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ENTERGY NEW ORLEANS, LLC - Quarter Report: 2009 June (Form 10-Q)

a04309.htm


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

FORM 10-Q

(Mark One)
 
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the Quarterly Period Ended June 30, 2009
 
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 or Organization,
Address of Principal Executive Offices, Telephone
Number, and IRS Employer Identification No.
 
 
Commission
File Number
Registrant, State of Incorporation or Organization,
Address of Principal Executive Offices, Telephone
Number, and IRS Employer Identification No.
1-11299
ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
72-1229752
 
1-31508
ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830
         
         
1-10764
ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900
 
0-05807
ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street
New Orleans, Louisiana 70112
Telephone (504) 670-3700
72-0273040
         
         
0-20371
ENTERGY GULF STATES LOUISIANA, L.L.C.
(a Louisiana limited liability company)
446 North Boulevard
Baton Rouge, Louisiana 70802
Telephone (800) 368-3749
74-0662730
 
1-34360
ENTERGY TEXAS, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
61-1435798
         
         
1-32718
ENTERGY LOUISIANA, LLC
(a Texas limited liability company)
446 North Boulevard
Baton Rouge, Louisiana 70802
Telephone (800) 368-3749
75-3206126
 
1-09067
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 þ No o

Indicate by check mark whether the registrants have submitted electronically and posted on Entergy's corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

 
Large
accelerated
filer
 
 
Accelerated
filer
 
Non-
accelerated
filer
   
Smaller
reporting
company
Entergy Corporation
Ö
             
Entergy Arkansas, Inc.
       
Ö
     
Entergy Gulf States Louisiana, L.L.C.
       
Ö
     
Entergy Louisiana, LLC
       
Ö
     
Entergy Mississippi, Inc.
       
Ö
     
Entergy New Orleans, Inc.
       
Ö
     
Entergy Texas, Inc.
       
Ö
     
System Energy Resources, Inc.
       
Ö
     

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ

Common Stock Outstanding
 
Outstanding at July 31, 2009
Entergy Corporation
($0.01 par value)
195,792,216

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, 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, 2008 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed by the individual registrants with the SEC, and should be read in conjunction therewith.



ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009


 
Page Number
   
Definitions
1
Entergy Corporation and Subsidiaries
 
Management's Financial Discussion and Analysis
 
Plan to Pursue Separation of Non-Utility Nuclear
3
Hurricane Gustav and Hurricane Ike
4
Entergy Arkansas January 2009 Ice Storm
5
Results of Operations
5
Liquidity and Capital Resources
13
Rate, Cost-recovery, and Other Regulation
17
Market and Credit Risk Sensitive Instruments
20
Critical Accounting Estimates
21
New Accounting Pronouncements
22
Consolidated Statements of Income
23
Consolidated Statements of Cash Flows
24
Consolidated Balance Sheets
26
Consolidated Statements of Retained Earnings, Comprehensive Income, and
  Paid-In Capital
 
28
Selected Operating Results
30
Notes to Financial Statements
31
Part 1. Item 4.  Controls and Procedures
67
Entergy Arkansas, Inc.
 
Management's Financial Discussion and Analysis
 
Results of Operations
68
Liquidity and Capital Resources
71
State and Local Rate Regulation
73
Federal Regulation
74
Utility Restructuring
74
Nuclear Matters
74
Environmental Risks
74
Critical Accounting Estimates
75
New Accounting Pronouncements
75
Income Statements
76
Statements of Cash Flows
77
Balance Sheets
78
Selected Operating Results
80
Entergy Gulf States Louisiana, L.L.C.
 
Management's Financial Discussion and Analysis
 
Hurricane Gustav and Hurricane Ike
81
Results of Operations
81
Liquidity and Capital Resources
85
Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States
  Louisiana and Entergy Texas
 
87
State and Local Rate Regulation
88
Federal Regulation
88
Industrial and Commercial Customers
88
Nuclear Matters
88
Environmental Risks
88
Critical Accounting Estimates
88
New Accounting Pronouncements
89
   
   




ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009

 
 
Page Number
   
Income Statements
90
Statements of Cash Flows
91
Balance Sheets
92
Statements of Members' Equity and Comprehensive Income
94
Selected Operating Results
95
Entergy Louisiana, LLC
 
Management's Financial Discussion and Analysis
 
Hurricane Gustav and Hurricane Ike
96
Results of Operations
96
Liquidity and Capital Resources
99
State and Local Rate Regulation
101
Federal Regulation
102
Utility Restructuring
102
Industrial and Commercial Customers
102
Nuclear Matters
102
Environmental Risks
102
Critical Accounting Estimates
102
New Accounting Pronouncements
103
Income Statements
104
Statements of Cash Flows
105
Balance Sheets
106
Statements of Members' Equity and Comprehensive Income
108
Selected Operating Results
109
Entergy Mississippi, Inc.
 
Management's Financial Discussion and Analysis
 
Results of Operations
110
Liquidity and Capital Resources
113
State and Local Rate Regulation
114
Federal Regulation
115
Utility Restructuring
115
Critical Accounting Estimates
115
New Accounting Pronouncements
115
Income Statements
116
Statements of Cash Flows
117
Balance Sheets
118
Selected Operating Results
120
Entergy New Orleans, Inc.
 
Management's Financial Discussion and Analysis
 
Results of Operations
121
Liquidity and Capital Resources
123
State and Local Rate Regulation
124
Federal Regulation
125
Environmental Risks
125
Critical Accounting Estimates
125
New Accounting Pronouncements
126
Income Statements
127
Statements of Cash Flows
129
Balance Sheets
130
Selected Operating Results
132



ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2009


 
Page Number
   
Entergy Texas, Inc.
 
Management's Financial Discussion and Analysis
 
Hurricane Ike and Hurricane Gustav
133
Results of Operations
133
Liquidity and Capital Resources
136
Transition to Retail Competition in Texas
138
State and Local Rate Regulation
139
Federal Regulation
140
Industrial and Commercial Customers
140
Environmental Risks
140
Critical Accounting Estimates
140
New Accounting Pronouncements
140
Consolidated Income Statements
141
Consolidated Statements of Cash Flows
143
Consolidated Balance Sheets
144
Consolidated Statements of Retained Earnings and Paid-In Capital
146
Selected Operating Results
147
System Energy Resources, Inc.
 
Management's Financial Discussion and Analysis
 
Results of Operations
148
Liquidity and Capital Resources
148
Nuclear Matters
149
Environmental Risks
149
Critical Accounting Estimates
150
New Accounting Pronouncements
150
Income Statements
151
Statements of Cash Flows
153
Balance Sheets
154
Part II.  Other Information
 
Item 1.    Legal Proceedings
156
Item 1A.  Risk Factors
156
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
156
Item 4.    Submission of Matters to a Vote of Security Holders
157
Item 5.    Other Information
158
Item 6.    Exhibits
161
Signature
164





FORWARD-LOOKING INFORMATION

In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant 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.  Words such as "may," "will," "could," "project," "believe," "anticipate," "intend," "expect," "estimate," "continue," "potential," "plan," "predict," "forecast," and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements.  Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct.  Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made.  Except to the extent required by the federal securities laws, these registrants undertake 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.  There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management's Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):

·   
resolution of pending and future rate cases and negotiations, including various performance-based rate discussions and implementation of legislation ending the Texas transition to competition, and other regulatory proceedings, including those related to Entergy's System Agreement, Entergy's utility supply plan, recovery of storm costs, and recovery of fuel and purchased power costs
·   
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 operations of the independent coordinator of transmission for Entergy's utility service territory, and the application of more stringent transmission reliability requirements or 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 owned or operated by the Non-Utility Nuclear business
·   
resolution of pending or future applications for license renewals or modifications of nuclear generating facilities
·   
the performance of and deliverability of power from Entergy's generating plants, including the capacity factors at its nuclear generating facilities
·   
Entergy's ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities
·   
prices for power generated by Entergy's merchant generating facilities, the ability to hedge, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Non-Utility Nuclear plants, and the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy's ability to meet credit support requirements for fuel and power supply contracts
·   
volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities
·   
changes in law resulting from federal or state energy legislation
·   
changes in environmental, tax, and other laws, including requirements for reduced emissions of sulfur, nitrogen, carbon, mercury, and other substances
·   
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal
·   
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes and ice storms (including most recently, Hurricane Gustav and Hurricane Ike and the January 2009 ice storm in Arkansas) and recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance
·   
Entergy's ability to manage its capital projects and operation and maintenance costs
·   
Entergy's ability to purchase and sell assets at attractive prices and on other attractive terms
·   
the economic climate, and particularly growth in Entergy's Utility service territory and the Northeast United States

 

 

FORWARD-LOOKING INFORMATION (Concluded)

·   
the effects of Entergy's strategies to reduce tax payments
·   
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, changes in general corporate ratings, and changes in the rating agencies' ratings criteria
·   
changes in inflation and interest rates
·   
the effect of litigation and government investigations or proceedings
·   
advances in technology
·   
the potential effects of threatened or actual terrorism and war
·   
Entergy's ability to attract and retain talented management and directors
·   
changes in accounting standards and corporate governance
·   
declines in the market prices of marketable securities and resulting funding requirements for Entergy's defined benefit pension and other postretirement benefit plans
·   
changes in the results of decommissioning trust fund earnings or in the timing of or cost to decommission nuclear plant sites
·   
the ability to successfully complete merger, acquisition, or divestiture plans, regulatory or other limitations imposed as a result of merger, acquisition, or divestiture, and the success of the business following a merger, acquisition, or divestiture
·   
and the risks inherent in the contemplated Non-Utility Nuclear spin-off, joint venture, and related transactions.  Entergy Corporation cannot provide any assurances that the spin-off or any of the proposed transactions related thereto will be completed, nor can it give assurances as to the terms on which such transactions will be consummated.  The transaction is subject to certain conditions precedent, including regulatory approvals and the final approval by the Board.



DEFINITIONS

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

Abbreviation or Acronym
Term
AEEC
Arkansas Electric Energy Consumers
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
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
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation
Entergy Corporation, a Delaware corporation
Entergy Gulf States, Inc.
Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas
Entergy Gulf States Louisiana
Entergy Gulf States Louisiana, L.L.C., a company created in connection with the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes.  The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy-Koch
Entergy-Koch, LP, a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.
Entergy Texas
Entergy Texas, Inc., a company created in connection with the jurisdictional separation of Entergy Gulf States, Inc.  The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.
EPA
United States Environmental Protection Agency
ERCOT
Electric Reliability Council of Texas
FASB
Financial Accounting Standards Board
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
Form 10-K
Annual Report on Form 10-K for the calendar year ended December 31, 2008 filed by Entergy Corporation and its Registrant Subsidiaries with the SEC
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
kW
Kilowatt
kWh
Kilowatt-hour(s)
LPSC
Louisiana Public Service Commission
MMBtu
One million British Thermal Units
 

 
 
1

 

DEFINITIONS (Continued)

   
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatt(s)
MWh
Megawatt-hour(s)
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
Non-Utility Nuclear
Entergy's business segment that owns and operates six 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
PUCT
Public Utility Commission of Texas
PUHCA 1935
Public Utility Holding Company Act of 1935, as amended
PUHCA 2005
Public Utility Holding Company Act of 2005, which repealed PUHCA 1935, among other things
Registrant Subsidiaries
Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc.
River Bend
River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States Louisiana
SEC
Securities and Exchange Commission
SFAS
Statement of Financial Accounting Standards as promulgated by the FASB
System Agreement
Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources
System Energy
System Energy Resources, Inc.
TIEC
Texas Industrial Energy Consumers
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 asset is not operating the seller is generally not liable to the buyer for any damages
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
Utility
Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companies
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas
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


 
2

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS


Entergy operates primarily through two business segments: Utility and Non-Utility Nuclear.

·   
Utility generates, transmits, distributes, and sells electric power in a four-state service territory that includes portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operates a small natural gas distribution business.
·   
Non-Utility Nuclear owns and operates six nuclear power plants located in the northern United States and sells the electric power produced by those plants primarily to wholesale customers.  This business also provides services to other nuclear power plant owners.

In addition to its two primary, reportable, operating segments, Entergy also operates the non-nuclear wholesale assets business.  The non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving performance and exploring sales or restructuring opportunities for its power plants.  Such opportunities are evaluated consistent with Entergy's market-based point-of-view.

Plan to Pursue Separation of Non-Utility Nuclear

See the Form 10-K for a discussion of the Board-approved plan to pursue a separation of the Non-Utility Nuclear business from Entergy through a tax-free spin-off of the Non-Utility Nuclear business to Entergy shareholders.  Following are updates to that discussion.

On July 13, 2009, Entergy Corporation, Entergy Nuclear FitzPatrick, LLC, Entergy Nuclear Indian Point 2, LLC, Entergy Nuclear Indian Point 3, LLC, Entergy Nuclear Operations, Inc., and Enexus filed a motion with the New York Public Service Commission (NYPSC) in connection with the planned separation requesting procedures and a schedule to enable the report of the presiding ALJs to be issued in time for the NYPSC to issue a final order no later than its regularly scheduled meeting in November 2009 so that the proposed reorganization can be completed by the end of 2009.  In December 2008, notice was provided to the NYPSC that the parties intended to conduct settlement discussions.  The discussions did not produce an agreement and have ended.  Nevertheless, Entergy endeavored to address and resolve the concerns of the trial staff of the NYPSC related to the financial strength of Enexus and has developed further enhancements to the reorganization proposal that it believes should resolve these concerns.  Accordingly, in its motion Entergy proposes to file an amended petition reflecting these enhancements for the NYPSC's consideration.  In addition, in its motion Entergy sought to ensure that the scope of review by the NYPSC would remain confined to the three issues (i.e., operating capability, financial capability, and decommissioning funding) previously set forth by the NYPSC and further defined by the ALJs.

Enexus intends to file a petition in August 2009 with the NYPSC addressing amendments to the reorganization proposal to further enhance Enexus' financial strength and flexibility, including:

·   
A $1.0 billion reduction in long-term bonds to $3.5 billion;
·   
A commitment to reserve at least $350 million of liquidity;
·   
An increase in the initial cash balance left at Enexus to $750 million from the original $250 million; and
·   
A revised reorganization plan to transfer 19.9 percent of the Enexus shares to a trust, to be exchanged for Entergy shares on a tax-free basis shares within a fixed period of time after the spin-off; this exchange is commonly referred to in tax-free reorganizations as a split-off and facilitates the enhancements listed above.

 
3

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 


Once the spin-off transaction is complete, Entergy Corporation's shareholders will own 100 percent of the common equity of Entergy and receive a distribution of 80.1 percent of Enexus' common equity.  Entergy will transfer the remaining Enexus common equity to a trust.  While held by the trust, the Enexus common equity will be voted by the trustee in the same proportion as the other Enexus shares on any matter submitted to a vote of the Enexus shareholders.  Within a fixed period of time after the spin-off, Entergy is expected to exchange the Enexus shares retained in the trust for Entergy shares.  Enexus shares not ultimately exchanged, if any, will be distributed to Entergy shareholders.

Five parties replied to the motion, generally in opposition to it.  The ALJs issued a ruling on the motion on July 29, 2009.  The ALJs declined to adopt a specific schedule and process, pending receipt of the amended petition and a reasonable opportunity for other interested parties to respond shortly thereafter.  The ALJs stated that they were inclined to adopt a process with procedural milestones that mirror those previously employed in the proceeding, including but not limited to a reasonable opportunity for some follow-up discovery.  The ALJs stated that they remain open to the possibility that evidentiary hearings might be held as a matter of discretion; however, nothing presented in the responses to the motion persuaded them that evidentiary hearings are inherently necessary.  The ALJs declined to rule until after the amended petition is filed on whether the list of issues in their previous ruling should be expanded or modified.

Entergy Nuclear Operations, Inc., the current NRC-licensed operator of the Non-Utility Nuclear plants, filed an application in July 2007 with the NRC seeking indirect transfer of control of the operating licenses for the six Non-Utility Nuclear power plants, and supplemented that application in December 2007 to incorporate the planned business separation.  The NRC approved Entergy Nuclear Operations, Inc.'s application on July 28, 2008, with the approval effective for a period of one year.  In May 2009, Entergy Nuclear Operations, Inc. filed a request for extension of the approval for six months, through January 28, 2010, and the NRC approved the extension on July 24, 2009.

Pursuant to Federal Power Act Section 203, on February 21, 2008, an application was filed with the FERC requesting approval for the indirect disposition and transfer of control of jurisdictional facilities of a public utility. The FERC approved the application on June 12, 2008.  Entergy expects to file an amended application with the FERC to reflect the transfer to the trust of the 19.9 percent of Enexus shares.  The FERC will review the amended application to confirm that the transaction, as described in the amended application, will have no adverse effects on competition, rates and regulation.  Also, the FERC will seek to confirm that the transaction will still not result in cross-subsidization by a regulated utility or the pledge or encumbrance of utility assets for the benefit of a non-utility associate company.

Hurricane Gustav and Hurricane Ike

See the Form 10-K for a discussion of Hurricane Gustav and Hurricane Ike, which caused catastrophic damage to portions of Entergy's service territories in Louisiana and Texas, and to a lesser extent in Arkansas and Mississippi, in September 2008.  Entergy is still considering its options to recover its storm restoration costs associated with these storms, including securitization.  In April 2009 a law was enacted in Texas that authorizes recovery of these types of costs by securitization.  Entergy Texas filed its storm cost recovery case with the PUCT in April 2009 seeking a determination that $577.5 million of Hurricane Ike and Hurricane Gustav restoration costs are recoverable, including estimated costs for work to be completed.  On August 5, 2009, Entergy Texas submitted to the ALJ an unopposed settlement agreement that will, if approved, resolve all issues in the storm cost recovery case.  Under the terms of the agreement $566.4 million, plus carrying costs, are eligible for recovery.  In addition, $70 million in anticipated insurance proceeds will be credited as an offset to the securitized amount, subject to true-up based on actual proceeds received.  The PUCT is expected to consider the agreement at its August 13, 2009, meeting.  On July 16, 2009, Entergy Texas also made its financing request filing seeking approval to recover its approved costs, plus carrying costs, by securitization.  A prehearing conference was held on August 4, 2009, and the ALJ ordered a procedural schedule that includes a September 25, 2009, hearing date.

 
 
 
 
4

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 
 
    Entergy Gulf States Louisiana and Entergy Louisiana filed their storm cost recovery case with the LPSC in May 2009.  Entergy Gulf States Louisiana seeks a determination that $150.7 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of $90 million.  Entergy Louisiana seeks a determination that $261.9 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of $200 million.  The storm restoration costs are net of costs that have already been paid from previously funded storm reserves.  Entergy Gulf States Louisiana and Entergy Louisiana expect to make a supplemental filing in the third quarter 2009 to, among other things, recommend a recovery method for costs approved by the LPSC.  The parties have agreed to a procedural schedule that includes March 2010 hearing dates for both the recoverability and the method of recovery proceedings.  Recovery options include traditional base rate recovery, Louisiana Act 64 (passed in 2006) financing, or Louisiana Act 55 (passed in 2007) financing.  Entergy Gulf States Louisiana and Entergy Louisiana recovered their costs from Hurricane Katrina and Hurricane Rita primarily by Act 55 financing.

Entergy Arkansas January 2009 Ice Storm

See the Form 10-K for a discussion of the severe ice storm that caused significant damage to Entergy Arkansas' transmission and distribution lines, equipment, poles, and other facilities in January 2009.  See Note 2 to the financial statements herein for a discussion of Entergy Arkansas' accounting for and recovery of these storm costs.

Results of Operations

Second Quarter 2009 Compared to Second Quarter 2008

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the second quarter 2009 to the second quarter 2008 showing how much the line item increased or (decreased) in comparison to the prior period:

   
 
Utility
 
Non-Utility
Nuclear
 
Parent &
Other (1)
 
 
Entergy
   
(In Thousands)
                 
2nd Qtr 2008 Consolidated Net Income
 
$164,023 
 
$143,616 
 
($31,710)
 
$275,929 
                 
Net revenue (operating revenue less fuel
  expense, purchased power, and other
  regulatory charges/credits)
 
 
 
(17,099)
 
 
 
(61,346)
 
 
 
(13,076)
 
 
 
(91,521)
Other operation and maintenance expenses
 
4,281 
 
2,969 
 
(21,214)
 
(13,964)
Taxes other than income taxes
 
(5,744)
 
1,935 
 
268 
 
(3,541)
Depreciation and amortization
 
8,488 
 
4,315 
 
(91)
 
12,712 
Other income
 
21,196 
 
(36,353)
 
(26,554)
 
(41,711)
Interest charges
 
14,185 
 
601 
 
(13,621)
 
1,165 
Other expenses
 
3,056 
 
3,829 
 
 
6,885 
Income taxes
 
(7,721)
 
(47,943)
 
(36,707)
 
(92,371)
                 
2nd Qtr 2009 Consolidated Net Income
 
$151,575 
 
$80,211 
 
$25 
 
$231,811 

(1)
Parent & Other includes eliminations, which are primarily intersegment activity.

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


 
5

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

  
 
Amount
 
  
 
(In Millions)
 
       
2008 net revenue
  $ 1,182  
Rough production cost equalization
    (19 )
Retail electric price
    (4 )
Volume/weather
    5  
Other
    1  
2009 net revenue
  $ 1,165  

As discussed further in Note 2 to the financial statements, the rough production cost equalization variance is due to an additional $18.6 million allocation of 2007 rough production cost equalization receipts ordered by the PUCT to Texas retail customers over what was originally allocated to Entergy Texas prior to the jurisdictional separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas, effective December 2007.

The retail electric price decrease is primarily due to:

·   
the absence of interim storm recoveries through the formula rate plans at Entergy Louisiana and Entergy Gulf States Louisiana, which ceased upon the Act 55 financing of storm costs in the third quarter 2008; and
·   
a credit passed on to customers as a result of the Act 55 storm cost financings.

The retail electric price decrease was partially offset by:
 
·   
rate increases that were implemented in January 2009 at Entergy Texas; and
·   
an increase in the Attala power plant costs recovered through the power management rider by Entergy Mississippi.  The net income effect of this recovery is limited to a portion representing an allowed return on equity with the remainder offset by Attala power plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes.

           The volume/weather variance is primarily due to increased electricity usage during the unbilled sales period, partially offset by the effect of less favorable weather compared to the same period in 2008.  Electricity usage by industrial customers decreased by 10%.  The weak economy affected customer usage across all customer segments, most notably in the industrial sector.  Industrial sales in the second quarter 2009 for large customers were affected by weaknesses in chemicals, primary metals, and refining.  Small and mid-sized industrial customers also continue to be negatively affected by overseas competition.  The effect of the industrial sales volume decrease is mitigated, however, by the fixed charge basis of many industrial customers' rates, which causes average price per KWh sold to increase as the fixed charges are spread over lower volume.


 
6

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Non-Utility Nuclear

Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

  
 
Amount
 
  
 
(In Millions)
 
       
2008 net revenue
  $ 553  
Volume variance
    (62 )
Other
    1  
2009 net revenue
  $ 492  

As shown in the table above, net revenue for Non-Utility Nuclear decreased by $61 million, or 11%, in the second quarter 2009 compared to the second quarter 2008 primarily due to lower volume resulting from more refueling outage days as well as two unplanned outages in 2009.  Included in net revenue is $13 million and $19 million of amortization of the Palisades purchased power agreement in the second quarter 2009 and 2008, respectively, which is non-cash revenue and is discussed in Note 15 to the financial statements in the Form 10-K.  Following are key performance measures for Non-Utility Nuclear for the second quarter 2009 and 2008:

   
2009
 
2008
         
Net MW in operation at June 30
 
4,998
 
4,998
Average realized price per MWh
 
$59.22
 
$58.22
GWh billed
 
8,980
 
10,145
Capacity factor
 
81%
 
92%
Refueling Outage Days:
       
Indian Point 2
 
-
 
19
Indian Point 3
 
15
 
-
Palisades
 
32
 
-
Pilgrim
 
31
 
-

Realized Price per MWh

See the Form 10-K for a discussion of factors that have influenced Non-Utility Nuclear's realized price per MWh.  Non-Utility Nuclear's annual average realized price per MWh increased from $39.40 for 2003 to $59.51 for 2008.  In addition, as shown in the contracted sale of energy table in "Market and Credit Risk Sensitive Instruments," Non-Utility Nuclear has sold forward 87% of its planned energy output for the remainder of 2009 for an average contracted energy price of $62 per MWh.  Recent trends in the energy commodity markets have resulted in lower natural gas prices and therefore current prevailing market prices for electricity in the New York and New England power regions are generally below the prices in Non-Utility Nuclear's existing contracts in those regions.  Power prices on Non-Utility Nuclear's open energy position declined significantly during the second quarter 2009, averaging in the low-$30/MWh range.  Current market conditions as reflected in published power prices suggest pricing around the mid-$30/MWh range for the remainder of 2009.  Therefore, it is uncertain whether Non-Utility Nuclear will continue to experience increases in its annual realized price per MWh.


 
7

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $479 million for the second quarter 2008 to $483 million for the second quarter 2009 primarily due to:

·  
an increase of $8 million in nuclear expenses primarily due to increased nuclear labor and contract costs;
·  
a reimbursement of  $7 million of costs in 2008 in connection with a litigation settlement; and
·  
an increase of $5 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.

These increases were substantially offset by a decrease of $11 million in payroll-related and benefits costs.

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

Other income increased primarily due to:

·  
carrying charges of $19 million on Hurricane Ike storm restoration costs as authorized by Texas legislation in the second quarter 2009;
·  
distributions of $14 million earned by Entergy Louisiana and $5 million earned by Entergy Gulf States Louisiana on investments in preferred membership interests of Entergy Holdings Company.  The distributions on preferred membership interests are eliminated in consolidation and have no effect on net income because the investment is in another Entergy subsidiary.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Hurricane Katrina and Hurricane Rita – Storm Cost Financings" in the Form 10-K for discussion of these investments in preferred membership interests; and
·  
an increase of $7 million in allowance for equity funds used during construction due to more construction work in progress primarily as a result of Hurricane Gustav and Hurricane Ike.

This increase was partially offset by a decrease of $8 million in taxes collected on advances for transmission projects and a decrease of $5 million resulting from lower interest earned on the decommissioning trust funds and short-term investments.

           Interest charges increased primarily due to an increase in long-term debt outstanding resulting from net debt issuances by certain of the Utility operating companies in the second half of 2008 and the first half of 2009.

Non-Utility Nuclear

Other operation and maintenance expenses increased from $201 million for the second quarter 2008 to $204 million for the second quarter 2009 primarily due to $16 million in outside service costs and incremental labor costs related to the planned spin-off of the Non-Utility Nuclear business, substantially offset by lower spending on other operation and maintenance expenses resulting from more refueling outage days.

Other income decreased primarily due to $69 million in charges in the second quarter 2009 compared to $24 million in charges in the second quarter 2008 resulting from the recognition of impairments of certain equity securities held in Non-Utility Nuclear's decommissioning trust funds that are not considered temporary.

Parent & Other

Other operation and maintenance expenses decreased for the parent company, Entergy Corporation, primarily due to a decrease of $23 million in outside services costs related to the planned spin-off of the Non-Utility Nuclear business.
 
 
 
8

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Other income decreased primarily due to the elimination for consolidation purposes of distributions earned of $14 million by Entergy Louisiana and $5 million by Entergy Gulf States Louisiana on investments in preferred membership interests of Entergy Holdings Company, as discussed above.

Interest charges decreased primarily due to lower interest rates on borrowings under Entergy Corporation's revolving credit facility.

