture after Top Deer obtained debt financing.
  • Entergy made an additional capital contribution of approximately $73 million to Entergy-Koch in 2004.
  • Approximately $60 million of the cash collateral for a letter of credit that secured the installment obligations owed to NYPA for the acquisition of the FitzPatrick and Indian Point 3 nuclear power plants was released to Entergy in 2004.
  • Entergy's investment in temporary investments increased by $289 million during the first quarter 2005 compared to a decrease of $168 million in Entergy's investment in temporary investments during the first quarter of 2004. Entergy expects to liquidate during the second quarter 2005 substantially all of the temporary investments held on March 31, 2005 and expects to invest the proceeds in temporary cash investments. See Note 8 to the consolidated financial statements for additional discussion regarding these investments.
  • Entergy Gulf States used $26 million for other regulatory investments in 2004 as a result of 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 $74 million in the first quarter of 2005 compared to providing $41 million in the first quarter of 2004 primarily due to the following activity:

  • Retirements of long-term debt net of issuances by the U.S. Utility segment used $39 million in the first quarter 2005 compared to net issuances providing $78 million in the first quarter 2004. See Note 4 to the consolidated financial statements for the details of long-term debt activity in the first quarter of 2005.
  • Entergy Corporation repurchased $383 million of its common stock in the first quarter 2005. See Part II, Item 2 for details regarding Entergy Corporation's common stock repurchases.
  • In the first quarter 2005, Entergy Corporation increased the net borrowings on its credit facilities by $408 million. See Note 4 to the consolidated financial statements for a description of the Entergy Corporation credit facilities.

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, federal regulation, market and credit risks, utility restructuring, and nuclear matters. Following are updates to the information provided in the Form 10-K.

State and Local Rate Regulation

See the Form 10-K for the chart summarizing material rate proceedings. Following are updates to that chart.

In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement will result in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The settlement dismisses Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all pending and future nuclear uprate cases through May 2005, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case pending at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2.0 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forego recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits have been issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana have reserved for the approximate refund amounts.

The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes a ROE mid-point of 10.65% and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside a 75 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Gulf States. Under the settlement, there is no change to Entergy Gulf States' retail rates at this time. Current rates will remain in place until the first formula rate plan filing in May 2005 and will be reset, if necessary, effective September 1, 2005. If, as a result of the formula rate plan filing in May 2005, Entergy Gulf States is found to have earned an ROE in excess of 10.65% for the 2004 test year, rates will be reset and a refund will be given in an amount sufficient to reduce its ROE to 10.65% effective January 2004.

Regarding Entergy Louisiana's January 2004 rate filing, in March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that includes an annual base rate increase of approximately $18.3 million that was implemented, subject to refund, effective with May 2005 billings. The proposed settlement also includes the adoption of a three-year formula rate plan, the terms of which include a ROE mid-point of 10.25% and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an 80 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Louisiana. A decision from the LPSC on the proposed settlement is expected in May 2005.

In April 2005, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation regarding Entergy Mississippi's annual formula rate plan filing that provides for no change in rates based on an adjusted return on common equity midpoint of 10.5%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.

In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council.  The filings show that a decrease of $0.2 million in electric revenues is warranted and an increase of $3.9 million in gas revenues is warranted. The prescribed period for review by the Council's Advisors and other parties has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.

In February 2005, bills were submitted in the Texas Legislature that would clarify that Entergy Gulf States is no longer subject to a rate freeze and specify that retail open access will not commence in Entergy Gulf States' Texas service territory until the PUCT certifies a power region. A substitute bill was passed by the Texas House of Representatives in April 2005, and is now being considered by the Texas Senate. The substitute bill changed several provisions of the original bills to address concerns raised in the legislative process. The substitute bill provides that:

  • Entergy Gulf States is authorized by the legislation to proceed with a jurisdictional separation into two vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and one subject solely to the retail jurisdiction of the PUCT;
  • The portions of all prior PUCT orders requiring Entergy Gulf States to comply with any provisions of Texas law governing transition to retail competition are void;
  • Entergy Gulf States must file a plan by January 1, 2006, identifying the power region(s) to be considered for certification and the steps and schedule to achieve certification;
  • Entergy Gulf States must file a transition to competition plan no later than January 1, 2007, that would mitigate market power and achieve full customer choice, including potentially construction of additional transmission facilities, generation auctions, generation capacity divestiture, reinstatement of a customer choice pilot project, establishment of a price to beat, and other public interest measures;
  • Entergy Gulf States may not file a general base rate case in Texas before June 30, 2007, with rates effective no earlier than June 30, 2008, but may seek before then the annual recovery of certain incremental purchased power capacity costs not in excess of five percent of its annual base rate revenues; and
  • Entergy Gulf States may recover over a period not to exceed 15 years reasonable and necessary transition to competition costs incurred before the effective date of the legislation and not previously recovered, with an allowance for carrying charges.

Federal Regulation

System Agreement Litigation

See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in State and Local Rate Regulation, the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.

Transmission

See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

Interconnection Orders

See the Form 10-K for a discussion of the ALJ Initial Decision and FERC order directing Entergy Louisiana to refund, in the form of transmission credits, approximately $15 million in expenses and tax obligations previously paid by a generator. Entergy's request for rehearing was denied by the FERC.

Available Flowgate Capacity Proceedings

See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

Utility Restructuring

Retail-Texas

Previous developments and information related to electric industry restructuring are presented in Note 2 to the consolidated financial statements in the Form 10-K. Refer to "Significant Factors and Known Trends - State and Local Rate Regulation" above for discussion of recent activity at the Texas Legislature.

Federal Legislation

See the Form 10-K for discussion of the comprehensive energy legislation activity in the United States Congress in 2004. In April 2005, the U.S. House of Representatives passed energy legislation containing electricity provisions similar to those discussed in the Form 10-K that were contained in the 2004 legislation, except the 2005 bill passed by the U.S. House does not contain a provision on participant funding. The bill is now pending consideration in the U.S. Senate.

Market and Credit Risks

Commodity Price Risk

As discussed in the Form 10-K, 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.  At March 31, 2005, based on power prices at that time, Entergy had in place as collateral $698.7 million of Entergy Corporation guarantees, $60.0 million of which support letters of credit. In the event of a 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.

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, unbilled revenue, impairment of long-lived assets, pension and other postretirement benefits, and other contingencies. The following is an update to the information provided in the Form 10-K.

Nuclear Decommissioning Costs

In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of $26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of a plant will begin. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated asset retirement cost.

Recently Issued Accounting Pronouncements

In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

 

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
         
    2005   2004
    (In Thousands, Except Share Data)
         
OPERATING REVENUES        
Domestic electric   $1,744,383    $1,701,327 
Natural gas   86,950    83,816 
Competitive businesses   492,081    466,406 
TOTAL   2,323,414    2,251,549 
         
OPERATING EXPENSES        
Operating and Maintenance:        
  Fuel, fuel-related expenses, and        
   gas purchased for resale   580,082    550,127 
  Purchased power   499,778    449,520 
  Nuclear refueling outage expenses   39,810    41,607 
  Other operation and maintenance   534,666    501,252 
Decommissioning   36,998    38,347 
Taxes other than income taxes   102,989    97,303 
Depreciation and amortization   224,177    210,648 
Other regulatory credits - net   (16,765)   (16,089)
TOTAL   2,001,735    1,872,715 
         
OPERATING INCOME   321,679    378,834 
         
OTHER INCOME        
Allowance for equity funds used during construction   12,884    7,463 
Interest and dividend income   30,890    28,251 
Equity in earnings (loss) of unconsolidated equity affiliates   (2,193)   19,819 
Miscellaneous - net   25,802    5,167 
TOTAL   67,383    60,700 
         
INTEREST AND OTHER CHARGES        
Interest on long-term debt   110,752    119,460 
Other interest - net   12,164    6,215 
Allowance for borrowed funds used during construction   (7,509)   (5,154)
TOTAL   115,407    120,521 
         
INCOME BEFORE INCOME TAXES   273,655    319,013 
         
Income taxes   95,035    105,997 
         
CONSOLIDATED NET INCOME   178,620    213,016 
         
Preferred dividend requirements and other   6,624    5,855 
         
EARNINGS APPLICABLE TO        
COMMON STOCK   $171,996    $207,161 
         
Earnings per average common share:        
  Basic   $0.80    $0.90 
  Diluted   $0.79    $0.88 
Dividends declared per common share   $0.54    $0.45 
         
Average number of common shares outstanding:        
  Basic   214,128,023    230,264,638 
  Diluted   218,633,202    234,978,625 
         
See Notes to Consolidated Financial Statements.        

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
         
    2005   2004
    (In Thousands)
   
OPERATING ACTIVITIES        
Consolidated net income   $178,620    $213,016 
Adjustments to reconcile consolidated net income to net cash flow        
provided by operating activities:        
  Reserve for regulatory adjustments   16,561    (2,293)
  Other regulatory credits - net   (16,765)   (16,089)
  Depreciation, amortization, and decommissioning   261,175    248,996 
  Deferred income taxes and investment tax credits   22,182    31,683 
  Equity in earnings (loss) of unconsolidated equity affiliates - net of dividends   2,193    (19,819)
  Changes in working capital:        
    Receivables   145,581    12,757 
    Fuel inventory   1,011    (11,098)
    Accounts payable   (178,410)   (174,659)
    Taxes accrued   27,849    51,268 
    Interest accrued   (12,303)   2,570 
    Deferred fuel   64,580    59,799 
    Other working capital accounts   (104,789)   15,747 
  Provision for estimated losses and reserves   10,551    11,570 
  Changes in other regulatory assets   14,487    20,013 
  Other   69,021    (44,688)
Net cash flow provided by operating activities   501,544    398,773 
         
INVESTING ACTIVITIES        
Construction/capital expenditures   (282,070)   (253,075)
Allowance for equity funds used during construction   12,884    7,463 
Nuclear fuel purchases   (103,606)   (68,083)
Proceeds from sale/leaseback of nuclear fuel   82,658    51,076 
Proceeds from sale of assets and businesses     21,978 
Investment in non-utility properties   (1,476)   (2,791)
Decrease (increase) in other investments   37,280    (15,312)
Purchases of other temporary investments   (1,437,725)   (146,500)
Liquidation of other temporary investments   1,148,725    314,500 
Decommissioning trust contributions and realized change in trust assets   (25,081)   (20,895)
Other regulatory investments     (25,595)
Net cash flow used in investing activities   (568,411)   (137,234)
         
See Notes to Consolidated Financial Statements.        
         
 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
         
    2005   2004
    (In Thousands)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of:        
  Long-term debt   257,545    99,250 
  Common stock and treasury stock   64,280    95,082 
Retirement of long-term debt   (296,314)   (21,232)
Repurchase of common stock   (382,593)   (27,969)
Redemption of preferred stock   (2,250)   (2,250)
Changes in credit line borrowings - net   407,925    4,102 
Dividends paid:        
  Common stock   (115,504)   (100,229)
  Preferred stock   (6,650)   (5,855)
Net cash flow provided by (used in) financing activities   (73,561)   40,899 
         
Effect of exchange rates on cash and cash equivalents   44    (1,708)
         
Net increase (decrease) in cash and cash equivalents   (140,384)   300,730 
         
Cash and cash equivalents at beginning of period   619,786    507,433 
         
Cash and cash equivalents at end of period   $479,402    $808,163 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid (received) during the period for:        
  Interest - net of amount capitalized   $128,429    $117,721 
  Income taxes   $10,011    ($9,549)
Noncash financing activities:        
  Proceeds from long-term debt issued for the purpose        
   of refunding other long-term debt   $45,000   
         
See Notes to Consolidated Financial Statements.        

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2005 and December 31, 2004
(Unaudited)
         
     
    2005   2004
    (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $73,455    $79,136 
  Temporary cash investments - at cost,        
   which approximates market   405,947    540,650 
     Total cash and cash equivalents   479,402    619,786 
Other temporary investments   476,950    187,950 
Notes receivable   2,064    3,092 
Accounts receivable:        
  Customer   365,366    435,191 
  Allowance for doubtful accounts   (21,941)   (23,758)
  Other   346,686    342,289 
  Accrued unbilled revenues   378,070    460,039 
    Total receivables   1,068,181    1,213,761 
Deferred fuel costs   21,331    85,911 
Accumulated deferred income taxes   83,752    76,899 
Fuel inventory - at average cost   126,240    127,251 
Materials and supplies - at average cost   575,671    569,407 
Deferred nuclear refueling outage costs   116,575    107,782 
Prepayments and other   207,100    116,279 
TOTAL   3,157,266    3,108,118 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   192,333    231,779 
Decommissioning trust funds   2,476,143    2,453,406 
Non-utility property - at cost (less accumulated depreciation)   223,765    219,717 
Other   90,455    90,992 
TOTAL   2,982,696    2,995,894 
          
PROPERTY, PLANT AND EQUIPMENT        
Electric   29,192,580    29,053,340 
Property under capital lease   737,638    738,554 
Natural gas   266,867    262,787 
Construction work in progress   1,290,830    1,197,551 
Nuclear fuel under capital lease   292,392    262,469 
Nuclear fuel   327,965    320,813 
TOTAL PROPERTY, PLANT AND EQUIPMENT   32,108,272    31,835,514 
Less - accumulated depreciation and amortization   13,330,130    13,139,883 
PROPERTY, PLANT AND EQUIPMENT - NET   18,778,142    18,695,631 
          
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   739,575    746,413 
  Other regulatory assets   1,436,946    1,429,261 
Long-term receivables   38,259    39,417 
Goodwill   377,172    377,172 
Other   916,845    918,871 
TOTAL   3,508,797    3,511,134 
          
TOTAL ASSETS   $28,426,901    $28,310,777 
         
See Notes to Consolidated Financial Statements.        
 
 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2005 and December 31, 2004
(Unaudited)
         
     
    2005   2004
    (In Thousands)
         
CURRENT LIABILITIES        
Currently maturing long-term debt   $490,286    $492,564 
Notes payable   118    193 
Accounts payable   718,118    896,528 
Customer deposits   227,568    222,320 
Taxes accrued   255,506    224,011 
Interest accrued   132,175    144,478 
Obligations under capital leases   133,899    133,847 
Other   311,829    218,442 
TOTAL   2,269,499    2,332,383 
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   5,069,208    5,067,381 
Accumulated deferred investment tax credits   394,142    399,228 
Obligations under capital leases   175,174    146,060 
Other regulatory liabilities   395,945    329,767 
Decommissioning and retirement cost liabilities   2,077,101    2,066,277 
Transition to competition   79,101    79,101 
Regulatory reserves   29,543    103,061 
Accumulated provisions   563,161    549,914 
Long-term debt   7,444,901    7,016,831 
Preferred stock with sinking fund   15,150    17,400 
Other   1,533,952    1,541,331 
TOTAL   17,777,378    17,316,351 
         
Commitments and Contingencies        
         
Preferred stock without sinking fund   365,337    365,356 
         
SHAREHOLDERS' EQUITY        
Common stock, $.01 par value, authorized 500,000,000        
  shares; issued 248,174,087 shares in 2005 and in 2004   2,482    2,482 
Paid-in capital   4,826,797    4,835,375 
Retained earnings   5,040,655    4,984,302 
Accumulated other comprehensive loss   (116,797)   (93,453)
Less - treasury stock, at cost (35,335,147 shares in 2005 and        
  31,345,028 shares in 2004)   1,738,450    1,432,019 
TOTAL   8,014,687    8,296,687 
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $28,426,901    $28,310,777 
         
See Notes to Consolidated Financial Statements.        

