ENTERGY MISSISSIPPI, LLC - Quarter Report: 2005 March (Form 10-Q)

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.

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

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

DEFINITIONS (Continued)

DEFINITIONS (Concluded)

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

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.

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, 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.

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 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.

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

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.

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.

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.

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.

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.

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

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.

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 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.

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.

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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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

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.