Income Taxes

The effective income tax rates for the second quarters of 2009 and 2008 were 28.1% and 39.9%, respectively.  The reduction in the effective income tax rate versus the statutory rate of 35% for the second quarter 2009 is primarily due to:

·  
an adjustment to state income taxes for Non-Utility Nuclear to reflect the effect of a change in the methodology of computing Massachusetts state income taxes as required by that state's taxing authority;
·  
the recognition of state loss carryovers that had been subject to a valuation allowance; and
·  
the recognition of a federal capital loss carryover that had been subject to a valuation allowance.

The reduction was partially offset by state income taxes at the Utility operating companies.

The difference in the effective income tax rate versus the statutory rate of 35% for the second quarter 2008 is primarily due to state income taxes and book and tax differences for utility plant items.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, and Entergy comparing the six months ended June 30, 2009 to the six months ended June 30, 2008 showing how much the line item increased or (decreased) in comparison to the prior period:

   
 
Utility
 
Non-Utility
Nuclear
 
Parent &
Other (1)
 
 
Entergy
   
(In Thousands)
                 
2008 Consolidated Net Income
 
$285,503 
 
$365,314 
 
($61,141)
 
$589,676 
                 
Net revenue (operating revenue less fuel
  expense, purchased power, and other
  regulatory charges/credits)
 
 
 
(14,624)
 
 
 
(83,665)
 
 
 
(12,201)
 
 
 
(110,490)
Other operation and maintenance expenses
 
6,510 
 
21,353 
 
(8,051)
 
19,812 
Taxes other than income taxes
 
13,349 
 
8,014 
 
922 
 
22,285 
Depreciation and amortization
 
18,117 
 
7,281 
 
181 
 
25,579 
Other income
 
46,384 
 
(49,276)
 
(55,602)
 
(58,494)
Interest charges
 
19,723 
 
840 
 
(32,515)
 
(11,952)
Other expenses
 
10,521 
 
4,632 
 
 
15,153 
Income taxes
 
(18,501)
 
(70,839)
 
(32,989)
 
(122,329)
                 
2009 Consolidated Net Income
 
$267,544 
 
$261,092 
 
($56,492)
 
$472,144 

(1)
Parent & Other includes eliminations, which are primarily intersegment activity.
 
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS" for further information with respect to operating statistics.
 
 
9

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 


Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

  
 
Amount
 
  
 
(In Millions)
 
       
2008 net revenue
  $ 2,216  
Rough production cost equalization
    (19 )
Volume/weather
    (3 )
Retail electric price
    3  
Other
    5  
2009 net revenue
  $ 2,202  

As discussed further in Note 2 to the financial statements, the rough production cost equalization variance is due to an additional $18.6 million allocation of 2007 rough production cost equalization receipts ordered by the PUCT to Texas retail customers over what was originally allocated to Entergy Texas prior to the jurisdictional separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas, effective December 2007.

The retail electric price increase is primarily due to:

·  
a capacity acquisition rider that became effective in February 2008 at Entergy Arkansas;
·  
rate increases that were implemented in January 2009 at Entergy Texas; and
·  
an increase in the Attala power plant costs recovered through the power management rider by Entergy Mississippi.  The net income effect of this recovery is limited to a portion representing an allowed return on equity with the remainder offset by Attala power plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes.

The retail electric price increase was largely offset by:
 
·  
the absence of interim storm recoveries through the formula rate plans at Entergy Louisiana and Entergy Gulf States Louisiana, which ceased upon the Act 55 financing of storm costs in third quarter 2008; and
·  
a credit passed on to customers as a result of the Act 55 storm cost financings.
 
    The volume/weather variance is primarily due to decreased electricity usage of 11% by industrial customers.  The overall decline of the economy led to lower usage affecting both the large customer industrial segment as well as small and mid-sized industrial customers, who are also being affected by overseas competition.  The effect of the industrial sales volume decrease is mitigated, however, by the fixed charge basis of many industrial customers' rates, which causes average price per KWh sold to increase as the fixed charges are spread over lower volume.  Also contributing to the decrease is less favorable weather compared to the same period in 2008.  These decreases were substantially offset by increased electricity usage during the unbilled sales period.


 
10

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Non-Utility Nuclear

Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

  
 
Amount
 
  
 
(In Millions)
 
       
2008 net revenue
  $ 1,178  
Volume variance
    (100 )
Realized price changes
    20  
Other
    (3 )
2009 net revenue
  $ 1,095  

As shown in the table above, net revenue for Non-Utility Nuclear decreased by $83 million, or 7%, in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to lower volume resulting from more refueling outage days, partially offset by higher pricing in its contracts to sell power.  Included in net revenue is $26 million and $38 million of amortization of the Palisades purchased power agreement in the six months ended June 30, 2009 and 2008, respectively, which is non-cash revenue and is discussed in Note 15 to the financial statements in the Form 10-K.  Following are key performance measures for Non-Utility Nuclear for the six months ended June 30, 2009 and 2008:

   
2009
 
2008
         
Net MW in operation at June 30
 
4,998
 
4,998
Average realized price per MWh
 
$61.66
 
$59.89
GWh billed
 
19,054
 
20,905
Capacity factor
 
87%
 
95%
Refueling Outage Days:
       
Indian Point 2
 
-
 
26
Indian Point 3
 
36
 
-
Palisades
 
41
 
-
Pilgrim
 
31
 
-

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $899 million for the six months ended June 30, 2008 to $906 million for the six months ended June 30, 2009 primarily due to:

·  
an increase of $17 million in nuclear expenses primarily due to increased nuclear labor and contract costs;
·  
a reimbursement of  $7 million of costs in 2008 in connection with a litigation settlement; and
·  
an increase of $5 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.

These increases were substantially offset by a decrease of $22 million in payroll-related and benefits costs.

Taxes other than income taxes increased primarily due to the favorable resolution in the first quarter 2008 of issues relating to the tax exempt status of bonds for the Utility, which reduced taxes other than income taxes in 2008. Approximately half of the decrease in 2008 related to resolution of this issue is at System Energy and has no effect on net income because System Energy also has a corresponding decrease in its net revenue.

 
11

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

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

Other income increased primarily due to:

·  
distributions of $27 million earned by Entergy Louisiana and $10 million earned by Entergy Gulf States Louisiana on investments in preferred membership interests of Entergy Holdings Company.  The distributions on preferred membership interests are eliminated in consolidation and have no effect on net income because the investment is in another Entergy subsidiary.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Hurricane Katrina and Hurricane Rita – Storm Cost Financings" in the Form 10-K for discussion of these investments in preferred membership interests;
·  
carrying charges of $19 million on Hurricane Ike storm restoration costs as authorized by Texas legislation in the second quarter 2009; and
·  
an increase of $14 million in allowance for equity funds used during construction due to more construction work in progress primarily as a result of Hurricane Gustav and Hurricane Ike.

This increase was partially offset by a decrease of $11 million resulting from lower interest earned on the decommissioning trust funds and short-term investments and a decrease of $11 million in taxes collected on advances for transmission projects.

Interest charges increased primarily due to an increase in long-term debt outstanding resulting from debt issuances by certain of the Utility operating companies in the second half of 2008 and the first half of 2009.

Non-Utility Nuclear

Other operation and maintenance expenses increased from $382 million for the six months ended June 30, 2008 to $404 million for the six months ended June 30, 2009 primarily due to $24 million in outside service costs and incremental labor costs related to the planned spin-off of the Non-Utility Nuclear business.

Other income decreased primarily due to $85 million in charges in 2009 compared to $28 million in charges in 2008 resulting from the recognition of impairments of certain equity securities held in Non-Utility Nuclear's decommissioning trust funds that are not considered temporary.

Parent & Other

Other income decreased primarily due to the elimination for consolidation purposes of distributions earned of $27 million by Entergy Louisiana and $10 million by Entergy Gulf States Louisiana on investments in preferred membership interests of Entergy Holdings Company, as discussed above.

Interest charges decreased primarily due to lower interest rates on borrowings under Entergy Corporation's revolving credit facility.

Income Taxes

The effective income tax rates for the six months ended June 30, 2009 and 2008 were 35.0% and 38.9%, respectively.  The effective income tax rate is equal to the statutory rate of 35% for the six months ended June 30, 2009 primarily due to the reductions in the effective income tax rate discussed below being offset by increases related to state income taxes at the Utility operating companies and book and tax differences for utility plant items. The effective income tax rate for the six months ended June 30, 2009 reflected reductions related to:

·  
an adjustment to state income taxes for Non-Utility Nuclear to reflect the effect of a change in the methodology of computing Massachusetts state income taxes as required by that state's taxing authority;
·  
the recognition of state loss carryovers that had been subject to a valuation allowance; and
·  
the recognition of a federal capital loss carryover that had been subject to a valuation allowance.
 
 
12

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

The difference in the effective income tax rate versus the statutory rate of 35% for the six months ended June 30, 2008 is primarily due to state income taxes and book and tax differences for utility plant items, partially offset by an adjustment to state income taxes for Non-Utility Nuclear to reflect the effect of a change in the methodology of computing New York state income taxes as required by that state's taxing authority.

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.

Capital Structure

Entergy's capitalization is balanced between equity and debt, as shown in the following table.  The decrease in the debt to capital percentage from 2008 to 2009 is primarily due to the repayment of borrowings under Entergy Corporation's revolving credit facility in 2009.  Also contributing to the decrease is the unsuccessful remarketing of $500 million of notes associated with Entergy Corporation's equity units resulting in a decrease in long-term debt and an increase in common shareholders' equity.

   
June 30,
 2009
 
December 31,
2008
         
Net debt to net capital
 
53.0%
 
55.6%
Effect of subtracting cash from debt
 
2.9%
 
4.1%
Debt to capital
 
55.9%
 
59.7%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, common shareholders' equity, and subsidiaries' 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 a $3.5 billion credit facility that expires in August 2012.  Entergy Corporation has the ability to issue letters of credit against the total borrowing capacity of the facility.  As of June 30, 2009, amounts outstanding under the credit facility are:

 
Capacity
 
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
             
$3,500 
 
$2,435 
 
$28 
 
$1,037

Entergy Corporation's credit facility requires it to maintain a consolidated debt ratio of 65% or less of its total capitalization.  The calculation of this debt ratio under Entergy Corporation's credit facility and in the indenture governing the Entergy Corporation senior notes is different than the calculation of the debt to capital ratio above.  Entergy is currently in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility's maturity date may occur, and there may be an acceleration of amounts due under Entergy Corporation's senior notes.
 
See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries' credit facilities.
 
 
13

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 


Capital Expenditure Plans and Other Uses of Capital

See the table and discussion in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," that sets forth the amounts of planned construction and other capital investments by operating segment for 2009 through 2011.  Following is an update to the discussion in the Form 10-K.

Little Gypsy Repowering Project

See the Form 10-K for a discussion of Entergy Louisiana's Little Gypsy repowering project.  On March 11, 2009, the LPSC voted in favor of a motion directing Entergy Louisiana to temporarily suspend the repowering project and, based upon an analysis of the project's economic viability, to make a recommendation regarding whether to proceed with the project.  This action was based upon a number of factors including the recent decline in natural gas prices, as well as environmental concerns, the unknown costs of carbon legislation and changes in the capital/financial markets. On April 1, 2009, Entergy Louisiana complied with the LPSC's directive and recommended that the project be suspended for an extended period of time of three years or more.  Entergy Louisiana estimates that its total costs for the project, if suspended, including actual spending to date and estimated contract cancellation costs, will be approximately $300 million.  Entergy Louisiana had obtained all major environmental permits required to begin construction.  A longer-term suspension places these permits at risk and may adversely affect the project's economics and technological feasibility.  On May 22, 2009, the LPSC issued an order declaring that Entergy Louisiana's decision to place the Little Gypsy project into a longer-term suspension of three years or more is in the public interest and prudent.  Entergy Louisiana expects to make a filing later in 2009 with the LPSC regarding the recovery of project costs already incurred.

Waterford 3 Steam Generator Replacement Project

In July 2009 the LPSC granted Entergy Louisiana's motion to dismiss, without prejudice, its application seeking recovery of cash earnings on construction work in progress (CWIP) for the steam generator replacement project, acknowledging Entergy Louisiana's right, at any time, to seek cash earnings on CWIP if Entergy Louisiana believes that circumstances or projected circumstances are such that a request for cash earnings on CWIP is merited.  The cash earnings on CWIP application had been consolidated with a similar request for the Little Gypsy repowering project that was also dismissed in response to the same motion.

White Bluff Coal Plant Project

See the Form 10-K for a discussion of the environmental compliance project that will install scrubbers and low NOx burners at Entergy Arkansas' White Bluff coal plant.  In March 2009, Entergy Arkansas made a filing with the APSC seeking a declaratory order that the White Bluff project is in the public interest.  In May 2009 the APSC Staff filed a motion requesting that the APSC require Entergy Arkansas to file testimony on several issues.  In a subsequent order the APSC set a procedural schedule that includes an evidentiary hearing beginning on February 16, 2010.  In addition, in June 2009, Entergy Arkansas filed with the APSC, under Arkansas Act 310, an interim surcharge to recover the costs incurred through May 31, 2009, on the White Bluff project.  Entergy Arkansas has incurred $1.9 million through May 31, 2009.  Under Arkansas Act 310 the surcharge goes into effect immediately upon filing, subject to refund, and additional surcharge filings are permitted every six months.  On July 20, 2009, the APSC staff filed a motion with the APSC requesting that the APSC enter an order regarding the conduct of this and subsequent Act 310 filings related to the White Bluff project, including requiring Entergy Arkansas to provide additional information and justification for costs recovered pursuant to Act 310.  In July 2009 the Arkansas attorney general filed a motion in the Act 310 proceeding opposing the imposition of the surcharge, and challenging Entergy Arkansas' cost calculation.

 

 
14

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Pension Contributions

For an update to the discussion on pension contributions see "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates - Qualified Pension and Other Postretirement BenefitsCosts and Funding."

Other Uses of Capital

Following are other significant, or potentially significant, uses of capital by Entergy, in addition to those discussed in the Form 10-K, that may change Entergy's expected level of capital expenditures or other uses of capital:

·  
As discussed in the Form 10-K as a potential use of capital, System Energy plans a 178 MW uprate of the Grand Gulf nuclear plant.  The project is expected to cost $575 million.  On May 22, 2009, a petition and supporting testimony were filed at the MPSC requesting a Certificate of Public Convenience and Necessity for implementation of the uprate.  The City of New Orleans is the only party that has intervened in the case.  No procedural schedule has been set for the case.
·  
The issues discussed below in Independent Coordinator of Transmission involving the transmission business will likely result in increased capital expenditures by the Utility operating companies.
·  
Recent NRC security requirement changes will likely result in increased capital expenditures in 2009 and 2010 for both the Utility and Non-Utility Nuclear nuclear plants.
·  
On June 18, 2009, the NRC issued letters indicating that the NRC staff had concluded that there were shortfalls in the amount of decommissioning funding assurance provided for Waterford 3, River Bend, Indian Point 2, Vermont Yankee, and Palisades.  The NRC staff conducted a telephone conference with Entergy on this issue on June 29, 2009, and Entergy agreed to submit a plan by August 13, 2009, for addressing the identified shortfalls.  Entergy is reviewing the current amount of any shortfalls and the amounts of potential additional assurance that may be provided as part of the required plan.

Sources of Capital

The short-term borrowings of the Registrant Subsidiaries and certain other Entergy subsidiaries are limited to amounts authorized by the FERC.  The current FERC-authorized limits are effective through March 31, 2010, as established by a FERC order issued March 31, 2008 (except for Entergy Gulf States Louisiana and Entergy Texas, which are effective through November 8, 2009, as established by an earlier FERC order).  See Note 4 to the financial statements for further discussion of Entergy's short-term borrowing limits.

Cash Flow Activity
As shown in Entergy's Consolidated Statements of Cash Flows, cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Millions)
         
Cash and cash equivalents at beginning of period
 
$1,920 
 
$1,253 
         
Cash flow provided by (used in):
       
Operating activities
 
1,016 
 
914 
Investing activities
 
(1,120)
 
(1,008)
Financing activities
 
(536)
 
(73)
Net decrease in cash and cash equivalents
 
(640)
 
(167)
         
Cash and cash equivalents at end of period
 
$1,280 
 
$1,086 

 
 
15

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis   
 
Operating Activities

Entergy's cash flow provided by operating activities increased by $102 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.  Following are cash flows from operating activities by segment:

·  
Utility provided $678 million in cash from operating activities in 2009 compared to providing $398 million in 2008 primarily due to increased collection of fuel costs and a decrease of $53 million in pension contributions, partially offset by Hurricane Gustav, Hurricane Ike, and Arkansas ice storm restoration spending, and working capital requirements.
·  
Non-Utility Nuclear provided $472 million (excluding the effect of intercompany transactions) in cash from operating activities in 2009 compared to providing $594 million in 2008 primarily due to more refueling outage days in 2009 than in 2008, spending related to the planned separation of Non-Utility Nuclear, and an increase of $28 million in pension contributions.
·  
Parent & Other used approximately $133 million (excluding the effect of intercompany transactions) in cash from operating activities in 2009 compared to using $78 million in 2008 primarily due to spending related to the planned separation of Non-Utility Nuclear and a $16 million increase in income taxes paid.

Investing Activities

Net cash used in investing activities increased by $112 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.  The following significant investing cash flow activity occurred in the six months ended June 30, 2009 and 2008:

·  
Construction expenditures were $153 million higher in 2009 than in 2008 due to an increase in Utility spending of $75 million primarily due to Hurricane Gustav, Hurricane Ike, and Arkansas ice storm restoration spending and an increase of $79 million in Non-Utility Nuclear spending due to various projects.
·  
Net nuclear fuel purchases increased by $63 million primarily due to Non-Utility Nuclear preparing for more refueling outages in 2009 than in 2008.
·  
In March 2008, Entergy Gulf States Louisiana purchased the Calcasieu Generating Facility, a 322 MW simple-cycle, gas-fired power plant located near the city of Sulphur in southwestern Louisiana, for approximately $56 million.
·  
Receipt in 2008 of insurance proceeds from Entergy New Orleans' Hurricane Katrina claim.
·  
In 2008, Non-Utility Nuclear posted $102 million of cash as collateral in support of its agreements to sell power.

Financing Activities

Net cash used in financing activities increased by $463 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.  The following significant financing cash flow activity occurred in the six months ended June 30, 2009 and 2008:

·  
Entergy Corporation decreased the net borrowings under its credit facility by $802 million in 2009 compared to increasing the net borrowings under its credit facility by $521 million in 2008.  See Note 4 to the financial statements for a description of the Entergy Corporation credit facility.
·  
Entergy Texas issued $500 million of 7.125% Series Mortgage Bonds in January 2009 and used a portion of the proceeds to repay $100 million in borrowings outstanding on its long-term credit facility and $70.8 million in long-term debt prior to maturity.
·  
Entergy Texas issued $150 million of 7.875% Series Mortgage Bonds in May 2009 and Entergy Mississippi issued $150 million of 6.64% Series First Mortgage Bonds in June 2009.
·  
The Utility operating companies increased the borrowings outstanding on their long-term credit facilities by $230 million in 2008.
·  
The Utility operating companies increased the borrowings outstanding on their short-term credit facilities by $150 million in 2008.
 
 
16

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
 
·  
Entergy Corporation repaid $87 million of notes payable at their maturity in March 2008.
·  
Entergy Corporation repurchased $370 million of its common stock in 2008.

Rate, Cost-recovery, and Other Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Rate, Cost-recovery, and Other Regulation" in the Form 10-K for discussions of rate regulation and federal regulation.  Following are updates to the information provided in the Form 10-K.

State and Local Rate Regulation and Fuel-Cost Recovery

See the Form 10-K for a chart summarizing material rate proceedings.  See Note 2 to the financial statements herein for updates to the proceedings discussed in that chart.

Federal Regulation

See the Form 10-K for a discussion of federal regulatory proceedings.  Following are updates to that discussion.

System Agreement Proceedings

Entergy's Utility Operating Companies' Compliance Filing

On July 6, 2009, the D.C. Circuit denied the LPSC's appeal of the FERC's order accepting the Utility operating companies' compliance filing to implement the provisions of the FERC's rough production cost equalization bandwidth decision.

Rough Production Cost Equalization Rates

2008 Rate Filing Based on Calendar Year 2007 Production Costs

The parties reached a partial settlement agreement of certain of the issues initially raised in this proceeding.  The partial settlement agreement was conditioned on the FERC accepting the agreement without modification or condition.  On June 19, 2009, the ALJ certified the partial settlement agreement to the FERC for its consideration.  A hearing on the remaining issues in the proceeding was completed in June 2009.  Additionally, on June 5, 2009, the FERC issued an order denying the Utility operating companies' request for clarification on the scope of the hearing.

2009 Rate Filing Based on Calendar Year 2008 Production Costs

In May 2009, Entergy filed with the FERC the rates for the third year to implement the FERC's order in the System Agreement proceeding.  The filing shows the following payments/receipts among the Utility operating companies for 2009, based on calendar year 2008 production costs, commencing for service in June 2009, are necessary to achieve rough production cost equalization under the FERC's orders:

 
 Payments or
(Receipts)
 
(In Millions)
Entergy Arkansas
$390
Entergy Gulf States Louisiana
($107)
Entergy Louisiana
($140)
Entergy Mississippi
($24)
Entergy New Orleans
$-
Entergy Texas
($119)

 
 
17

Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis   
 
Several parties intervened in the proceeding at the FERC, including the LPSC and Ameren, which have also filed protests.  On July 27, 2009, the FERC accepted Entergy's proposed rates for filing, effective June 1, 2009, subject to refund, and set the proceeding for hearing and settlement procedures.  A settlement judge was appointed and a settlement conference with the judge is scheduled for August 11, 2009.

Entergy Arkansas and Entergy Mississippi Notices of Termination of System Agreement Participation and Related APSC Investigation

On February 2, 2009, Entergy Arkansas and Entergy Mississippi filed with the FERC their notices of cancellation to effectuate the termination of their participation in the Entergy System Agreement, effective December 18, 2013 and November 7, 2015, respectively.  While the FERC had indicated previously that the notices should be filed 18 months prior to Entergy Arkansas' termination (approximately mid-2012), the filing explains that resolving this issue now, rather than later, is important to ensure that informed long-term resource planning decisions can be made during the years leading up to Entergy Arkansas' withdrawal and that all of the Utility operating companies are properly positioned to continue to operate reliably following Entergy Arkansas' and, eventually, Entergy Mississippi's, departure from the System Agreement.  Entergy Arkansas and Entergy Mississippi requested that the FERC accept the proposed notices of cancellation without further proceedings.  Various parties intervened or filed protests in the proceeding, including the APSC, the LPSC, the MPSC, and the City Council.  The APSC and the MPSC support the notices, but the other parties generally request either dismissal of the filings or that the proceeding be set for hearing.  Entergy Arkansas and Entergy Mississippi responded to the interventions and protests.  Entergy Arkansas and Entergy Mississippi reiterated their request that the FERC accept the proposed notices of cancellation.  If further inquiry by the FERC is necessary, Entergy Arkansas and Entergy Mississippi proposed that the FERC institute a paper hearing to resolve the major policy and legal issues and then, if necessary, set any remaining factual questions for an expedited hearing.

Interruptible Load Proceeding

Following the filing of petitioners' initial briefs, the FERC filed a motion requesting the D.C. Circuit hold the appeal of the FERC's decisions ordering refunds in the interruptible load proceeding in abeyance and remand the record to the FERC.  The D.C. Circuit granted the FERC's unopposed motion on June 24, 2009, and directed the FERC to file status reports at 60-day intervals beginning August 24, 2009.  The D.C. Circuit also directed the parties to file motions to govern future proceedings in the case within 30 days of the completion of the FERC proceedings.

June 2009 LPSC Complaint Proceeding

In June 2009, the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas' sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocate the energy generated by Entergy System resources, (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity, and (c) violated the provision of the System Agreement that prohibits sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies.   The LPSC's complaint challenges sales made beginning in 2002 and requests refunds.  On July 20, 2009, the Utility operating companies filed a response to the complaint requesting that the FERC dismiss the complaint on the merits without hearing because the LPSC has failed to meet its burden of showing any violation of the System Agreement and failed to produce any evidence of imprudent action by the Entergy System.  In their response, the Utility operating companies explained that the System Agreement clearly contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company.  The response further explains that the FERC already has determined that Entergy Arkansas' short-term wholesale sales did not trigger the "right-of-first-refusal" provision of the System Agreement.  While the D.C. Circuit recently determined that the "right-of-first-refusal" issue was not properly before the FERC at the time of its earlier decision on the issue, the LPSC has raised no additional claims or facts that would warrant the FERC reaching a different conclusion.  The matter is pending before the FERC and a procedural schedule has not been set.
 
 
18

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

Independent Coordinator of Transmission

In the FERC's April 2006 order that approved Entergy's Independent Coordinator of Transmission (ICT) proposal, the FERC stated that the Weekly Procurement Process (WPP) must be operational within approximately 14 months of the FERC order, or June 24, 2007, or the FERC may reevaluate all approvals to proceed with the ICT.  The Utility operating companies filed status reports with the FERC notifying the FERC that, due to unexpected issues with the development of the WPP software and testing, the WPP was still not operational.  The Utility operating companies also filed various tariff revisions with the FERC in 2007 and 2008 to address issues identified during the testing of the WPP and changes to the effective date of the WPP.  On October 10, 2008, the FERC issued an order accepting a tariff amendment establishing that the WPP shall take effect at a date to be determined, after completion of successful simulation trials and the ICT's endorsement of the WPP's implementation.  On January 16, 2009, the Utility operating companies filed a compliance filing with the FERC that included the ICT's endorsement of the WPP implementation, subject to the FERC's acceptance of certain additional tariff amendments and the completion of simulation testing and certain other items.  The Utility operating companies filed the tariff amendments supported by the ICT on the same day.  The amendments proposed to further amend the WPP to (a) limit supplier offers in the WPP to on-peak periods and (b) eliminate the granting of certain transmission service through the WPP.

On March 17, 2009, the FERC issued an order conditionally approving the proposed modification to the WPP to allow the process to be implemented the week of March 23, 2009.  In its order approving the requested modifications, the FERC imposed additional conditions related to the ICT arrangement and indicated it was going to evaluate the success of the ICT arrangement, including the cost and benefits of implementing the WPP and whether the WPP goes far enough to address the transmission access issues that the ICT and WPP were intended to address.  The FERC, in conjunction with the APSC, the LPSC, the MPSC, the PUCT, and the City Council, hosted a conference on June 24, 2009, to discuss the ICT arrangement and transmission access on the Entergy transmission system.

During the conference, several issues were raised by regulators and market participants, including the adequacy of the Utility operating companies' capital investment in the transmission system, the Utility operating companies' compliance with the existing North American Electric Reliability Corporation (NERC) reliability planning standards, the availability of transmission service across the system, and whether the Utility operating companies could have purchased lower cost power from merchant generators located on the transmission system rather than running their older generating facilities.  On July 20, 2009, the Utility operating companies filed comments with the FERC responding to the issues raised during the conference.  The comments explain that: 1) the Utility operating companies believe that the ICT arrangement has fulfilled its objectives; 2) the Utility operating companies' transmission planning practices comply with laws and regulations regarding the planning and operation of the transmission system; and 3) these planning practices have resulted in a system that meets applicable reliability standards and is sufficiently robust to allow the Utility operating companies both to substantially increase the amount of transmission service available to third parties and to make significant amounts of economic purchases from the wholesale market for the benefit of the Utility operating companies' retail customers.   The Utility operating companies also explain that, as with other transmission systems, there are certain times during which congestion occurs on the Utility operating companies' transmission system that limits the ability of the Utility operating companies as well as other parties to fully utilitize the generating resources that have been granted transmission service.  Additionally, the Utility operating companies commit in their response to exploring and working on potential reforms or alternatives for the ICT arrangement that could take effect following the initial term.  The Utility operating companies' comments also recognize that NERC is in the process of amending certain of its transmission reliability planning standards and that the amended standards, if approved by the FERC, will result in more stringent transmission planning criteria being applicable in the future.  The FERC may also make other changes to transmission reliability standards.  These changes to the reliability standards would result in increased capital expenditures by the Utility operating companies.