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
                 
     
    2005   2004
    (In Thousands)
RETAINED EARNINGS                
Retained Earnings - Beginning of period   $4,984,302        $4,502,508     
                 
    Add - Earnings applicable to common stock   171,996    $171,996    207,161    $207,161 
                 
    Deduct:                
      Dividends declared on common stock   115,629        103,762     
      Other   14           
           Total  
115,643 
     
103,762 
   
                 
Retained Earnings - End of period  
$5,040,655 
     
$4,605,907 
   
                 
                 
                 
ACCUMULATED OTHER COMPREHENSIVE                
INCOME (LOSS) (Net of taxes):                
Balance at beginning of period                
  Accumulated derivative instrument fair value changes   ($141,411)       ($25,811)    
  Other accumulated comprehensive income items   47,958        18,016     
     Total  
(93,453)
     
(7,795)
   
                 
                 
Net derivative instrument fair value changes                
 arising during the period   (20,035)   (20,035)   (16,186)   (16,186)
                 
Foreign currency translation adjustments   (44)   (44)   1,708    1,708 
                 
Minimum pension liability   (2,053)   (2,053)    
                 
Net unrealized investment gains (losses)  
(1,212)
 
(1,212)
 
28,766 
 
28,766 
                 
Balance at end of period:                
  Accumulated derivative instrument fair value changes   (161,446)       (41,997)    
  Other accumulated comprehensive income items   44,649        48,490     
    Total  
($116,797)
     
$6,493 
   
Comprehensive Income      
$148,652 
     
$221,449 
                 
                 
                 
PAID-IN CAPITAL                
Paid-in Capital - Beginning of period   $4,835,375        $4,767,615     
                 
    Add: Common stock issuances related to stock plans  
(8,578)
     
24,556 
   
                 
Paid-in Capital - End of period  
$4,826,797 
     
$4,792,171 
   
                 
                 
                 
See Notes to Consolidated Financial Statements.                

 

 ENTERGY CORPORATION AND SUBSIDIARIES
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
                 
                 
            Increase/    
Description   2005   2004   (Decrease)   %
   

(Dollars in Millions)

   
   

 

   
U. S. Utility Electric Operating Revenues:  

 

   
                 
  Residential   $622    $609   $13   
  Commercial   462    435   27   
  Industrial   556    514   42   
  Governmental   45    44    
    Total retail   1,685    1,602   83   
  Sales for resale   95    99   (4)   (4)
  Other   (36)   -   (36)  
    Total   $1,744    $1,701   $43   
                 
U. S. Utility Billed Electric Energy                
  Sales (GWh):                
  Residential   7,570    7,726   (156)   (2)
  Commercial   5,990    5,887   103   
  Industrial   9,596    9,490   106   
  Governmental   609    600    
    Total retail   23,765    23,703   62   
  Sales for resale   1,732    2,418   (686)   (28)
    Total   25,497    26,121   (624)   (2)
                 

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. COMMITMENTS AND CONTINGENCIES

Nuclear Insurance

See Note 8 to the consolidated financial statements in the Form 10-K for information on nuclear liability and property and replacement power insurance associated with Entergy's nuclear power plants.

Nuclear Decommissioning and Other Retirement Costs

See Note 8 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioning costs. In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of $26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of a plant will begin. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated asset retirement cost.

Income Taxes

See Note 8 to the consolidated financial statements in the Form 10-K for information regarding certain material income tax audit matters involving Entergy.

CashPoint Bankruptcy

See Note 8 to the consolidated financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the domestic utility companies.

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

Retail Rate Proceedings

See Note 2 to the consolidated financial statements in the Form 10-K for information regarding retail rate proceedings involving the domestic utility companies. The following are updates to the Form 10-K.

Filings with the LPSC

Global Settlement (Entergy Gulf States and Entergy Louisiana)

In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement will result in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The settlement dismisses Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement

analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all pending and future nuclear uprate cases through May 2005, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case pending at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2.0 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forego recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits have been issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana have reserved for the approximate refund amounts.

The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes a ROE mid-point of 10.65% and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside a 75 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Gulf States. Under the settlement, there is no change to Entergy Gulf States' retail rates at this time. Current rates will remain in place until the first formula rate plan filing in May 2005 and will be reset, if necessary, effective September 1, 2005. If, as a result of the formula rate plan filing in May 2005, Entergy Gulf States is found to have earned an ROE in excess of 10.65% for the 2004 test year, rates will be reset and a refund will be given in an amount sufficient to reduce its ROE to 10.65% effective January 2004.

Retail Rates (Entergy Louisiana)

See Note 2 to consolidated financial statements in the Form 10-K for discussion of Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that includes an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. The proposed settlement also includes the adoption of a three-year formula rate plan, the terms of which include a ROE mid-point of 10.25% and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an 80 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Louisiana. A decision from the LPSC on the proposed settlement is expected in May 2005.

Filings with the City Council (Entergy New Orleans)

In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council.  The filings show that a decrease of $0.2 million in electric revenues is warranted and an increase of $3.9 million in gas revenues is warranted. The prescribed period for review by the Council's Advisors and other parties has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.

Deferred Fuel Costs

See Note 2 to the consolidated financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies. The following are updates to the Form 10-K.

In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at ANO 1 and 2.

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. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in a January 2001 proceeding that is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommended disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part, the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payment issues. The PUCT's order reduced the disallowance in the case to $8.3 million. Both Entergy Gulf States and certain cities served by Entergy Gulf States filed motions for rehearing on these issues. Judicial review may follow PUCT action on the motions. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.

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 settlement approved by the LPSC in March 2005, discussed above, resolves the uprate imprudence disallowance and is no longer at issue in this proceeding.

In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million will be deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges will be refunded through the energy cost recovery rider in the second and third quarters of 2005 at a rate of 45% and 55%, respectively.

As discussed in Note 2 to the consolidated financial statements in the Form 10-K, the City Council passed resolutions implementing a package of measures developed by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - 2005 winter heating season including the deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 and in the event that the average residential customer's gas bill were to exceed a threshold level. The deferrals of $1.7 million resulting from these caps will receive accelerated recovery over a seven-month period beginning in April 2005.

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.

In February 2005, bills were submitted in the Texas Legislature that would clarify that Entergy Gulf States is no longer subject to a rate freeze and specify that retail open access will not commence in Entergy Gulf States' Texas service territory until the PUCT certifies a power region. A substitute bill was passed by the Texas House of Representatives in April 2005, and is now being considered by the Texas Senate. The substitute bill changed several provisions of the original bills to address concerns raised in the legislative process. The substitute bill provides that:

  • Entergy Gulf States is authorized by the legislation to proceed with a jurisdictional separation into two vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and one subject solely to the retail jurisdiction of the PUCT;
  • The portions of all prior PUCT orders requiring Entergy Gulf States to comply with any provisions of Texas law governing transition to retail competition are void;
  • Entergy Gulf States must file a plan by January 1, 2006, identifying the power region(s) to be considered for certification and the steps and schedule to achieve certification;
  • Entergy Gulf States must file a transition to competition plan no later than January 1, 2007, that would mitigate market power and achieve full customer choice, including potentially construction of additional transmission facilities, generation auctions, generation capacity divestiture, reinstatement of a customer choice pilot project, establishment of a price to beat, and other public interest measures;
  • Entergy Gulf States may not file a general base rate case in Texas before June 30, 2007, with rates effective no earlier than June 30, 2008, but may seek before then the annual recovery of certain incremental purchased power capacity costs not in excess of five percent of its annual base rate revenues; and
  • Entergy Gulf States may recover over a period not to exceed 15 years reasonable and necessary transition to competition costs incurred before the effective date of the legislation and not previously recovered, with an allowance for carrying charges.

 

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 March 31,

 

 

2005

 

2004

 

 

(In Millions, Except Per Share Data)

 

 

 

 

$/share

 

 

 

$/share

Earnings applicable to common stock

 

$172.0

 

 

 

$207.2

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding - basic

 


214.1

 


$0.80 

 


230.3

 


$0.90 

Average dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock Options

 

4.3

 

(0.016)

 

4.5

 

(0.017)

 

Deferred Units

 

0.2

 

(0.001)

 

0.2

 

(0.001)

Average number of common shares outstanding - diluted

 


218.6

 


$0.79 

 


235.0

 


$0.88 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entergy's stock option and other equity compensation plans are discussed in Note 7 to the consolidated financial statements in the Form 10-K.

During the first quarter of 2005, Entergy Corporation issued 1,603,481 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. During the first quarter of 2005, Entergy Corporation repurchased 5,593,600 shares of common stock for a total purchase price of $382.6 million.

Retained Earnings

On April 12, 2005, Entergy Corporation's Board of Directors declared a common stock dividend of $0.54 per share, payable on June 1, 2005, to holders of record as of May 12, 2005.

 

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

Entergy Corporation has in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility, which expires in December 2009, has a borrowing capacity of $500 million, of which $75 million was outstanding at March 31, 2005. The three-year credit facility, which expires in May 2007, has a borrowing capacity of $965 million, of which $383 million was outstanding at March 31, 2005. Entergy also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities, and $62.5 million had been issued against the three-year facility at March 31, 2005. The total unused capacity for these facilities as of March 31, 2005 was $944.5 million. The commitment fee for these facilities is currently 0.13% 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, 2007. In addition to borrowing from commercial banks, Entergy's subsidiaries are authorized to borrow from Entergy's 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 March 31, 2005, Entergy's subsidiaries' aggregate authorized limit was $1.6 billion and the outstanding borrowings from the money pool were $117.1 million.

Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have 364-day credit facilities available as follows:


Company

 


Expiration Date

 

Amount of
Facility

 

Amount Drawn as of
March 31, 2005

 

 

 

 

 

 

 

Entergy Arkansas

 

April 2006

 

$85 million

 

-

Entergy Louisiana

 

July 2005

 

$15 million (a)

 

-

Entergy Mississippi

 

May 2006

 

$25 million

 

-

Entergy New Orleans

 

July 2005

 

$14 million (a)

 

-

(a)

The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million.

In April 2005, Entergy Arkansas renewed its 364-day credit facility through April 2006 and Entergy Mississippi renewed its 364-day credit facility through May 2006. Also, Entergy Louisiana and Entergy New Orleans extended their 364-day credit facilities through July 2005. Prior to expiration, it is expected that Entergy Louisiana and Entergy New Orleans will renew their 364-day credit facilities through May 2006.

The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The Entergy Arkansas facility requires it to maintain total shareholders' equity of at least 25% of its total assets.

The following long-term debt has been issued by Entergy in 2005:

 

Issue Date

 

Amount

 

 

 

(In Thousands)

U.S. Utility

 

 

 

Mortgage Bonds:

 

 

 

5.66% Series due February 2025 - Entergy Arkansas

January 2005

 

$175,000

6.18% Series due March 2035 - Entergy Gulf States

February 2005

 

$85,000

Governmental Bonds:

 

 

 

5.00% Series due January 2021, Independence County - Arkansas (Entergy Arkansas)

March 2005

 

$45,000

The following long-term debt was retired by Entergy in 2005:

 

Retirement Date

 

Amount

 

 

 

(In Thousands)

U.S. Utility

 

 

 

Mortgage Bonds:

 

 

 

7.00% Series due October 2023 - Entergy Arkansas

February 2005 

 

$175,000

Other Long-term Debt:

 

 

 

Grand Gulf Lease Obligation payment

N/A

 

$28,790

8.75% Junior Subordinated Deferrable Interest Debentures
due 2046 - Entergy Gulf States

March 2005

 

$87,629

Retirements after the balance sheet date:

 

 

 

9.0% Series due May 2015, West Feliciana Parish - Louisiana (Entergy Gulf States)

May 2005

 

$45,000

7.5% Series due May 2015, West Feliciana Parish - Louisiana (Entergy Gulf States)

May 2005

 

$41,600

Entergy Arkansas used the proceeds from the March 2005 issuance to redeem, prior to maturity, $45 million of 6.25% Series of Independence County bonds in April 2005. The issuance is shown as a non-cash transaction on the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.

NOTE 5. STOCK-BASED COMPENSATION PLANS

Entergy grants stock options, which are described more fully in Note 7 to the consolidated financial statements in the Form 10-K. 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." 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 those plans. Awards under Entergy's plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 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. There is no pro forma effect for the first quarter 2005 because all non-vested awards are accounted for at fair value. Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects, for the first quarter 2005 is $1.8 million. The following table illustrates the effect on net income and earnings per share for 2004 if Entergy would have historically applied the fair value based method of accounting to stock-based employee compensation.

   

First Quarter
2004

   

(In Thousands, Except Per Share Data)

     

Earnings applicable to common stock

 

$207,161

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

 



973

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

 



3,855

     

Pro forma earnings applicable to common stock

 

$204,279

     

Earnings per average common share:

   
 

Basic

 

$0.90

 

Basic - pro forma

 

$0.89

       
 

Diluted

 

$0.88

 

Diluted - pro forma

 

$0.87

       

NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's pension cost, including amounts capitalized, for the first quarters of 2005 and 2004, included the following components:

 

 

2005

 

2004

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$21,447 

 

$18,735 

Interest cost on projected benefit obligation

 

38,632 

 

36,015 

Expected return on assets

 

(39,513)

 

(38,725)

Amortization of transition asset

 

(165)

 

(191)

Amortization of prior service cost

 

1,362 

 

1,413 

Amortization of loss

 

7,457 

 

4,401 

Net pension costs

 

$29,220 

 

$21,648 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the first quarters of 2005 and 2004, included the following components:

 

 

2005

 

2004

 

 

(In Thousands)

 

 

 

 

 

Service cost - benefits earned during the period

 

$9,400 

 

$9,708 

Interest cost on APBO

 

14,290 

 

14,297 

Expected return on assets

 

(4,942)

 

(4,702)

Amortization of transition obligation

 

175 

 

1,242 

Amortization of prior service cost

 

(1,979)

 

(889)

Amortization of loss

 

7,083 

 

5,954 

Net other postretirement benefit cost

 

$24,027 

 

$25,610 

Employer Contributions

Entergy previously disclosed in the Form 10-K that it expected to contribute $185.9 million to its pension plans in 2005. Entergy has elected to make additional contributions of $67.4 million to the plan for a total of $253.3 million in 2005. As of March 31, 2005, Entergy contributed $6.2 million to its pension plans. The April 2005 contribution was $111.5 million. Therefore, Entergy presently anticipates contributing an additional $135.6 million to fund its pension plans in 2005.

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

Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2004 Accumulated Postretirement Benefit Obligation by $161 million, and reduced the first quarter 2005 and 2004 other postretirement benefit cost by $6.8 million and $2.5 million, respectively. Refer to Note 10 to the consolidated financial statements in the Form 10-K for further discussion.

 

NOTE 7. BUSINESS SEGMENT INFORMATION

Entergy's reportable segments as of March 31, 2005 are U.S. Utility and Non-Utility Nuclear. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Energy Commodity Services segment, the Competitive Retail Services business, and earnings on the proceeds of sales of previously-owned businesses. The Energy Commodity Services segment was presented as a reportable segment prior to 2005, but it did not meet the quantitative thresholds for a reportable segment in 2004 and, with the sale of Entergy-Koch's businesses in 2004, management does not expect the Energy Commodity Services segment to meet the quantitative thresholds in the foreseeable future. The 2004 information in the table below has been restated to include the Energy Commodity Services segment in the All Other column.

Entergy's segment financial information for the first quarters of 2005 and 2004 is as follows:

 



U. S. Utility

 


Non-Utility
Nuclear*

 



All Other*

 



Eliminations

 



Consolidated

(In Thousands)

2005

 

 

 

 

 

 

 

 

 

Operating Revenues

$1,831,800 

 

$343,575 

 

$165,099 

 

($17,060)

 

$2,323,414 

Equity in earnings of

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

 

(2,193)

 

 

(2,193)

Income Taxes (Benefit)

49,049 

 

51,168 

 

(5,182)

 

 

95,035 

Net Income

96,268 

 

77,965 

 

4,460 

 

(73)

 

178,620 

Total Assets

22,986,894 

 

4,631,292 

 

3,288,980 

 

(2,480,265)

 

28,426,901 

 

 

 

 

 

 

 

 

 

 

2004

 

 

 

 

 

 

 

 

 

Operating Revenues

$1,785,518 

 

$344,848

 

$136,553 

 

($15,370)

 

$2,251,549

Equity in earnings of

 

 

 

 

 

 

 

 

 

 unconsolidated equity affiliates

 

-

 

19,819 

 

 

19,819

Income Taxes (Benefit)

72,678 

 

43,695

 

(10,376)

 

 

105,997

Net Income

121,513 

 

68,833

 

22,670 

 

 

213,016

Total Assets

22,497,775 

 

4,440,348

 

3,411,517 

 

(1,484,892)

 

28,864,748

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.

 

NOTE 8. OTHER TEMPORARY INVESTMENTS

The consolidated balance sheet as of December 31, 2004 reflects a reclassification from cash and cash equivalents to other temporary investments of $188 million of instruments used in Entergy's cash management program. This reclassification is to present certain highly-liquid auction rate securities as short-term investments rather than as cash equivalents due to the stated tenor of the maturities of these investments. Entergy actively invests its available cash balance in financial instruments, including auction rate securities that have stated maturities of 20 years or more. The auction rate securities provide a high degree of liquidity through features such as 7 and 28 day auctions that allow for the redemption of the securities at their face amount plus earned interest. Because Entergy intends to sell these instruments within one year or less, typically within 28 days of the balance sheet date, they are classified as current assets. A corresponding change was made to the consolidated statement of cash flows for the three months ended March 31, 2004 resulting in reductions of $67 million and $185 million in the amounts presented as cash and cash equivalents as of March 31, 2004 and December 31, 2003.

__________________________________

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

Net income increased $12.7 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to higher net revenue.

Net Revenue

Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue comparing the first quarter of 2005 to the first quarter of 2004.

 

 

Amount

 

 

(In Millions)

 

 

 

2004 net revenue

 

$206.8 

Deferred fuel cost revisions

 

15.5 

Other

 

1.4 

2005 net revenue

 

$223.7 

The deferred fuel cost revisions variance is primarily 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 in the first quarter of 2004 by $11.5 million. The remainder of the variance is due to the 2004 energy cost recovery true-up, made in the first quarter of 2005, which increased net revenue by $4.0 million.

Fuel and purchased power expenses

Fuel and purchased power expenses decreased primarily due to decreased deferred fuel costs resulting primarily from the true-ups to the 2004 and 2003 energy cost recovery rider filings.

Other Income Statement Variances

Other income increased primarily due to:

  • an increase of $2.3 million in interest and dividend income primarily due to interest of $1.0 million earned on temporary cash investments in 2005 and interest of $0.6 million earned on bond proceeds; and
  • an increase of $1.8 million in the allowance for equity funds used during construction primarily due to increased construction expenditures resulting from the steam generator and reactor vessel head replacement at ANO 1.

Income Taxes

The effective income tax rates for the first quarters of 2005 and 2004 were 35.2% and 40.5%, respectively. The difference in the effective income tax rate for the first quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items in addition to state income taxes net of federal, offset by a downward revision in the estimate of federal income tax expense for prior tax periods. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items in addition to state income taxes net of federal.

Liquidity and Capital Resources

Cash Flow

Cash flows for the first quarters of 2005 and 2004 were as follows:

 

 

2005

 

2004

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$89,744 

 

$8,834 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

143,480 

 

69,392 

 

Investing activities

 

(52,606)

 

(49,922)

 

Financing activities

 

(18,575)

 

(10,244)

Net increase in cash and cash equivalents

 

72,299 

 

9,226 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$162,043 

 

$18,060 

Operating Activities

Cash flow from operations increased $74.1 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to money pool activity, the timing of the collection of receivables from customers, and an increase in net income.

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

March 31,
2005

 

December 31,
2004

 

March 31,
2004

 

December 31,
2003

(In Thousands)

 

 

 

 

 

 

 

$28,252

 

$23,561

 

($42,926)

 

($69,153)

Money pool activity used $4.7 million of Entergy Arkansas' operating cash flows in the first quarter of 2005 and used $26.2 million in the first quarter of 2004. 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 flow used in investing activities increased $2.7 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to increased construction expenditures resulting from the steam generator and reactor vessel head replacement at ANO 1.

Financing Activities

Net cash flow used in financing activities increased $8.3 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to a $4.4 million call premium paid on the early redemption of the 7.0% Series of First Mortgage Bonds in February 2005 and the payment of $1.9 million more in common stock dividends. See Note 3 to the domestic utility companies and System Energy financial statements for details of Entergy Arkansas' long-term debt activity in 2005.

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 are updates to the information provided in the Form 10-K.

In April 2005, Entergy Arkansas renewed its 364-day credit facility through April 30, 2006. The amount available under the credit facility is $85 million, of which none was drawn at March 31, 2005.

Entergy Arkansas issued long-term debt in 2005 as follows:

Issue Date

 

Description

 

Maturity

 

Amount

           

(In Thousands)

             

January 2005

 

5.66% Series

 

February 2025

 

$175,000

March 2005

 

5.00% Series

 

January 2021

 

$45,000

The proceeds from the January 2005 issuance were used to redeem First Mortgage Bonds as follows:

Retirement Date

 


Description

 


Maturity

 


Amount

           

(In Thousands)

             

February 2005

 

7.00% Series

 

October 2023

 

$175,000

Entergy Arkansas used the proceeds from the March 2005 issuance to redeem, prior to maturity, $45 million of 6.25% Series of Independence County bonds in April 2005. The issuance is shown as a non-cash transaction on the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.

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, federal regulation and proceedings, market and credit risks, state and local rate regulatory risks, nuclear matters, and environmental risks. Following are updates to the information presented in the Form 10-K.

Federal Regulation

Transmission

See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

Available Flowgate Capacity Proceeding

See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

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, unbilled revenue, and pension and other postretirement benefits.

Recently Issued Accounting Pronouncements

In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

 

 

ENTERGY ARKANSAS, INC.
INCOME STATEMENTS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
     
    2005   2004
    (In Thousands)
         
OPERATING REVENUES        
Domestic electric   $367,360    $363,461 
         
OPERATING EXPENSES        
Operation and Maintenance:        
  Fuel, fuel-related expenses, and        
   gas purchased for resale   36,803    59,787 
  Purchased power   107,632    102,328 
  Nuclear refueling outage expenses   6,317    6,337 
  Other operation and maintenance   85,829    84,441 
Decommissioning   8,113    9,344 
Taxes other than income taxes   9,837    8,396 
Depreciation and amortization   51,777    49,668 
Other regulatory credits - net   (795)   (5,406)
TOTAL   305,513    314,895 
         
OPERATING INCOME   61,847    48,566 
         
OTHER INCOME        
Allowance for equity funds used during construction   3,959    2,193 
Interest and dividend income   4,292    2,022 
Miscellaneous - net   (632)   (1,050)
TOTAL   7,619    3,165 
         
INTEREST AND OTHER CHARGES  
Interest on long-term debt   20,782    19,748 
Other interest - net   1,426    883 
Allowance for borrowed funds used during construction   (2,011)   (1,301)
TOTAL   20,197    19,330 
         
INCOME BEFORE INCOME TAXES   49,269    32,401 
         
Income taxes   17,338    13,125 
         
NET INCOME   31,931    19,276 
         
Preferred dividend requirements and other   1,944    1,944 
         
EARNINGS APPLICABLE TO        
COMMON STOCK   $29,987    $17,332 
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY ARKANSAS, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
     
    2005   2004
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $31,931    $19,276 
Adjustments to reconcile net income to net cash flow provided by operating activities:        
 Reserve for regulatory adjustments   (791)   175 
 Other regulatory credits - net   (795)   (5,406)
 Depreciation, amortization, and decommissioning   59,890    59,012 
 Deferred income taxes and investment tax credits   11,865    37,822 
 Changes in working capital:        
   Receivables   53,154    4,917 
   Fuel inventory   (10,013)   (12,628)
   Accounts payable   14,503    (47,474)
   Taxes accrued   12,447    (12,647)
   Interest accrued   1,621    4,508 
   Deferred fuel costs   (9,431)   13,222 
   Other working capital accounts   (59,926)   (13,069)
 Provision for estimated losses and reserves   (378)   (3,921)
 Changes in other regulatory assets   15,917    7,445 
 Other   23,486    18,160 
Net cash flow provided by operating activities   143,480    69,392 
         
INVESTING ACTIVITIES        
Construction expenditures   (54,718)   (50,251)
Allowance for equity funds used during construction   3,959    2,193 
Nuclear fuel purchases   (39,615)  
Proceeds from sale/leaseback of nuclear fuel   39,615   
Decommissioning trust contributions and realized        
  change in trust assets   (1,847)   (1,864)
Net cash flow used in investing activities   (52,606)   (49,922)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt   173,464   
Retirement of long-term debt   (179,895)  
Dividends paid:        
 Common stock   (10,200)   (8,300)
 Preferred stock   (1,944)   (1,944)
Net cash flow used in financing activities   (18,575)   (10,244)
         
Net increase in cash and cash equivalents   72,299    9,226 
         
Cash and cash equivalents at beginning of period   89,744    8,834 
         
Cash and cash equivalents at end of period   $162,043    $18,060 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $18,522    $13,357 
  Income taxes   -    ($5,400)
Noncash financing activities:        
  Proceeds from long-term debt issued for the purpose        
   of refunding other long-term debt   $45,000   
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY ARKANSAS, INC.
BALANCE SHEETS
ASSETS
March 31, 2005 and December 31, 2004
(Unaudited)
   
  2005   2004
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents:        
 Cash   $3,220    $7,133 
 Temporary cash investments - at cost,        
   which approximates market   158,823    82,611 
        Total cash and cash equivalents   162,043    89,744 
Accounts receivable:        
 Customer   69,358    87,131 
 Allowance for doubtful accounts   (10,994)   (11,039)
 Associated companies   64,895    72,472 
 Other   59,528    72,425 
 Accrued unbilled revenues   56,691    71,643 
   Total accounts receivable   239,478    292,632 
Deferred fuel costs   16,799    7,368 
Accumulated deferred income taxes   16,552    27,306 
Fuel inventory - at average cost   14,311    4,298 
Materials and supplies - at average cost   85,252    85,076 
Deferred nuclear refueling outage costs   29,446    16,485 
Prepayments and other   53,571    6,154 
TOTAL   617,452    529,063 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   11,208    11,208 
Decommissioning trust funds   384,541    383,784 
Non-utility property - at cost (less accumulated depreciation)   1,452    1,453 
Other   2,976    2,976 
TOTAL   400,177    399,421 
         
UTILITY PLANT        
Electric   6,142,908    6,124,359 
Property under capital lease   16,598    17,500 
Construction work in progress   254,219    226,172 
Nuclear fuel under capital lease   92,576    93,855 
Nuclear fuel   10,960    12,201 
TOTAL UTILITY PLANT   6,517,261    6,474,087 
Less - accumulated depreciation and amortization   2,795,780    2,753,525 
UTILITY PLANT - NET   3,721,481    3,720,562 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
 SFAS 109 regulatory asset - net   92,201    101,658 
 Other regulatory assets   406,066    400,174 
Other   45,982    42,514 
TOTAL   544,249    544,346 
         
TOTAL ASSETS   $5,283,359    $5,193,392 
         
See Notes to Respective Financial Statements.        
 
 
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2005 and December 31, 2004
(Unaudited)
   
  2005   2004
  (In Thousands)
 
CURRENT LIABILITIES        
Currently maturing long-term debt   $147,000   $147,000
Accounts payable:        
  Associated companies   76,335   68,829
  Other   96,893   89,896
Customer deposits   42,962   41,639
Taxes accrued   63,613   35,874
Interest accrued   22,997   21,376
Obligations under capital leases   49,871   49,816
Other   18,953   19,648
TOTAL   518,624   474,078
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   1,099,883   1,121,623
Accumulated deferred investment tax credits   67,339   68,452
Obligations under capital leases   59,303   61,538
Other regulatory liabilities   66,271   67,362
Decommissioning   500,857   492,745
Accumulated provisions   34,599   34,977
Long-term debt   1,239,717   1,191,763
Other   233,572   237,447
TOTAL   3,301,541   3,275,907
         
Commitments and Contingencies        
         
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 2005        
  and 2004   470   470
Paid-in capital   591,127   591,127
Retained earnings   755,247   735,460
TOTAL   1,463,194   1,443,407
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $5,283,359   $5,193,392
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY ARKANSAS, INC.
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2005 and 2004

(Unaudited)

                 
                 
            Increase/    

Description

 

2005

 

2004

 

(Decrease)

 

%

    (Dollars In Millions)    
Electric Operating Revenues:                
 Residential   $ 135    $ 131    $ 4    3 
 Commercial   69    65    4    6 
 Industrial   72    68    4    6 
 Governmental   4    4    -    - 
    Total retail   280    268    12    4 
 Sales for resale                
   Associated companies   41    54    (13)   (24)
   Non-associated companies   51    45    6    13 
Other   (5)   (4)   (1)   (25)
  Total   $ 367    $ 363    $ 4    1 
                 
Billed Electric Energy                
 Sales (GWh):                
   Residential   1,890    1,889    1    - 
   Commercial   1,249    1,213    36    3 
   Industrial   1,664    1,647    17    1 
   Governmental   68    64    4    6 
      Total retail   4,871    4,813    58    1 
   Sales for resale                
      Associated companies   1,355    1,672    (317)   (19)
      Non-associated companies   1,107    1,273    (166)   (13)
      Total   7,333    7,758    (425)   (5)
                 

 

 

ENTERGY GULF STATES, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

Net Income

Net income decreased $18.4 million for the first quarter of 2005 primarily due to lower net revenue and higher other operation and maintenance expenses, partially offset by lower interest expense and a lower effective income tax rate.

Net Revenue

Net revenue, which is Entergy Gulf States' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue comparing the first quarter of 2005 to the first quarter of 2004.

 

 

Amount

 

 

(In Millions)

 

 

 

2004 net revenue

 

$262.7 

Volume/weather

 

(12.5)

Price applied to unbilled sales

 

(11.3)

Rate refund provisions

 

4.2 

Other

 

(1.4)

2005 net revenue

 

$241.7 

The volume/weather variance is primarily due to decreased usage primarily during the unbilled sales period and milder weather.

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

The rate refund provisions variance is due to provisions recorded in the first quarter of 2004 for potential rate actions and refunds.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to an increase of $57.1 million in fuel cost recovery revenues due to higher fuel rates, partially offset by the volume/weather variance and unbilled pricing variance discussed above.

Fuel and purchased power expenses increased primarily due to increased recovery from customers of deferred fuel costs and an increase in the market price of purchased power, partially offset by a decrease in demand.

Other Income Statement Variances

Other operation and maintenance expenses increased $16.9 million primarily due to increases of:

  • $4.8 million in nuclear and fossil generation expenses primarily due to both planned off-peak and unplanned maintenance outage costs;
  • $3.7 million in benefit costs;
  • $2.7 million in general liability and workers compensation provisions; and
  • $2.1 million in customer service costs, including vegetation management spending.

Other regulatory credits decreased $2.9 million primarily due to the deferral in 2004 of a gas facility charge related to lower throughput and 2004 credits related to asset retirement obligations.

Interest and other charges decreased $8.1 million primarily due to the retirement of $292 million of First Mortgage Bonds in 2004.

Income Taxes

The effective income tax rates for the first quarters of 2005 and 2004 were 19.6% and 31.9%, respectively. The difference in the effective income tax rate for the first quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to a downward revision in the estimate of federal income tax expense for prior tax periods, book and tax differences related to utility plant items, and flow-through book and tax timing differences. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items and the amortization of investment tax credits.

Liquidity and Capital Resources

Cash Flow

Cash flows for the first quarters of 2005 and 2004 were as follows:

 

 

2005

 

2004

 

 

(In Thousands)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$6,974 

 

$206,030 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

 

Operating activities

 

72,275 

 

57,133 

 

Investing activities

 

(62,556)

 

(59,351)

 

Financing activities

 

(11,220)

 

(10,300)

Net decrease in cash and cash equivalents

 

(1,501)

 

(12,518)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$5,473 

 

$193,512 

Operating Activities

Cash flow from operations increased $15.1 million in the first quarter of 2005 compared to the first quarter of 2004 primarily due to an increase in the collection of customer receivables. The increase was partially offset by money pool activity, which used $40.1 million of Entergy Gulf States' operating cash flows in the first quarter of 2005 compared to using $20.9 million in the first quarter of 2004. Entergy Gulf States' receivables from or (payables to) the money pool were as follows:

March 31,
2005

 

December 31,
2004

 

March 31,
2004

 

December 31,
2003

(In Thousands)

 

 

 

 

 

 

 

($19,630)

 

($59,720)

 

$90,270

 

$69,354

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 increased $3.2 million for the first quarter of 2005 compared to the same period of 2004 primarily due to the maturity in 2004 of $23.6 million of other investments that provided cash in 2004 as well as an increase in construction expenditures of $9.9 million in 2005 primarily related to transmission reliability and fossil projects. The increase was partially offset by $25.6 million for other regulatory investments in 2004 as a result of fuel cost under-recovery. 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.