 
19

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

Market and Credit Risk Sensitive Instruments

Commodity Price Risk

Power Generation

As discussed more fully in the Form 10-K, the sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business, unless otherwise contracted, is subject to the fluctuation of market power prices.  Following is an updated summary of the amount of the Non-Utility Nuclear business' output that is currently sold forward under physical or financial contracts (2009 represents the remaining two quarters of the year):

   
2009
 
2010
 
2011
 
2012
 
2013
Non-Utility Nuclear:
                   
Percent of planned generation sold forward:
                   
Unit-contingent
 
49%
 
46%
 
37%
 
18%
 
12%
Unit-contingent with availability guarantees (1)
 
38%
 
35%
 
17%
 
 7%
 
 6%
Total
 
87%
 
81%
 
54%
 
25%
 
18%
Planned generation (TWh)
 
22
 
40
 
41
 
41
 
40
Average contracted price per MWh (2)
 
$62
 
$58
 
$56
 
$54
 
$50

(1)
A sale of power on a unit-contingent basis coupled with a guarantee of availability provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold.  All of Entergy's outstanding guarantees of availability provide for dollar limits on Entergy's maximum liability under such guarantees.
(2)
The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy most of the power produced by the plant, which is through the expiration in 2012 of the current operating license for the plant.  The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below prices specified in the PPA, which has not happened thus far.

           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 is required to provide collateral based upon the difference between the current market and contracted power prices in the regions where Non-Utility Nuclear sells power.  The primary form of collateral to satisfy these requirements is an Entergy Corporation guaranty.  Cash and letters of credit are also acceptable forms of collateral.  At June 30, 2009, based on power prices at that time, Entergy had $415 million of collateral in place to support Entergy Nuclear Power Marketing transactional activity, consisting primarily of Entergy Corporation guarantees, but also including $20 million of guarantees that support letters of credit and $2 million of cash collateral.  As of June 30, 2009, the credit exposure associated with Non-Utility Nuclear assurance requirements could increase by an estimated amount of up to $213 million for each $1 per MMBtu increase in gas prices in both the short- and long-term markets, but because market prices have fallen below contract prices, gas prices would have to change by more than $1 per MMBtu to change significantly the actual amount of collateral posted.  In the event of a decrease in Entergy Corporation's credit rating to below investment grade, based on power prices as of June 30, 2009, Entergy would have been required under some of the agreements to replace approximately $72 million of the Entergy Corporation guarantees with cash or letters of credit.

As of June 30, 2009, for the planned energy output under contract for Non-Utility Nuclear through 2013, 68% of the planned energy output is under contract with counterparties with public investment grade credit ratings; 31% is with counterparties with public non-investment grade credit ratings, primarily a utility from which Non-Utility Nuclear purchased one of its power plants and entered into a long-term fixed-price purchased power agreement; and 1% is with load-serving entities without public credit ratings.
 
 
20

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

           In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells unforced capacity that is used to meet requirements placed on load-serving distribution companies by the ISO in their area.  Following is a summary of the amount of the Non-Utility Nuclear business' unforced capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and unforced capacity that is currently sold forward (2009 represents the remaining two quarters of the year):

   
2009
 
2010
 
2011
 
2012
 
2013
Non-Utility Nuclear:
                   
Percent of capacity sold forward:
                   
Bundled capacity and energy contracts
 
26%
 
26%
 
25%
 
18%
 
16%
Capacity contracts
 
58%
 
35%
 
26%
 
10%
 
 0%
Total
 
84%
 
61%
 
51%
 
28%
 
16%
Planned net MW in operation
 
4,998
 
4,998
 
4,998
 
4,998
 
4,998
Average capacity contract price per kW per month
 
$2.4
 
$3.3
 
$3.6
 
$3.6
 
$-
Blended Capacity and Energy (based on revenues)
                   
% of planned generation and capacity sold forward
 
91%
 
81%
 
54%
 
22%
 
15%
Average contract revenue per MWh
 
$64
 
$60
 
$59
 
$56
 
$50

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 and trust fund investments, qualified pension and other postretirement benefits, and other contingencies.  The following are updates to that discussion.

Nuclear Decommissioning Costs

In the first quarter 2009, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and 2 as a result of a revised decommissioning cost study.  The revised estimates resulted in an $8.9 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.

In the second quarter 2009, System Energy recorded a revision to its estimated decommissioning cost liabilities for Grand Gulf as a result of a revised decommissioning cost study.  The revised estimate resulted in a $4.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.

Qualified Pension and Other Postretirement Benefits

Costs and Funding

The recent decline in stock market prices will affect Entergy's planned levels of contributions in the future.  Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the market-related values of assets and funding liabilities as measured at that date.  An excess of the funding liability over the market-related value of assets results in a funding shortfall which, under the Pension Protection Act, must be funded over a seven-year rolling period.  The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on the market-related values of assets divided by funding liabilities, does not meet certain thresholds.  Entergy's minimum required contributions for the 2009 plan year are generally payable in installments throughout 2009 and 2010 and are based on the funding calculations as of January 1, 2009.  The final date at which 2009 plan year contributions may be made is September 15, 2010.  

 
 
21

 
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis 

On March 31, 2009, the United States Treasury Department issued guidance that allows plan sponsors to use interest rates earlier in 2008 to measure the present value of the funding liability at January 1, 2009.  Prior to this change, the rates required to be used for Entergy were from the month of December 2008 and the sharp decrease in interest rates during December 2008 was expected to generate significant increases in the funding liability.  A higher liability coupled with losses in the fair market value of pension assets would have increased the funding shortfall at January 1, 2009 and resulted in larger future contributions for the 2009 plan year, payable in 2009 and 2010 as described above.  Entergy's January 1, 2009 funding liability valuation was favorably affected by this guidance and 2009 contributions are not expected to materially increase.  However, to the extent that the higher interest rates experienced in 2008 do not recur in future periods and the fair market values of pension assets do not significantly recover, Entergy's January 1, 2010 funded status could be adversely affected and significantly increase future minimum required pension plan contributions.  In addition to the minimum required contribution required under the Pension Protection Act to fund a shortfall based on the seven year rolling amortization, additional contributions could be needed in 2010 to avoid the plan limitations noted above.  The necessity of such contributions and the actual funded status will be based on a number of factors, including asset performance through 2009 and the interest rates required to be used to measure funded status at January 1, 2010, and therefore cannot be determined at this time.

New Accounting Pronouncements

In December 2008 the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" (FSP 132(R)-1), that requires enhanced disclosures about plan assets of defined benefit pension and other postretirement plans, including disclosure of each major category of plan assets using the fair value hierarchy and concentrations of risk within plan assets.  FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009.

In June 2009 the FASB issued Statement of Financial Accounting Standards 167, "Amendments to FASB Interpretation No. 46R (FIN 46R)" (SFAS 167).  FIN 46R is entitled "Consolidation of Variable Interest Entities".  SFAS 167 amends FIN 46R to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  SFAS 167 also requires additional disclosures on an interim and annual basis about an enterprise's involvement in variable interest entities. The standard will be effective for Entergy in the first quarter of 2010.  Entergy does not expect the adoption of SFAS 167 to have a material effect on its financial position, results of operations, or cash flows.

 
 
22

 

ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
    (In Thousands, Except Share Data)  
                         
OPERATING REVENUES
                       
Electric
  $ 1,918,446     $ 2,524,222     $ 3,945,363     $ 4,570,449  
Natural gas
    28,834       53,985       102,884       143,380  
Competitive businesses
    573,509       686,064       1,261,654       1,415,176  
TOTAL
    2,520,789       3,264,271       5,309,901       6,129,005  
                                 
OPERATING EXPENSES
                               
Operating and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    521,071       726,836       1,367,060       1,267,337  
   Purchased power
    322,919       748,203       646,174       1,368,845  
   Nuclear refueling outage expenses
    60,234       55,840       117,013       107,098  
   Other operation and maintenance
    696,345       710,309       1,341,389       1,321,577  
Decommissioning
    49,307       46,816       98,050       92,812  
Taxes other than income taxes
    122,401       125,942       256,798       234,513  
Depreciation and amortization
    260,689       247,977       518,541       492,962  
Other regulatory charges (credits) - net
    13,327       34,239       (16,147 )     69,519  
TOTAL
    2,046,293       2,696,162       4,328,878       4,954,663  
                                 
OPERATING INCOME
    474,496       568,109       981,023       1,174,342  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    15,782       9,085       32,730       18,371  
Interest and dividend income
    58,892       47,803       105,278       105,740  
Other than temporary impairment losses
    (69,203 )     (24,404 )     (84,939 )     (28,060 )
Equity in earnings (loss) of unconsolidated equity affiliates
    1,369       (2,572 )     (1,758 )     (3,501 )
Miscellaneous - net
    (14,723 )     3,916       (24,895 )     (7,640 )
TOTAL
    (7,883 )     33,828       26,416       84,910  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    125,157       119,903       253,123       243,047  
Other interest - net
    27,487       28,030       46,780       60,567  
Allowance for borrowed funds used during construction
    (8,483 )     (4,937 )     (18,294 )     (10,053 )
TOTAL
    144,161       142,996       281,609       293,561  
                                 
INCOME BEFORE INCOME TAXES
    322,452       458,941       725,830       965,691  
                                 
Income taxes
    90,641       183,012       253,686       376,015  
                                 
CONSOLIDATED NET INCOME
    231,811       275,929       472,144       589,676  
                                 
Preferred dividend requirements of subsidiaries
    4,998       4,975       9,996       9,973  
                                 
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION
  $ 226,813     $ 270,954     $ 462,148     $ 579,703  
                                 
                                 
Earnings per average common share:
                               
    Basic
  $ 1.16     $ 1.42     $ 2.38     $ 3.02  
    Diluted
  $ 1.14     $ 1.37     $ 2.35     $ 2.93  
Dividends declared per common share
  $ 0.75     $ 0.75     $ 1.50     $ 1.50  
                                 
Basic average number of common shares outstanding
    196,105,002       191,326,928       194,359,001       191,983,266  
Diluted average number of common shares outstanding
    198,243,169       197,864,459       198,150,768       198,101,863  
                                 
See Notes to Financial Statements.
                               

 
 
23

 
 
 
ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
   
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Consolidated net income
  $ 472,144     $ 589,676  
Adjustments to reconcile consolidated net income to net cash flow
               
 provided by operating activities:
               
  Reserve for regulatory adjustments
    (1,630 )     (2,808 )
  Other regulatory charges (credits) - net
    (16,147 )     69,519  
  Depreciation, amortization, and decommissioning
    616,591       585,774  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    249,448       365,337  
  Equity in losses of unconsolidated equity affiliates - net of dividends
    1,758       3,501  
  Changes in working capital:
               
     Receivables
    1,888       (216,810 )
     Fuel inventory
    (3,963 )     (12,257 )
     Accounts payable
    (58,177 )     357,503  
     Taxes accrued
    5,193       -  
     Interest accrued
    (37,043 )     (48,799 )
     Deferred fuel
    266,062       (555,444 )
     Other working capital accounts
    (157,092 )     (218,001 )
  Provision for estimated losses and reserves
    (18,642 )     10,680  
  Changes in other regulatory assets
    (455,577 )     39,964  
  Other
    151,536       (54,266 )
Net cash flow provided by operating activities
    1,016,349       913,569  
                 
  INVESTING ACTIVITIES
               
Construction/capital expenditures
    (932,056 )     (778,818 )
Allowance for equity funds used during construction
    32,730       18,371  
Nuclear fuel purchases
    (149,568 )     (217,487 )
Proceeds from sale/leaseback of nuclear fuel
    21,210       152,353  
Proceeds from sale of assets and businesses
    8,654       30,725  
Payment for purchase of plant
    -       (56,409 )
Insurance proceeds received for property damages
    -       63,088  
Changes in transition charge account
    2,962       9,171  
NYPA value sharing payment
    (72,000 )     (72,000 )
Increase (decrease) in other investments
    17,111       (95,166 )
Proceeds from nuclear decommissioning trust fund sales
    1,282,206       748,181  
Investment in nuclear decommissioning trust funds
    (1,330,730 )     (809,653 )
Net cash flow used in investing activities
    (1,119,481 )     (1,007,644 )
                 
See Notes to Financial Statements.
               
                 
                 
                 
                 
                 
 
 
24

 
 
 
ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
   
   
2009
   
2008
 
   
(In Thousands)
 
                 
FINANCING ACTIVITIES
               
Proceeds from the issuance of:
               
  Long-term debt
    783,304       1,800,543  
  Common stock and treasury stock
    2,691       27,862  
Retirement of long-term debt
    (1,022,790 )     (1,383,393 )
Repurchase of common stock
    -       (369,612 )
Changes in credit line borrowings - net
    -       150,000  
Dividends paid:
               
  Common stock
    (289,159 )     (288,172 )
  Preferred stock
    (9,995 )     (10,030 )
Net cash flow used in financing activities
    (535,949 )     (72,802 )
                 
Effect of exchange rates on cash and cash equivalents
    (503 )     (430 )
                 
Net decrease in cash and cash equivalents
    (639,584 )     (167,307 )
                 
Cash and cash equivalents at beginning of period
    1,920,491       1,253,728  
                 
Cash and cash equivalents at end of period
  $ 1,280,907     $ 1,086,421  
                 
                 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
  Cash paid (received) during the period for:
               
    Interest - net of amount capitalized
  $ 321,186     $ 340,077  
    Income taxes
  $ (3,139 )   $ 127,856  
                 
   Noncash financing activities:
               
     Long-term debt retired (equity unit notes)
  $ (500,000 )   $ -  
     Common stock issued in settlement of equity unit purchase contracts
  $ 500,000     $ -  
                 
See Notes to Financial Statements.
               
                 
 

 
25

 

 
ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
   
   
2009
   
2008
 
   
(In Thousands)
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 75,261     $ 115,876  
  Temporary cash investments
    1,205,646       1,804,615  
     Total cash and cash equivalents
    1,280,907       1,920,491  
Securitization recovery trust account
    9,100       12,062  
Accounts receivable:
               
  Customer
    566,540       734,204  
  Allowance for doubtful accounts
    (31,220 )     (25,610 )
  Other
    206,245       206,627  
  Accrued unbilled revenues
    353,819       282,914  
     Total accounts receivable
    1,095,384       1,198,135  
Deferred fuel costs
    24,736       167,092  
Accumulated deferred income taxes
    69,139       7,307  
Fuel inventory - at average cost
    220,108       216,145  
Materials and supplies - at average cost
    799,180       776,170  
Deferred nuclear refueling outage costs
    245,336       221,803  
System agreement cost equalization
    334,286       394,000  
Prepayments and other
    351,890       247,184  
TOTAL
    4,430,066       5,160,389  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliates - at equity
    67,775       66,247  
Decommissioning trust funds
    2,894,147       2,832,243  
Non-utility property - at cost (less accumulated depreciation)
    239,028       231,115  
Other
    113,193       107,939  
TOTAL
    3,314,143       3,237,544  
                 
PROPERTY, PLANT AND EQUIPMENT
               
Electric
    35,530,870       34,495,406  
Property under capital lease
    744,794       745,504  
Natural gas
    307,232       303,769  
Construction work in progress
    1,566,268       1,712,761  
Nuclear fuel under capital lease
    424,076       465,374  
Nuclear fuel
    671,209       636,813  
TOTAL PROPERTY, PLANT AND EQUIPMENT
    39,244,449       38,359,627  
Less - accumulated depreciation and amortization
    16,425,279       15,930,513  
PROPERTY, PLANT AND EQUIPMENT - NET
    22,819,170       22,429,114  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    622,227       581,719  
  Other regulatory assets
    3,666,893       3,615,104  
  Deferred fuel costs
    172,202       168,122  
Goodwill
    377,172       377,172  
Other
    1,083,347       1,047,654  
TOTAL
    5,921,841       5,789,771  
                 
TOTAL ASSETS
  $ 36,485,220     $ 36,616,818  
                 
See Notes to Financial Statements.
               
   
   
   
 
 
 
26

 
 
ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
   
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing long-term debt
  $ 805,684     $ 544,460  
Notes payable
    55,034       55,034  
Accounts payable
    949,758       1,475,745  
Customer deposits
    318,115       302,303  
Taxes accrued
    80,403       75,210  
Interest accrued
    150,267       187,310  
Deferred fuel costs
    311,325       183,539  
Obligations under capital leases
    164,702       162,393  
Pension and other postretirement liabilities
    38,849       46,288  
System agreement cost equalization
    418,640       460,315  
Other
    208,442       273,297  
TOTAL
    3,501,219       3,765,894  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    6,955,214       6,565,770  
Accumulated deferred investment tax credits
    316,982       325,570  
Obligations under capital leases
    300,025       343,093  
Other regulatory liabilities
    360,492       280,643  
Decommissioning and asset retirement cost liabilities
    2,761,435       2,677,495  
Accumulated provisions
    129,603       147,452  
Pension and other postretirement liabilities
    2,140,471       2,177,993  
Long-term debt
    10,184,849       11,174,289  
Other
    757,406       880,998  
TOTAL
    23,906,477       24,573,303  
                 
Commitments and Contingencies
               
                 
Subsidiaries' preferred stock without sinking fund
    217,050       217,029  
                 
EQUITY
               
Common Shareholders' Equity:
               
Common stock, $.01 par value, authorized 500,000,000 shares;
               
  issued 254,772,087 shares in 2009 and 248,174,087 shares in 2008
    2,548       2,482  
Paid-in capital
    5,375,265       4,869,303  
Retained earnings
    7,562,587       7,382,719  
Accumulated other comprehensive loss
    (10,614 )     (112,698 )
Less - treasury stock, at cost (58,649,184 shares in 2009 and
               
  58,815,518 shares in 2008)
    4,163,312       4,175,214  
Total common shareholders' equity
    8,766,474       7,966,592  
Subsidiaries' preferred stock without sinking fund
    94,000       94,000  
TOTAL
    8,860,474       8,060,592  
                 
TOTAL LIABILITIES AND EQUITY
  $ 36,485,220     $ 36,616,818  
                 
See Notes to Financial Statements.
               
 

 
27

 
 

ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
 
For the Three Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
2009
   
2008
 
   
(In Thousands)
 
                         
RETAINED EARNINGS
                       
Retained Earnings - Beginning of period
  $ 7,482,329           $ 6,900,345        
                             
     Add:
                           
        Net income attributable to Entergy Corporation
    226,813     $ 226,813       270,954     $ 270,954  
                                 
     Deduct:
                               
        Dividends declared on common stock
    146,555               143,669          
                                 
Retained Earnings - End of period
  $ 7,562,587             $ 7,027,630          
                                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
                               
Balance at beginning of period:
                               
  Accumulated derivative instrument fair value changes
  $ 208,544             $ (191,306 )        
                                 
  Pension and other postretirement liabilities
    (233,089 )             (111,281 )        
                                 
  Net unrealized investment gains (losses)
    (36,184 )             89,061          
                                 
  Foreign currency translation
    2,263               6,377          
     Total
    (58,466 )             (207,149 )        
                                 
Net derivative instrument fair value changes arising
                               
  during the period (net of tax benefit of $(14,567) and ($160,474))
    (23,728 )     (23,728 )     (285,280 )     (285,280 )
                                 
Pension and other postretirement liabilities (net of tax expense
  (benefit) of ($493) and $348)
    (41 )     (41 )     2,247       2,247  
                                 
Net unrealized investment gains (losses) (net of tax expense
  (benefit) of $74,927 and ($7,901))
    70,275       70,275       (21,223 )     (21,223 )
                                 
Foreign currency translation (net of tax expense of $725 and $241)
    1,346       1,346       447       447  
                                 
Balance at end of period:
                               
  Accumulated derivative instrument fair value changes
    184,816               (476,586 )        
                                 
  Pension and other postretirement liabilities
    (233,130 )             (109,034 )        
                                 
  Net unrealized investment gains
    34,091               67,838          
                                 
  Foreign currency translation
    3,609               6,824          
     Total
  $ (10,614 )           $ (510,958 )        
                                 
Add: preferred dividend requirements of subsidiaries
            4,998               4,975  
                                 
Comprehensive Income (Loss)
          $ 279,663             $ (27,880 )
                                 
                                 
PAID-IN CAPITAL
                               
Paid-in Capital - Beginning of period
  $ 5,370,446             $ 4,853,837          
                                 
     Add:
                               
        Common stock issuances related to stock plans
    4,819               6,644          
              Total
    4,819               6,644          
                                 
Paid-in Capital - End of period
  $ 5,375,265             $ 4,860,481          
                                 
                                 
See Notes to Financial Statements.
                               
                                 
 
 
 
28

 


ENTERGY CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
2009
   
2008
 
   
(In Thousands)
 
                         
RETAINED EARNINGS
                       
Retained Earnings - Beginning of period
  $ 7,382,719           $ 6,735,965        
                             
     Add:
                           
        Net income attributable to Entergy Corporation
    462,148     $ 462,148       579,703     $ 579,703  
        Adjustment related to FSP FAS 115-2 implementation
    6,365               -          
              Total
    468,513               579,703          
                                 
     Deduct:
                               
        Dividends declared on common stock
    288,645               288,038          
                                 
Retained Earnings - End of period
  $ 7,562,587             $ 7,027,630          
                                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
                               
Balance at beginning of period:
                               
  Accumulated derivative instrument fair value changes
  $ 120,830             $ (12,540 )        
                                 
  Pension and other postretirement liabilities
    (232,232 )             (107,145 )        
                                 
  Net unrealized investment gains (losses)
    (4,402 )             121,611          
                                 
  Foreign currency translation
    3,106               6,394          
     Total
    (112,698 )             8,320          
                                 
Net derivative instrument fair value changes arising during
                               
  the period (net of tax expense (benefit) of $42,619 and ($259,574))
    63,986       63,986       (464,046 )     (464,046 )
                                 
Pension and other postretirement liabilities (net of tax expense
  (benefit) of ($628) and $4,325)
    (898 )     (898 )     (1,889 )     (1,889 )
                                 
Net unrealized investment gains (losses) (net of tax expense
  (benefit) of $38,950 and ($34,531))
    44,858       44,858       (53,773 )     (53,773 )
                                 
Adjustment related to FSP FAS 115-2 implementation (net
  of tax benefit of ($4,921))
    (6,365 )     -       -       -  
                                 
Foreign currency translation (net of tax expense of $271 and $232)
    503       503       430       430  
                                 
Balance at end of period:
                               
  Accumulated derivative instrument fair value changes
    184,816               (476,586 )        
                                 
  Pension and other postretirement liabilities
    (233,130 )             (109,034 )        
                                 
  Net unrealized investment gains
    34,091               67,838          
                                 
  Foreign currency translation
    3,609               6,824          
     Total
  $ (10,614 )           $ (510,958 )        
                                 
Add: preferred dividend requirements of subsidiaries
            9,996               9,973  
                                 
Comprehensive Income
          $ 580,593             $ 70,398  
                                 
                                 
PAID-IN CAPITAL
                               
Paid-in Capital - Beginning of period
  $ 4,869,303             $ 4,850,769          
                                 
     Add:
                               
        Common stock issuances in settlement of equity unit purchase contracts
    499,934               -          
        Common stock issuances related to stock plans
    6,028               9,712          
              Total
    505,962               9,712          
                                 
Paid-in Capital - End of period
  $ 5,375,265             $ 4,860,481          
                                 
                                 
See Notes to Financial Statements.
                               

 
 
29

 
 
 
ENTERGY CORPORATION AND SUBSIDIARIES
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars in Millions)
       
Utility Electric Operating Revenues:
                   
  Residential
  $ 642     $ 808     $ (166 )     (21 )
  Commercial
    520       661       (141 )     (21 )
  Industrial
    492       739       (247 )     (33 )
  Governmental
    48       59       (11 )     (19 )
    Total retail
    1,702       2,267       (565 )     (25 )
  Sales for resale
    65       108       (43 )     (40 )
  Other
    152       149       3       2  
    Total
  $ 1,919     $ 2,524     $ (605 )     (24 )
                                 
Utility Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    7,100       7,372       (272 )     (4 )
  Commercial
    6,518       6,688       (170 )     (3 )
  Industrial
    8,790       9,730       (940 )     (10 )
  Governmental
    577       586       (9 )     (2 )
    Total retail
    22,985       24,376       (1,391 )     (6 )
  Sales for resale
    1,313       1,440       (127 )     (9 )
    Total
    24,298       25,816       (1,518 )     (6 )
                                 
                                 
Non-Utility Nuclear:
                               
Operating Revenues
  $ 545     $ 610     $ (65 )     (11 )
Billed Electric Energy Sales (GWh)
    8,980       10,145       (1,165 )     (11 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars in Millions)
         
Utility Electric Operating Revenues:
                         
  Residential
  $ 1,398     $ 1,539     $ (141 )     (9 )
  Commercial
    1,080       1,209       (129 )     (11 )
  Industrial
    1,040       1,345       (305 )     (23 )
  Governmental
    101       113       (12 )     (11 )
    Total retail
    3,619       4,206       (587 )     (14 )
  Sales for resale
    139       196       (57 )     (29 )
  Other
    187       168       19       11  
    Total
  $ 3,945     $ 4,570     $ (625 )     (14 )
                                 
Utility Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    14,993       15,384       (391 )     (3 )
  Commercial
    12,712       12,926       (214 )     (2 )
  Industrial
    16,929       19,107       (2,178 )     (11 )
  Governmental
    1,139       1,155       (16 )     (1 )
    Total retail
    45,773       48,572       (2,799 )     (6 )
  Sales for resale
    2,700       2,729       (29 )     (1 )
    Total
    48,473       51,301       (2,828 )     (6 )
                                 
                                 
Non-Utility Nuclear:
                               
Operating Revenues
  $ 1,201     $ 1,290     $ (89 )     (7 )
Billed Electric Energy Sales (GWh)
    19,054       20,905       (1,851 )     (9 )
                                 
                                 
 

 
30

 

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.  COMMITMENTS AND CONTINGENCIES

Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business.  While management is unable to predict the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy's results of operations, cash flows, or financial condition.  Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K.

Nuclear Insurance

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

Conventional Property Insurance

See Note 8 to the financial statements in the Form 10-K for information on Entergy's non-nuclear property insurance program.

Employment Litigation

The Registrant Subsidiaries and other Entergy subsidiaries are responding to various lawsuits in both state and federal courts and to other labor-related proceedings filed by current and former employees and third parties not selected for open positions.  These actions include, but are not limited to, allegations of wrongful employment actions; wage disputes and other claims under the Fair Labor Standards Act or its state counterparts; claims of race, gender and disability discrimination; disputes arising under collective bargaining agreements; unfair labor practice proceedings and other administrative proceedings before the National Labor Relations Board; claims of retaliation; and claims for or regarding benefits under various Entergy Corporation sponsored plans.  Entergy and the Registrant Subsidiaries are responding to these suits and proceedings and deny liability to the claimants.

Asbestos Litigation  (Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)

See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation at Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas.

Subsequent Events

Entergy evaluated events of which its management was aware subsequent to June 30, 2009, through the date that this quarterly report was issued, August 7, 2009.


NOTE 2.  RATE AND REGULATORY MATTERS

Regulatory Assets

See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets in the Utility business reflected on the balance sheets of Entergy and the Registrant Subsidiaries.  Following are updates to that discussion.

 
31

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Fuel and purchased power cost recovery

See Note 2 to the financial statements in the Form 10-K for information regarding fuel proceedings involving the Utility operating companies.  Following are updates to that information.

Entergy Arkansas

Energy Cost Recovery Rider

In March 2009, Entergy Arkansas filed with the APSC its annual energy cost rate for the period April 2009 through March 2010.  The filed energy cost rate decreased from $0.02456/kWh to $0.01552/kWh.  The decrease was caused by the following: 1) all three of the nuclear power plants from which Entergy Arkansas obtains power, ANO 1 and 2 and Grand Gulf, had refueling outages in 2008, and the previous energy cost rate had been adjusted to account for the replacement power costs that would be incurred while these units were down; 2) Entergy Arkansas has a deferred fuel cost liability from over-recovered fuel costs at December 31, 2008, as compared to a deferred fuel cost asset from under-recovered fuel costs at December 31, 2007; offset by 3) an increase in the fuel and purchased power prices included in the calculation.

Entergy Mississippi

On June 30, 2009, the MPSC issued an order stating that it may hire an independent audit firm to audit Entergy Mississippi's fuel adjustment clause or other mechanism directly related to the purchase of fuel or energy for the period October 2007 through September 2009.

Entergy Texas

In January 2008, Entergy Texas made a compliance filing with the PUCT describing how its 2007 Rough Production Cost Equalization receipts under the System Agreement were allocated between Entergy Gulf States, Inc.'s Texas and Louisiana jurisdictions.  A hearing was held at the end of July 2008, and in October 2008 the ALJ issued a proposal for decision recommending an additional $18.6 million allocation to Texas retail customers.  The PUCT adopted the ALJ's proposal for decision in December 2008.  Because the PUCT allocation to Texas retail customers is inconsistent with the LPSC allocation to Louisiana retail customers, adoption of the proposal for decision by the PUCT could result in trapped costs between the Texas and Louisiana jurisdictions with no mechanism for recovery.  The PUCT denied Entergy Texas' motion for rehearing and Entergy Texas commenced proceedings in both state and federal district courts seeking to reverse the PUCT's decision.  On May 12, 2009, certain defendants, in their official capacities as Commissioners of the PUCT, filed a motion to dismiss Entergy Texas' pending complaint before the U.S. District Court for the Western District of Texas.  The federal proceeding, including a ruling on the motion to dismiss, has been abated pending further action by the FERC in the proceeding discussed below.

Entergy Texas also filed with the FERC a proposed amendment to the System Agreement bandwidth formula to specifically calculate the payments to Entergy Gulf States Louisiana and Entergy Texas of Entergy Gulf States, Inc.'s rough production cost equalization receipts for 2007.  On May 8, 2009, the FERC issued an order rejecting the proposed amendment, stating, among other things, that the FERC does not have jurisdiction over the allocation of an individual utility's receipts/payments among or between its retail jurisdictions and that this was a matter for the courts to review in the pending proceedings noted above.  Because of the FERC's order, Entergy Texas recorded the effects of the PUCT's allocation of the additional $18.6 million to retail customers in the second quarter of 2009.  On an after-tax basis, the charge to earnings was approximately $13.0 million (including interest).  Entergy requested rehearing of the FERC's order, and on July 8, 2009, the FERC granted the request for rehearing for the limited purpose of affording more time for consideration of Entergy's request.

In May 2009, Entergy Texas filed with the PUCT a request to refund $46.1 million, including interest, of fuel cost recovery over-collections through February 2009.  Entergy Texas requested that the proposed refund be made over a four-month period beginning June 2009.  Pursuant to a stipulation among the various parties, in June 2009 the PUCT issued an order approving a refund of $59.2 million, including interest, of fuel cost recovery overcollections through March 2009.  The refund will be made over a three-month period beginning July 2009.


 
32

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Storm Cost Recovery Filings

Entergy Arkansas Storm Reserve Accounting

The APSC's June 2007 order in Entergy Arkansas' base rate proceeding, which is discussed in the Form 10-K, eliminated storm reserve accounting for Entergy Arkansas.  In March 2009 a law was enacted in Arkansas that requires the APSC to permit storm reserve accounting for utilities that request it.  Entergy Arkansas filed its request with the APSC, and has reinstated storm reserve accounting effective January 1, 2009.

Entergy Arkansas January 2009 Ice Storm

In January 2009 a severe ice storm caused significant damage to Entergy Arkansas' transmission and distribution lines, equipment, poles, and other facilities.  The current cost estimate for the damage caused by the ice storm is approximately $120 million to $140 million, of which approximately $65 million to $80 million is estimated to be operating and maintenance type costs and the remainder is estimated to be capital investment.  On January 30, 2009, the APSC issued an order inviting and encouraging electric public utilities to file specific proposals for the recovery of extraordinary storm restoration expenses associated with the ice storm.  Although Entergy Arkansas has not yet filed a proposal for the method of recovery of its costs, on February 16, 2009, it did file a request with the APSC for an accounting order authorizing deferral of the operating and maintenance cost portion of Entergy Arkansas' ice storm restoration costs pending their recovery.  The APSC issued such an order in March 2009 subject to certain conditions, including that if Entergy Arkansas seeks to recover the deferred costs, those costs will be subject to investigation for whether they are incremental, prudent, and reasonable.  Entergy Arkansas is still analyzing its options for the method of recovery of the ice storm restoration costs.  One option is securitization, and in April 2009 a law was enacted in Arkansas that authorizes securitization of storm damage restoration costs.

Entergy Gulf States Louisiana and Entergy Louisiana Hurricane Gustav and Hurricane Ike Filing

See the Form 10-K for a discussion of Hurricane Gustav and Hurricane Ike, which caused catastrophic damage to portions of Entergy's service territories in Louisiana in September 2008.  Entergy Gulf States Louisiana and Entergy Louisiana filed their Hurricane Gustav and Hurricane Ike storm cost recovery case with the LPSC in May 2009.  Entergy Gulf States Louisiana seeks a determination that $150.7 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of $90 million.  Entergy Louisiana seeks a determination that $261.9 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of $200 million.  The storm restoration costs are net of costs that have already been paid from previously funded storm reserves.  Entergy Gulf States Louisiana and Entergy Louisiana expect to make a supplemental filing to, among other things, recommend a recovery method for costs approved by the LPSC.  The parties have agreed to a procedural schedule that includes March 2010 hearing dates for both the recoverability and the method of recovery proceedings.  Recovery options include traditional base rate recovery, Louisiana Act 64 (passed in 2006) financing, or Louisiana Act 55 (passed in 2007) financing.  Entergy Gulf States Louisiana and Entergy Louisiana recovered their costs from Hurricane Katrina and Hurricane Rita primarily by Act 55 financing.

Entergy Texas Hurricane Ike and Hurricane Gustav Filing

See the Form 10-K for a discussion of Hurricane Gustav and Hurricane Ike, which caused catastrophic damage to portions of Entergy's service territory in Texas in September 2008.  In April 2009 a law was enacted in Texas that authorizes recovery of these types of costs by securitization.  Entergy Texas filed its storm cost recovery case in April 2009 seeking a determination that $577.5 million of Hurricane Ike and Hurricane Gustav restoration costs are recoverable, including estimated costs for work to be completed.  On August 5, 2009, Entergy Texas submitted to the ALJ an unopposed settlement agreement that will, if approved, resolve all issues in the storm cost recovery case.  Under the terms of the agreement $566.4 million, plus carrying costs, are eligible for recovery.  In addition, $70 million in anticipated insurance proceeds will be credited as an offset to the securitized amount, subject to true-up based on actual proceeds received.  Of the $11.1 million

 
33

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
difference between Entergy Texas' request and the amount agreed to, which is part of the black box agreement and not directly attributable to any specific individual issues raised, $6.8 million is operation and maintenance expense for which Entergy Texas has recorded a charge in the second quarter 2009.  The remaining $4.3 million will be recorded as utility plant.  The PUCT is expected to consider the agreement at its August 13, 2009, meeting.

On July 16, 2009, Entergy Texas also made its financing request filing seeking approval to recover its approved costs, plus carrying costs, by securitization.  A prehearing conference was held on August 4, 2009, and the ALJ ordered a procedural schedule that includes a September 25, 2009, hearing date.
 
Retail Rate Proceedings

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

Filings with the APSC

Retail Rates

See the Form 10-K for a discussion of the rate filing made by Entergy Arkansas and the proceedings regarding that filing.  On April 23, 2009, the Arkansas Supreme Court denied Entergy Arkansas' petition for review of the Court of Appeals decision.

On July 2, 2009, Entergy Arkansas filed a notice with the APSC of its intention to file within 60 to 90 days for a general change in rates, charges, and tariffs.  Entergy Arkansas plans to file the rate case in September 2009.

Filings with the LPSC

Retail Rates - Electric (Entergy Gulf States Louisiana and Entergy Louisiana)

In July 2009 the LPSC issued an order noting that the LPSC Staff and Entergy are continuing in negotiations that could result in the recommendation for the adoption of new Formula Rate Plans for Entergy Gulf States Louisiana and Entergy Louisiana, and the LPSC Staff will report to the LPSC on the progress of those negotiations at the LPSC's September meeting.  In the interim Entergy Gulf States Louisiana's and Entergy Louisiana's base rates will remain unchanged.  Entergy Gulf States Louisiana and Entergy Louisiana will both implement previously approved capacity cost adjustments.  Entergy Gulf States Louisiana's net increase in capacity costs of $5 million will be deferred for future recovery.  Entergy Louisiana's net decrease in capacity costs of $17 million will be used to increase the storm reserve accrual.

(Entergy Louisiana)

In May 2007, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2006 test year, indicating a 7.6% earned return on common equity.  That filing included Entergy Louisiana's request to recover $39.8 million in unrecovered fixed costs associated with the loss of customers that resulted from Hurricane Katrina, a request that was reduced to $31.7 million.  In September 2007, Entergy Louisiana modified its formula rate plan filing to reflect its implementation of certain adjustments proposed by the LPSC Staff in its review of Entergy Louisiana's original filing with which Entergy Louisiana agreed, and to reflect its implementation of an $18.4 million annual formula rate plan increase comprised of (1) a $23.8 million increase representing 60% of Entergy Louisiana's revenue deficiency, and (2) a $5.4 million decrease for reduced incremental and deferred capacity costs.  The LPSC authorized Entergy Louisiana to defer for accounting purposes the difference between its $39.8 million claim, now at $31.7 million, for unrecovered fixed cost and 60% of the revenue deficiency to preserve Entergy Louisiana's right to pursue that claim in full during the formula rate plan proceeding.  In October 2007, Entergy Louisiana implemented a $7.1 million formula rate plan
 
 
 
34

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
 
decrease that was due primarily to the reclassification of certain franchise fees from base rates to collection via a line item on customer bills pursuant to an LPSC Order.  The LPSC staff and intervenors recommended disallowance of certain costs included in Entergy Louisiana's filing.  Entergy Louisiana disagrees with the majority of the proposed disallowances and a hearing on the disputed issues was held in late-September/early-October 2008.  In March 2009 the ALJ issued a proposed recommendation, which does not allow recovery of the unrecovered fixed costs and also disallows recovery of all costs associated with Entergy's stock option plan.  Entergy Louisiana has filed exceptions to the ALJ's proposed recommendation.
 
Retail Rates - Gas (Entergy Gulf States Louisiana)

In January 2009, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2008.  The filing showed a revenue deficiency of $529 thousand based on a return on common equity mid-point of 10.5%.  In April 2009, Entergy Gulf States Louisiana implemented a $255 thousand rate increase pursuant to an uncontested settlement with the LPSC staff.

Filings with the MPSC

In March 2009, Entergy Mississippi made with the MPSC its annual scheduled formula rate plan filing for the 2008 test year.  The filing reported a $27.0 million revenue deficiency and an earned return on common equity of 7.41%.  Entergy Mississippi requested a $14.5 million increase in annual electric revenues, which is the maximum increase allowed under the terms of the formula rate plan.  The MPSC issued an order on June 30, 2009, finding that Entergy Mississippi's earned return was sufficiently below the lower bandwidth limit set by the formula rate plan to require a $14.5 million increase in annual revenues, effective for bills rendered on or after June 30, 2009.

In March 2008, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2007 test year with the MPSC.  The filing showed that a $10.1 million increase in annual electric revenues is warranted.  In June 2008, Entergy Mississippi reached a settlement with the Mississippi Public Utilities Staff that would result in a $3.8 million rate increase.  In January 2009 the MPSC rejected the settlement and left the current rates in effect.  Entergy Mississippi appealed the MPSC's decision to the Mississippi Supreme Court.  After the decision of the MPSC regarding the formula rate plan filing for the 2008 test year, Entergy Mississippi filed a motion to dismiss its appeal to the Mississippi Supreme Court.

Filings with the City Council

Retail Rates

As discussed in the Form 10-K, on July 31, 2008, Entergy New Orleans filed an electric and gas base rate case with the City Council.  On April 2, 2009, the City Council approved a comprehensive settlement.  The settlement provides for a net $35.3 million reduction in combined fuel and non-fuel revenue requirement, including conversion of the $10.6 million voluntary recovery credit to a permanent reduction and complete realignment of Grand Gulf cost recovery from fuel to base rates, and a $4.95 million gas rate increase, both effective June 1, 2009.  A new three-year formula rate plan was also adopted, with terms including an 11.1% electric return on common equity (ROE) with a +/- 40 basis point bandwidth and a 10.75% gas ROE with a +/- 50 basis point bandwidth.  Earnings outside the bandwidth reset to the midpoint ROE, with the difference flowing prospectively to customers or Entergy New Orleans depending on whether Entergy New Orleans is over- or under-earning.  The formula rate plan also includes a recovery mechanism for City Council-approved capacity additions, plus provisions for extraordinary cost changes and force majeure.

Fuel Adjustment Clause Litigation

See the Form 10-K for a discussion of the lawsuit filed by a group of ratepayers in April 1999 against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers.  In February 2004, the City Council
 
 
35

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
 
approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004.  In May 2005 the Civil District Court for the Parish of Orleans affirmed the City Council resolution, finding no support for the plaintiffs' claim that the refund amount should be higher.  In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.  On February 25, 2008, the Fourth Circuit Court of Appeal issued a decision affirming in part, and reversing in part, the Civil District Court's decision.  Although the Fourth Circuit Court of Appeal did not reverse any of the substantive findings and conclusions of the City Council or the Civil District Court, the Fourth Circuit found that the amount of the refund was arbitrary and capricious and increased the amount of the refund to $34.3 million.  In April 2009 the Louisiana Supreme Court reversed the decision of the Louisiana Fourth Circuit Court of Appeal and reinstated the decision of the Civil District Court.  On April 17, 2009, the plantiffs requested rehearing by the Louisiana Supreme Court.  On May 29, 2009, the Louisiana Supreme Court denied the request for rehearing.

Filings with the PUCT and Texas Cities (Entergy Texas)

Retail Rates

As discussed in the Form 10-K, Entergy Texas made a rate filing in September 2007 with the PUCT requesting an annual rate increase totaling $107.5 million, including a base rate increase of $64.3 million and riders totaling $43.2 million.  On December 16, 2008, Entergy Texas filed a term sheet that reflected a settlement agreement that included the PUCT Staff and the other active participants in the rate case.  On December 19, 2008, the ALJs approved Entergy Texas' request to implement interim rates reflecting the agreement.  The agreement includes a $46.7 million base rate increase, among other provisions.  Under the ALJs' interim order, Entergy Texas implemented interim rates, subject to refund and surcharge, reflecting the rates established through the settlement.  These rates became effective with bills rendered on and after January 28, 2009, for usage on and after December 19, 2008.  In addition, the existing recovery mechanism for incremental purchased power capacity costs ceased as of January 28, 2009, with purchased power capacity costs then subsumed within the base rates set in this proceeding.  Certain Texas municipalities exercised their original jurisdiction and took final action to approve rates consistent with the interim rates approved by the ALJs.  In March 2009, the PUCT approved the settlement, which made the interim rates final, and this PUCT decision is now final and non-appealable.

Electric Industry Restructuring in Texas

See Note 2 to the financial statements in the Form 10-K for a discussion of electric restructuring activity that involves Entergy Texas.  In June 2009, a law was enacted in Texas that requires Entergy Texas to cease all activities relating to Entergy Texas' transition to competition.  The law allows Entergy Texas to remain a part of the SERC Region, although it does not prevent Entergy Texas from joining the Southwest Power Pool.  The law provides that any further proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist.  Under the new law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT's certification of Entergy Texas' power region.  In response to the new law, Entergy Texas in June 2009 gave notice to the PUCT of the withdrawal of its transition to competition plan, and requested that its transition to competition proceeding be dismissed.  In July 2009 the ALJ dismissed the proceeding.

The new law also contains provisions that allow Entergy Texas to be included in a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges.  This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.

The new law further amends already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation.  The amending language in the new law provides, among other things, that:  1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall "purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer" and 3)  Entergy Texas shall provide and price transmission service and ancillary
 
 
36

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
services under that tariff at a rate that is unbundled from its cost of service.    The new law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.  Entergy Texas has thus far not made a filing with the PUCT in response to the newly adopted law addressing the tariff.  The new law provides that the PUCT shall approve, reject, or modify the proposed tariff not later than September 1, 2010.
 

NOTE 3.  EQUITY

Common Stock

Common Stock Issuances

In February 2009, Entergy Corporation was unable to remarket successfully $500 million of notes associated with its equity units.  The note holders therefore put the notes to Entergy, Entergy retired the notes, and Entergy issued 6,598,000 shares of common stock to the note holders.

Earnings per Share

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

 
For the Three Months Ended June 30,
 
2009
2008
 
(In Millions, Except Per Share Data)
Basic earnings per share
Income
Shares
$/share
Income
Shares
$/share
Net income attributable to Entergy Corporation
$226.8
196.1
$1.16 
$271.0
191.3
$1.42 
Average dilutive effect of:
           
Stock options
 -   
2.1
(0.012)
 -   
5.0
(0.036)
Equity units
 -   
 -   
 -   
 -   
1.6
(0.011)
             
Diluted earnings per share
$226.8
198.2
$1.14 
$271.0
197.9
$1.37 
             

 
For the Six Months Ended June 30,
 
2009
2008
 
(In Millions, Except Per Share Data)
Basic earnings per share
Income
Shares
$/share
Income
Shares
$/share
Net income attributable to Entergy Corporation
$462.1
194.4
$2.38 
$579.7
192.0
$3.02 
Average dilutive effect of:
           
Stock options
 -   
2.1
(0.025)
 -   
4.8
(0.073)
Equity units
$3.2
1.7
(0.005)
 -   
1.3
(0.021)
Deferred units
 
 -   
 -   
 -   
 -   
(0.001)
             
Diluted earnings per share
$465.3
198.2
$2.35 
$579.7
198.1
$2.93 
             

Entergy's stock option and other equity compensation plans are discussed in Note 12 to the financial statements in the Form 10-K.
 
 
37

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Treasury Stock

During the six months ended June 30, 2009, Entergy Corporation issued 166,334 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards.
 
Retained Earnings

On July 31, 2009, Entergy Corporation's Board of Directors declared a common stock dividend of $0.75 per share, payable on September 1, 2009 to holders of record as of August 12, 2009.

Presentation of Non-Controlling Interests

In 2007, the FASB issued SFAS 160, "Non-Controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," which requires generally that the ownership interests in subsidiaries held by parties other than the parent (non-controlling interests) be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent's equity, and that the amount of consolidated net income attributable to the parent and to the non-controlling interests be clearly identified and presented on the face of the consolidated income statement.  SFAS 160 became effective for Entergy in the first quarter of 2009 and applies to preferred securities issued by Entergy subsidiaries to third parties.

Presentation of Preferred Stock without Sinking Fund

In connection with the adoption of SFAS 160 Entergy evaluated the requirements of EITF Topic No. 98, Classification and Measurement of Redeemable Securities (Topic D-98).  Topic D-98 requires the classification of securities between liabilities and shareholders' equity if the holders of those securities have protective rights that allow them to gain control of the board of directors in certain circumstances.  These rights would have the effect of giving the holders the ability to potentially redeem their securities, even if the likelihood of occurrence of these circumstances is considered remote.  The Entergy Arkansas, Entergy Mississippi and Entergy New Orleans articles of incorporation provide, generally, that the holders of each company's preferred securities may elect a majority of the respective company's board of directors if dividends are not paid for a year, until such time as the dividends in arrears are paid.  In accordance with Topic D-98, Entergy Arkansas, Entergy Mississippi and Entergy New Orleans present their preferred securities outstanding between liabilities and shareholders' equity.  Entergy Gulf States Louisiana and Entergy Louisiana, both organized as limited liability companies, have outstanding preferred securities with similar protective rights with respect to unpaid dividends, but provide for the election of board members that would not constitute a majority of the board; and their preferred securities are therefore classified for all periods presented as a component of members' equity in accordance with SFAS 160.

The outstanding preferred securities of Entergy Arkansas, Entergy Mississippi, Entergy New Orleans, and Entergy Asset Management (whose preferred holders also have protective rights as described in Note 6 to the financial statements in the Form 10-K) are similarly presented between liabilities and shareholders' equity in Entergy's consolidated financial statements and the outstanding preferred securities of Entergy Gulf States Louisiana and Entergy Louisiana are presented within total equity in Entergy's consolidated financial statements.  The preferred dividends paid by all subsidiaries are reflected for all periods presented outside of consolidated net income in accordance with SFAS 160.  The accompanying financial statements do not separately reconcile the beginning and ending balances of preferred securities because there is not a significant net change in the balance of the securities between periods.


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

Entergy Corporation has in place a credit facility that expires in August 2012 and has a borrowing capacity of $3.5 billion.  Entergy Corporation also has the ability to issue letters of credit against the total borrowing capacity of the credit facility.  The facility fee is currently 0.09% of the commitment amount.  Facility fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation.  The weighted average interest
 
 
38

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
 
rate as of June 30, 2009 was 1.597% on the drawn portion of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of June 30, 2009.
 
 
Capacity
 
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
             
$3,500 
 
$2,435
 
$28 
 
$1,037

Entergy Corporation's facility requires it to maintain a consolidated debt ratio of 65% or less of its total capitalization.  Entergy is in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.

Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, and Entergy Texas each had credit facilities available as of June 30, 2009 as follows:

 
Company
 

Expiration Date
 
Amount of
Facility
 
 
Interest Rate (a)
 
Amount Drawn as of June 30, 2009
                 
Entergy Arkansas
 
April 2010
 
$88 million (b)
 
5.0%
 
-
Entergy Gulf States Louisiana
 
August 2012
 
$100 million (c)
 
0.785%
 
-
Entergy Louisiana
 
August 2012
 
$200 million (d)
 
0.72%
 
-
Entergy Mississippi
 
May 2010
 
$35 million (e)
 
2.06%
 
-
Entergy Mississippi
 
May 2010
 
$25 million (e)
 
2.06%
 
-
Entergy Texas
 
August 2012
 
$100 million (f)
 
0.785%
 
-

(a)
The interest rate is the weighted average interest rate as of June 30, 2009 that would be applied to the outstanding borrowings under the facility.
(b)
The credit facility requires Entergy Arkansas to maintain a debt ratio of 65% or less of its total capitalization and contains an interest rate floor of 5%.  Borrowings under the Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable.
(c)
The credit facility allows Entergy Gulf States Louisiana to issue letters of credit against the borrowing capacity of the facility.  As of June 30, 2009, no letters of credit were outstanding.  The credit facility requires Entergy Gulf States Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization.  Pursuant to the terms of the credit agreement, the amount of debt assumed by Entergy Texas ($699 million as of June 30, 2009 and $770 million as of December 31, 2008) is excluded from debt and capitalization in calculating the debt ratio.
(d)
The credit facility allows Entergy Louisiana to issue letters of credit against the borrowing capacity of the facility.  As of June 30, 2009, no letters of credit were outstanding.  The credit facility requires Entergy Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization.
(e)
Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable.  Entergy Mississippi is required to maintain a consolidated debt ratio of 65% or less of its total capitalization.
(f)
The credit facility allows Entergy Texas to issue letters of credit against the borrowing capacity of the facility.  As of June 30, 2009, no letters of credit were outstanding.  The credit facility requires Entergy Texas to maintain a consolidated debt ratio of 65% or less of its total capitalization.  Pursuant to the terms of the credit agreement, the transition bonds issued by Entergy Gulf States Reconstruction Funding I, LLC, a subsidiary of Entergy Texas, are excluded from debt and capitalization in calculating the debt ratio.

The facility fees on the credit facilities range from 0.09% to 0.15% of the commitment amount.
 
 
 
39

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


 
The short-term borrowings of the Registrant Subsidiaries and certain other Entergy subsidiaries are limited to amounts authorized by the FERC.  The current FERC-authorized limits are effective through March 31, 2010 (except Entergy Gulf States Louisiana and Entergy Texas, which are effective through November 8, 2009).  In addition to borrowings from commercial banks, these companies are authorized under a FERC order to borrow from the Entergy System money pool.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' dependence on external short-term borrowings.  Borrowings from the money pool and external borrowings combined may not exceed the FERC-authorized limits.  As of June 30, 2009, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.2 billion, the aggregate outstanding borrowing from the money pool was $415 million, and Entergy's subsidiaries had no outstanding short-term borrowing from external sources.
 
The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings (aggregating both money pool and external short-term borrowings) for the Registrant Subsidiaries as of June 30, 2009:

   
Authorized
 
Borrowings
   
(In Millions)
         
Entergy Arkansas
 
$250
 
-
Entergy Gulf States Louisiana
 
$200
 
-
Entergy Louisiana
 
$250
 
-
Entergy Mississippi
 
$175
 
-
Entergy New Orleans
 
$100
 
-
Entergy Texas
 
$200
 
-
System Energy (a)
 
$200
 
-

(a)           In May 2009, 364-day letters of credit in the aggregate amount of approximately $179 million were issued pursuant to System Energy's short-term borrowing authority to the owner participants in System Energy's 1988 sale and leaseback of interests in Grand Gulf.

Entergy Texas Note Payable to Entergy Corporation

In December 2008, Entergy Texas borrowed $160 million from its parent company, Entergy Corporation, under a $300 million revolving credit facility pursuant to an Inter-Company Credit Agreement between Entergy Corporation and Entergy Texas.  The note had a December 3, 2013 maturity date.  Entergy Texas used the proceeds, together with other available corporate funds, to pay at maturity the portion of the $350 million Floating Rate series of First Mortgage Bonds due December 2008 that had been assumed by Entergy Texas, and that bond series is no longer outstanding.  In January 2009, Entergy Texas repaid its $160 million note payable to Entergy Corporation with the proceeds from the bond issuance discussed below.

Debt Issuances

(Entergy Mississippi)

In June 2009, Entergy Mississippi issued $150 million of 6.64% Series First Mortgage Bonds due July 2019.  Entergy Mississippi used the proceeds to repay outstanding borrowings on its credit facilities, to repay short-term borrowings under the Entergy System money pool, and for other general corporate purposes.

(Entergy Texas)

In January 2009, Entergy Texas issued $500 million of 7.125% Series Mortgage Bonds due February 2019. Entergy Texas used a portion of the proceeds to repay its $160 million note payable to Entergy Corporation, to repay the $100 million outstanding on its credit facility, to repay short-term borrowings under the Entergy System money pool, and to repay prior to maturity the following obligations that had been assumed by Entergy Texas under the debt assumption agreement with Entergy Gulf States Louisiana:

 
40

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Governmental Bonds share assumed under debt assumption agreement:
 
Amount
   
(In Thousands)
     
6.75% Series due 2012, Calcasieu Parish
 
$22,115
6.7% Series due 2013, Point Coupee Parish
 
$7,990
7.0% Series due 2015, West Feliciana Parish
 
$22,400
6.6% Series due 2028, West Feliciana Parish
 
$18,320

Entergy Texas used the remaining proceeds for other general corporate purposes.