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 February 2005, Entergy Gulf States issued $85 million of 6.18% Series of First Mortgage Bonds due March 2035. Entergy Gulf States used the proceeds to redeem, in March 2005, $87.6 million of 8.75% Series Junior Subordinated Deferrable Interest Debentures due March 2046.

In May 2005, Entergy Gulf States redeemed, prior to maturity, $45 million of 9.0% Series of West Feliciana Parish bonds and $41.6 million of 7.5% Series of West Feliciana Parish 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, federal regulation and proceedings, state and local rate regulatory risk, 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.

State and Local Rate Regulation

In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement will result in credits of $76 million to retail electricity customers in Entergy Gulf States' Louisiana service territory. The settlement dismisses Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for the summers of 2001, 2002, 2003, and 2004, all pending and future nuclear uprate cases through May 2005, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case pending at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2.0 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews. The credits will be issued in connection with April 2005 billings. Entergy Gulf States has previously reserved for the approximate refund amounts.

The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside a 75 basis point bandwidth will be allocated 60% to the customers and 40% to Entergy Gulf States. Under the settlement, there is no change to Entergy Gulf States' retail rates at this time. Current rates will remain in place until the first formula rate plan filing in May 2005 and will be reset, if necessary, effective September 1, 2005. If, as a result of the formula rate plan filing in May 2005, Entergy Gulf States is found to have earned an ROE in excess of 10.65% for the 2004 test year, rates will be reset and a refund will be given in an amount sufficient to reduce its ROE to 10.65% effective January 2004.

Federal Regulation

System Agreement Litigation

See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in State and Local Rate Regulation, the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.

Transmission

See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

Available Flowgate Capacity Proceedings

See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

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.

In February 2005, bills were submitted in the Texas Legislature that would clarify that Entergy Gulf States is no longer subject to a rate freeze and specify that retail open access will not commence in Entergy Gulf States' Texas service territory until the PUCT certifies a power region. A substitute bill was passed by the Texas House of Representatives in April 2005, and is now being considered by the Texas Senate. The substitute bill changed several provisions of the original bills to address concerns raised in the legislative process. The substitute bill provides that:

  • Entergy Gulf States is authorized by the legislation to proceed with a jurisdictional separation into two vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and one subject solely to the retail jurisdiction of the PUCT;
  • The portions of all prior PUCT orders requiring Entergy Gulf States to comply with any provisions of Texas law governing transition to retail competition are void;
  • Entergy Gulf States must file a plan by January 1, 2006, identifying the power region(s) to be considered for certification and the steps and schedule to achieve certification;
  • Entergy Gulf States must file a transition to competition plan no later than January 1, 2007, that would mitigate market power and achieve full customer choice, including potentially construction of additional transmission facilities, generation auctions, generation capacity divestiture, reinstatement of a customer choice pilot project, establishment of a price to beat, and other public interest measures;
  • Entergy Gulf States may not file a general base rate case in Texas before June 30, 2007, with rates effective no earlier than June 30, 2008, but may seek before then the annual recovery of certain incremental purchased power capacity costs not in excess of five percent of its annual base rate revenues; and
  • Entergy Gulf States may recover over a period not to exceed 15 years reasonable and necessary transition to competition costs incurred before the effective date of the legislation and not previously recovered, with an allowance for carrying charges.

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, SFAS 143, the application of SFAS 71, unbilled revenue, and pension and other postretirement benefits.

Recently Issued Accounting Pronouncements

In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

ENTERGY GULF STATES, INC.
INCOME STATEMENTS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
  
    2005   2004
    (In Thousands)
         
OPERATING REVENUES        
Domestic electric   $652,395     $612,371  
Natural gas   26,855     26,625  
TOTAL   679,250     638,996  
         
OPERATING EXPENSES        
Operation and Maintenance:        
  Fuel, fuel-related expenses, and        
    gas purchased for resale   219,956    177,713 
  Purchased power   217,736    201,654 
  Nuclear refueling outage expenses   4,071    3,193 
  Other operation and maintenance   108,693    91,829 
  Decommissioning   2,298    3,730 
Taxes other than income taxes   30,538    29,722 
Depreciation and amortization   48,736    45,868 
Other regulatory credits - net   (121)   (3,025)
TOTAL   631,907    550,684 
         
OPERATING INCOME   47,343    88,312 
         
OTHER INCOME        
Allowance for equity funds used during construction   4,799    2,520 
Interest and dividend income   3,435    3,849 
Miscellaneous - net   651    1,884 
TOTAL   8,885    8,253 
         
INTEREST AND OTHER CHARGES  
Interest on long-term debt   28,225    35,388 
Other interest - net   1,985    1,814 
Allowance for borrowed funds used during construction   (3,006)   (1,914)
TOTAL   27,204    35,288 
         
INCOME BEFORE INCOME TAXES   29,024    61,277 
         
Income taxes   5,675    19,549 
         
NET INCOME   23,349     41,728 
         
Preferred dividend requirements and other   1,063     1,150 
         
EARNINGS APPLICABLE TO        
COMMON STOCK   $22,286    $40,578 
         
See Notes to Respective Financial Statements.        

 

ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
     
    2005   2004
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $23,349    $41,728 
Adjustments to reconcile net income to net cash flow provided by
operating activities:
       
 Reserve for regulatory adjustments   11,848    4,407 
 Other regulatory credits - net   (121)   (3,025)
 Depreciation, amortization, and decommissioning   51,034    49,598 
 Deferred income taxes and investment tax credits   4,346    3,885 
 Changes in working capital:        
   Receivables   21,439    (22,442)
   Fuel inventory   5,864    (1,298)
   Accounts payable   (79,017)   (69,718)
   Taxes accrued   (6,108)   13,369 
   Interest accrued   1,917    7,262 
   Deferred fuel costs   33,983    32,206 
   Other working capital accounts   (10,142)   27,274 
 Provision for estimated losses and reserves   623    403 
 Changes in other regulatory assets   5,879    875 
 Other   7,381    (27,391)
Net cash flow provided by operating activities   72,275    57,133 
         
INVESTING ACTIVITIES        
Construction expenditures   (66,813)   (56,889)
Allowance for equity funds used during construction   4,799    2,520 
Nuclear fuel purchases   (2)   (5,616)
Proceeds from sale/leaseback of nuclear fuel   54    5,616 
Investment in subsidiaries      
Decommissioning trust contributions and realized        
  change in trust assets   (3,223)   (2,966)
Changes in other investments - net   2,629    23,579 
Other regulatory investments     (25,595)
Net cash flow used in investing activities   (62,556)   (59,351)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of long-term debt   84,148   
Retirement of long-term debt   (87,629)  
Redemption of preferred stock   (2,250)   (2,250)
Dividends paid:        
  Common stock   (4,400)   (6,900)
  Preferred stock   (1,089)   (1,150)
Net cash flow used in financing activities   (11,220)   (10,300)
         
Net decrease in cash and cash equivalents   (1,501)   (12,518)
         
Cash and cash equivalents at beginning of period   6,974    206,030 
         
Cash and cash equivalents at end of period   $5,473    $193,512 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
  Interest - net of amount capitalized   $26,465    $33,346 
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY GULF STATES, INC.
BALANCE SHEETS
ASSETS
March 31, 2005 and December 31, 2004
(Unaudited)
     
  2005   2004
  (In Thousands)
       
CURRENT ASSETS        
Cash and cash equivalents:        
  Cash   $3,749    $5,627 
  Temporary cash investments - at cost,        
    which approximates market   1,724    1,347 
        Total cash and cash equivalents   5,473    6,974 
  Accounts receivable:        
    Customer   100,722    124,801 
    Allowance for doubtful accounts   (1,968)   (2,687)
    Associated companies   42,841    13,980 
    Other   41,005    40,697 
    Accrued unbilled revenues   110,471    137,719 
      Total accounts receivable   293,071    314,510 
Deferred fuel costs   56,141    90,124 
Accumulated deferred income taxes   27,425    14,339 
Fuel inventory - at average cost   43,794    49,658 
Materials and supplies - at average cost   103,104    101,922 
Prepayments and other   25,957    20,556 
TOTAL   554,965    598,083 
         
OTHER PROPERTY AND INVESTMENTS      
Decommissioning trust funds   293,909    290,952 
Non-utility property - at cost (less accumulated depreciation)   93,722    94,052 
Other   20,088    22,012 
TOTAL   407,719    407,016 
         
UTILITY PLANT      
Electric   8,449,863    8,418,119 
Natural gas   80,191    78,627 
Construction work in progress   356,073    331,703 
Nuclear fuel under capital lease   66,532    71,279 
TOTAL UTILITY PLANT   8,952,659    8,899,728 
Less - accumulated depreciation and amortization   4,086,881    4,047,182 
UTILITY PLANT - NET   4,865,778    4,852,546 
         
DEFERRED DEBITS AND OTHER ASSETS      
Regulatory assets:        
  SFAS 109 regulatory asset - net   444,421    444,799 
  Other regulatory assets   281,213    285,017 
Long-term receivables   22,069    23,228 
Other   41,365    44,713 
TOTAL   789,068    797,757 
         
TOTAL ASSETS   $6,617,530    $6,655,402 
         
See Notes to Respective Financial Statements.        
 
 
ENTERGY GULF STATES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2005 and December 31, 2004
(Unaudited)
   
  2005   2004
  (In Thousands)
 
CURRENT LIABILITIES      
Currently maturing long-term debt   $98,000   $98,000
Accounts payable:        
  Associated companies   115,386   153,069
  Other   106,003   147,337
Customer deposits   54,910   53,229
Taxes accrued   33,416   22,882
Accumulated deferred income taxes       -
Interest accrued   34,659   32,742
Deferred fuel costs   -   -
Obligations under capital leases   33,516   33,518
Global Settlement refund   76,079   -
Other   14,647   19,912
TOTAL   566,616   560,689
         
NON-CURRENT LIABILITIES      
Accumulated deferred income taxes and taxes accrued   1,536,567   1,533,804
Accumulated deferred investment tax credits   137,189   138,616
Obligations under capital leases   33,016   37,711
Other regulatory liabilities   44,849   34,009
Decommissioning and retirement cost liabilities   155,442   152,095
Transition to competition   79,098   79,098
Regulatory reserves   17,224   81,455
Accumulated provisions   68,710   66,875
Long-term debt   1,888,820   1,891,478
Preferred stock with sinking fund   15,150   17,400
Other   224,191   229,408
TOTAL   4,200,256   4,261,949
         
Commitments and Contingencies        
         
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 2005 and 2004   114,055   114,055
Paid-in capital   1,157,486   1,157,486
Retained earnings   531,068   513,182
Accumulated other comprehensive income   722   714
TOTAL   1,850,658   1,832,764
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $6,617,530   $6,655,402
         
See Notes to Respective Financial Statements.        
         

 

ENTERGY GULF STATES, INC.
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
                 
     
    2005   2004
    (In Thousands)
RETAINED EARNINGS                
Retained Earnings - Beginning of period   $513,182       $419,690     
                 
    Add: Net Income   23,349   $23,349   41,728    $41,728 
                 
    Deduct:                
      Dividends declared on common stock   4,400       6,900     
      Preferred dividend requirements and other   1,063   1,063   1,150    1,150 
    5,463       8,050     
                 
Retained Earnings - End of period  
$531,068
     
$453,368 
   
                 
ACCUMULATED OTHER COMPREHENSIVE                
INCOME (Net of Taxes):                
Balance at beginning of period:                
  Accumulated derivative instrument fair value changes   $714       $3,912     
                 
Net derivative instrument fair value changes                
 arising during the period   8   8   (543)   (543)
                 
Balance at end of period:                
  Accumulated derivative instrument fair value changes  
$722
     
$3,369 
   
Comprehensive Income      
$22,294
     
$40,035 
                 
                 
See Notes to Respective Financial Statements.                
                 

 

ENTERGY GULF STATES, INC.
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
 
                 
            Increase/    
Description   2005   2004   (Decrease)   %
   

                 (Dollars In Millions)

 
Electric Operating Revenues:                
  Residential   $196    $184   $12   
  Commercial   159    142   17    12 
  Industrial   244    212   32    15 
  Governmental   10    9   1    11 
    Total retail   609    547   62    11 
  Sales for resale                
    Associated companies   26    13   13    100 
    Non-associated companies   32    45   (13)   (29)
Other   (15)   7   (22)   (314)
  Total   $652    $612   $40   
                 
Billed Electric Energy                
  Sales (GWh):                
  Residential   2,155    2,188   (33)   (2)
  Commercial   1,914    1,862   52   
  Industrial   3,981    3,923   58   
  Governmental   105    111   (6)   (5)
    Total retail   8,155    8,084   71   
  Sales for resale                
    Associated companies   565    311   254    82 
    Non-associated companies   539    1,022   (483)   (47)
  Total   9,259    9,417   (158)   (2)
                 
                 

 

ENTERGY LOUISIANA, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Entergy Louisiana's net income for first quarter 2005 was $1.8 million, which is a decrease of $19.4 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to lower net revenue, higher other operation and maintenance expenses, higher depreciation and amortization expenses, and higher interest charges, partially offset by higher interest income.

Net Revenue

Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue comparing the first quarter of 2005 to the first quarter of 2004.

 

 

Amount

 

 

(In Millions)

 

 

 

2004 net revenue

 

$197.2 

Volume/weather

 

(9.6)

Rate refund provisions

 

(5.1)

Other

 

2.2 

2005 net revenue

 

$184.7 

The volume/weather variance is due to a total decrease of 131 GWh in weather-adjusted usage, primarily in the residential sector, and decreased usage during the unbilled sales period, partially offset by the effect of milder weather in the first quarter of 2004.

The rate refund provisions variance is primarily due to provisions recorded in the first quarter of 2005 as a result of a settlement approved by the LPSC in March 2005. The settlement is discussed in Note 2 to the domestic utility companies and System Energy financial statements.

Fuel and purchased power expenses and other regulatory credits

Fuel and purchased power expenses increased primarily due to:

  • an increase in the market prices of natural gas and purchased power; and
  • an increase in the recovery from customers of deferred fuel costs.

The increase was partially offset by decreased demand.

Other regulatory credits increased primarily due to the deferral in the first quarter of 2005 of capacity charges related to generation resource planning as allowed by the LPSC.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

  • an increase of $3.4 million in benefit costs;
  • an increase of $2.3 million in fossil plant planned off-peak maintenance outage costs; and
  • an increase of $1.5 million in casualty reserves.

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

Other income increased primarily due to:

  • an increase of $1.2 million in the allowance for equity funds used during construction due to an increase in construction expenditures related to transmission and nuclear projects; and
  • an increase of $1.3 million in interest and dividend income primarily due to interest earned on temporary cash investments.
  • Interest charges increased primarily due to:

    • interest accrued on past transmission construction collections from a cogenerator in accordance with a December 2004 FERC order; and
    • the net issuance of $98 million of First Mortgage Bonds in 2004.

    Income Taxes

    The effective income tax rates for the first quarters of 2005 and 2004 were 32.1% and 37.2%, respectively. The difference in the effective income tax rate for the first quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to the amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction, partially offset by state income taxes and book and tax differences related to utility plant items. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is 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.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2005 and 2004 were as follows:

     

     

    2005

     

    2004

     

     

    (In Thousands)

     

     

     

     

     

    Cash and cash equivalents at beginning of period

     

    $146,049 

     

    $8,787 

     

     

     

     

     

    Cash flow provided by (used in):

     

     

     

     

     

    Operating activities

     

    82,815 

     

    8,562 

     

    Investing activities

     

    (56,705)

     

    (44,571)

     

    Financing activities

     

    (3,478)

     

    82,763 

    Net increase in cash and cash equivalents

     

    22,632 

     

    46,754 

     

     

     

     

     

    Cash and cash equivalents at end of period

     

    $168,681 

     

    $55,541 

    Operating Activities

    Cash flow from operations increased $74.3 million in the first quarter of 2005 compared to the first quarter of 2004 primarily due to money pool activity which provided $11.2 million of Entergy Louisiana's operating cash flows in the first quarter of 2005 and used $66.9 million in the first quarter of 2004. Entergy Louisiana's receivables from or (payables to) the money pool were as follows:

    March 31,
    2005

     

    December 31,
    2004

     

    March 31,
    2004

     

    December 31,
    2003

    (In Thousands)

     

     

     

     

     

     

     

    $29,378

     

    $40,549

     

    $25,626

     

    ($41,317)

    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 increase of $12.1 million in net cash used by investing activities for the first quarter of 2005 compared to the first quarter of 2004 is primarily due to increased spending on transmission and nuclear projects.