In May 2009, Entergy Texas issued $150 million of 7.875% Series Mortgage Bonds due June 2039.  Entergy Texas intends to use the proceeds to repay on or prior to maturity $100,509,000 of the Floating Rate Series Mortgage Bonds due December 2009 that had been assumed by Entergy Texas under the debt assumption agreement with Entergy Gulf States Louisiana and for other general corporate purposes.  A portion of the net proceeds were used to repay borrowings from the Entergy System money pool and invested in temporary cash investments and the Entergy System money pool.

Fair Value

In the second quarter 2009, Entergy adopted FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments" (FSP 107-1 and APB 28-1).  FSP 107-1 and APB 28-1 relates to fair value disclosures for all financial instruments not measured on the balance sheet at fair value, and requires these disclosures on a quarterly basis.  The book value and the fair value of the long-term debt for Entergy Corporation and the Registrant Subsidiaries as of June 30, 2009 are as follows:

   
Book Value
of Long-Term Debt (a)
 
Fair Value
of Long-Term Debt (a) (b)
   
(In Thousands)
         
Entergy
 
$10,101,963
 
$10,096,781
Entergy Arkansas
 
$1,437,814
 
$1,430,055
Entergy Gulf States Louisiana
 
$1,976,642
 
$1,960,959
Entergy Louisiana
 
$1,139,764
 
$1,170,861
Entergy Mississippi
 
$845,267
 
$834,847
Entergy New Orleans
 
$198,019
 
$188,392
Entergy Texas
 
$1,651,379
 
$1,681,609
System Energy
 
$478,074
 
$445,194

(a)  
The values exclude lease obligations of $241 million at Entergy Louisiana and $267 million at System Energy, long-term DOE obligations of $181 million at Entergy Arkansas, and the note payable to NYPA of $200 million at Entergy, and include debt due within one year.

(b)  
The fair value is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms.

 
41

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 5.  STOCK-BASED COMPENSATION

Entergy grants stock options, which are described more fully in Note 12 to the financial statements in the Form 10-K.  Awards under Entergy's plans generally vest over three years.

The following table includes financial information for stock options for the second quarter and six months ended June 30 for each of the years presented:
 
 
2009
 
2008
 
(In Millions)
       
Compensation expense included in Entergy's Net Income for the second quarter
$4.2
 
$4.7
Tax benefit recognized in Entergy's Net Income  for the second quarter
$1.6
 
$1.8
       
Compensation expense included in Entergy's Net Income for the six months ended June 30,
$8.5
 
$9.1
Tax benefit recognized in Entergy's Net Income for the six months ended June 30,
$3.3
 
$3.5
Compensation cost capitalized as part of fixed assets and inventory as of June 30,
$1.6
 
$1.7

Entergy granted 1,084,800 stock options during the first quarter 2009 with a weighted-average fair value of $12.47.  At June 30, 2009, there were 12,028,511 stock options outstanding with a weighted-average exercise price of $67.65.  The aggregate intrinsic value of the stock options outstanding at June 30, 2009 was $118.7 million.


NOTE 6.  RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's qualified pension cost, including amounts capitalized, for the second quarters of 2009 and 2008, included the following components:

   
2009
 
2008
   
(In Thousands)
         
Service cost - benefits earned during the period
 
$22,412 
 
$22,598 
Interest cost on projected benefit obligation
 
54,543 
 
51,646 
Expected return on assets
 
(62,305)
 
(57,640)
Amortization of prior service cost
 
1,249 
 
1,266 
Amortization of loss
 
5,600 
 
6,482 
Net pension costs
 
$21,499 
 
$24,352 

Entergy's qualified pension cost, including amounts capitalized, for the six months ended June 30, 2009 and 2008, included the following components:

   
2009
 
2008
   
(In Thousands)
         
Service cost - benefits earned during the period
 
$44,824 
 
$45,196 
Interest cost on projected benefit obligation
 
109,086 
 
103,293 
Expected return on assets
 
(124,610)
 
(115,279)
Amortization of prior service cost
 
2,498 
 
2,532 
Amortization of loss
 
11,200 
 
13,416 
Net pension costs
 
$42,998 
 
$49,158 



 
42

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the second quarters of 2009 and 2008, included the following components:


       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2009
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$3,400 
 
$1,748 
 
$1,974 
 
$995 
 
$425 
 
$917 
 
$880 
Interest cost on projected
                           
  benefit obligation
 
11,761 
 
5,279 
 
6,940 
 
3,676 
 
1,470 
 
3,935 
 
2,139 
Expected return on assets
 
(12,187)
 
(7,516)
 
(8,197)
 
(4,236)
 
(1,815)
 
(5,185)
 
(2,766)
Amortization of prior service
                           
  cost
 
212 
 
110 
 
119 
 
85 
 
52 
 
80 
 
Amortization of loss
 
1,764 
 
79 
 
703 
 
324 
 
305 
 
43 
 
109 
Net pension cost/(income)
 
$4,950 
 
($300)
 
$1,539 
 
$844 
 
$437 
 
($210)
 
$371 





       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2008
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$3,584 
 
$1,841 
 
$2,058 
 
$1,063 
 
$445 
 
$968 
 
$930 
Interest cost on projected
                           
  benefit obligation
 
11,616 
 
5,047 
 
6,784 
 
3,627 
 
1,415 
 
3,882 
 
1,937 
Expected return on assets
 
(11,765)
 
(7,165)
 
(8,134)
 
(4,075)
 
(1,839)
 
(5,047)
 
(2,452)
Amortization of prior service
                           
  cost
 
223 
 
110 
 
119 
 
90 
 
52 
 
80 
 
Amortization of loss
 
2,303 
 
115 
 
920 
 
485 
 
319 
 
156 
 
90 
Net pension cost/(income)
 
$5,961 
 
($52)
 
$1,747 
 
$1,190 
 
$392 
 
$39 
 
$514 


 


 
43

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the six months ended June 30, 2009 and 2008, included the following components:
 
       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2009
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$6,800 
 
$3,496 
 
$3,948 
 
$1,990 
 
$850 
 
$1,834 
 
$1,760 
Interest cost on projected
                           
  benefit obligation
 
23,522 
 
10,558 
 
13,880 
 
7,352 
 
2,940 
 
7,870 
 
4,278 
Expected return on assets
 
(24,374)
 
(15,032)
 
(16,394)
 
(8,472)
 
(3,630)
 
(10,370)
 
(5,532)
Amortization of prior service
                           
  cost
 
424 
 
220 
 
238 
 
170 
 
104 
 
160 
 
18 
Amortization of loss
 
3,528 
 
158 
 
1,406 
 
648 
 
610 
 
86 
 
218 
Net pension cost/(income)
 
$9,900 
 
($600)
 
$3,078 
 
$1,688 
 
$874 
 
($420)
 
$742 

       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2008
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$7,168 
 
$3,682 
 
$4,116 
 
$2,126 
 
$890 
 
$1,936 
 
$1,860 
Interest cost on projected
                           
  benefit obligation
 
23,232 
 
10,094 
 
13,568 
 
7,254 
 
2,830 
 
7,764 
 
3,874 
Expected return on assets
 
(23,530)
 
(14,330)
 
(16,268)
 
(8,150)
 
(3,678)
 
(10,094)
 
(4,904)
Amortization of prior service
                           
  cost
 
446 
 
220 
 
238 
 
180 
 
104 
 
160 
 
18 
Amortization of loss
 
4,606 
 
230 
 
1,840 
 
970 
 
638 
 
312 
 
180 
Net pension cost/(income)
 
$11,922 
 
($104)
 
$3,494 
 
$2,380 
 
$784 
 
$78 
 
$1,028 

Entergy recognized $4.4 million and $4.3 million in pension cost for its non-qualified pension plans in the second quarters of 2009 and 2008, respectively.  Entergy recognized $8.8 million and $8.5 million in pension cost for its non-qualified pension plans for the six months ended June 30, 2009 and 2008, respectively.

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the second quarters of 2009 and 2008:

       
Entergy
               
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
   
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
   
(In Thousands)
Non-Qualified Pension Cost
  Second Quarter 2009
 
 
$99 
 
 
$97 
 
 
$6 
 
 
$43 
 
 
$20 
 
 
$185 
Non-Qualified Pension Cost
  Second Quarter 2008
 
 
$133 
 
 
$78 
 
 
$7 
 
 
$54 
 
 
$12 
 
 
$227 



 
44

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the six months ended June 30, 2009 and 2008:

       
Entergy
               
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
   
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
   
(In Thousands)
Non-Qualified Pension Cost Six
  Months Ended June 30, 2009
 
 
$198 
 
 
$194 
 
 
$12 
 
 
$86 
 
 
$40 
 
 
$370 
Non-Qualified Pension Cost Six
  Months Ended June 30, 2008
 
 
$266 
 
 
$156 
 
 
$14 
 
 
$108 
 
 
$24 
 
 
$454 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 2009 and 2008, included the following components:

   
2009
 
2008
   
(In Thousands)
         
Service cost - benefits earned during the period
 
$11,691 
 
$11,800 
Interest cost on APBO
 
18,816 
 
17,824 
Expected return on assets
 
(5,871)
 
(7,027)
Amortization of transition obligation
 
933 
 
957 
Amortization of prior service cost
 
(4,024)
 
(4,104)
Amortization of loss
 
4,743 
 
3,890 
Net other postretirement benefit cost
 
$26,288 
 
$23,340 

Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2009 and 2008, included the following components:

   
2009
 
2008
   
(In Thousands)
         
Service cost - benefits earned during the period
 
$23,382 
 
$23,600 
Interest cost on APBO
 
37,632 
 
35,648 
Expected return on assets
 
(11,742)
 
(14,054)
Amortization of transition obligation
 
1,866 
 
1,914 
Amortization of prior service cost
 
(8,048)
 
(8,208)
Amortization of loss
 
9,486 
 
7,780 
Net other postretirement benefit cost
 
$52,576 
 
$46,680 



 
45

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the second quarters of 2009 and 2008, included the following components:
 
       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2009
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$1,765 
 
$1,196 
 
$1,147 
 
$530 
 
$311 
 
$619 
 
$513 
Interest cost on APBO
 
3,759 
 
2,005 
 
2,297 
 
1,173 
 
967 
 
1,490 
 
605 
Expected return on assets
 
(2,143)
 
 
 
(757)
 
(684)
 
(1,556)
 
(414)
Amortization of transition
                           
  obligation
 
205 
 
60 
 
96 
 
88 
 
416 
 
66 
 
Amortization of prior service
                           
  cost
 
(197)
 
(77)
 
117 
 
(62)
 
90 
 
19 
 
(245)
Amortization of loss
 
2,087 
 
494 
 
553 
 
657 
 
381 
 
799 
 
320 
Net other postretirement benefit cost
 
$5,476   
 
$3,678    
 
$4,210   
 
$1,629    
 
$1,481     
 
$1,437   
 
$781  

       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2008
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$1,706 
 
$1,251 
 
$1,099 
 
$514 
 
$295 
 
$606 
 
$513 
Interest cost on APBO
 
3,443 
 
1,917 
 
2,187 
 
1,141 
 
953 
 
1,440 
 
531 
Expected return on assets
 
(2,492)
 
 
 
(905)
 
(789)
 
(1,885)
 
(511)
Amortization of transition
                           
  obligation
 
205 
 
84 
 
96 
 
88 
 
415 
 
66 
 
Amortization of prior service
                           
  cost
 
(197)
 
146 
 
117 
 
(62)
 
90 
 
72 
 
(283)
Amortization of loss
 
1,440 
 
494 
 
677 
 
534 
 
291 
 
357 
 
177 
Net other postretirement benefit cost
 
$4,105   
 
$3,892    
 
$4,176   
 
$1,310    
 
$1,255     
 
$656  
 
$429  


 
46

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2009 and 2008, included the following components:
 
       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2009
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$3,530 
 
$2,392 
 
$2,294 
 
$1,060 
 
$622 
 
$1,238 
 
$1,026 
Interest cost on APBO
 
7,518 
 
4,010 
 
4,594 
 
2,346 
 
1,934 
 
2,980 
 
1,210 
Expected return on assets
 
(4,286)
 
 
 
(1,514)
 
(1,368)
 
(3,112)
 
(828)
Amortization of transition
                           
  obligation
 
410 
 
120 
 
192 
 
176 
 
832 
 
132 
 
Amortization of prior service
                           
  cost
 
(394)
 
(154)
 
234 
 
(124)
 
180 
 
38 
 
(490)
Amortization of loss
 
4,174 
 
988 
 
1,106 
 
1,314 
 
762 
 
1,598 
 
640 
Net other postretirement benefit cost
 
$10,952   
 
$7,356    
 
$8,420   
 
$3,258    
 
$2,962     
 
$2,874  
 
$1,562  

       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
2008
 
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Service cost - benefits earned
                           
  during the period
 
$3,412 
 
$2,502 
 
$2,198 
 
$1,028 
 
$590 
 
$1,212 
 
$1,026 
Interest cost on APBO
 
6,886 
 
3,834 
 
4,374 
 
2,282 
 
1,906 
 
2,880 
 
1,062 
Expected return on assets
 
(4,984)
 
 
 
(1,810)
 
(1,578)
 
(3,770)
 
(1,022)
Amortization of transition
                           
  obligation
 
410 
 
168 
 
192 
 
176 
 
830 
 
132 
 
Amortization of prior service
                           
  cost
 
(394)
 
292 
 
234 
 
(124)
 
180 
 
144 
 
(566)
Amortization of loss
 
2,880 
 
988 
 
1,354 
 
1,068 
 
582 
 
714 
 
354 
Net other postretirement benefit cost
 
$8,210   
 
$7,784    
 
$8,352   
 
$2,620    
 
$2,510     
 
$1,312  
 
$858  

Employer Contributions

Based on current assumptions, Entergy expects to contribute $132 million to its qualified pension plans in 2009.  Guidance pursuant to the Pension Protection Act of 2006 rules, effective for the 2009 plan year and beyond, may affect the level of Entergy's pension contributions in the future.  As of the end of July 2009, Entergy had contributed $95 million to its pension plans.  Therefore, Entergy presently anticipates contributing an additional $37 million to fund its qualified pension plans in 2009.


 
47

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Based on current assumptions, the Registrant Subsidiaries expect to contribute the following to qualified pension plans in 2009:

       
Entergy
                   
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
Entergy
 
Entergy
 
System
   
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
New Orleans
 
Texas
 
Energy
   
(In Thousands)
Expected 2009 pension
  contributions
 
$24,635
 
$6,279
 
 
$7,623
 
$5,806
 
 
$1,107
 
 
$3,577
 
 
$4,734
Pension contributions made
   through July 2009
 
$16,194
 
$3,428
 
 
$4,370
 
$3,731
 
 
$509
 
 
$2,325
 
 
$3,226
Remaining estimated pension
  contributions to be made in 2009
 
$8,441
 
$2,851
 
 
$3,253
 
$2,075
 
 
$598
 
 
$1,252
 
 
$1,508

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, 2008 Accumulated Postretirement Benefit Obligation (APBO) by $187 million, and reduced the second quarter 2009 and 2008 other postretirement benefit cost by $6.0 million and $6.2 million, respectively.  It reduced the six months ended June 30, 2009 and 2008 other postretirement benefit cost by $12.0 million and $12.4 million, respectively.  In the second quarter 2009, Entergy received $0.1 million in Medicare subsidies for prescription drug claims.  In the six months ended June 30, 2009, Entergy received $1.1 million in Medicare subsidies for prescription drug claims.

Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2008 APBO and the second quarters 2009 and 2008 other postretirement benefit cost and the six months ended June 30, 2009 and 2008 other postretirement benefit cost for the Registrant Subsidiaries as follows:

       
Entergy
         
Entergy
       
   
Entergy
 
Gulf States
 
Entergy
 
Entergy
 
New
 
Entergy
 
System
   
Arkansas
 
Louisiana
 
Louisiana
 
Mississippi
 
Orleans
 
Texas
 
Energy
   
(In Thousands)
Reduction in 12/31/2008 APBO
 
($40,610)
 
($19,650)
 
($22,222)
 
($13,280)
 
($9,135)
 
($14,961)
 
($6,628)
Reduction in second quarter 2009
                           
  other postretirement benefit cost
 
($1,235)
 
($814)
 
($695)
 
($391)
 
($261)
 
($240)
 
($231)
Reduction in second quarter 2008
                           
  other postretirement benefit cost
 
($1,266)
 
($876)
 
($706)
 
($406)
 
($279)
 
($263)
 
($236)
Reduction in six months ended
                           
  June 30, 2009 other
                           
  postretirement benefit cost
 
($2,470)
 
($1,628)
 
($1,390)
 
($782)
 
($522)
 
($480)
 
($462)
Reduction in six months ended
                           
  June 30, 2008 other
                           
  postretirement benefit cost
 
($2,532)
 
($1,752)
 
($1,412)
 
($812)
 
($558)
 
($526)
 
($472)
Medicare subsidies received in the
                           
  second quarter 2009
 
$30 
 
$18 
 
$19 
 
$11 
 
$11 
 
$14 
 
$2 
Medicare subsidies received in the
                           
  six months ended June 30, 2009
 
$256 
 
$162 
 
$168 
 
$84 
 
$97 
 
$105 
 
$25 

For further information on the Medicare Act refer to Note 11 to the financial statements in the Form 10-K.



 
48

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 7.  BUSINESS SEGMENT INFORMATION

Entergy Corporation

Entergy's reportable segments as of June 30, 2009 are Utility and Non-Utility Nuclear.  Utility generates, transmits, distributes, and sells electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana.  Non-Utility Nuclear owns and operates six nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers.  "All Other" includes the parent company, Entergy Corporation, and other business activity, including the non-nuclear wholesale assets business, and earnings on the proceeds of sales of previously-owned businesses.

Entergy's segment financial information for the second quarters of 2009 and 2008 is as follows:
 
 
 
Utility
 
 
Non-Utility
Nuclear*
 
 
 
All Other*
 
 
 
Eliminations
 
 
 
Consolidated
 
(In Thousands)
2009
                 
Operating revenues
$1,947,831 
 
$544,929
 
$34,589 
 
($6,560)
 
$2,520,789 
Equity in earnings of unconsolidated equity affiliates
 
$-  
 
 
$-  
 
 
$1,369 
 
 
$-  
 
 
$1,369 
Income taxes (benefit)
$104,700 
 
$35,959
 
($50,018)
 
$- 
 
$90,641 
Consolidated net income
$151,575 
 
$80,211
 
$18,384 
 
($18,359)
 
$231,811 
                   
2008
                 
Operating revenues
$2,579,303 
 
$609,730
 
$82,088 
 
($6,850)
 
$3,264,271 
Equity in loss of unconsolidated
                 
  equity affiliates
$- 
 
$-
 
($2,572)
 
$- 
 
($2,572)
Income taxes (benefit)
$112,421 
 
$83,902
 
($13,311)
 
$- 
 
$183,012 
Consolidated net income (loss)
$164,023 
 
$143,616
 
($31,710)
 
$- 
 
$275,929 

Entergy's segment financial information for the six months ended June 30, 2009 and 2008 is as follows:
 
 
 
Utility
 
 
Non-Utility
Nuclear*
 
 
 
All Other*
 
 
 
Eliminations
 
 
 
Consolidated
 
(In Thousands)
2009
                 
Operating revenues
$4,050,037 
 
$1,201,116
 
$72,331 
 
($13,583)
 
$5,309,901 
Equity in loss of unconsolidated
                 
  equity affiliates
$- 
 
$-
 
($1,758)
 
$- 
 
($1,758)
Income taxes (benefit)
$178,163 
 
$138,036
 
($62,513)
 
$- 
 
$253,686 
Consolidated net income (loss)
$267,544 
 
$261,092
 
($19,774)
 
($36,718)
 
$472,144 
Total assets
$29,010,123 
 
$8,316,584
 
$1,162,840 
 
($2,004,327)
 
$36,485,220 
                   
2008
                 
Operating revenues
$4,715,633 
 
$1,290,215
 
$136,889 
 
($13,732)
 
$6,129,005 
Equity in loss of unconsolidated
                 
  equity affiliates
$- 
 
$-
 
($3,501)
 
$- 
 
($3,501)
Income taxes (benefit)
$196,664 
 
$208,875
 
($29,524)
 
$- 
 
$376,015 
Consolidated net income (loss)
$285,503 
 
$365,314
 
($61,141)
 
$- 
 
$589,676 
Total assets
$26,807,661 
 
$7,326,735
 
$1,984,560 
 
($1,425,615)
 
$34,693,341 

 
49

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

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.  Almost all of Entergy's goodwill is related to the Utility segment.

Registrant Subsidiaries

The Registrant Subsidiaries have one reportable segment, which is an integrated utility business, except for System Energy, which is an electricity generation business.  The Registrant Subsidiaries' operations are managed on an integrated basis because of the substantial effect of cost-based rates and regulatory oversight on the business process, cost structures, and operating results.


NOTE 8.  RISK MANAGEMENT AND FAIR VALUES

Market and Commodity Risks

In the normal course of business, Entergy is exposed to a number of market and commodity risks.  Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular instrument or commodity.  All financial and commodity-related instruments, including derivatives, are subject to market risk.  Entergy is subject to a number of commodity and market risks, including:

Type of Risk
 
Affected Businesses
     
Power price risk
 
Utility, Non-Utility Nuclear, Non-nuclear wholesale assets
Fuel price risk
 
Utility, Non-Utility Nuclear, Non-nuclear wholesale assets
Foreign currency exchange rate risk
 
Utility, Non-Utility Nuclear, Non-nuclear wholesale assets
Equity price and interest rate risk - investments
 
Utility, Non-Utility Nuclear

Entergy manages a portion of these risks using derivative instruments, some of which are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sales transactions due to their physical settlement provisions.  Normal purchase/normal sale risk management tools include long-term power purchase and sales agreements and fuel purchase agreements, capacity contracts, and tolling agreements.  Financially-settled cash flow hedges can include natural gas and electricity futures, forwards, swaps, and options; foreign currency forwards; and interest rate swaps.  Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities.

Entergy manages fuel price risk for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi primarily through the purchase of short-term swaps.  These swaps are marked-to-market with offsetting regulatory assets or liabilities.  The notional volumes of these swaps are based on a portion of projected annual purchases of gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans.

Entergy's exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity.  For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option's contractual strike or exercise price also affects the level of market risk.  A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk.  Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies.  Entergy's risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods.  These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy's objectives.


 
50

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Hedging Derivatives

Effective January 1, 2009, Entergy adopted Statement of Financial Accounting Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161), which requires enhanced disclosures about an entity's derivative and hedging activities.  The fair values of Entergy's derivative instruments in the consolidated balance sheet as of June 30, 2009 are as follows:

Instrument
 
Balance Sheet Location
 
Fair Value
 
Business
             
Derivatives designated as hedging instruments under FASB 133
           
Assets:
           
Electricity futures, forwards, and swaps
 
 
Prepayments and other (current portion)
 
 
$208 million
 
 
Non-Utility Nuclear
             
Electricity futures, forwards, and swaps
 
Other deferred debits and other assets (non-current portion)
 
 
$105 million
 
 
Non-Utility Nuclear
             
             
Derivatives not designated as hedging instruments under FASB 133
           
Liabilities:
           
Natural gas futures,
forwards, and swaps
 
 
Other current liabilities
 
 
$53 million
 
 
Utility

The effect of Entergy's derivative instruments designated as cash flow hedges on the consolidated statements of income for the three months ended June 30, 2009 is as follows:

 
 
 
Instrument
 
 
Amount of gain (loss) recognized in OCI (effective portion)
 
 
 
 
Statement of Income location
 
Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)
             
Electricity futures, forwards,
and swaps
 
 
$36 million
 
 
Competitive businesses operating revenues
 
 
$76 million
             

The effect of Entergy's derivative instruments designated as cash flow hedges on the consolidated statements of income for the six months ended June 30, 2009 is as follows:

 
 
 
Instrument
 
 
Amount of gain (loss) recognized in OCI (effective portion)
 
 
 
 
Statement of Income location
 
Amount of gain (loss) reclassified from accumulated OCI into income (effective portion)
             
Electricity futures, forwards,
and swaps
 
 
$237 million
 
 
Competitive businesses operating revenues
 
 
$133 million
             
 
 
51

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


 
Electricity over-the-counter swaps that financially settle against day-ahead power pool prices are used to manage price exposure for Non-Utility Nuclear generation.  Based on market prices as of June 30, 2009, cash flow hedges relating to power sales totaled $313 million of gross gains, of which approximately $208 million are expected to be reclassified from accumulated other comprehensive income (OCI) to operating revenues in the next twelve months.  The actual amount reclassified from accumulated OCI, however, could vary due to future changes in market prices.  Gains totaling approximately $76 million and $133 million were realized on the maturity of cash flow hedges for the three months ended June 30, 2009 and for the six months ended June 30, 2009, respectively.  Unrealized gains or losses recorded in OCI result from hedging power output at the Non-Utility Nuclear power plants.  The related gains or losses from hedging power are included in operating revenues when realized.  The maximum length of time over which Entergy is currently hedging the variability in future cash flows for forecasted power transactions at June 30, 2009 is approximately four years.  Planned generation sold forward from Non-Utility Nuclear power plants as of June 30, 2009 is 87% for the remaining two quarters of 2009 of which approximately one-third is sold under financial hedges and the remainder under normal purchase/sale contracts.  The ineffective portion of the change in the value of Entergy's cash flow hedges during the three and six months ended June 30, 2009 and 2008 was insignificant.  Credit support for these power cash flow hedges are covered by diverse master agreements, some of which require collateralization based on mark-to-market value while others do not require such collateralization.  As of June 30, 2009, Non-Utility Nuclear was not required to post any collateral due to the fact that these cash flow hedges were in-the-money and were thus recorded as assets.

Natural gas over-the-counter swaps that financially settle against NYMEX futures are used to manage fuel price risk for the Utility's Louisiana and Mississippi customers.  All benefits or costs of the program are recorded in fuel costs.  The total volume of natural gas swaps outstanding as of June 30, 2009 is 37,490,000 MMBtu for Entergy, 9,180,000 MMBtu for Entergy Gulf States Louisiana, 15,290,000 MMBtu for Entergy Louisiana, 9,150,000 MMBtu for Entergy Mississippi, and 3,870,000 for Entergy New Orleans.  Credit support for these natural gas swaps are covered by master agreements that do not require collateralization based on mark-to-market value but do carry material adverse change clauses that may lead to collateralization requests.  The effect of Entergy's derivative instruments not designated as hedging instruments on the consolidated statements of income for the three months ended June 30, 2009 is as follows:

 
Instrument
 
 
Statement of Income Location
   
Amount of gain (loss)
recorded in income
           
           
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
   
 
$38 million

The effect of Entergy's derivative instruments not designated as hedging instruments on the consolidated statements of income for the six months ended June 30, 2009 is as follows:

 
Instrument
 
 
Statement of Income Location
   
Amount of gain (loss)
recorded in income
           
           
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
   
 
$14 million

Due to regulatory treatment, the natural gas swaps are marked to market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as offsetting regulatory assets or liabilities.

 
52

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements



The fair values of the Registrant Subsidiaries' derivative instruments in their balance sheets as of June 30, 2009 are as follows:

Instrument
 
Balance Sheet Location
 
Fair Value
 
Registrant
 
               
Derivatives not designated as hedging instruments under FASB 133
             
Liabilities:
             
Natural gas swaps
 
Gas hedge contracts
 
$12.2 million
 
Entergy Gulf States Louisiana
 
Natural gas swaps
 
Gas hedge contracts
 
$23.5 million
 
Entergy Louisiana
 
Natural gas swaps
 
Gas hedge contracts
 
$15.4 million
 
Entergy Mississippi
 
Natural gas swaps
 
Other current liabilities
 
$1.6 million
 
Entergy New Orleans
 
 
    The effects of the Registrant Subsidiaries' derivative instruments not designated as hedging instruments on their statements of income for the three months ended June 30, 2009 are as follows:

 
Instrument
 
 
Statement of Income Location
 
Amount of gain (loss) recorded in income
 
 
Registrant
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$10.7 million
 
 
Entergy Gulf States Louisiana
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$16.4 million
 
 
Entergy Louisiana
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$11.6 million
 
 
Entergy Mississippi
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
($0.3) million
 
 
Entergy New Orleans

The effects of the Registrant Subsidiaries' derivative instruments not designated as hedging instruments on their statements of income for the six months ended June 30, 2009 are as follows:

 
Instrument
 
 
Statement of Income Location
 
Amount of gain (loss) recorded in income
 
 
Registrant
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$8.0 million
 
 
Entergy Gulf States Louisiana
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$3.2 million
 
 
Entergy Louisiana
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$0.2 million
 
 
Entergy Mississippi
             
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
 
$2.7 million
 
 
Entergy New Orleans


 
53

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Fair Values

The estimated fair values of Entergy's financial instruments and derivatives are determined using bid prices and market quotes.  Considerable judgment is required in developing the estimates of fair value.  Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange.  Gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not accrue to the benefit or detriment of shareholders.  Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.  Effective January 1, 2008, Entergy and the Registrant Subsidiaries adopted Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.  SFAS 157 generally does not require any new fair value measurements.  However, in some cases, the application of SFAS 157 in the future may change Entergy's and the Registrant Subsidiaries' practice for measuring and disclosing fair values under other accounting pronouncements that require or permit fair value measurements.

SFAS 157 defines fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at date of measurement.  Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value.  The inputs can be readily observable, corroborated by market data, or generally unobservable.  Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.  The three levels of fair value hierarchy defined in SFAS 157 are as follows:

·  
Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  Level 1 primarily consists of individually owned common stocks, cash equivalents, debt instruments, and gas hedge contracts.

·  
Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date.  Level 2 inputs include the following:

-  
quoted prices for similar assets or liabilities in active markets;
-  
quoted prices for identical assets or liabilities in inactive markets;
-  
inputs other than quoted prices that are observable for the asset or liability; or
 
inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 2 consists primarily of individually owned debt instruments or shares in common trusts.

·  
Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources.  These inputs are used with internally developed methodologies to produce management's best estimate of fair value for the asset or liability.  Level 3 consists primarily of derivative power contracts used as cash flow hedges of power sales at merchant power plants.

The values for the cash flow hedges that are recorded as derivative contract assets or liabilities are based on both observable inputs including public market prices and unobservable inputs such as model-generated prices for longer-term markets and are classified as Level 3 assets and liabilities.  The amounts reflected as the fair value of derivative assets or liabilities are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or
 
 
54

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
 
out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable or payable by Entergy if the contracts were settled at that date.  These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from Entergy's Non-Utility Nuclear business.  The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from a combination of quoted forward power market prices for the period for which such curves are available, and model-generated prices using quoted forward gas market curves and estimates regarding heat rates to convert gas to power and the costs associated with the transportation of the power from the plants' bus bar to the contract's point of delivery, generally a power market hub, for the period thereafter.   The difference between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties' credit adjusted risk free rate are recorded as derivative contract assets or liabilities.  All of the $313 million of cash flow hedges at June 30, 2009 are in-the-money contracts with counterparties who are all currently investment grade.
 
Effective January 1, 2009, Entergy adopted FSP No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP 157-4), which provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset and liability have significantly decreased and includes guidance on identifying circumstances that indicate a transaction is not orderly.  The adoption of FSP 157-4 had no impact on net income or total equity. 

The following table sets forth, by level within the fair value hierarchy established by SFAS 157, Entergy's assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2009.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

   
Level 1
 
Level 2
 
Level 3
 
Total
   
(In Millions)
Assets:
               
Temporary cash investments
 
$1,206
 
$-
 
$-
 
$1,206
Decommissioning trust funds:
               
Equity securities
 
182
 
1,304
 
-
 
1,486
Debt securities
 
382
 
1,026
 
-
 
1,408
Power contracts
 
-
 
-
 
313
 
313
Securitization recovery trust account
 
9
 
-
 
-
 
9
Other investments
 
39
 
-
 
-
 
39
   
$1,818
 
$2,330
 
$313
 
$4,461
                 
Liabilities:
               
Gas hedge contracts
 
$53
 
$-
 
$-
 
$53

The following table sets forth a reconciliation of changes in the assets (liabilities) for the fair value of derivatives classified as Level 3 in the SFAS 157 fair value hierarchy for the three months ended June 30, 2009:

   
2009
 
2008
   
(In Millions)
         
Balance as of beginning of period
 
$351
 
($288)
         
Price changes (unrealized gains/losses)
 
36 
 
(480)
Originated
 
 
(3)
Settlements
 
(76)
 
37 
         
Balance as of June 30
 
$313 
 
($734)
 
 
55

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The following table sets forth a reconciliation of changes in the assets (liabilities) for the fair value of derivatives classified as Level 3 in the SFAS 157 fair value hierarchy for the six months ended June 30, 2009:

   
2009
 
2008
   
(In Millions)
         
Balance as of January 1
 
$207 
 
($12)
         
Price changes (unrealized gains/losses)
 
237 
 
(676)
Originated
 
 
(77)
Settlements
 
(133)
 
31 
         
Balance as of June 30
 
$313 
 
($734)


The following table sets forth, by level within the fair value hierarchy established by SFAS 157, the Registrant Subsidiaries' assets that are accounted for at fair value on a recurring basis as of June 30, 2009.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.

   
Level 1
 
Level 2
 
Level 3
 
Total
   
(In Millions)
Entergy Arkansas:
               
Assets:
               
Temporary cash investments
 
$79.7
 
$-
 
$-
 
$79.7
Decommissioning trust funds:
               
Equity securities
 
3.3
 
160.6
 
-
 
163.9
Debt securities
 
19.3
 
213.8
 
-
 
233.1
   
$102.3
 
$374.4
 
$-
 
$476.7
 
Entergy Gulf States Louisiana:
               
Assets:
               
Temporary cash investments
 
$67.0
 
$-
 
$-
 
$67.0
Decommissioning trust funds:
               
Equity securities
 
1.5
 
130.2
 
-
 
131.7
Debt securities
 
21.5
 
158.8
 
-
 
180.3
   
$90.0
 
$289.0
 
$-
 
$379.0
                 
Liabilities:
               
Gas hedge contracts
 
$12.2
 
$-
 
$-
 
$12.2
 
 
 
56

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


 
Entergy Louisiana:
               
Assets:
               
Temporary cash investments
 
$72.5
 
$-
 
$-
 
$72.5
Decommissioning trust funds:
               
Equity securities
 
7.1
 
89.0
 
-
 
96.1
Debt securities
 
43.9
 
45.1
 
-
 
89.0
Other investments
 
0.8
 
-
 
-
 
0.8
   
$124.3
 
$134.1
 
$-
 
$258.4
                 
Liabilities:
               
Gas hedge contracts
 
$23.5
 
$-
 
$-
 
$23.5
                 
Entergy Mississippi:
               
Assets:
               
Temporary cash investments
 
$42.0
 
$-
 
$-
 
$42.0
Other investments
 
31.9
 
-
 
-
 
31.9
   
$73.9
 
$-
 
$-
 
$73.9
                 
Liabilities:
               
Gas hedge contracts
 
$15.4
 
$-
 
$-
 
$15.4
                 
Entergy New Orleans:
               
Assets:
               
Temporary cash investments
 
$121.6
 
$-
 
$-
 
$121.6
Other investments
 
6.2
 
-
 
-
 
6.2
   
$127.8
 
$-
 
$-
 
$127.8



Liabilities:
               
Gas hedge contracts
 
$1.6
 
$-
 
$-
 
$1.6
                 
Entergy Texas:
               
Assets:
               
Temporary cash investments
 
$75.3
 
$-
 
$-
 
$75.3
Securitization recovery trust account
 
9.1
 
-
 
-
 
9.1
   
$84.4
 
$-
 
$-
 
$84.4
                 
System Energy:
               
Assets:
               
Temporary cash investments
 
$91.1
 
$-
 
$-
 
$91.1
Decommissioning trust funds:
               
Equity securities
 
2.1
 
143.9
 
-
 
146.0
Debt securities
 
56.5
 
78.4
 
-
 
134.9
   
$149.7
 
$222.3
 
$-
 
$372.0



 
57

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 9.  DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, and System Energy)

Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The NRC requires Entergy to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1 and 2, Vermont Yankee, and Palisades (NYPA currently retains the decommissioning trusts and liabilities for Indian Point 3 and FitzPatrick).  The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents.

Entergy applies the provisions of SFAS 115, "Accounting for Investments for Certain Debt and Equity Securities," in accounting for investments in decommissioning trust funds.  As a result, Entergy records the decommissioning trust funds on the balance sheet at their fair value.  Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets.  For the nonregulated portion of River Bend, Entergy Gulf States Louisiana has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits/debits.  Decommissioning trust funds for Pilgrim, Indian Point 1 and 2, Vermont Yankee, and Palisades do not receive regulatory treatment.  Accordingly, unrealized gains recorded on the assets in these trust funds are recognized in the accumulated other comprehensive income component of common shareholders' equity because these assets are classified as available for sale.  Unrealized losses (where cost exceeds fair market value) on the assets in these trust funds are also recorded in the accumulated other comprehensive income component of common shareholders' equity unless the unrealized loss is other-than-temporary and therefore recorded in earnings.  Entergy records realized gains and losses on its debt and equity securities generally using the specific identification method to determine the cost basis of its securities.

The securities held at June 30, 2009 and December 31, 2008 are summarized as follows:

   
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
   
(In Millions)
2009
           
Equity Securities
 
$1,487
 
$106
 
$88
Debt Securities
 
1,407
 
54
 
12
  Total
 
$2,894
 
$160
 
$100
             
2008
           
Equity Securities
 
$1,436
 
$85
 
$177
Debt Securities
 
1,396
 
77
 
21
  Total
 
$2,832
 
$162
 
$198

The amortized cost of debt securities was $1,365 million and $1,340 million at June 30, 2009 and December 31, 2008, respectively.  The debt securities have an average coupon rate of approximately 4.89%, an average duration of approximately 5.12 years, and an average maturity of approximately 8.4 years.  The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor's 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index.

 
58

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at June 30, 2009:

   
Equity Securities
 
Debt Securities
   
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
   
(In Millions)
                 
Less than 12 months
 
$302
 
$49
 
$278
 
$7
More than 12 months
 
77
 
39
 
67
 
5
  Total
 
$379
 
$88
 
$345
 
$12

The unrealized losses in excess of twelve months above relate to Entergy's Utility operating companies and System Energy.

The fair value of debt securities, summarized by contractual maturities, at June 30, 2009 and December 31, 2008 are as follows:

   
2009
 
2008
   
(In Millions)
less than 1 year
 
$11
 
$21
1 year - 5 years
 
634
 
526
5 years - 10 years
 
435
 
490
10 years - 15 years
 
107
 
146
15 years - 20 years
 
              54
 
52
20 years+
 
166
 
161
  Total
 
$1,407
 
$1,396

During the three months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $699 million and $491 million, respectively.  During the three months ended June 30, 2009 and 2008, gross gains of $16 million and $8 million, respectively, and gross losses of $10 million and $3 million, respectively, were either reclassified out of other comprehensive income into earnings or recorded into earnings.

During the six months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $1,282 million and $748 million, respectively.  During the six months ended June 30, 2009 and 2008, gross gains of $30 million and $14 million, respectively, and gross losses of $26 million and $5 million, respectively, were either reclassified out of other comprehensive income into earnings or recorded into earnings.

Entergy Arkansas

Entergy Arkansas holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held at June 30, 2009 and December 31, 2008 are summarized as follows:

 
59

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements



   
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
   
(In Millions)
2009
           
Equity Securities
 
$163.8
 
$32.4
 
$11.2
Debt Securities
 
233.1
 
10.8
 
1.8
Total
 
$396.9
 
$43.2
 
$13.0
             
2008
           
Equity Securities
 
$165.6
 
$31.7
 
$13.7
Debt Securities
 
224.9
 
12.8
 
2.4
Total
 
$390.5
 
$44.5
 
$16.1

The amortized cost of debt securities was $224.1 million and $214.5 million as of June 30, 2009 and December 31, 2008, respectively.  The debt securities have an average coupon rate of approximately 4.77%, an average duration of approximately 4.93 years, and an average maturity of approximately 6.1 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor's 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at June 30, 2009:


   
Equity Securities
 
Debt Securities
   
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
   
(In Millions)
                 
Less than 12 months
 
$44.1
 
$6.7
 
$23.0
 
$1.3
More than 12 months
 
9.6
 
4.5
 
18.8
 
0.5
Total
 
$53.7
 
$11.2
 
$41.8
 
$1.8

The fair value of debt securities, summarized by contractual maturities, at June 30, 2009 and December 31, 2008 are as follows:

   
2009
 
2008
   
(In Millions)
         
less than 1 year
 
$2.1
 
$2.0
1 year - 5 years
 
122.3
 
127.0
5 years - 10 years
 
95.6
 
93.9
10 years - 15 years
 
2.6
 
2.0
15 years - 20 years
 
4.0
 
-
20 years+
 
6.5
 
-
Total
 
$233.1
 
$224.9

During the three months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $21.9 million and $81.5 million, respectively.  During the three months ended June 30, 2009 and 2008, gross gains of $0.1 million and $2.4 million, respectively, and gross losses of $0.4 million and $0.1 million, respectively, were recorded in earnings.
 
 
60

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


During the six months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $51.7 million and $104.9 million, respectively.  During the six months ended June 30, 2009 and 2008, gross gains of $0.2 million and $2.7 million, respectively, and gross losses of $1.2 million and $0.4 million, respectively, were recorded in earnings.

Entergy Gulf States Louisiana

Entergy Gulf States Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held at June 30, 2009 and December 31, 2008 are summarized as follows:

   
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
   
(In Millions)
2009
           
Equity Securities
 
$131.6
 
$5.3
 
$22.6
Debt Securities
 
180.4
 
8.1
 
1.0
  Total
 
$312.0
 
$13.4
 
$23.6
             
2008
           
Equity Securities
 
$132.3
 
$4.6
 
$24.5
Debt Securities
 
170.9
 
8.7
 
3.3
  Total
 
$303.2
 
$13.3
 
$27.8

The amortized cost of debt securities was $173.3 million and $165.5 million as of June 30, 2009 and December 31, 2008, respectively.  The debt securities have an average coupon rate of approximately 4.92%, an average duration of approximately 6.09 years, and an average maturity of approximately 9.4 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor's 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at June 30, 2009:
 
   
Equity Securities
 
Debt Securities
   
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
   
(In Millions)
                 
Less than 12 months
 
$93.2
 
$17.0
 
$8.4
 
$0.3
More than 12 months
 
11.0
 
5.6
 
11.6
 
0.7
  Total
 
$104.2
 
$22.6
 
$20.0
 
$1.0


 
61

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The fair value of debt securities, summarized by contractual maturities, at June 30, 2009 and December 31, 2008 are as follows:
 
   
2009
 
2008
   
(In Millions)
         
less than 1 year
 
$5.7
 
$6.5
1 year - 5 years
 
37.3
 
36.5
5 years - 10 years
 
73.3
 
75.7
10 years - 15 years
 
43.9
 
36.0
15 years - 20 years
 
12.0
 
8.7
20 years+
 
8.2
 
7.5
  Total
 
$180.4
 
$170.9

During the three months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $9.9 million and $15.3 million, respectively.  During the three months ended June 30, 2009 and 2008, gross gains of $0.1 million and $0.2 million, respectively, and gross losses of $0.4 million and $0.09 million, respectively, were recorded in earnings.

During the six months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $33.7 million and $26.3 million, respectively.  During the six months ended June 30, 2009 and 2008, gross gains of $0.9 million and $0.4 million, respectively, and gross losses of $0.5 million and $0.1 million, respectively, were recorded in earnings.

Entergy Louisiana

Entergy Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held at June 30, 2009 and December 31, 2008 are summarized as follows:
 
   
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
   
(In Millions)
2009
           
Equity Securities
 
$96.1
 
$5.2
 
$15.5
Debt Securities
 
89.0
 
3.7
 
1.6
  Total
 
$185.1
 
$8.9
 
$17.1
             
2008
           
Equity Securities
 
$93.3
 
$3.9
 
$17.2
Debt Securities
 
87.6
 
7.1
 
1.6
  Total
 
$180.9
 
$11.0
 
$18.8

The amortized cost of debt securities was $87.0 million and $82.1 million as of June 30, 2009 and December 31, 2008, respectively.  The debt securities have an average coupon rate of approximately 4.07%, an average duration of approximately 4.97 years, and an average maturity of approximately 10.0 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor's 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

 
62

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at June 30, 2009:

   
Equity Securities
 
Debt Securities
   
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
   
(In Millions)
                 
Less than 12 months
 
$43.8
 
$8.6
 
$25.5
 
$1.0
More than 12 months
 
13.5
 
6.9
 
4.2
 
0.6
  Total
 
$57.3
 
$15.5
 
$29.7
 
$1.6

The fair value of debt securities, summarized by contractual maturities, at June 30, 2009 and December 31, 2008 are as follows:

   
2009
 
2008
   
(In Millions)
         
less than 1 year
 
$0.3
 
$1.2
1 year - 5 years
 
32.9
 
33.4
5 years - 10 years
 
23.8
 
21.4
10 years - 15 years
 
11.5
 
10.5
15 years - 20 years
 
5.2
 
6.8
20 years+
 
15.3
 
14.3
  Total
 
$89.0
 
$87.6

During the three months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $23.3 million and $4.3 million, respectively.  During the three months ended June 30, 2009 and 2008, gross gains of $1.1 million and $0.01 million, respectively, and gross losses of $0.3 million and $0.08 million, respectively, were recorded in earnings.

During the six months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $33.5 million and $9.3 million, respectively.  During the six months ended June 30, 2009 and 2008, gross gains of $1.5 million and $0.02 million, respectively, and gross losses of $0.4 million and $0.1 million, respectively, were recorded in earnings.


 
63

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements


System Energy

System Energy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held at June 30, 2009 and December 31, 2008 are summarized as follows:

   
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
   
(In Millions)
2009
           
Equity Securities
 
$147.7
 
$4.5
 
$34.0
Debt Securities
 
133.2
 
2.0
 
1.6
  Total
 
$280.9
 
$6.5
 
$35.6
             
2008
           
Equity Securities
 
$127.8
 
$2.0
 
$36.3
Debt Securities
 
141.0
 
6.9
 
3.9
  Total
 
$268.8
 
$8.9
 
$40.2

The amortized cost of debt securities was $132.7 million and $138.0 million as of June 30, 2009 and December 31, 2008, respectively.  The debt securities have an average coupon rate of approximately 4.40%, an average duration of approximately 4.67 years, and an average maturity of approximately 7.7 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor's 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at June 30, 2009:

   
Equity Securities
 
Debt Securities
   
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
   
(In Millions)
                 
Less than 12 months
 
$59.8
 
$12.6
 
$46.6
 
$0.8
More than 12 months
 
43.1
 
21.4
 
7.1
 
0.8
  Total
 
$102.9
 
$34.0
 
$53.7
 
$1.6

 
The fair value of debt securities, summarized by contractual maturities, at June 30, 2009 and December 31, 2008 are as follows:

   
2009
 
2008
   
(In Millions)
         
less than 1 year
 
$0.2
 
$2.0
1 year - 5 years
 
83.5
 
48.0
5 years - 10 years
 
30.2
 
44.0
10 years - 15 years
 
0.4
 
10.0
15 years - 20 years
 
0.8
 
1.2
20 years+
 
18.1
 
35.8
  Total
 
$133.2
 
$141.0
         
 
 
64

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

During the three months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $170.1 million and $141.5 million, respectively.  During the three months ended June 30, 2009 and 2008, gross gains of $0.7 million and $1.5 million, respectively, and gross losses of $3.9 million and $0.7 million, respectively, were recorded in earnings.

During the six months ended June 30, 2009 and 2008, proceeds from the dispositions of securities amounted to $322.0 million and $176.5 million, respectively.  During the six months ended June 30, 2009 and 2008, gross gains of $3.7 million and $2.3 million, respectively, and gross losses of $6.3 million and $1.3 million, respectively, were recorded in earnings.

Other-than-temporary impairments and unrealized gains and losses

Entergy, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, and System Energy evaluate these unrealized losses at the end of each period to determine whether an other than temporary impairment has occurred.  Effective January 1, 2009, Entergy adopted FSP FAS 115-2, "Recognition and Presentation of Other-Than-Temporary Impairments".  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary-impairment shall have been considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss).  For debt securities held as of January 1, 2009 for which an other-than-temporary impairment had previously been recognized but for which assessment under the new guidance indicates this impairment is temporary, Entergy recorded an adjustment to its opening balance of retained earnings of $11.3 million ($6.4 million net-of-tax). Entergy did not have any material other than temporary impairments relating to credit losses on debt securities for the six months ended June 30, 2009.  The assessment of whether an investment in an equity security has suffered an other than temporary impairment continues to be based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time.  Entergy's trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. Non-Utility Nuclear recorded charges to other income of $69 million and $85 million in the three and six months ended June 30, 2009, respectively, resulting from the recognition of the other than temporary impairment of certain equity securities held in its decommissioning trust funds.

 
NOTE 10.  INCOME TAXES

Income Tax Audits and Litigation

See Note 3 to the financial statements in the Form 10-K for a discussion of tax proceedings.


NOTE 11.  NEW ACCOUNTING PRONOUNCEMENTS

In December 2008 the FASB issued FSP FAS 132(R)-1 "Employers' Disclosures about Postretirement Benefit Plan Assets" (FSP 132(R)-1) which requires enhanced disclosures about plan assets of defined benefit pension and other postretirement plans including disclosure of each major category of plan assets using the fair value hierarchy and concentrations of risk within plan assets.  FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009.

In June 2009 the FASB issued Statement of Financial Accounting Standards 167, "Amendments to FASB Interpretation No. 46R (FIN 46R)" (SFAS 167).  FIN 46R is entitled "Consolidation of Variable Interest Entities".  SFAS 167 amends FIN 46R to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the
 
 
65

 
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
 
entity or (2) the right to receive benefits from the entity.  SFAS 167 also requires additional disclosures on an interim and annual basis about an enterprise's involvement in variable interest entities. The standard will be effective for Entergy in the first quarter of 2010.  Entergy does not expect the adoption of SFAS 167 to have a material effect on its financial position, results of operations, or cash flows.

__________________________________

In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas 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 Registrant Subsidiaries 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.

 
66

 

Part I, Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of June 30, 2009, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (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 Registrant's or 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; and that the Registrant's or Registrants' disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant's or Registrants' management, including their respective CEOs and CFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of the Registrants' management, including their respective CEOs and CFOs, the Registrants evaluated changes in internal control over financial reporting that occurred during the quarter ended June 30, 2009 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.


 
67

 

ENTERGY ARKANSAS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income decreased $11.1 million primarily due to higher other operation and maintenance expenses, higher depreciation and amortization expenses, higher nuclear refueling outage expenses, higher interest expense, and a higher effective income tax rate.  The decrease was partially offset by lower taxes other than income taxes.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income decreased $17.7 million primarily due to higher depreciation and amortization expenses, higher other operation and maintenance expenses, higher nuclear refueling outage expenses, higher interest expense, and a higher effective income tax rate.  The decrease was partially offset by higher net revenue.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits).  Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

  
 
Amount
   
(In Millions)
     
2008 net revenue
 
$279.9 
Purchased power capacity
 
5.6 
Storm cost recovery
 
3.9 
Net wholesale revenue
 
(3.6)
Other
 
(3.2)
2009 net revenue
 
$282.6 

The purchased power capacity variance is primarily due to lower purchased power capacity charges.

The storm cost recovery variance is due to the recovery of 2008 extraordinary storm costs as approved by the APSC, effective January 2009.  The recovery of 2008 extraordinary storm costs is discussed in Note 2 to the financial statements in the Form 10-K.

The net wholesale revenue variance is primarily due to higher allocation of fuel to wholesale customers coupled with lower gains on substitute energy.

 
68

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


Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to:

·  
a decrease of $48.5 million in gross wholesale revenue due to a decrease in the average price of energy available for resale sales; and
·  
a decrease of $20.4 million in fuel cost recovery revenues due to a change in the energy cost recovery rider effective April 2009 and decreased usage.  See Note 2 to the financial statements for a discussion of the energy cost recovery rider filing.

Fuel and purchased power expenses decreased primarily due to a decrease in the average market price of purchased power.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits.  Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

  
 
Amount
   
(In Millions)
     
2008 net revenue
 
$528.1 
Storm cost recovery
 
9.6 
Purchased power capacity
 
9.2 
Retail electric price
 
6.0 
Volume/weather
 
(5.5)
Other
 
(4.9)
2009 net revenue
 
$542.5 

The storm cost recovery variance is due to the recovery of 2008 extraordinary storm costs as approved by the APSC, effective January 2009.  The recovery of 2008 extraordinary storm costs is discussed in Note 2 to the financial statements in the Form 10-K.

The purchased power capacity variance is primarily due to lower purchased power capacity charges.

The retail electric price variance is primarily due to the implementation of the capacity acquisition rider.

The volume/weather variance is primarily due to a 14.1% volume decrease in industrial sales primarily in the mid to small customer class.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to a decrease of $72.3 million in gross wholesale revenue due to a decrease in the average price of energy available for resale sales offset by an increase of $40.7 million in fuel cost recovery revenues primarily due to changes in the energy cost recovery rider effective April 2008 and September 2008.  The energy cost recovery rider filings are discussed in Note 2 to the financial statements herein and in the Form 10-K.

Fuel and purchased power expenses decreased primarily due to a decrease in the average market price of purchased power, partially offset by an increase in deferred fuel expense due to a higher energy cost recovery rate, as discussed above.
 
 
69

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

Other Income Statement Variances

Second Quarter 2009 Compared to Second Quarter 2008

Nuclear refueling outage expenses increased primarily due to the amortization of higher expenses associated with the planned maintenance and refueling outage at ANO 1 which ended in December 2008.

Other operation and maintenance expenses increased primarily due to:

·  
an increase in legal expense as a result of a reimbursement in April 2008 of $7 million of costs in connection with a litigation settlement;
·  
an increase of $5.4 million due to higher fossil plant outage costs in 2009;
·  
an increase of $3.2 million in nuclear expenses primarily due to increased nuclear labor and contract costs; and
·  
an increase of $2.6 million due to the addition of the Ouachita plant to the fossil fleet in September 2008.

The increase was partially offset by a decrease of $12.5 million due to the capitalization of Ouachita service charges previously expensed.

Taxes other than income taxes decreased primarily due to a decrease in ad valorem taxes due to a higher millage rate in 2008 and a higher assessment in 2008.

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

Interest expense increased primarily due to an increase in long-term debt outstanding as a result of the issuance of $300 million of 5.40% Series First Mortgage Bonds in July 2008.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Nuclear refueling outage expenses increased primarily due to the amortization of higher expenses associated with the planned maintenance and refueling outage at ANO 1 which ended in December 2008.