    Financing Activities

    Entergy Louisiana used $3.5 million of cash for financing activities in the first quarter of 2005 compared to providing $82.8 million in the first quarter of 2004 primarily due to the issuance of $100 million of 5.5% Series First Mortgage Bonds in March 2004, partially offset by a principal payment of $14.8 million in 2004 for the Waterford Lease Obligation.

    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 are updates to the information provided in the Form 10-K.

    As discussed in the Form 10-K, Entergy Louisiana has a 364-day credit facility in the amount of $15 million. The credit facility's expiration has been extended to July 2005, and it is expected that this facility will be renewed prior to expiration.

    Regarding the planned Perryville plant acquisition by Entergy Louisiana, the FERC has denied rehearing of its October 2004 order disclaiming jurisdiction over the acquisition. Also, the LPSC hearing on the acquisition scheduled for March 2005 was held and in April 2005 the LPSC approved the acquisition and the long-term cost-of-service purchased power agreement under which Entergy Gulf States will purchase 75 percent of the plant's output. Entergy Louisiana expects the Perryville acquisition to close in mid-2005.

    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, federal regulation and proceedings, industrial and commercial customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provided in the Form 10-K.

    State and Local Rate Regulation

    In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement will result in credits of $14 million to retail electricity customers of Entergy Louisiana. The settlement dismisses, among other dockets, dockets established to consider issues concerning power purchases for Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all pending and future nuclear uprate cases through May 2005, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case pending at FERC. In addition, Entergy Louisiana agreed to forego recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits will be issued in connection with April 2005 billings. Entergy Louisiana has reserved for the approximate refund amounts.

    Refer to "Management's Financial Discussion and Analysis - State Rate Regulation" in the Form 10-K for discussion of Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that includes an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. The proposed settlement also includes the adoption of a three-year formula rate plan, the terms of which include a ROE mid-point of 10.25% and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an 80 basis point bandwidth will be allocated 60% to the customers and 40% to Entergy Louisiana. A decision from the LPSC is expected in May 2005.

    Federal Regulation

    System Agreement Litigation

    See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in State and Local Rate Regulation, the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.

    Transmission

    See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

    Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

    On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

    In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

    Interconnection Orders

    See the Form 10-K for a discussion of the ALJ Initial Decision and FERC order directing Entergy Louisiana to refund, in the form of transmission credits, approximately $15 million in expenses and tax obligations previously paid by a generator. Entergy's request for rehearing was denied by the FERC.

    Available Flowgate Capacity Proceedings

    See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

    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, unbilled revenue, and pension and other postretirement costs.

    Recently Issued Accounting Pronouncements

    In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

    ENTERGY LOUISIANA, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
       
        2005   2004
        (In Thousands)
             
    OPERATING REVENUES        
    Domestic electric   $480,673    $488,046 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   137,777    137,779 
      Purchased power   171,306    157,730 
      Nuclear refueling outage expenses   3,424    3,177 
      Other operation and maintenance   88,638    77,698 
    Decommissioning   5,717    5,356 
    Taxes other than income taxes   18,357    16,074 
    Depreciation and amortization   51,808    46,586 
    Other regulatory credits - net   (13,084)   (4,672)
    TOTAL   463,943    439,728 
             
    OPERATING INCOME   16,730    48,318 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   2,537    1,350 
    Interest and dividend income   3,066    1,727 
    Miscellaneous - net   (367)   (1,138)
    TOTAL   5,236    1,939 
             
    INTEREST AND OTHER CHARGES  
    Interest on long-term debt   17,839    16,458 
    Other interest - net   3,019    985 
    Allowance for borrowed funds used during construction   (1,499)   (976)
    TOTAL   19,359    16,467 
             
    INCOME BEFORE INCOME TAXES   2,607    33,790 
             
    Income taxes   836    12,579 
             
    NET INCOME   1,771    21,211 
             
    Preferred dividend requirements and other   1,678    1,678 
             
    EARNINGS APPLICABLE TO        
    COMMON STOCK   $93    $19,533 
             
    See Notes to Respective Financial Statements.        

     

     

     

     

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    ENTERGY LOUISIANA, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
         
        2005   2004
        (In Thousands)
             
    OPERATING ACTIVITIES        
    Net income   $1,771    $21,211 
    Adjustments to reconcile net income to net cash flow provided by operating activities:        
      Reserve for regulatory adjustments   5,287   
      Other regulatory credits - net   (13,084)   (4,672)
      Depreciation, amortization, and decommissioning   57,525    51,942 
      Deferred income taxes and investment tax credits   (8,913)   19,728 
      Changes in working capital:        
        Receivables   10,893    (4,509)
        Accounts payable   (24,415)   (94,210)
        Taxes accrued   21,343    6,646 
        Interest accrued   1,783    (5,205)
        Deferred fuel costs   27,559    13,773 
        Other working capital accounts   (18,853)   21,040 
      Provision for estimated losses and reserves   1,926    1,778 
      Changes in other regulatory assets   (8,651)   519 
      Other   28,644    (19,479)
    Net cash flow provided by operating activities   82,815    8,562 
             
    INVESTING ACTIVITIES        
    Construction expenditures   (55,368)   (44,758)
    Allowance for equity funds used during construction   2,537    1,350 
    Nuclear fuel purchases   (40,291)  
    Proceeds from the sale/leaseback of nuclear fuel   40,291   
    Decommissioning trust contributions and realized        
      change in trust assets   (3,874)   (1,163)
    Net cash flow used in investing activities   (56,705)   (44,571)
             
    FINANCING ACTIVITIES        
    Proceeds from the issuance of long-term debt     99,250 
    Retirement of long-term debt   -    (14,809)
    Dividends paid:        
      Common stock   (1,800)  
      Preferred stock   (1,678)   (1,678)
    Net cash flow provided by (used in) financing activities   (3,478)   82,763 
             
    Net increase in cash and cash equivalents   22,632    46,754 
             
    Cash and cash equivalents at beginning of period   146,049    8,787 
             
    Cash and cash equivalents at end of period   $168,681    $55,541 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid during the period for:        
      Interest - net of amount capitalized   $18,285    $20,345 
             
    See Notes to Respective Financial Statements.        

     

    ENTERGY LOUISIANA, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2005 and December 31, 2004
    (Unaudited)
       
      2005   2004
      (In Thousands)
             
    CURRENT ASSETS        
    Cash and cash equivalents:        
      Cash   $3,531    $3,875 
      Temporary cash investments - at cost,        
       which approximates market   165,150    142,174 
            Total cash and cash equivalents   168,681    146,049 
    Accounts receivable:        
      Customer   79,304    88,154 
      Allowance for doubtful accounts   (2,467)   (3,135)
      Associated companies   50,856    43,121 
      Other   24,776    13,070 
      Accrued unbilled revenues   121,301    143,453 
        Total accounts receivable   273,770    284,663 
    Deferred fuel costs     8,654 
    Accumulated deferred income taxes   16,043    12,712 
    Materials and supplies - at average cost   77,827    77,665 
    Deferred nuclear refueling outage costs   3,988    5,605 
    Prepayments and other   22,293    6,861 
    TOTAL   562,602    542,209 
             
    OTHER PROPERTY AND INVESTMENTS        
    Investment in affiliates - at equity   14,230    14,230 
    Decommissioning trust funds   175,771    172,083 
    Non-utility property - at cost (less accumulated depreciation)   21,143    21,176 
    Other    
    TOTAL   211,148    207,493 
              
    UTILITY PLANT        
    Electric   6,010,315    5,985,889 
    Property under capital lease   250,964    250,964 
    Construction work in progress   210,363    188,848 
    Nuclear fuel under capital lease   74,681    31,655 
    TOTAL UTILITY PLANT   6,546,323    6,457,356 
    Less - accumulated depreciation and amortization   2,839,284    2,799,936 
    UTILITY PLANT - NET   3,707,039    3,657,420 
              
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:        
      SFAS 109 regulatory asset - net   134,880    132,686 
      Other regulatory assets   310,717    302,456 
    Long-term receivables   10,736    10,736 
    Other   27,486    25,994 
    TOTAL   483,819    471,872 
              
    TOTAL ASSETS   $4,964,608     $4,878,994  
             
    See Notes to Respective Financial Statements.        
     
     
     
    ENTERGY LOUISIANA, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2005 and December 31, 2004
    (Unaudited)
       
      2005   2004
      (In Thousands)
     
    CURRENT LIABILITIES        
    Currently maturing long-term debt   $55,000    $55,000 
    Accounts payable:         
      Associated companies   59,000    57,681 
      Other   102,789    128,523 
    Customer deposits   66,652    66,963 
    Taxes accrued   37,431    7,268 
    Interest accrued   20,221    18,438 
    Deferred fuel cost   18,905   
    Obligations under capital leases   22,753    22,753 
    Other   19,863    10,428 
    TOTAL   402,614    367,054 
             
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued   1,795,274    1,805,410  
    Accumulated deferred investment tax credits   94,902    96,130  
    Obligations under capital leases   51,929    8,903  
    Other regulatory liabilities   67,318    51,260  
    Decommissioning   352,972    347,255  
    Accumulated provisions   94,579    92,653  
    Long-term debt   930,711    930,695  
    Other   103,197    106,815  
    TOTAL   3,490,882    3,439,121  
             
    Commitments and Contingencies        
             
    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 2005        
      and 2004   1,088,900     1,088,900  
    Capital stock expense and other   (1,718)   (1,718)
    Retained earnings   3,430     5,137  
    Less - treasury stock, at cost (18,202,573 shares in 2005 and 2004)   120,000     120,000  
    TOTAL   1,071,112     1,072,819  
             
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $4,964,608     $4,878,994  
             
    See Notes to Respective Financial Statements.        

     

      ENTERGY LOUISIANA, INC.
    SELECTED OPERATING RESULTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)

     
     
            Increase/    
    Description   2005   2004   (Decrease)   %
        (Dollars In Millions)    
    Electric Operating Revenues:                
      Residential   $165    $170    ($5)   (3)
      Commercial   115    114     
      Industrial   189    186      2  
      Governmental   10        11 
         Total retail   479    479     
      Sales for resale                
         Associated companies   16    10      60 
         Non-associated companies       (2)   (50)
      Other   (16)   (5)   (11)   (220)
        Total   $481    $488   ($7)   (1)
                     
    Billed Electric Energy                
      Sales (GWh):                
      Residential   1,929    2,007    (78)   (4)
      Commercial   1,287    1,283     
      Industrial   3,115    3,132    (17)   (1)
      Governmental   118    109     
         Total retail   6,449    6,531    (82)   (1)
      Sales for resale                
        Associated companies   145    106    39    37 
        Non-associated companies   15    48    (33)   (69)
       Total   6,609    6,685    (76)   (1)

    ENTERGY MISSISSIPPI, INC.

    MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

    Results of Operations

    Net Income

    Net income decreased $1.4 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to higher other operation and maintenance expenses and higher depreciation and amortization expense, substantially offset by higher net revenue.

    Net Revenue

    Net revenue, which is Entergy Mississippi'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 first quarter of 2005 to the first quarter of 2004.

       

    Amount

       

    (In Millions)

         

    2004 net revenue

     

    $87.5 

    Net wholesale revenue

     

    4.0 

    2005 net revenue

     

    $91.5 

    The net wholesale revenue variance resulted from the receipt from a third party of prior period transmission revenue that was not previously billed.

    Other Income Statement Variances

    Other operation and maintenance expenses increased primarily due to:

    • an increase of $3.0 million in fossil plant planned off-peak maintenance outage costs; and
    • an increase of $1.2 million in benefit costs.

    Depreciation and amortization expense increased primarily due to increased plant in service.

    Income Taxes

    The effective income tax rates for the first quarters of 2005 and 2004 were 29.6% and 32.8%, respectively. The difference in the effective tax rate for the first quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to the amortization of investment tax credits and book and tax differences related to the allowance of equity funds used during construction, partially offset by state income taxes. The difference in the effective tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items and the amortization of investment tax credits, partially offset by state income taxes.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2005 and 2004 were as follows:

     

     

    2005

     

    2004

     

     

    (In Thousands)

     

     

     

     

     

    Cash and cash equivalents at beginning of period

     

    $80,396 

     

    $63,838 

     

     

     

     

     

    Cash flow provided by (used in):

     

     

     

     

     

    Operating activities

     

    32,573 

     

    15,182 

     

    Investing activities

     

    (30,545)

     

    (30,119)

     

    Financing activities

     

    (6,342)

     

    (3,742)

    Net decrease in cash and cash equivalents

     

    (4,314)

     

    (18,679)

     

     

     

     

     

    Cash and cash equivalents at end of period

     

    $76,082 

     

    $45,159 

    Operating Activities

    Cash flow from operations increased $17.4 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to increased recovery of deferred fuel and purchased power costs and money pool activity.

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

    March 31,
    2005

     

    December 31,
    2004

     

    March 31,
    2004

     

    December 31,
    2003

    (In Thousands)

     

     

     

     

     

     

     

    $13,111

     

    $21,584

     

    $17,289

     

    $22,076

    Money pool activity provided $8.5 million of Entergy Mississippi's operating cash flow for the first quarter of 2005 and provided $4.8 million of Entergy Mississippi's operating cash flow for the first quarter of 2004. 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 was relatively unchanged for the first quarter of 2005 compared to the first quarter of 2004. Decreased capital expenditures as a result of decreased spending on transmission projects was offset by the maturity in 2004 of $7.5 million of other temporary investments that had been made in 2003, which provided cash in 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 Mississippi's uses and sources of capital. Following are updates to the information presented in the Form 10-K.

    See the table in the Form 10-K under "Uses of Capital" which sets forth the amounts of Entergy Mississippi's planned construction and other capital investments for 2005 through 2007. In March 2005, Entergy Mississippi signed an agreement to purchase for $88 million the Attala power plant, a 480 MW natural gas-fired, combined-cycle generating facility owned by Central Mississippi Generating Company (CMGC). Entergy Mississippi plans to invest approximately $20 million in facility upgrades at the Attala plant plus $3 million in transaction costs, bringing the total capital cost of the project to approximately $111 million. The Attala plant will be 100 percent owned by Entergy Mississippi, and the acquisition is expected to close in late 2005 or early 2006. The purchase of the plant is contingent upon obtaining necessary approvals from various federal agencies, state permitting agencies, and the MPSC, including MPSC approval of investment cost recovery. Entergy Mississippi and CMGC had previously executed a purchased power agreement in July 2004 for 100 percent of the plant's output, and this agreement will expire upon the close of the acquisition or in March 2008, whichever occurs earlier. The planned construction and other capital investments line in the table in the Form 10-K includes the estimated cost of the Attala acquisition as a 2006 capital commitment.

    In April 2005, Entergy Mississippi renewed its 364-day credit facility through May 31, 2006. The amount available under the credit facility is $25 million, of which none was drawn at March 31, 2005.

    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, federal regulation and proceedings, market and credit risks, state and local regulatory risks, and litigation risks. The following are updates to the information provided in the Form 10-K.

    State and Local Rate Regulation

    In April 2005, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation regarding Entergy Mississippi's annual formula rate plan filing that provides for no change in rates based on an adjusted return on common equity midpoint of 10.5%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.

    Federal Regulation

    Transmission

    See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

    Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

    On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

    In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

    Available Flowgate Capacity Proceedings

    See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

    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.