Other operation and maintenance expenses increased primarily due to:

·  
an increase of $8.5 million due to higher fossil plant outage costs in 2009;
·  
an increase of $7.8 million due to the addition of the Ouachita plant to the fossil fleet in September 2008;
·  
an increase of $7.2 million in nuclear expenses primarily due to increased nuclear labor and contract costs; and
·  
an increase in legal expense as a result of a reimbursement in April 2008 of $7 million of costs in connection with a litigation settlement.

The increase was partially offset by a decrease of $12.5 million due to the capitalization of Ouachita service charges previously expensed and a decrease of $5.4 million in payroll-related costs.

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

Interest expense increased primarily due to an increase in long-term debt outstanding as a result of the issuance of $300 million of 5.40% Series First Mortgage Bonds in July 2008.

Income Taxes

The effective income tax rates for the second quarters of 2009 and 2008 were 57.3% and 47.9%, respectively.  The effective income tax rates for the six months ended June 30, 2009 and 2008 were 54.8% and 45.3%, respectively.  The difference in the effective income tax rate for the second quarter 2009 and the six months ended June 30, 2009 versus the federal statutory rate of 35.0% is primarily due to certain book and tax differences related to utility plant items, state income
 
 
70

Entergy Arkansas, Inc.
Management's Financial Discussion and Analysis 
 
taxes, and payroll and benefits related items, partially offset by the amortization of investment tax credits.  The difference in the effective income tax rate for the second quarter 2008 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. The difference in the effective income tax rate for the six months ended June 30, 2008 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items, state income taxes, and an adjustment to the provision for uncertain tax positions, partially offset by flow-through book and tax timing differences.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$39,568 
 
$212 
         
Cash flow provided by (used in):
       
 
Operating activities
 
257,810 
 
151,859 
 
Investing activities
 
(204,966)
 
(179,625)
 
Financing activities
 
(12,287)
 
38,113 
Net increase in cash and cash equivalents
 
40,557 
 
10,347 
         
Cash and cash equivalents at end of period
 
$80,125 
 
$10,559 

Operating Activities

Cash flow from operations increased $106 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to an increase in recovery of fuel costs and income tax refunds of $24.9 million in 2009 compared to income tax payments of $36.2 million in 2008, partially offset by ice storm restoration spending in 2009.

Investing Activities

Net cash flow used in investing activities increased $25.3 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to money pool activity, partially offset by a decrease in construction expenditures.  The decrease in construction expenditures is primarily due to a decrease in nuclear construction expenditures resulting from various nuclear projects that occurred in 2008 and a decrease in fossil construction expenditures resulting from the purchase of coal handling equipment in 2008, partially offset by an increase in distribution construction expenditures in 2009 as a result of an ice storm hitting Entergy Arkansas' service territory in the first quarter of 2009.

Increases in Entergy Arkansas' receivable from the money pool are a use of cash flow, and Entergy Arkansas' receivable from the money pool increased $35.2 million for the six months ended June 30, 2009.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' need for external short-term borrowings.
 
 
71

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

Financing Activities

Financing activities used $12.3 million of cash for the six months ended June 30, 2009 compared to providing $38.1 million of cash for the six months ended June 30, 2008 primarily due to borrowings of $100 million on Entergy Arkansas' credit facility in 2008, partially offset by money pool activity.  Decreases in Entergy Arkansas' payable to the money pool is a use of cash flow, and Entergy Arkansas' payable to the money pool decreased by $52.3 million for the six months ended June 30, 2008.
 
Capital Structure

Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table.

   
June 30,
2009
 
December 31,
2008
         
Net debt to net capital
 
52.3%
 
52.9%
Effect of subtracting cash from debt
 
1.2%
 
0.6%
Debt to capital
 
53.5%
 
53.5%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and shareholders' equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Arkansas 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 Arkansas' financial condition.

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 2009, Entergy Arkansas renewed its credit facility through April 2010 in the amount of $88 million.  There were no outstanding borrowings under the Entergy Arkansas credit facility as of June 30, 2009.

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

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$51,217
 
$15,991
 
($25,541)
 
($77,882)

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

White Bluff Coal Plant Project

See the Form 10-K for a discussion of the environmental compliance project that will install scrubbers and low NOx burners at Entergy Arkansas' White Bluff coal plant.  In March 2009, Entergy Arkansas made a filing with the APSC seeking a declaratory order that the White Bluff project is in the public interest.  In May 2009 the APSC Staff filed a motion requesting that the APSC require Entergy Arkansas to file testimony on several issues.  In a subsequent order the APSC set a procedural schedule that includes an evidentiary hearing beginning on February 16, 2010.  In addition, in June 2009, Entergy Arkansas filed with the APSC, under Arkansas Act 310, an interim surcharge to recover the costs incurred through May 31, 2009, on the White Bluff project.  Entergy Arkansas has incurred $1.9 million
 
 
72

 
Entergy Arkansas, Inc.
Management's Financial Discussion and Analysis 
 
through May 31, 2009.  Under Arkansas Act 310 the surcharge goes into effect immediately upon filing, subject to refund, and additional surcharge filings are permitted every six months.  On July 20, 2009, the APSC staff filed a motion with the APSC requesting that the APSC enter an order regarding the conduct of this and subsequent Act 310 filings related to the White Bluff project, including requiring Entergy Arkansas to provide additional information and justification for costs recovered pursuant to Act 310.  In July 2009 the Arkansas attorney general filed a motion in the Act 310 proceeding opposing the imposition of the surcharge, and challenging Entergy Arkansas' cost calculation.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

Ouachita Power Plant

In August 2008, the LPSC issued an order approving an uncontested settlement between Entergy Gulf States Louisiana and the LPSC Staff authorizing Entergy Gulf States Louisiana's purchase, under a life-of-unit agreement, of one-third of the capacity and energy from the 789 MW Ouachita power plant, which Entergy Arkansas acquired on September 30, 2008.  The LPSC's approval was subject to certain conditions, including a study to determine the costs and benefits of Entergy Gulf States Louisiana exercising an option to purchase one-third of the plant (Unit 3) from Entergy Arkansas.  In April 2009, Entergy Gulf States Louisiana made a filing with the LPSC seeking approval of Entergy Gulf States Louisiana exercising its option to convert its purchased power agreement into the ownership interest in Unit 3 and a one-third interest in the Ouachita common facilities.  Entergy Gulf States Louisiana estimates that the purchase price will be approximately $72.6 million, subject to change based on several factors, including the timing of the closing.  The filing also requests LPSC approval of the cost-recovery mechanism for the acquisition.  In addition, in April 2009, Entergy Arkansas and Entergy Gulf States Louisiana filed with the FERC for its approval of the transaction, and in June 2009 the FERC issued an order approving the transaction.  A procedural schedule has been issued in the LPSC proceeding that provides for hearings to be held August 26-27 and 31, 2009.  If the acquisition is approved, Entergy currently expects that the closing would take place in the fourth quarter 2009.

State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.  Following are updates to the information provided in the Form 10-K.

Retail Rates

See the Form 10-K for a discussion of the rate filing made by Entergy Arkansas and the proceedings regarding that filing.  On April 23, 2009, the Arkansas Supreme Court denied Entergy Arkansas' petition for review of the Court of Appeals decision.

On July 2, 2009, Entergy Arkansas filed a notice with the APSC of its intention to file within 60 to 90 days for a general change in rates, charges, and tariffs.  Entergy Arkansas plans to file the rate case in September 2009.

Energy Cost Recovery Rider

In March 2009, Entergy Arkansas filed with the APSC its annual energy cost rate for the period April 2009 through March 2010.  The filed energy cost rate decreased from $0.02456/kWh to $0.01552/kWh.  The decrease was caused by the following: 1) all three of the nuclear power plants from which Entergy Arkansas obtains power, ANO 1 and 2 and Grand Gulf, had refueling outages in 2008, and the previous energy cost rate had been adjusted to account for the replacement power
 
 
73

 
Entergy Arkansas, Inc.
Management's Financial Discussion and Analysis 
 
costs that would be incurred while these units were down; 2) Entergy Arkansas has a deferred fuel cost liability from over-recovered fuel costs at December 31, 2008, as compared to a deferred fuel cost asset from under-recovered fuel costs at December 31, 2007; offset by 3) an increase in the fuel and purchased power prices included in the calculation.

Storm Cost Recovery

Entergy Arkansas Storm Reserve Accounting

The APSC's June 2007 order in Entergy Arkansas' base rate proceeding, which is discussed in the Form 10-K, eliminated storm reserve accounting for Entergy Arkansas.  In March 2009 a law was enacted in Arkansas that requires the APSC to permit storm reserve accounting for utilities that request it.  Entergy Arkansas filed its request with the APSC, and has reinstated storm reserve accounting effective January 1, 2009.

Entergy Arkansas January 2009 Ice Storm

In January 2009 a severe ice storm caused significant damage to Entergy Arkansas' transmission and distribution lines, equipment, poles, and other facilities.  The current cost estimate for the damage caused by the ice storm is approximately $120 million to $140 million, of which approximately $65 million to $80 million is estimated to be operating and maintenance type costs and the remainder is estimated to be capital investment.  On January 30, 2009, the APSC issued an order inviting and encouraging electric public utilities to file specific proposals for the recovery of extraordinary storm restoration expenses associated with the ice storm.  Although Entergy Arkansas has not yet filed a proposal for the method of recovery of its costs, on February 16, 2009, it did file a request with the APSC for an accounting order authorizing deferral of the operating and maintenance cost portion of Entergy Arkansas' ice storm restoration costs pending their recovery.  The APSC issued such an order in March 2009 subject to certain conditions, including that if Entergy Arkansas seeks to recover the deferred costs, those costs will be subject to investigation for whether they are incremental, prudent, and reasonable.  Entergy Arkansas is still analyzing its options for the method of recovery of the ice storm restoration costs.  One option is securitization, and in April 2009 a law was enacted in Arkansas that authorizes securitization of storm damage restoration costs.

Federal Regulation

See "System Agreement Proceedings" and "Independent Coordinator of Transmission" in the "Rate, Cost-recovery, and Other Regulation" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for updates to the discussion in the Form 10-K.

Utility Restructuring

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Utility Restructuring" in the Form 10-K for a discussion of utility restructuring.

Nuclear Matters

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.
 
 
 
74

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

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 qualified pension and other postretirement benefits.
 
Nuclear Decommissioning Costs

In the first quarter 2009, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and 2 as a result of a revised decommissioning cost study.  The revised estimates resulted in an $8.9 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.

Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.

New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.

 
75

 


 
ENTERGY ARKANSAS, INC.
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 518,009     $ 580,462     $ 1,054,003     $ 1,079,835  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    82,334       83,703       267,490       167,265  
   Purchased power
    151,947       223,318       246,274       389,842  
   Nuclear refueling outage expenses
    10,467       7,286       19,961       14,217  
   Other operation and maintenance
    124,605       116,547       232,031       223,671  
Decommissioning
    8,347       8,696       17,490       17,248  
Taxes other than income taxes
    18,604       22,480       39,971       38,219  
Depreciation and amortization
    63,268       59,066       125,629       116,303  
Other regulatory charges (credits) - net
    1,091       (6,435 )     (2,244 )     (5,392 )
TOTAL
    460,663       514,661       946,602       961,373  
                                 
OPERATING INCOME
    57,346       65,801       107,401       118,462  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    850       1,563       2,625       3,341  
Interest and dividend income
    3,795       5,547       7,019       10,804  
Miscellaneous - net
    (1,142 )     (722 )     (2,070 )     (1,735 )
TOTAL
    3,503       6,388       7,574       12,410  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    21,686       18,207       42,898       36,835  
Other interest - net
    1,210       1,907       1,884       3,845  
Allowance for borrowed funds used during construction
    (544 )     (749 )     (1,647 )     (1,599 )
TOTAL
    22,352       19,365       43,135       39,081  
                                 
INCOME BEFORE INCOME TAXES
    38,497       52,824       71,840       91,791  
                                 
Income taxes
    22,074       25,303       39,347       41,552  
                                 
NET INCOME
    16,423       27,521       32,493       50,239  
                                 
Preferred dividend requirements and other
    1,718       1,718       3,437       3,437  
                                 
EARNINGS APPLICABLE TO
                               
COMMON STOCK
  $ 14,705     $ 25,803     $ 29,056     $ 46,802  
                                 
See Notes to Financial Statements.
                               
                                 
 

 
76

 

ENTERGY ARKANSAS, INC.
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Net income
  $ 32,493     $ 50,239  
Adjustments to reconcile net income to net cash flow provided by operating activities:
         
  Reserve for regulatory adjustments
    (1,645 )     (3,010 )
  Other regulatory credits - net
    (2,244 )     (5,392 )
  Depreciation, amortization, and decommissioning
    143,119       133,551  
Deferred income taxes and investment tax credits, and non-current taxes accrued  
    58,433       34,884  
  Changes in working capital:
               
    Receivables
    (57,181 )     (273 )
    Fuel inventory
    (1,589 )     (8,846 )
    Accounts payable
    (40,878 )     (85,077 )
    Interest accrued
    (1,888 )     (670 )
    Deferred fuel costs
    122,270       38,826  
    Other working capital accounts
    66,220       21,347  
  Provision for estimated losses and reserves
    (2,617 )     (37 )
  Changes in other regulatory assets
    (32,875 )     8,739  
  Other
    (23,808 )     (32,422 )
Net cash flow provided by operating activities
    257,810       151,859  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (167,408 )     (174,456 )
Allowance for equity funds used during construction
    2,625       3,341  
Nuclear fuel purchases
    (771 )     (60,335 )
Proceeds from sale/leaseback of nuclear fuel
    594       60,377  
Proceeds from nuclear decommissioning trust fund sales
    51,651       104,860  
Investment in nuclear decommissioning trust funds
    (56,431 )     (113,412 )
Change in money pool receivable - net
    (35,226 )     -  
Net cash flow used in investing activities
    (204,966 )     (179,625 )
                 
FINANCING ACTIVITIES
               
Change in credit borrowings - net
    -       100,000  
Change in money pool payable - net
    -       (52,341 )
Dividends paid:
               
  Common stock
    (8,700 )     (6,000 )
  Preferred stock
    (3,437 )     (3,437 )
Other
    (150 )     (109 )
Net cash flow provided by (used in) financing activities
    (12,287 )     38,113  
                 
Net increase in cash and cash equivalents
    40,557       10,347  
                 
Cash and cash equivalents at beginning of period
    39,568       212  
                 
Cash and cash equivalents at end of period
  $ 80,125     $ 10,559  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid (received) during the period for:
               
  Interest - net of amount capitalized
  $ 43,992     $ 36,634  
  Income taxes
  $ (24,911 )   $ 36,174  
                 
See Notes to Financial Statements.
               

 
 
77

 
 
 
ENTERGY ARKANSAS, INC.
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
             
CURRENT ASSETS
           
Cash and cash equivalents
           
  Cash
  $ 378     $ 3,292  
  Temporary cash investments
    79,747       36,276  
    Total cash and cash investments
    80,125       39,568  
Accounts receivable:
               
  Customer
    103,621       113,135  
  Allowance for doubtful accounts
    (22,081 )     (19,882 )
  Associated companies
    90,485       56,534  
  Other
    113,703       64,762  
  Accrued unbilled revenues
    92,346       71,118  
    Total accounts receivable
    378,074       285,667  
Deferred fuel costs
    -       119,061  
Fuel inventory - at average cost
    16,812       15,223  
Materials and supplies - at average cost
    130,146       121,769  
Deferred nuclear refueling outage costs
    24,481       42,932  
System agreement cost equalization
    334,286       394,000  
Prepayments and other
    40,785       36,530  
TOTAL
    1,004,709       1,054,750  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliates - at equity
    11,200       11,200  
Decommissioning trust funds
    396,978       390,529  
Non-utility property - at cost (less accumulated depreciation)
    1,437       1,439  
Other
    5,391       5,391  
TOTAL
    415,006       408,559  
                 
UTILITY PLANT
               
Electric
    7,662,806       7,305,165  
Property under capital lease
    1,392       1,417  
Construction work in progress
    92,931       142,391  
Nuclear fuel under capital lease
    147,504       125,072  
Nuclear fuel
    9,005       12,115  
TOTAL UTILITY PLANT
    7,913,638       7,586,160  
Less - accumulated depreciation and amortization
    3,543,340       3,272,280  
UTILITY PLANT - NET
    4,370,298       4,313,880  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    49,112       58,455  
  Other regulatory assets
    742,429       688,964  
Other
    35,371       43,605  
TOTAL
    826,912       791,024  
                 
TOTAL ASSETS
  $ 6,616,925     $ 6,568,213  
                 
See Notes to Financial Statements.
               
                 
                 
 
 
78

 
 
ENTERGY ARKANSAS, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing long-term debt
  $ 100,000     $ -  
Accounts payable:
               
  Associated companies
    418,370       433,460  
  Other
    116,465       142,974  
Customer deposits
    65,125       60,558  
Accumulated deferred income taxes
    143,821       198,902  
Interest accrued
    23,319       25,207  
Deferred fuel costs
    3,209       -  
Obligations under capital leases
    60,280       60,276  
Other
    13,410       17,290  
TOTAL
    943,999       938,667  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    1,412,825       1,307,596  
Accumulated deferred investment tax credits
    49,895       51,881  
Obligations under capital leases
    88,616       66,214  
Other regulatory liabilities
    30,190       27,141  
Decommissioning
    549,288       540,709  
Accumulated provisions
    13,308       15,925  
Pension and other postretirement liabilities
    432,887       441,920  
Long-term debt
    1,518,355       1,618,171  
Other
    40,997       43,780  
TOTAL
    4,136,361       4,113,337  
                 
Commitments and Contingencies
               
                 
Preferred stock without sinking fund
    116,350       116,350  
                 
SHAREHOLDERS' EQUITY
               
Common stock, $0.01 par value, authorized 325,000,000
               
  shares; issued and outstanding 46,980,196 shares in 2009
               
  and 2008
    470       470  
Paid-in capital
    588,444       588,444  
Retained earnings
    831,301       810,945  
TOTAL
    1,420,215       1,399,859  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 6,616,925     $ 6,568,213  
                 
See Notes to Financial Statements.
               
                 
 

 
79

 

ENTERGY ARKANSAS, INC.
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
       
Electric Operating Revenues:
                       
  Residential
  $ 150     $ 158     $ ( 8 )     (5 )
  Commercial
    105       109       (4 )     (4 )
  Industrial
    93       110       (17 )     (15 )
  Governmental
    6       5       1       20  
    Total retail
    354       382       (28 )     (7 )
  Sales for resale
                               
     Associated companies
    86       115       (29 )     (25 )
     Non-associated companies
    25       44       (19 )     (43 )
  Other
    53       39       14       36  
    Total
  $ 518     $ 580     $ ( 62 )     (11 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    1,481       1,551       (70 )     (5 )
  Commercial
    1,359       1,384       (25 )     (2 )
  Industrial
    1,490       1,765       (275 )     (16 )
  Governmental
    64       66       (2 )     (3 )
    Total retail
    4,394       4,766       (372 )     (8 )
  Sales for resale
                               
     Associated companies
    2,530       1,964       566       29  
     Non-associated companies
    464       590       (126 )     (21 )
    Total
    7,388       7,320       68       1  
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 361     $ 337     $ 24       7  
  Commercial
    219       203       16       8  
  Industrial
    197       202       (5 )     (2 )
  Governmental
    10       9       1       11  
    Total retail
    787       751       36       5  
  Sales for resale
                               
     Associated companies
    159       211       (52 )     (25 )
     Non-associated companies
    57       77       (20 )     (26 )
  Other
    51       41       10       24  
    Total
  $ 1,054     $ 1,080     $ ( 26 )     (2 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    3,590       3,694       (104 )     (3 )
  Commercial
    2,711       2,731       (20 )     (1 )
  Industrial
    2,989       3,478       (489 )     (14 )
  Governmental
    127       131       (4 )     (3 )
    Total retail
    9,417       10,034       (617 )     (6 )
  Sales for resale
                               
     Associated companies
    4,400       3,918       482       12  
     Non-associated companies
    1,027       1,130       (103 )     (9 )
    Total
    14,844       15,082       (238 )     (2 )
                                 

 
80

 


 
ENTERGY GULF STATES LOUISIANA, L.L.C.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Hurricane Gustav and Hurricane Ike

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Gustav and Hurricane Ike" in the Form 10-K for a discussion of Hurricane Gustav and Hurricane Ike, which caused catastrophic damage to Entergy Gulf States Louisiana's service territory in September 2008.  Entergy Gulf States Louisiana and Entergy Louisiana filed their storm cost recovery case with the LPSC in May 2009.  Entergy Gulf States Louisiana seeks a determination that $150.7 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of $90 million.  The storm restoration costs are net of costs that have already been paid from previously funded storm reserves.  Entergy Gulf States Louisiana and Entergy Louisiana expect to make a supplemental filing in the third quarter of 2009 to, among other things, recommend a recovery method for costs approved by the LPSC.  The parties have agreed to a procedural schedule that includes March 2010 hearing dates for both the recoverability and the method of recovery proceedings.  Recovery options include traditional base rate recovery, Louisiana Act 64 (passed in 2006) financing, or Louisiana Act 55 (passed in 2007) financing.  Entergy Gulf States Louisiana and Entergy Louisiana recovered their costs from Hurricane Katrina and Hurricane Rita primarily by Act 55 financing.

Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income increased by $5.6 million primarily due to lower other operation and maintenance expenses, lower interest and other charges, and lower taxes other than income taxes, partially offset by lower net revenue and lower other income.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income increased slightly by $1.9 million primarily due to lower other operation and maintenance expenses, lower interest and other charges, and lower taxes other than income taxes, partially offset by lower other income and lower net revenue.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses and 3) other regulatory charges (credits).  Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$206.9 
Retail electric price
 
(9.2)
Other
 
3.7 
2009 net revenue
 
$201.4 

 
81

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis



The retail electric price variance is primarily due to:

·  
a credit passed on to customers as a result of the Act 55 storm cost financing; and
·  
a net decrease in the formula rate plan effective August 2008 to remove interim storm recovery upon the Act 55 financing of storm costs as well as the storm damage accrual.  A portion of the decrease is offset in other operation and maintenance expenses.  See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan.

The decrease was partially offset by a formula rate plan increase effective September 2008.  Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation -Retail Rates - Electric" and Note 2 to the financial statements in the Form 10-K for a discussion of the formula rate plan.

Gross operating revenues and purchased power expenses

Gross operating revenues decreased primarily due to:

·  
a decrease of $172.2 million in electric fuel cost recovery revenues due to lower fuel rates;
·  
a decrease of $57.4 million in affiliated wholesale revenue due to a decrease in the average price of energy available for resale sales; and
·  
a decrease of $10.4 million in gross gas revenue primarily due to lower fuel rates.

Purchased power expenses decreased primarily due to a decrease in volume and the average market price of purchased power.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$402.4 
Retail electric price
 
(10.8)
Other
 
5.9 
2009 net revenue
 
$397.5 

The retail electric price variance is primarily due to:

·  
a credit passed on to customers as a result of the Act 55 storm cost financing; and
·  
a net decrease in the formula rate plan effective August 2008 to remove interim storm recovery upon the Act 55 financing of storm costs as well as the storm damage accrual.  A portion of the decrease is offset in other operation and maintenance expenses.  See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan.

The decrease was partially offset by a formula rate plan increase effective September 2008.  Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation - Retail Rates - Electric" and Note 2 to the financial statements in the Form 10-K for a discussion of the formula rate plan.

 
82

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to:

·  
a decrease of $233.7 million in electric fuel cost recovery revenues due to lower fuel rates and decreased usage;
·  
a decrease of $46.8 million in affiliated wholesale revenue due to a decrease in the average price of energy available for resale sales, offset by an increase in net generation and purchases resulting in less energy available for resale sales; and
·  
a decrease of $19.3 million in gross gas revenue primarily due to lower fuel rates.

Fuel and purchased power expenses decreased primarily due to a decrease in volume and the average market price of purchased power, partially offset by an increase in deferred fuel expense due to fuel and purchased power expense decreases in excess of lower fuel cost recovery revenues.

Other Income Statement Variances

Second Quarter 2009 Compared to Second Quarter 2008

Other operation and maintenance expenses decreased primarily due to:

·  
a decrease of $5.3 million in loss reserves primarily due to lower storm damage accruals;
·  
a decrease of $2.9 million in fossil expenses primarily due to lower plant maintenance costs and plant outages; and
·  
a decrease of $2.6 million in payroll-related costs.

The decrease was partially offset by an increase of $2.6 million in nuclear labor and contract costs and an increase of $2.3 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.

Taxes other than income taxes decreased primarily due to a decrease in local franchise taxes as a result of lower residential and commercial revenue.

           Other income decreased primarily due to:

·  
a decrease of $4.1 million in interest and dividend income related to the debt assumption agreement with Entergy Texas.  Entergy Gulf States Louisiana remains primarily liable on this debt, of which $699 million remained outstanding as of June 30, 2009 and $930 million remained outstanding as of June 30, 2008;
·  
the cessation of $1.6 million in carrying charges on Hurricane Katrina and Hurricane Rita storm restoration costs as a result of the Act 55 storm cost financing; and
·  
a decrease of $1.4 million in interest earned on decommissioning trust funds.

The decrease is partially offset by distributions of $4.7 million earned on preferred membership interests purchased from Entergy Holdings Company with the proceeds received from the Act 55 storm cost financings and $1 million in carrying charges on Hurricane Gustav and Hurricane Ike storm restoration costs approved by the LPSC.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the Act 55 storm cost financing.

Interest and other charges decreased primarily due to a decrease in long-term debt outstanding, partially offset by higher interest on deferred fuel costs.


 
83

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Other operation and maintenance expenses decreased primarily due to:

·  
a decrease of $8.2 million in loss reserves primarily due to lower storm damage accruals;
·  
a decrease of $6 million in payroll-related costs; and
·  
a decrease of $1.9 million in fossil expenses primarily due to lower plant maintenance costs and plant outages.

The decrease was partially offset by an increase of $4.8 million in nuclear labor and contract costs and an increase of $3.3 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.

Taxes other than income taxes decreased primarily due to a decrease in local franchise taxes as a result of lower residential and commercial revenue.

Other income decreased primarily due to:

·  
a decrease of $8.3 million in interest and dividend income related to the debt assumption agreement with Entergy Texas.  Entergy Gulf States Louisiana remains primarily liable on this debt, of which $699 million remained outstanding as of June 30, 2009 and $930 million remained outstanding as of June 30, 2008;
·  
the cessation of $4.3 million in carrying charges on Hurricane Katrina and Hurricane Rita storm restoration costs as a result of the Act 55 storm cost financing;
·  
a decrease of $2.1 million in interest earned on decommissioning trust funds; and
·  
a decrease of $1 million in interest earned on money pool investments.

The decrease is partially offset by distributions of $9.4 million earned on preferred membership interests purchased from Entergy Holdings Company with the proceeds received from the Act 55 storm cost financings and $1 million in carrying charges on Hurricane Gustav and Hurricane Ike storm restoration costs approved by the LPSC.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the Act 55 storm cost financing.

Interest and other charges decreased primarily due to a decrease in long-term debt outstanding, partially offset by higher interest on deferred fuel costs.

Income Taxes

The effective income tax rate was 38.4% for the second quarter 2009 and 39.7% for the six months ended June 30, 2009.  The difference in the effective income tax rate for the second quarter 2009 versus the federal statutory rate of 35% is primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by book and tax differences related to storm cost financing.  The difference in the effective income tax rate for the six months ended June 30, 2009 versus the federal statutory rate of 35% is primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by book and tax differences related to storm cost financing, book and tax differences related to allowance for equity funds used during construction, and the amortization of investment tax credits.