    Recently Issued Accounting Pronouncements

    In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

    ENTERGY MISSISSIPPI, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
         
        2005   2004
        (In Thousands)
             
    OPERATING REVENUES        
    Domestic electric   $251,246    $236,829 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   43,367    59,175 
      Purchased power   116,058    92,702 
      Other operation and maintenance   40,981    37,048 
    Taxes other than income taxes   13,766    12,798 
    Depreciation and amortization   17,937    14,909 
    Other regulatory charges (credits) - net   365    (2,527)
    TOTAL   232,474    214,105 
             
    OPERATING INCOME   18,772    22,724 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   1,001    767 
    Interest and dividend income   638    716 
    Miscellaneous - net   (369)   (640)
    TOTAL   1,270    843 
             
    INTEREST AND OTHER CHARGES  
    Interest on long-term debt   9,834    10,929 
    Other interest - net   617    400 
    Allowance for borrowed funds used during construction   (663)   (607)
    TOTAL   9,788    10,722 
             
    INCOME BEFORE INCOME TAXES   10,254    12,845 
             
    Income taxes   3,032    4,208 
             
    NET INCOME   7,222    8,637 
             
    Preferred dividend requirements and other   842    842 
             
    EARNINGS APPLICABLE TO        
    COMMON STOCK   $6,380    $7,795 
             
    See Notes to Respective Financial Statements.        

     

     

     

     

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    ENTERGY MISSISSIPPI, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
         
        2005   2004
        (In Thousands)
             
    OPERATING ACTIVITIES        
    Net income   $7,222    $8,637 
    Adjustments to reconcile net income to net cash flow provided by operating activities:        
    Other regulatory charges (credits) - net   365    (2,527)
    Depreciation and amortization   17,937    14,909 
    Deferred income taxes and investment tax credits   (695)   56,647 
    Changes in working capital:        
      Receivables   20,843    12,328 
      Fuel inventory   1,696    726 
      Accounts payable   (15,008)   (10,296)
      Taxes accrued   (22,845)   (74,888)
      Interest accrued   3,940    2,837 
      Deferred fuel costs   17,714    8,244 
      Other working capital accounts   (13,617)   (4,103)
    Provision for estimated losses and reserves   19    20 
    Changes in other regulatory assets   2,181    1,200 
    Other   12,821    1,448 
    Net cash flow provided by operating activities   32,573    15,182 
             
    INVESTING ACTIVITIES        
    Construction expenditures   (31,546)   (38,392)
    Allowance for equity funds used during construction   1,001    767 
    Changes in other temporary investments - net     7,506 
    Net cash flow used in investing activities   (30,545)   (30,119)
             
    FINANCING ACTIVITIES        
    Dividends paid:        
      Common stock   (5,500)   (2,900)
      Preferred stock   (842)   (842)
    Net cash flow used in financing activities   (6,342)   (3,742)
             
    Net decrease in cash and cash equivalents   (4,314)   (18,679)
             
    Cash and cash equivalents at beginning of period   80,396    63,838 
             
    Cash and cash equivalents at end of period   $76,082    $45,159 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid during the period for:        
      Interest - net of amount capitalized   $5,990    $7,996 
             

     

    ENTERGY MISSISSIPPI, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2005 and December 31, 2004
    (Unaudited)
         
      2005   2004
      (In Thousands)
             
    CURRENT ASSETS        
    Cash and cash equivalents:        
      Cash   $2,377    $4,716 
      Temporary cash investment - at cost,        
       which approximates market   73,705    75,680 
            Total cash and cash equivalents   76,082    80,396 
    Accounts receivable:        
      Customer   55,863    68,821 
      Allowance for doubtful accounts   (797)   (1,126)
      Associated companies   19,389    22,616 
      Other   13,184    12,133 
      Accrued unbilled revenues   28,310    34,348 
        Total accounts receivable   115,949    136,792 
    Accumulated deferred income taxes   27,853    27,924 
    Fuel inventory - at average cost   2,441    4,137 
    Materials and supplies - at average cost   19,004    18,414 
    Prepayments and other   25,357    15,413 
    TOTAL   266,686    283,076 
             
    OTHER PROPERTY AND INVESTMENTS        
    Investment in affiliates - at equity   5,531    5,531 
    Non-utility property - at cost (less accumulated depreciation)   6,294    6,465 
    TOTAL   11,825    11,996 
             
    UTILITY PLANT        
    Electric   2,408,731    2,385,465 
    Property under capital lease   84    95 
    Construction work in progress   93,546    89,921 
    TOTAL UTILITY PLANT   2,502,361    2,475,481 
    Less - accumulated depreciation and amortization   885,866    870,188 
    UTILITY PLANT - NET   1,616,495    1,605,293 
             
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:        
      SFAS 109 regulatory asset - net   17,641    17,628 
      Other regulatory assets   82,925    82,674 
    Long-term receivable   4,510    4,510 
    Other   30,798    31,009 
    TOTAL   135,874    135,821 
             
    TOTAL ASSETS   $2,030,880    $2,036,186 
             
    See Notes to Respective Financial Statements.        
     
     
    ENTERGY MISSISSIPPI, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2005 and December 31, 2004
    (Unaudited)
         
      2005   2004
      (In Thousands)
     
    CURRENT LIABILITIES        
    Accounts payable:        
      Associated companies   $ 59,333    $ 65,806 
      Other   17,008    25,543 
    Customer deposits   38,840    37,333 
    Taxes accrued   21,556    40,106 
    Interest accrued   16,427    12,487 
    Deferred fuel costs   40,507    22,793 
    Obligations under capital leases   43     43 
    Other   3,751    8,341 
    TOTAL   197,465    212,452 
             
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued   433,881    438,321 
    Accumulated deferred investment tax credits   13,355    13,687 
    Obligations under capital leases   41    52 
    Accumulated provisions   12,737    12,718 
    Long-term debt   695,091    695,073 
    Other   89,618    76,071 
    TOTAL   1,244,723    1,235,922 
             
    Commitments and Contingencies        
             
    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 2005 and 2004   199,326    199,326 
    Capital stock expense and other   (59)   (59)
    Retained earnings   339,044    338,164 
    TOTAL   588,692    587,812 
             
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $2,030,880    $2,036,186 
             
    See Notes to Respective Financial Statements.        
             

     

     ENTERGY MISSISSIPPI, INC.
    SELECTED OPERATING RESULTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)

                 
                 
            Increase/    
    Description   2005   2004   (Decrease)   %
        (Dollars In Millions)    
    Electric Operating Revenues:                
      Residential   $ 96   $ 95   $ 1   1 
      Commercial   85   80   5   6 
      Industrial   44   42   2   5 
      Governmental   8   8   -    - 
         Total retail   233   225   8    4 
      Sales for resale                
        Associated companies   6   4   2    50 
      Non-associated companies   10   5   5    100 
    Other   2   3   (1)   (33)
      Total   $ 251   $ 237   $14    6 
                     
    Billed Electric Energy                
      Sales (GWh):                
      Residential   1,196   1,225   (29)   (2)
      Commercial   1,021   1,004   17    2 
      Industrial   692   676   16    2 
      Governmental   92   91   1    1 
        Total retail   3,001   2,996   5    - 
      Sales for resale                
        Associated companies   17   13   4    31 
        Non-associated companies   68   66   2    3 
        Total   3,086   3,075   11    - 
                     

    ENTERGY NEW ORLEANS, INC.

    MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

    Results of Operations

    Net Income

    Net income decreased $1.4 million for the first quarter 2005 compared to the first quarter 2004 primarily due to lower net revenue and higher depreciation expense.

    Net Revenue

    Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges. Following is an analysis of the change in net revenue comparing the first quarter of 2005 to the first quarter of 2004.

       

    Amount

       

    (In Millions)

         

    2004 net revenue

     

    $53.6 

    Price applied to unbilled electric sales

     

    (2.2)

    Weather/volume

     

    (2.2)

    Rate refund provisions

     

    4.1 

    Other

     

    (1.2)

    2005 net revenue

     

    $52.1 

    The price applied to unbilled electric sales variance is due to a decrease in fuel price applied to unbilled sales.

    The weather/volume variance is due to a decrease in electricity usage in the service territory primarily during the unbilled sales period.

    The rate refund provisions variance is due to provisions recorded in the first quarter of 2004 primarily as a result of a resolution adopted by the City Council in February 2004.

    Gross operating revenues and fuel expenses

    Gross operating revenues increased primarily due to an increase of $19.2 million in gross wholesale revenue as a result of increased sales to affiliates.

    Fuel expenses increased primarily due to increased generation to meet system requirements.

    Other Income Statement Variances

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

    Income Taxes

    The effective income tax rates for the first quarters of 2005 and 2004 were 38.1% and 38.25%, respectively. The difference for the first quarters of 2005 and 2004 in the effective income tax rate versus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2005 and 2004 were as follows:

     

     

    2005

     

    2004

     

     

    (In Thousands)

     

     

     

     

     

    Cash and cash equivalents at beginning of period

     

    $7,954 

     

    $4,669 

     

     

     

     

     

    Cash flow provided by (used in):

     

     

     

     

     

    Operating activities

     

    5,373 

     

    12,973 

     

    Investing activities

     

    (9,959)

     

    (9,191)

     

    Financing activities

     

    (841)

     

    (841)

    Net increase (decrease) in cash and cash equivalents

     

    (5,427)

     

    2,941 

     

     

     

     

     

    Cash and cash equivalents at end of period

     

    $2,527 

     

    $7,610 

    Operating Activities

    Cash flow from operations decreased $7.6 million primarily due to an income tax refund of $5.0 million in the first quarter of 2004. Cash flow from operations also decreased due to money pool activity, which provided $5.3 million of Entergy New Orleans operating cash flow of the first quarter of 2005 compared to providing $9.8 million in the first quarter of 2004.

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

    March 31,
    2005

     

    December 31,
    2004

     

    March 31,
    2004

     

    December 31,
    2003

    (In Thousands)

     

     

     

     

     

     

     

    ($3,897)

     

    $1,413

     

    ($8,023)

     

    $1,783

    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.

    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.

    As discussed in the Form 10-K, Entergy New Orleans has a 364-day credit facility in the amount of $14 million. The credit facility's expiration has been extended to July 2005, and it is expected that this facility will be renewed prior to expiration.

    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 state and local rate regulation, federal regulation and proceedings, market and credit risks, environmental risks, and litigation risks. Following are updates to the information presented in the Form 10-K.

    State and Local Rate Regulation

    In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council.  The filings show that a decrease of $0.2 million in electric revenues is warranted and an increase of $3.9 million in gas revenues is warranted. The prescribed period for review by the Council's Advisors and other parties has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.

    Federal Regulation

    System Agreement Litigation

    See the Form 10-K for discussion of the City Council 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, and the state court decision dismissing the City Council's claims for lack of subject matter jurisdiction. The City Council has appealed that decision to the Louisiana Court of Appeal for the Fourth Circuit.

    Transmission

    See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service.

    Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal. Entergy contemplates submitting the necessary filings by the end of May 2005. On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy. The intervenors requested that the FERC act on their Request for Clarification by May 4, 2005. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.

    On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the Base Plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy seeks rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing to implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the New Orleans City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT.

    In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is now scheduled for August 2005.

    Available Flowgate Capacity Proceedings

    See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP.  On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT.  Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs.  Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.

    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 unbilled revenue and pension and other retirement costs.

    Recently Issued Accounting Pronouncements

    In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergy does not believe that the adoption of FIN 47 will be material to its financial position or results of operations because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.

    ENTERGY NEW ORLEANS, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
       
        2005   2004
        (In Thousands)
             
    OPERATING REVENUES        
    Domestic electric   $131,172    $112,576 
    Natural gas   60,095    57,191 
    TOTAL   191,267    169,767 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   81,096    56,511 
      Purchased power   56,782    58,919 
      Other operation and maintenance   20,847    21,316 
    Taxes other than income taxes   10,680    9,995 
    Depreciation and amortization   8,086    6,831 
    Other regulatory charges - net   1,255    708 
    TOTAL   178,746    154,280 
             
    OPERATING INCOME   12,521    15,487 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   282    218 
    Interest and dividend income   218    170 
    Miscellaneous - net   (123)   (294)
    TOTAL   377    94 
             
    INTEREST AND OTHER CHARGES      
    Interest on long-term debt   3,486    3,866 
    Other interest - net   384    416 
    Allowance for borrowed funds used during construction   (232)   (222)
    TOTAL   3,638    4,060 
             
    INCOME BEFORE INCOME TAXES   9,260    11,521 
             
    Income taxes   3,524    4,407 
             
    NET INCOME   5,736    7,114 
             
    Preferred dividend requirements and other   241    241 
             
    EARNINGS APPLICABLE TO        
    COMMON STOCK   $5,495    $6,873 
             
    See Notes to Respective Financial Statements.        

     

     

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    ENTERGY NEW ORLEANS, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
         
        2005   2004
        (In Thousands)
    OPERATING ACTIVITIES        
    Net income   $5,736     $7,114  
    Adjustments to reconcile net income to net cash flow provided by operating activities:        
      Other regulatory charges - net   1,255     708  
      Depreciation and amortization   8,086     6,831  
      Deferred income taxes and investment tax credits   (1,695)   17,125  
      Changes in working capital:        
        Receivables   3,410     14,858  
        Fuel inventory   4,181     4,561  
        Accounts payable   (5,909)   (19,295)
        Taxes accrued   4,779     (4,744)
        Interest accrued   (2,499)   (3,929)
        Deferred fuel costs   (5,244)   (7,646)
        Other working capital accounts   (8,539)   14,571 
      Provision for estimated losses and reserves   (556)   (33)
      Changes in other regulatory assets   2,492     708 
      Other   (124)   (17,856)
    Net cash flow provided by operating activities   5,373     12,973  
             
    INVESTING ACTIVITIES        
    Construction expenditures   (10,241)   (10,015)
    Allowance for equity funds used during construction   282     218  
    Changes in other temporary investments - net   -     606  
    Net cash flow used in investing activities   (9,959)   (9,191)
             
    FINANCING ACTIVITIES        
    Proceeds from the issuance of long-term debt   -    
    Retirement of long-term debt   -    
    Dividends paid:        
      Common stock   (600)   (600)
      Preferred stock   (241)   (241)
    Net cash flow used in financing activities   (841)   (841)
             
    Net increase (decrease) in cash and cash equivalents   (5,427)   2,941  
             
    Cash and cash equivalents at beginning of period   7,954    4,669  
             
    Cash and cash equivalents at end of period   $2,527    $7,610  
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid/(received) during the period for:        
      Interest - net of amount capitalized   $6,171    $8,052 
      Income taxes     ($5,010)
             
    See Notes to Respective Financial Statements.        
             

     

    ENTERGY NEW ORLEANS, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2005 and December 31, 2004
    (Unaudited)
       
      2005   2004
      (In Thousands)
             
    CURRENT ASSETS        
    Cash and cash equivalents:        
      Cash   $2,527     $2,998  
      Temporary cash investments - at cost,        
       which approximates market   -     4,956  
            Total cash and cash equivalents   2,527     7,954  
    Accounts receivable:        
      Customer   43,814     47,356  
      Allowance for doubtful accounts   (3,436)   (3,492)
      Associated companies   14,874     12,223  
      Other   7,577     7,329  
      Accrued unbilled revenues   22,025     24,848  
        Total accounts receivable   84,854     88,264  
    Deferred fuel   7,803     2,559  
    Fuel inventory - at average cost       4,181  
    Materials and supplies - at average cost   9,207     9,150  
    Prepayments and other   11,296     3,467  
    TOTAL   115,687     115,575  
             
    OTHER PROPERTY AND INVESTMENTS        
    Investment in affiliates - at equity   3,259     3,259  
             
    UTILITY PLANT        
    Electric   705,519     699,072  
    Natural gas   186,244     183,728  
    Construction work in progress   34,087     33,273  
    TOTAL UTILITY PLANT   925,850     916,073  
    Less - accumulated depreciation and amortization   443,140     435,519  
    UTILITY PLANT - NET   482,710     480,554  
             
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:        
      Other regulatory assets   37,769     40,354  
    Long term receivables   2,492     2,492  
    Other   20,580     20,540  
    TOTAL   60,841     63,386  
             
    TOTAL ASSETS   $662,497     $662,774 
             
    See Notes to Respective Financial Statements.        
     
     
    ENTERGY NEW ORLEANS, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2005 and December 31, 2004
    (Unaudited)
       
      2005   2004
      (In Thousands)
     
    CURRENT LIABILITIES        
    Currently maturing long-term debt   $30,000   $30,000
    Accounts payable:        
    Associated companies   35,144   30,563
      Other   33,659   44,149
    Customer deposits   17,651   17,187
    Taxes accrued   2,103   2,592
    Accumulated deferred income taxes   1,761   1,906
    Interest accrued   2,258   4,757
    Energy Efficiency Program provision   6,690   6,611
    Other   2,281   3,477
    TOTAL   131,547   141,242
             
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued   52,434   47,062
    Accumulated deferred investment tax credits   3,888   3,997
    SFAS 109 regulatory liability - net   45,038   46,406
    Accumulated provisions   8,767   9,323
    Pension liability   38,653   36,845
    Long-term debt   199,912   199,902
    Other   3,121   3,755
    TOTAL   351,813   347,290
             
    Commitments and Contingencies        
             
    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 2005        
      and 2004   33,744   33,744
    Paid-in capital   36,294   36,294
    Retained earnings   89,319   84,424
    TOTAL   179,137   174,242
             
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $662,497   $662,774
             
    See Notes to Respective Financial Statements.        
             

     

    ENTERGY NEW ORLEANS, INC.
    SELECTED OPERATING RESULTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
                     
                     
                Increase/    
    Description   2005   2004   (Decrease)   %
        (Dollars In Millions)    
    Electric Operating Revenues:                
      Residential   $29   $30   ($1)   (3)
      Commercial   34   34   -    - 
      Industrial   7   6   1    17 
      Governmental   13   13   -    - 
         Total retail   83   83   -    - 
      Sales for resale                
        Associated companies   46   27   19    70 
        Non-associated companies   -   1   (1)   (100)
      Other   2   2   -    - 
        Total   $131   $113   $18    16 
                     
    Billed Electric Energy                
      Sales (GWh):                
      Residential   400   417   (17)   (4)
      Commercial   519   525   (6)   (1)
      Industrial   144   112   32    29 
      Governmental   226   225   1    -  
         Total retail   1,289   1,279   10    1 
      Sales for resale                
        Associated companies   606   360   246    68 
        Non-associated companies   4   9   (5)   (56)
       Total   1,899   1,648   251    15  
                     

    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. 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 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 $1.6 million for the first quarter of 2005 compared to the first quarter of 2004 primarily due to higher interest income earned on temporary cash investments.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2005 and 2004 were as follows:

     

     

    2005

     

    2004

     

     

    (In Thousands)

     

     

     

     

     

    Cash and cash equivalents at beginning of period

     

    $216,355 

     

    $52,536 

     

     

     

     

     

    Cash flow provided by (used in):

     

     

     

     

     

    Operating activities

     

    77,763 

     

    37,268 

     

    Investing activities

     

    (8,156)

     

    (2,648)

     

    Financing activities

     

    (55,613)

     

    (30,348)

    Net increase in cash and cash equivalents

     

    13,994 

     

    4,272 

     

     

     

     

     

    Cash and cash equivalents at end of period

     

    $230,349 

     

    $56,808 

    Operating Activities

    Cash flow from operations increased $40.5 million for the first quarter 2005 compared to the first quarter 2004 primarily due to money pool activity. Money pool activity provided $20.6 million of System Energy's operating cash flows for the first quarter of 2005 and used $10.7 million for the first quarter of 2004. System Energy's receivables from the money pool were as follows:

    March 31,
    2005

     

    December 31,
    2004

     

    March 31,
    2004

     

    December 31,
    2003

    (In Thousands)

     

     

     

     

     

     

     

    $40,965

     

    $61,592

     

    $29,728

     

    $19,064

    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 increase of $5.5 million in net cash used in investing activities for the first quarter of 2005 compared to the first quarter of 2004 was primarily due to the maturity of $6.5 million of other temporary investments, which provided cash in 2004.

    Financing Activities

    The increase of $25.3 million in net cash used in financing activities for the first quarter of 2005 compared to the first quarter of 2004 was primarily due to an increase of $22.4 million in the January 2005 principal payment made on the Grand Gulf sale-leaseback compared to the January 2004 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 benefits.

    SYSTEM ENERGY RESOURCES, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
           
        2005   2004
        (In Thousands)
             
    OPERATING REVENUES        
    Domestic electric   $124,790    $127,168 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   9,719    7,246 
      Nuclear refueling outage expenses   2,993    3,627 
      Other operation and maintenance   23,136    21,509 
    Decommissioning   6,128    5,701 
    Taxes other than income taxes   6,049    5,945 
    Depreciation and amortization   26,544    26,541 
    Other regulatory credits - net   (4,385)   (1,168)
    TOTAL   70,184    69,401 
             
    OPERATING INCOME   54,606    57,767 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   306    414 
    Interest and dividend income   2,845    1,355 
    Miscellaneous - net   (113)   (221)
    TOTAL   3,038    1,548 
             
    INTEREST AND OTHER CHARGES      
    Interest on long-term debt   12,856    15,240 
    Other interest - net   2    211 
    Allowance for borrowed funds used during construction   (97)   (134)
    TOTAL   12,761    15,317 
             
    INCOME BEFORE INCOME TAXES   44,883    43,998 
             
    Income taxes   18,651    19,334 
             
    NET INCOME   $26,232    $24,664 
             
    See Notes to Respective Financial Statements.        
             

     

     

     

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    SYSTEM ENERGY RESOURCES, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2005 and 2004
    (Unaudited)
         
        2005   2004
        (In Thousands)
             
    OPERATING ACTIVITIES        
    Net income   $26,232    $24,664 
    Adjustments to reconcile net income to net cash flow provided by operating activities:        
      Other regulatory credits - net   (4,385)   (1,168)
      Depreciation, amortization, and decommissioning   32,672    32,242 
      Deferred income taxes and investment tax credits   (6,619)   (163,415)
      Changes in working capital:        
        Receivables   30,664    5,006 
        Accounts payable   (7,782)   (725)
        Taxes accrued   10,213    166,874 
        Interest accrued   (27,541)   (11,947)
        Other working capital accounts   (4,514)   (94,842)
    Provision for estimated losses and reserves   51    (1,096)
    Changes in other regulatory assets   (3,330)   8,782 
    Other   32,102    72,893 
    Net cash flow provided by operating activities   77,763    37,268 
             
    INVESTING ACTIVITIES        
    Construction expenditures   (3,307)   (5,737)
    Allowance for equity funds used during construction   306    414 
    Nuclear fuel purchases     (45,460)
    Proceeds from sale/leaseback of nuclear fuel     45,460 
    Decommissioning trust contributions and realized        
      change in trust assets   (5,155)   (3,807)
    Changes in other temporary investments - net     6,482 
    Net cash flow used in investing activities   (8,156)   (2,648)
             
    FINANCING ACTIVITIES        
    Retirement of long-term debt   (28,813)   (6,348)
    Dividends paid:        
      Common stock   (26,800)   (24,000)
    Net cash flow used in financing activities   (55,613)   (30,348)
             
    Net increase in cash and cash equivalents   13,994    4,272 
             
    Cash and cash equivalents at beginning of period   216,355    52,536 
             
    Cash and cash equivalents at end of period   $230,349    $56,808 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid during the period for:        
      Interest - net of amount capitalized   $38,948    $26,322 
             
    See Notes to Respective Financial Statements.        

     

    SYSTEM ENERGY RESOURCES, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2005 and December 31, 2004
    (Unaudited)
             
        2005   2004
      (In Thousands)
             
    CURRENT ASSETS        
    Cash and cash equivalents:        
      Cash   $59   $399
      Temporary cash investments - at cost,        
        which approximates market   230,290   215,956
            Total cash and cash equivalents   230,349   216,355
    Accounts receivable:        
      Associated companies   82,670   111,588
      Other   1,987   3,733
        Total accounts receivable   84,657   115,321
    Materials and supplies - at average cost   54,323   53,427
    Deferred nuclear refueling outage costs   6,620   9,510
    Prepayments and other   7,549   1,007
    TOTAL   383,498   395,620
             
    OTHER PROPERTY AND INVESTMENTS      
    Decommissioning trust funds   211,474   205,083
             
    UTILITY PLANT      
    Electric   3,236,616   3,232,314
    Property under capital lease   469,993   469,993
    Construction work in progress   26,637   28,743
    Nuclear fuel under capital lease   58,602   65,572
    TOTAL UTILITY PLANT   3,791,848   3,796,622
    Less - accumulated depreciation and amortization   1,807,117   1,780,450
    UTILITY PLANT - NET   1,984,731   2,016,172
             
    DEFERRED DEBITS AND OTHER ASSETS      
    Regulatory assets:        
      SFAS 109 regulatory asset - net   95,471   96,047
      Other regulatory assets   300,850   296,305
    Other   19,658   19,578
    TOTAL   415,979   411,930
             
    TOTAL ASSETS   $2,995,682   $3,028,805
             
    See Notes to Respective Financial Statements.        
     
     
    SYSTEM ENERGY RESOURCES, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDER'S EQUITY
    March 31, 2005 and December 31, 2004
    (Unaudited)
             
        2005   2004
      (In Thousands)
     
    CURRENT LIABILITIES      
    Currently maturing long-term debt   $22,989   $25,266
      Accounts payable:        
      Associated companies   -   3,880
      Other   17,149   21,051
    Taxes accrued   73,034   46,468
    Accumulated deferred income taxes   2,360   3,477
    Interest accrued   15,457   42,998
    Obligations under capital leases   27,716   27,716
    Other   1,655   1,621
    TOTAL   160,360   172,477
             
    NON-CURRENT LIABILITIES      
    Accumulated deferred income taxes and taxes accrued   397,941   421,466
    Accumulated deferred investment tax credits   74,743   75,612
    Obligations under capital leases   30,886   37,855
    Other regulatory liabilities   240,879   210,863
    Decommissioning   342,021   335,893
    Accumulated provisions   2,429   2,378
    Long-term debt   823,102   849,593
    Other   29,305   28,084
    TOTAL   1,941,306   1,961,744
             
    Commitments and Contingencies        
             
    SHAREHOLDER'S EQUITY      
    Common stock, no par value, authorized 1,000,000 shares;        
      issued and outstanding 789,350 shares in 2005 and 2004   789,350   789,350
    Retained earnings   104,666   105,234
    TOTAL   894,016   894,584
             
    TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY   $2,995,682   $3,028,805
             
    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 (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear liability and property and replacement power insurance associated with Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants.

    Income Taxes (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding certain material income tax audit matters involving the domestic utility companies and System Energy.

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

    See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the domestic utility companies.

    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. Many other defendants are named in these lawsuits as well. Presently, there are approximately 480 lawsuits involving approximately 10,000 claims. Management believes that adequate provisions have been established 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

    Retail Rate Proceedings

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding retail rate proceedings involving the domestic utility companies. The following are updates to the Form 10-K.

    Filings with the LPSC

    Global Settlement (Entergy Gulf States and Entergy Louisiana)

    In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement will result in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The settlement dismisses Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all pending and future nuclear uprate cases through May 2005, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case pending at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2.0 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forego recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits have been issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana have reserved for the approximate refund amounts.

    The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes a ROE mid-point of 10.65% and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside a 75 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Gulf States. Under the settlement, there is no change to Entergy Gulf States' retail rates at this time. Current rates will remain in place until the first formula rate plan filing in May 2005 and will be reset, if necessary, effective September 1, 2005. If, as a result of the formula rate plan filing in May 2005, Entergy Gulf States is found to have earned an ROE in excess of 10.65% for the 2004 test year, rates will be reset and a refund will be given in an amount sufficient to reduce its ROE to 10.65% effective January 2004.

    Retail Rates (Entergy Louisiana)

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for discussion of Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that includes an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. The proposed settlement also includes the adoption of a three-year formula rate plan, the terms of which include a ROE mid-point of 10.25% and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an 80 basis point bandwidth will be allocated 60% to customers and 40% to Entergy Louisiana. A decision from the LPSC on the proposed settlement is expected in May 2005.

    Filings with the City Council (Entergy New Orleans)

    In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council.  The filings show that a decrease of $0.2 million in electric revenues is warranted and an increase of $3.9 million in gas revenues is warranted. The prescribed period for review by the Council's Advisors and other parties has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.

    Deferred Fuel Costs

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies. The following are updates to the Form 10-K.

    (Entergy Arkansas)

    In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at Arkansas Nuclear One Unit 1 and Unit 2.

    (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. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in a January 2001 proceeding that is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommended disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part, the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payment issues. The PUCT's order reduced the disallowance in the case to $8.3 million. Both Entergy Gulf States and certain cities served by Entergy Gulf States filed motions for rehearing on these issues. Judicial review may follow PUCT action on the motions. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.

    (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 settlement approved by the LPSC in March 2005, discussed above, resolves the uprate imprudence disallowance and is no longer at issue in this proceeding.

    (Entergy Mississippi)

    In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million will be deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges will be refunded through the energy cost recovery rider in the second and third quarters of 2005 at a rate of 45% and 55%, respectively.

    (Entergy New Orleans)

    As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, the City Council passed resolutions implementing a package of measures developed by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - 2005 winter heating season including the deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 and in the event that the average residential customer's gas bill were to exceed a threshold level. The deferrals of $1.7 million resulting from these caps will receive accelerated recovery over a seven-month period beginning in April 2005.

    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.

    In February 2005, bills were submitted in the Texas Legislature that would clarify that Entergy Gulf States is no longer subject to a rate freeze and specify that retail open access will not commence in Entergy Gulf States' Texas service territory until the PUCT certifies a power region. A substitute bill was passed by the Texas House of Representatives in April 2005, and is now being considered by the Texas Senate. The substitute bill changed several provisions of the original bills to address concerns raised in the legislative process. The substitute bill provides that:

    • Entergy Gulf States is authorized by the legislation to proceed with a jurisdictional separation into two vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and one subject solely to the retail jurisdiction of the PUCT;
    • The portions of all prior PUCT orders requiring Entergy Gulf States to comply with any provisions of Texas law governing transition to retail competition are void;
    • Entergy Gulf States must file a plan by January 1, 2006, identifying the power region(s) to be considered for certification and the steps and schedule to achieve certification;
    • Entergy Gulf States must file a transition to competition plan no later than January 1, 2007, that would mitigate market power and achieve full customer choice, including potentially construction of additional transmission facilities, generation auctions, generation capacity divestiture, reinstatement of a customer choice pilot project, establishment of a price to beat, and other public interest measures;
    • Entergy Gulf States may not file a general base rate case in Texas before June 30, 2007, with rates effective no earlier than June 30, 2008, but may seek before then the annual recovery of certain incremental purchased power capacity costs not in excess of five percent of its annual base rate revenues; and
    • Entergy Gulf States may recover over a period not to exceed 15 years reasonable and necessary transition to competition costs incurred before the effective date of the legislation and not previously recovered, with an allowance for carrying charges.

     

    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, 2007. In addition to borrowing from commercial banks, the domestic utility companies and System Energy are authorized to borrow from Entergy's 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 short-term borrowings from the money pool and the SEC-authorized limits for short-term borrowings for the domestic utility companies and System Energy as of March 31, 2005:

     

     

    Authorized

     

    Borrowings

     

     

    (In Millions)

     

     

     

     

     

    Entergy Arkansas

     

    $235

     

    -

    Entergy Gulf States

     

    $340

     

    $19.6

    Entergy Louisiana

     

    $225

     

    -

    Entergy Mississippi

     

    $160

     

    -

    Entergy New Orleans

     

    $100

     

    $3.9

    System Energy

     

    $140

     

    -

    Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have 364-day credit facilities available as follows:


    Company

     


    Expiration Date

     

    Amount of
    Facility

     

    Amount Drawn as of
    March 31, 2005

                 

    Entergy Arkansas

     

    April 2006

     

    $85 million

     

    -

    Entergy Louisiana

     

    July 2005

     

    $15 million (a)

     

    -

    Entergy Mississippi

     

    May 2006

     

    $25 million

     

    -

    Entergy New Orleans

     

    July 2005

     

    $14 million (a)

     

    -

    (a)

    The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million.

    In April 2005, Entergy Arkansas renewed its 364-day credit facility through April 2006 and Entergy Mississippi renewed its 364-day facility through May 2006. Also, Entergy Louisiana and Entergy New Orleans extended their 364-day credit facilities through July 2005. Prior to the expiration, it is expected that Entergy Louisiana and Entergy New Orleans will renew their 364-day credit facilities through May 2006.

    The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The Entergy Arkansas facility requires it to maintain total shareholders' equity of at least 25% of its total assets.

    The following long-term debt has been issued by the domestic utility companies and System Energy in 2005:

     

    Issue Date

     

    Amount

     

     

     

    (In Thousands)

    Mortgage Bonds:

     

     

     

    5.66% Series due February 2025 - Entergy Arkansas

    January 2005

     

    $175,000

    6.18% Series due March 2035 - Entergy Gulf States

    February 2005

     

    $85,000

     

     

     

     

    Governmental Bonds:

     

     

     

    5.00% Series due January 2021, Independence County - Arkansas (Entergy Arkansas)


    March 2005

     


    $45,000

    The following long-term debt was retired by the domestic utility companies and System Energy in 2005:

     

    Retirement Date

     

    Amount

     

     

     

    (In Thousands)

    Mortgage Bonds:

     

     

     

    7.00% Series due October 2023 - Entergy Arkansas

    February 2005

     

    $175,000

    Other Long-Term Debt:

     

     

     

    Grand Gulf Lease Obligation payment, System Energy

    N/A

     

    $28,790

    8.75% Junior Subordinated Deferrable Interest Debentures
    due 2046 - Entergy Gulf States


    March 2005

     


    $87,629

    Retirements after the balance sheet date:      
    9.0% Series due May 2015, West Feliciana Parish - Louisiana (Entergy Gulf States)


    May 2005

      $45,000
    7.5% Series due May 2015, West Feliciana Parish - Louisiana (Entergy Gulf States)


    May 2005

      $41,600

    Entergy Arkansas used the proceeds from the March 2005 issuance to redeem, prior to maturity, $45 million of 6.25% Series of Independence County bonds in April 2005. The issuance is shown as a non-cash transaction on the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.

    Tax Exempt Bond Audit (Entergy Louisiana)

    The Internal Revenue Service (IRS) is auditing certain Tax Exempt Bonds (Bonds) issued by St. Charles Parish, State of Louisiana (the Issuer). The Bonds were issued to finance previously unfinanced acquisition costs expended by Entergy Louisiana to acquire certain radioactive solid waste disposal facilities (the Facilities) at the Waterford Steam Electric Generating Station. In March and April 2005, the IRS issued proposed adverse determinations that the Issuer's 7.0% Series bonds due 2022, 7.5% Series bonds due 2021, and 7.05% Series bonds due 2022 are not tax exempt. The stated basis for these determinations was that radioactive waste did not constitute "solid waste" within the provisions of the Internal Revenue Code and therefore the Facilities did not qualify as solid waste disposal facilities. The Issuer and Entergy Louisiana intend to continue to vigorously contest this matter.

     

    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 first quarters of 2005 and 2004, included the following components:

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

    2005

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Service cost - benefits earned

     

     

     

     

     

     

     

     

     

     

     

     

    during the period

     

    $3,329 

     

    $2,704 

     

    $1,957 

     

    $1,005 

     

    $436 

     

    $944 

    Interest cost on projected

     

     

     

     

     

     

     

     

     

     

     

     

    benefit obligation

     

    9,115 

     

    7,235 

     

    5,525 

     

    2,998 

     

    1,148 

     

    1,413 

    Expected return on assets

     

    (9,009)

     

    (9,709)

     

    (6,666)

     

    (3,566)

     

    (731)

     

    (1,324)

    Amortization of transition asset

     

     

     

     

     

     

    (69)

    Amortization of prior service cost

     

    415 

     

    378 

     

    163 

     

    128 

     

    57 

     

    17 

    Amortization of loss

     

    1,613 

     

    1,213 

     

    730 

     

    527 

     

    151 

     

    229 

    Net pension cost

     

    $5,463 

     

    $1,821 

     

    $1,709 

     

    $1,092 

     

    $1,061 

     

    $1,210 

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

    2004

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Service cost - benefits earned

     

     

     

     

     

     

     

     

     

     

     

     

    during the period

     

    $3,003 

     

    $2,454 

     

    $1,724 

     

    $954 

     

    $425 

     

    $845 

    Interest cost on projected

     

     

     

     

     

     

     

     

     

     

     

     

    benefit obligation

     

    8,617 

     

    7,111 

     

    5,183 

     

    2,891 

     

    1,042 

     

    1,232 

    Expected return on assets

     

    (9,245)

     

    (9,892)

     

    (6,796)

     

    (3,691)

     

    (928)

     

    (1,034)

    Amortization of transition asset

     

     

     

     

     

     

    (80)

    Amortization of prior service cost

     

    417 

     

    465 

     

    189 

     

    141 

     

    57 

     

    18 

    Amortization of loss

     

    868 

     

    641 

     

    297 

     

    285 

     

    59 

     

    113 

    Net pension cost

     

    $3,660 

     

    $779 

     

    $597 

     

    $580 

     

    $655 

     

    $1,094 

    Components of Net Other Postretirement Benefit Cost

    The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the first quarters of 2005 and 2004, included the following components:

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

    2005

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Service cost - benefits earned

     

     

     

     

     

     

     

     

     

     

     

     

    during the period

     

    $1,157 

     

    $1,634 

     

    $689 

     

    $363 

     

    $192 

     

    $415 

    Interest cost on APBO

     

    2,589 

     

    2,924 

     

    1,673 

     

    833 

     

    789 

     

    394 

    Expected return on assets

     

    (1,637)

     

    (1,366)

     

     

    (669)

     

    (579)

     

    (387)

    Amortization of transition obligation

     

    205 

     

    947 

     

    95 

     

    88 

     

    435 

     

    Amortization of prior service cost

     

    (173)

     

     

    18 

     

    (46)

     

    10 

     

    (139)

    Amortization of loss

     

    1,276 

     

    770 

     

    691 

     

    471 

     

    211 

     

    146 

    Net other postretirement benefit cost

     

    $3,417 

     

    $4,909 

     

    $3,166 

     

    $1,040 

     

    $1,058 

     

    $433 

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

    2004

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Service cost - benefits earned

     

     

     

     

     

     

     

     

     

     

     

     

    during the period

     

    $1,632 

     

    $1,529 

     

    $720 

     

    $477 

     

    $205 

     

    $388 

    Interest cost on APBO

     

    2,833 

     

    2,941 

     

    1,701 

     

    878 

     

    827 

     

    388 

    Expected return on assets

     

    (1,603)

     

    (1,236)

     

     

    (653)

     

    (566)

     

    (310)

    Amortization of transition obligation

     

    609 

     

    1,147 

     

    300 

     

    254 

     

    529 

     

    Amortization of prior service cost

     

     

     

     

     

     

    (91)

    Amortization of loss

     

    1,074 

     

    651 

     

    562 

     

    348 

     

    156 

     

    131 

    Net other postretirement benefit cost

     

    $4,545 

     

    $5,032 

     

    $3,283 

     

    $1,304 

     

    $1,151 

     

    $510 

    Employer Contributions

    The domestic utility companies and System Energy expect to contribute the following to pension plans in 2005:

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

     

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Expected 2005 pension contributions

     

     

     

     

     

     

     

     

     

     

     

     

    disclosed in Form 10-K

     

    $20,560

     

    $18,948

     

    $2,622

     

    $3,416

     

    $15,667

     

    $9,266

    Revised expected 2005 pension contributions

     

    $13,802

    $21,893

     

     

    $3,416

     

    $21,281

     

    $12,305

    Pension contributions made through April 2005

     

    $2,002

    $12,425

     

     

    $512

     

    $12,078

     

    $6,358

    Remaining estimated pension contributions to be made in 2005

     

    $11,800

    $9,468

     

     

    $2,904

     

    $9,203

     

    $5,947

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

    Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2004 Accumulated Postretirement Benefit Obligation (APBO) and first quarter 2005 and 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 12/31/2004 APBO

     

    ($35,928)

     

    ($31,846)

     

    ($20,085)

     

    ($12,227)

     

    ($9,742)

     

    ($4,982)

    Reduction in first quarter 2005

     

     

     

     

     

     

     

     

     

     

     

     

      other postretirement benefit cost

     

    ($1,446)

     

    ($1,269)

     

    ($790)

     

    ($476)

     

    ($350)

     

    ($245)

    Reduction in first quarter 2004

     

     

     

     

     

     

     

     

     

     

     

     

      other postretirement benefit cost

     

    ($498)

     

    ($554)

     

    ($232)

     

    ($156)

     

    ($144)

     

    ($53)

    For further information on the Medicare Act refer to Note 10 to the domestic utility companies and System Energy's financial statements in the Form 10-K.

    __________________________________

    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 March 31, 2005, 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.

     

    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 is an update to that discussion.

    Entergy Louisiana Formula Ratemaking Plan Lawsuit

    See Part I, Item 1, "Entergy Louisiana Formula Ratemaking Plan Lawsuit" in the Form 10-K for a discussion of the complaint filed against Entergy Louisiana and the LPSC in state court in East Baton Rouge Parish purportedly on behalf of all Entergy Louisiana ratepayers. This case has been abandoned by operation of law.

    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

    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 $ Amount
    of Shares that May
    Yet be Purchased
    Under a Plan (2)

     

     

     

     

     

     

     

     

     

    1/01/2005-1/31/2005

     

    2,820,000

     

    $66.47

     

    2,820,000

     

    $836,304,437

    2/01/2005-2/28/2005

     

    2,078,500

     

    $70.50

     

    2,078,500

     

    $750,138,283

    3/01/2005-3/31/2005

     

    695,100

     

    $69.79

     

    695,100

     

    $728,763,293

    Total

     

    5,593,600

     

    $68.38

     

    5,593,600

     

     

    (1)

    In accordance with Entergy's stock-based compensation 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 7 to the consolidated financial statements in the Form 10-K for additional discussion of the stock-based compensation 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. In August 2004, Entergy announced a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program extends through the end of 2006. This repurchase program is incremental to the existing authority to repurchase shares to fund the exercise of employee stock options. The amount of repurchases under the program may vary as a result of material changes in business results or capital spending, or as a result of material new investment opportunities.

    (2)

    Maximum amount of shares that may yet be repurchased relates only to the $1.5 billion plan and does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans.

    Item 5. Other Information

    Federal Regulation

    FERC Audits

    The FERC is currently reviewing certain wholesale sales and purchases involving EPMC that occurred during the 1998-2001 time period and similar transactions that Entergy-Koch Trading may have undertaken. EPMC was an Entergy subsidiary engaged in non-regulated wholesale marketing and trading activities prior to the formation of Entergy-Koch. Entergy is working with the FERC investigation staff to provide information regarding these transactions.

    Other Customer-initiated Proceedings at the FERC

    See the Form 10-K for a discussion of the complaint filed with the FERC in February 2005 by ExxonMobil Chemical Company and ExxonMobil Refining & Supply Company (ExxonMobil) against Entergy Services and the domestic utility companies. On April 18, 2005, the FERC (1) rejected as unfounded ExxonMobil's allegation concerning the netting of its station power needs; and (2) set for hearing the question of whether the facility upgrades and related charges are subject to FERC jurisdiction and, if so, when they became subject to FERC jurisdiction, whether the monthly facility charge violated FERC pricing policy, and whether any refunds are appropriate. The FERC then held the hearing in abeyance in order to provide the parties an opportunity to settle their dispute before hearing procedures commence. The FERC further directed that a settlement judge be appointed.

    On January 24, 2005 Cottonwood Energy Company, L.P., an independent generator, filed with the FERC a rate schedule for reactive power that proposes to impose on Entergy Gulf States a rate for reactive supply service allegedly supplied by Cottonwood's electric generating facility. Cottonwood has proposed a fixed monthly charge of $0.3 million, which according to Cottonwood represents its revenue requirement for reactive power service. Entergy believes that independent generators should only be compensated for reactive power to the extent that they have an affirmative and continual obligation to provide reactive power support beyond their power factor range when directed to do so by the transmission provider, and is opposing Cottonwood's rate schedule. On March 23, 2005, the FERC accepted Cottonwood's proposed reactive power rate schedule for filing effective on February 1, 2005, subject to refund, and established hearing and settlement judge procedures. Cottonwood and Entergy Gulf States are currently engaged in settlement discussions pursuant to the FERC order. A procedural schedule for a hearing has not yet been established.

    Environmental Regulation

    See "PART I, Item 1, Clean Air Act and Subsequent Amendments, Hazardous Air Pollutants" in the Form 10-K for information related to the hazardous air pollutant emissions reduction programs. In March 2005, the EPA issued a rule to permanently cap and reduce mercury emissions from coal-fired power plants. The Clean Air Mercury Rule establishes "standards of performance" limiting mercury emissions from new and existing coal-fired power plants and creates a market-based cap-and-trade program that will reduce nationwide utility emissions of mercury in two distinct phases. The first phase cap is 38 tons beginning in 2010. Entergy owns units that will be subject to the mercury regulations and is studying compliance options in order to determine the best control alternative. Entergy expects that any necessary capital expenditures will occur between 2006 and 2009, and ongoing operating costs will begin in 2010.

    See "PART I, Item 1, Clean Air Act and Subsequent Amendments, Interstate Air Transport" in the Form 10-K for information related to SO2 and NOX emissions reduction programs. In March 2005, the EPA finalized the Clean Air Interstate Rule (CAIR), which will reduce SO2 and NOX emissions from electric generation plants in order to improve air quality in 28 eastern states. The rule will require a combination of capital investment to install pollution control equipment and increased operating costs. Entergy's capital investment and annual operation and maintenance allowance purchase costs will depend on the economic assessment of NOX and SO2 allowance markets, the cost of control technologies, and unit usage. The capital financial impact could be offset by emission markets which allow for purchases or use of allocated credits; however, the allocation of the emission allowances and the set up of the market will determine the ultimate cost to Entergy. Entergy is concerned that the allocation may be unfairly skewed towards states with relatively higher emissions. Entergy will continue to study the final rule's impact to its generation fleet and will work to ensure that all states are treated fairly in the allocation of emission credits.

    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,

     

    March 31,

     

    2000

     

    2001

     

    2002

     

    2003

     

    2004

     

    2005

                           

    Entergy Arkansas

    3.01

     

    3.29

     

    2.79

     

    3.17

     

    3.37

     

    3.55

    Entergy Gulf States

    2.60

     

    2.36

     

    2.49

     

    1.51

     

    3.04

     

    2.92

    Entergy Louisiana

    3.33

     

    2.76

     

    3.14

     

    3.93

     

    3.60

     

    3.13

    Entergy Mississippi

    2.33

     

    2.14

     

    2.48

     

    3.06

     

    3.41

     

    3.40

    Entergy New Orleans

    2.66

     

    (a)

     

    (b)

     

    1.73

     

    3.60

     

    3.52

    System Energy

    2.41

     

    2.12

     

    3.25

     

    3.66

     

    3.95

     

    4.08

     

    Ratios of Earnings to Combined Fixed Charges
    and Preferred Dividends

     

    Twelve Months Ended

     

    December 31,

     

    March 31,

     

    2000

     

    2001

     

    2002

     

    2003

     

    2004

     

    2005

                           

    Entergy Arkansas

    2.70

     

    2.99

     

    2.53

     

    2.79

     

    2.98

     

    3.15

    Entergy Gulf States

    2.39

     

    2.21

     

    2.40

     

    1.45

     

    2.90

     

    2.79

    Entergy Louisiana

    2.93

     

    2.51

     

    2.86

     

    3.46

     

    3.16

     

    2.77

    Entergy Mississippi

    2.09

     

    1.96

     

    2.27

     

    2.77

     

    3.07

     

    3.06

    Entergy New Orleans

    2.43

     

    (a)

     

    (b)

     

    1.59

     

    3.31

     

    3.23

    (a)

    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.

    (b)

    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

    (a) Exhibits*

     

    10(a) -

    Second Amendment of the System Executive Continuity Plan of Entergy Corporation and Subsidiaries, effective April 15, 2005.

         
     

    10(b) -

    Purchase and Sale Agreement by and between Central Mississippi Generating Company, LLC and Entergy Mississippi, Inc., dated as of March 16, 2005.

         
     

    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 March 31, 2005, 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 March 31, 2005.

       

    **

    Incorporated herein by reference as indicated.

     

     

    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: May 4, 2005