The effective income tax rate was 40.3% for the second quarter 2008 and 39.8% for the six months ended June 30, 2008.  The difference in the effective income tax rate for the second quarter 2008 and the six months ended June 30, 2008 versus the federal statutory rate of 35% is due to book and tax differences related to utility plant items and state income taxes, partially offset by flow-through book and tax timing differences, the amortization of investment tax credits, and book and tax differences related to allowance for equity funds used during construction.

 
84

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$49,303 
 
$108,036 
         
Cash flow provided by (used in):
       
 
Operating activities
 
120,994 
 
108,645 
 
Investing activities
 
(96,493)
 
(177,810)
 
Financing activities
 
(6,607)
 
(5,395)
Net increase (decrease) in cash and cash equivalents
 
17,894 
 
(74,560)
         
Cash and cash equivalents at end of period
 
$67,197 
 
$33,476 

Operating Activities

Net cash flow provided in operating activities increased $12.3 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to the timing of the collection of receivables from customers and increased recovery of deferred fuel costs, almost entirely offset by storm restoration spending resulting from Hurricane Gustav and Hurricane Ike and income tax payments of $29.3 million in 2009 compared to income tax payments of $11.2 million in 2008.

Investing Activities

Net cash flow used in investing activities decreased $81.3 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to:

·  
the purchase of the Calcasieu Generating Facility for $56 million in March 2008.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Liquidity and Capital Resources" in the Form 10-K for a discussion of this purchase;
·  
timing differences between nuclear fuel purchases and fuel trust reimbursements; and
·  
a decrease in nuclear construction expenditures resulting from various nuclear projects in 2008, including work done during the spring 2008 refueling outage at River Bend.

The decrease was partially offset by money pool activity and an increase in transmission construction expenditures resulting from various projects in 2009.  Increases in Entergy Gulf States Louisiana's receivable from the money pool are a use of cash flow, and Entergy Gulf States Louisiana's receivable from the money pool increased by $31 million for the six months ended June 30, 2009 compared to increasing by $19.5 million for the six months ended June 30, 2008.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' need for external short-term borrowings.

Financing Activities

Net cash flow used in investing activities increased $1.2 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to borrowings of $30 million on Entergy Gulf States Louisiana's credit facility in 2008, substantially offset by a decrease in common equity distributions.


 
85

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Capital Structure

Entergy Gulf States Louisiana's capitalization is balanced between equity and debt, as shown in the following table. The calculation below does not reduce the debt by the debt assumed by Entergy Texas ($699 million as of June 30, 2009, and $770 million as of December 31, 2008) because Entergy Gulf States Louisiana remains primarily liable on the debt.

   
June 30,
 2009
 
December 31,
2008
         
Net debt to net capital
 
59.6%
 
61.6%
Effect of subtracting cash from debt
 
0.8%
 
0.6%
Debt to capital
 
60.4%
 
62.2%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations and long-term debt, including the currently maturing portion.  Capital consists of debt and members' equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Gulf States Louisiana 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 Gulf States Louisiana's financial condition.

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 Louisiana's uses and sources of capital.  Following are updates to the information provided in the Form 10-K.

Entergy Gulf States Louisiana's receivables from the money pool were as follows:

June30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$42,597
 
$11,589
 
$74,961
 
$55,509

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

As discussed in the Form 10-K, Entergy Gulf States Louisiana has a credit facility in the amount of $100 million scheduled to expire in August 2012.  No borrowings were outstanding under the facility as of June 30, 2009.

Little Gypsy Repowering Project

See the Form 10-K for a discussion of Entergy Louisiana's Little Gypsy repowering project.  On March 11, 2009, the LPSC voted in favor of a motion directing Entergy Louisiana to temporarily suspend the repowering project and, based upon an analysis of the project's economic viability, to make a recommendation regarding whether to proceed with the project.  This action was based upon a number of factors including the recent decline in natural gas prices, as well as environmental concerns, the unknown costs of carbon legislation and changes in the capital/financial markets. On April 1, 2009, Entergy Louisiana complied with the LPSC's directive and recommended that the project be suspended for an extended period of time of three years or more.  Entergy Louisiana estimates that its total costs for the project, if suspended, including actual spending to date and estimated contract cancellation costs, will be approximately $300 million.  Entergy Louisiana had obtained all major environmental permits required to begin construction.  A longer-term suspension places these permits at risk and may adversely affect the project's economics and technological feasibility.  On May 22, 2009, the LPSC issued an order declaring that Entergy Louisiana's decision to place the Little Gypsy project into a longer-term suspension of three years or more is in the public interest and prudent.  Entergy Louisiana expects to make a filing later in 2009 with the LPSC regarding the recovery of project costs already incurred.

 
86

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Ouachita Power Plant

In August 2008, the LPSC issued an order approving an uncontested settlement between Entergy Gulf States Louisiana and the LPSC Staff authorizing Entergy Gulf States Louisiana's purchase, under a life-of-unit agreement, of one-third of the capacity and energy from the 789 MW Ouachita power plant, which Entergy Arkansas acquired on September 30, 2008.  The LPSC's approval was subject to certain conditions, including a study to determine the costs and benefits of Entergy Gulf States Louisiana exercising an option to purchase one-third of the plant (Unit 3) from Entergy Arkansas.  In April 2009, Entergy Gulf States Louisiana made a filing with the LPSC seeking approval of Entergy Gulf States Louisiana exercising its option to convert its purchased power agreement into the ownership interest in Unit 3 and a one-third interest in the Ouachita common facilities.  Entergy Gulf States Louisiana estimates that the purchase price will be approximately $72.6 million, subject to change based on several factors, including the timing of the closing.  The filing also requests LPSC approval of the cost-recovery mechanism for the acquisition.  In addition, in April 2009, Entergy Arkansas and Entergy Gulf States Louisiana filed with the FERC for its approval of the transaction, and in June 2009 the FERC issued an order approving the transaction.  A procedural schedule has been issued in the LPSC proceeding that provides for hearings to be held August 26-27 and 31, 2009.  If the acquisition is approved, Entergy currently expects that the closing would take place in the fourth quarter 2009.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

Jurisdictional Separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas

See the Form 10-K for a discussion of the jurisdictional separation of Entergy Gulf States, Inc. into two vertically integrated utility companies, one operating under the sole retail jurisdiction of the PUCT, Entergy Texas, and the other operating under the sole retail jurisdiction of the LPSC, Entergy Gulf States Louisiana.  Pursuant to the LPSC order approving the jurisdictional separation plan, Entergy Gulf States Louisiana made two compliance filings in 2008.  On March 31, 2008, Entergy Gulf States Louisiana made its jurisdictional separation plan balance sheet compliance filing with the LPSC.  On June 11, 2008, Entergy Gulf States Louisiana made its revenue and expense compliance filing.  On December 29, 2008, the LPSC staff filed a motion with the LPSC seeking resolution of certain issues in the proceeding, and a hearing on these matters scheduled to be held in July 2009 has been continued and is scheduled to begin October 29, 2009.

The remaining issues between the parties relate to the LPSC allegation that Entergy Gulf States Louisiana violated the terms of the LPSC approval of the jurisdictional separation in accounting for the transfer of the Spindletop regulatory asset to Entergy Texas.  The Spindletop regulatory asset was created by the LPSC in a 1996 order.  The LPSC staff alleges that the costs related to the regulatory asset that are currently collected by Entergy Gulf States Louisiana in rates and paid to Entergy Texas pursuant to the terms of the LPSC's approval of the jurisdictional separation be accounted for by Entergy Gulf States Louisiana as production costs under the FERC chart of accounts resulting in an increase in the System Agreement rough production cost equalization remedy payments owed to Entergy Gulf States Louisiana.  The LPSC staff  requested that the LPSC require Entergy Gulf States Louisiana to account for these costs as production costs and to hold harmless ratepayers for the alleged accounting violations; or alternatively, that the LPSC direct Entergy Gulf States Louisiana to reacquire its proportionate share of the Spindletop storage facility at its amortized net book value, subject to the condition that Entergy Texas ratepayers repurchase the assets at the greater of Entergy Gulf States Louisiana's undepreciated costs or full market value if the Sabine Gas Unit, to which the Spindletop storage facility is connected, is no longer dispatched as part of the Entergy System.
 
 
87

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


In response, Entergy Gulf States Louisiana filed a motion to dismiss certain of the remedies requested by the LPSC staff for a lack of subject matter jurisdiction alleging that the FERC has exclusive jurisdiction over which costs are properly recorded as production costs under the FERC chart of accounts for purposes
of the calculation of the System Agreement rough production cost equalization remedy payments.  The ALJ agreed with Entergy Gulf States Louisiana and determined that the LPSC has no jurisdiction to order the Company to record these costs as production costs.  The question whether the Spindletop regulatory asset costs should be included in the System Agreement rough production cost equalization remedy calculation is also currently pending before the FERC in a complaint filed at the FERC by the LPSC, and in an initial decision, the FERC ALJ rejected the LPSC's complaint and determined that the costs related to the Spindletop regulatory asset are not production costs.
 
State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.  Following are updates to the information provided in the Form 10-K.

In July 2009 the LPSC issued an order noting that the LPSC Staff and Entergy are continuing in negotiations that could result in the recommendation for the adoption of new Formula Rate Plans for Entergy Gulf States Louisiana and Entergy Louisiana, and the LPSC Staff will report to the LPSC on the progress of those negotiations at the LPSC's September meeting.  In the interim Entergy Gulf States Louisiana's and Entergy Louisiana's base rates will remain unchanged.  Entergy Gulf States Louisiana and Entergy Louisiana will both implement previously approved capacity cost adjustments.  Entergy Gulf States Louisiana's net increase in capacity costs of $5 million will be deferred for future recovery.  Entergy Louisiana's net decrease in capacity costs of $17 million will be used to increase the storm reserve accrual.

In January 2009, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2008.  The filing showed a revenue deficiency of $529 thousand based on a return on common equity mid-point of 10.5%.  In April 2009, Entergy Gulf States Louisiana implemented a $255 thousand rate increase pursuant to an uncontested settlement with the LPSC staff.

Federal Regulation

See "System Agreement Proceedings" and "Independent Coordinator of Transmission" in Entergy Corporation and Subsidiaries' Management's Financial Discussion and Analysis for updates to the discussion in the Form 10-K.

Industrial and Commercial Customers

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Industrial and Commercial Customers" in the Form 10-K for a discussion of industrial and commercial customers.

Nuclear Matters

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of 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 Entergy Gulf States Louisiana's accounting for nuclear decommissioning costs, the application of SFAS 71, unbilled revenue, and qualified pension and other postretirement benefits.
 
 
88

 
Entergy Gulf States Louisiana, L.L.C.
Management's Financial Discussion and Analysis


Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.

New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries' Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.


 
89

 
 

 
ENTERGY GULF STATES LOUISIANA, L.L.C.
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 430,866     $ 681,491     $ 889,871     $ 1,201,787  
Natural gas
    10,397       21,045       40,297       59,313  
TOTAL
    441,263       702,536       930,168       1,261,100  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    65,697       56,394       173,687       82,116  
   Purchased power
    171,522       440,379       351,464       772,185  
   Nuclear refueling outage expenses
    5,293       8,084       10,528       11,783  
   Other operation and maintenance
    82,349       91,487       162,100       170,964  
Decommissioning
    3,363       3,100       6,658       6,139  
Taxes other than income taxes
    17,445       19,403       35,169       36,685  
Depreciation and amortization
    34,472       34,108       67,731       67,234  
Other regulatory charges (credits) - net
    2,685       (1,159 )     7,567       4,387  
TOTAL
    382,826       651,796       814,904       1,151,493  
                                 
OPERATING INCOME
    58,437       50,740       115,264       109,607  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    1,012       1,222       3,284       2,915  
Interest and dividend income
    16,866       19,461       35,104       42,269  
Miscellaneous - net
    (1,830 )     (1,100 )     (3,221 )     (2,028 )
TOTAL
    16,048       19,583       35,167       43,156  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    26,072       31,486       55,098       63,252  
Other interest - net
    2,331       740       4,565       1,564  
Allowance for borrowed funds used during construction
    (700 )     (731 )     (2,033 )     (1,810 )
TOTAL
    27,703       31,495       57,630       63,006  
                                 
INCOME BEFORE INCOME TAXES
    46,782       38,828       92,801       89,757  
                                 
Income taxes
    17,980       15,641       36,878       35,744  
                                 
NET INCOME
    28,802       23,187       55,923       54,013  
                                 
Preferred distribution requirements and other
    206       207       412       413  
                                 
                                 
EARNINGS APPLICABLE TO COMMON EQUITY
  $ 28,596     $ 22,980     $ 55,511     $ 53,600  
                                 
See Notes to Financial Statements.
                               
 

 
90

 
 

ENTERGY GULF STATES LOUISIANA, L.L.C.
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Net income
  $ 55,923     $ 54,013  
Adjustments to reconcile net income to net cash flow provided by operating activities:
         
  Other regulatory charges - net
    7,567       4,387  
  Depreciation, amortization, and decommissioning
    74,389       73,373  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    59,199       77,410  
  Changes in working capital:
               
    Receivables
    61,127       (74,624 )
    Fuel inventory
    (2,819 )     (3,458 )
    Accounts payable
    (85,115 )     81,767  
    Taxes accrued
    48,058       -  
    Interest accrued
    (2,615 )     (376 )
    Deferred fuel costs
    14,908       (65,694 )
    Other working capital accounts
    22,253       (98,852 )
  Provision for estimated losses and reserves
    91       1,398  
  Changes in other regulatory assets
    (29,696 )     (935 )
  Other
    (102,276 )     60,236  
Net cash flow provided by operating activities
    120,994       108,645  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (84,132 )     (100,924 )
Allowance for equity funds used during construction
    3,284       2,915  
Nuclear fuel purchases
    (116 )     (21,807 )
Proceeds from sale/leaseback of nuclear fuel
    20,621       21,755  
Payment for purchase of plant
    -       (56,409 )
Investment in affiliates
    160       -  
Proceeds from nuclear decommissioning trust fund sales
    33,706       26,318  
Investment in nuclear decommissioning trust funds
    (39,008 )     (33,328 )
Change in money pool receivable - net
    (31,008 )     (19,452 )
Changes in other investments - net
    -       3,934  
Other
    -       (812 )
Net cash flow used in investing activities
    (96,493 )     (177,810 )
                 
FINANCING ACTIVITIES
               
Proceeds from the issuance of long-term debt
    -       369,549  
Retirement of long-term debt
    -       (366,681 )
Changes in credit borrowing - net
    -       30,000  
Dividends/distributions paid:
               
  Common equity
    (6,000 )     (37,800 )
  Preferred membership interests
    (412 )     (447 )
Other
    (195 )     (16 )
Net cash flow used in financing activities
    (6,607 )     (5,395 )
                 
Net increase (decrease) in cash and cash equivalents
    17,894       (74,560 )
                 
Cash and cash equivalents at beginning of period
    49,303       108,036  
                 
Cash and cash equivalents at end of period
  $ 67,197     $ 33,476  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid during the period for:
               
  Interest - net of amount capitalized
  $ 60,795     $ 63,446  
  Income taxes
  $ 29,337     $ 11,154  
                 
Noncash financing activities:
               
  Repayment by Entergy Texas of assumed long-term debt
  $ 70,825     $ 148,837  
                 
See Notes to Financial Statements.
               
                 

 
 
91

 

 
ENTERGY GULF STATES LOUISIANA, L.L.C.
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 169     $ 22,671  
  Temporary cash investments
    67,028       26,632  
    Total cash and cash equivalents
    67,197       49,303  
Accounts receivable:
               
  Customer
    50,340       69,264  
  Allowance for doubtful accounts
    (4,441 )     (1,230 )
  Associated companies
    186,568       179,217  
  Other
    33,219       60,618  
  Accrued unbilled revenues
    62,336       50,272  
    Total accounts receivable
    328,022       358,141  
Accumulated deferred income taxes
    62,876       50,039  
Fuel inventory - at average cost
    36,570       33,751  
Materials and supplies - at average cost
    110,183       104,579  
Deferred nuclear refueling outage costs
    7,230       17,135  
Debt assumption by Entergy Texas
    100,509       100,509  
Prepayments and other
    9,130       6,381  
TOTAL
    721,717       719,838  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliate preferred membership interests
    189,400       189,560  
Decommissioning trust funds
    311,953       303,178  
Non-utility property - at cost (less accumulated depreciation)
    122,763       120,829  
Other
    13,696       13,245  
TOTAL
    637,812       626,812  
                 
UTILITY PLANT
               
Electric
    6,543,526       6,402,668  
Natural gas
    110,098       106,125  
Construction work in progress
    93,814       201,544  
Nuclear fuel under capital lease
    127,334       140,689  
Nuclear fuel
    8,623       11,177  
TOTAL UTILITY PLANT
    6,883,395       6,862,203  
Less - accumulated depreciation and amortization
    3,590,765       3,560,458  
UTILITY PLANT - NET
    3,292,630       3,301,745  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    308,938       316,421  
  Other regulatory assets
    287,435       287,912  
  Deferred fuel costs
    100,124       100,124  
Long-term receivables
    21,571       21,558  
Debt assumption by Entergy Texas
    598,637       669,462  
Other
    13,998       13,089  
TOTAL
    1,330,703       1,408,566  
                 
TOTAL ASSETS
  $ 5,982,862     $ 6,056,961  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
92

 
 
 
ENTERGY GULF STATES LOUISIANA, L.L.C.
 
BALANCE SHEETS
 
LIABILITIES AND MEMBERS' EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing long-term debt
  $ 219,470     $ 219,470  
Accounts payable:
               
  Associated companies
    108,800       155,147  
  Other
    78,856       162,319  
Customer deposits
    44,618       40,484  
Taxes accrued
    48,476       418  
Interest accrued
    27,497       30,112  
Deferred fuel costs
    106,884       91,976  
Obligations under capital leases
    24,368       24,368  
Pension and other postretirement liabilities
    7,708       7,479  
Gas hedge contracts
    12,234       20,184  
System agreement cost equalization
    91,714       67,000  
Other
    8,794       9,220  
TOTAL
    779,419       828,177  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    1,373,897       1,308,449  
Accumulated deferred investment tax credits
    89,940       91,634  
Obligations under capital leases
    102,966       116,321  
Other regulatory liabilities
    27,276       22,007  
Decommissioning and asset retirement cost liabilities
    232,509       222,909  
Accumulated provisions
    13,987       13,896  
Pension and other postretirement liabilities
    183,499       188,390  
Long-term debt
    1,757,172       1,827,859  
Other
    39,952       105,176  
TOTAL
    3,821,198       3,896,641  
                 
Commitments and Contingencies
               
                 
MEMBERS' EQUITY
               
Preferred membership interests without sinking fund
    10,000       10,000  
Members' equity
    1,401,909       1,352,408  
Accumulated other comprehensive loss
    (29,664 )     (30,265 )
TOTAL
    1,382,245       1,332,143  
                 
TOTAL LIABILITIES AND MEMBERS' EQUITY
  $ 5,982,862     $ 6,056,961  
                 
See Notes to Financial Statements.
               
                 

 
 
93

 
 
 
ENTERGY GULF STATES LOUISIANA, L.L.C.
 
STATEMENTS OF MEMBERS' EQUITY AND COMPREHENSIVE INCOME
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
MEMBERS' EQUITY
                       
Members' Equity - Beginning of period
  $ 1,379,318           $ 1,312,933        
                             
    Add: Net Income
    28,802     $ 28,802       23,187     $ 23,187  
                                 
    Deduct:
                               
      Dividends/distributions declared on common equity
    6,000               7,400          
      Preferred membership interests
    206       206       207       207  
      Other
    5               12          
      6,211               7,619          
                                 
Members' Equity - End of period
  $ 1,401,909             $ 1,328,501          
                                 
ACCUMULATED OTHER COMPREHENSIVE
                               
LOSS (Net of Taxes):
                               
Balance at beginning of period:
                               
  Pension and other postretirement liabilities
  $ (29,863 )           $ (22,605 )        
                                 
Pension and other postretirement liabilities (net of tax expense
  of $309 and $452)
    199       199       303       303  
                                 
Balance at end of period:
                               
  Pension and other postretirement liabilities
  $ (29,664 )           $ (22,302 )        
Comprehensive Income
          $ 28,795             $ 23,283  
                                 
                                 
   
Six Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
MEMBERS' EQUITY
                               
Members' Equity - Beginning of period
  $ 1,352,408             $ 1,312,701          
                                 
    Add:  Net Income
    55,923     $ 55,923       54,013     $ 54,013  
                                 
    Deduct:
                               
      Dividends/distributions declared on common equity
    6,000               37,800          
      Preferred membership interests
    412       412       413       413  
      Other
    10               -          
      6,422               38,213          
                                 
Members' Equity - End of period
  $ 1,401,909             $ 1,328,501          
                                 
ACCUMULATED OTHER COMPREHENSIVE
                               
LOSS (Net of Taxes):
                               
Balance at beginning of period:
                               
  Pension and other postretirement liabilities
  $ (30,265 )           $ (22,934 )        
                                 
Pension and other postretirement liabilities (net of tax expense
  of $745 and $880)
    601       601       632       632  
                                 
Balance at end of period:
                               
  Pension and other postretirement liabilities
  $ (29,664 )           $ (22,302 )        
Comprehensive Income
          $ 56,112             $ 54,232  
                                 
                                 
See Notes to Financial Statements.
                               
                                 
                                 

 
 
94

 

 
ENTERGY GULF STATES LOUISIANA, L.L.C.
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
     
Electric Operating Revenues:
                       
  Residential
  $ 88     $ 131     $ (43 )     (33 )
  Commercial
    86       131       (45 )     (34 )
  Industrial
    95       179       (84 )     (47 )
  Governmental
    4       6       (2 )     (33 )
    Total retail
    273       447       (174 )     (39 )
  Sales for resale
                               
     Associated companies
    105       162       (57 )     (35 )
     Non-associated companies
    31       48       (17 )     (35 )
  Other
    22       24       (2 )     (8 )
    Total
  $ 431     $ 681     $ (250 )     (37 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    1,126       1,133       (7 )     (1 )
  Commercial
    1,211       1,213       (2 )     -  
  Industrial
    1,818       2,161       (343 )     (16 )
  Governmental
    55       53       2       4  
    Total retail
    4,210       4,560       (350 )     (8 )
  Sales for resale
                               
     Associated companies
    1,930       1,932       (2 )     -  
     Non-associated companies
    743       671       72       11  
    Total
    6,883       7,163       (280 )     (4 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 189     $ 246     $ (57 )     (23 )
  Commercial
    185       242       (57 )     (24 )
  Industrial
    207       332       (125 )     (38 )
  Governmental
    9       12       (3 )     (25 )
    Total retail
    590       832       (242 )     (29 )
  Sales for resale
                               
     Associated companies
    201       248       (47 )     (19 )
     Non-associated companies
    63       93       (30 )     (32 )
  Other
    36       29       7       24  
    Total
  $ 890     $ 1,202     $ (312 )     (26 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    2,182       2,224       (42 )     (2 )
  Commercial
    2,336       2,348       (12 )     (1 )
  Industrial
    3,478       4,298       (820 )     (19 )
  Governmental
    106       106       -       -  
    Total retail
    8,102       8,976       (874 )     (10 )
  Sales for resale
                               
     Associated companies
    3,713       2,678       1,035       39  
     Non-associated companies
    1,404       1,335       69       5  
    Total
    13,219       12,989       230       2  
                                 
                                 
 

 
95

 
 
 
ENTERGY LOUISIANA, LLC

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Hurricane Gustav and Hurricane Ike

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Gustav and Hurricane Ike" in the Form 10-K for a discussion of Hurricane Gustav (and, to a much lesser extent, Hurricane Ike), which caused catastrophic damage to Entergy Louisiana's service territory in September 2008.  Entergy Gulf States Louisiana and Entergy Louisiana filed their storm cost recovery case with the LPSC in May 2009.  Entergy Louisiana seeks a determination that $261.9 million of storm restoration costs are recoverable and seeks to replenish its storm reserve in the amount of a $200 million.  The storm restoration costs are net of costs that have already been paid from previously funded storm reserves.  Entergy Gulf States Louisiana and Entergy Louisiana expect to make a supplemental filing in the third quarter of 2009 to, among other things, recommend a recovery method for costs approved by the LPSC.  The parties have agreed to a procedural schedule that includes March 2010 hearing dates for both the recoverability and the method of recovery proceedings.  Recovery options include traditional base rate recovery, Louisiana Act 64 (passed in 2006) financing, or Louisiana Act 55 (passed in 2007) financing.  Entergy Gulf States Louisiana and Entergy Louisiana recovered their costs from Hurricane Katrina and Hurricane Rita primarily by Act 55 financing.

Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income increased $3.4 million primarily due to higher other income and a lower effective income tax rate, substantially offset by lower net revenue.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income increased $20.4 million primarily due to higher other income, lower other operation and maintenance expenses, and a lower effective income tax rate, partially offset by lower net revenue, higher depreciation and amortization expenses, and higher interest expense.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$258.2 
Retail electric price
 
(17.3)
Other
 
0.7 
2009 net revenue
 
$241.6 


 
96

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis



The retail electric price variance is primarily due to:

 
·
a credit passed on to customers as a result of the Act 55 storm cost financing; and
 
·
a net decrease in the formula rate plan effective August 2008 to remove interim storm cost recovery upon the Act 55 financing of storm costs as well as the storm damage accrual.  A portion of the decrease is offset in other operation and maintenance expenses.  See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan.


Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the interim recovery of storm costs and the Act 55 storm cost financing.

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

Gross operating revenues decreased primarily due to:

·  
a decrease of $171.1 million in fuel cost recovery revenues due to lower fuel rates and decreased usage; and
·  
a decrease of $22.6 million in gross wholesale revenues due to a decrease in net generation and purchases resulting in less energy available for resale sales coupled with a decrease in the average price of energy available for resale sales.

Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power.

Other regulatory charges decreased primarily due to the amortization of interim storm cost recoveries that ceased in July 2008 with the Act 55 financing of storm costs.  Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the interim recovery of storm costs and the Act 55 storm cost financing.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$477.5 
Retail electric price
 
(34.5)
Other
 
10.5 
2009 net revenue
 
$453.5 

The retail electric price variance is primarily due to:

 
·
a credit passed on to customers as a result of the Act 55 storm cost financing; and
 
·
a net decrease in the formula rate plan effective August 2008 to remove interim storm cost recovery upon the Act 55 financing of storm costs as well as the storm damage accrual.  A portion of the decrease is offset in other operation and maintenance expenses.  See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan.
 
 
97

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis


Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the interim recovery of storm costs and the Act 55 storm cost financing.

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

Gross operating revenues decreased primarily due to:

·  
a decrease of $207 million in fuel cost recovery revenues due to lower fuel rates and decreased usage; and
·  
a decrease of $21.2 million in gross wholesale revenues due to a decrease in net generation and purchases resulting in less energy available for resale sales.

Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power.

Other regulatory charges decreased primarily due to the amortization of interim storm cost recoveries that ceased in July 2008 with the Act 55 financing of storm costs.  Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the interim recovery of storm costs and the Act 55 storm cost financing.

Other Income Statement Variances

Second Quarter 2009 Compared to Second Quarter 2008

Other income increased primarily due to:

·  
distributions of $13.6 million earned on preferred membership interests purchased from Entergy Holdings Company with the proceeds received from the Act 55 storm cost financings.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the Act 55 storm cost financing; and
·  
an increase in the allowance for equity funds used during construction due to increased construction work in progress in 2009.

Interest expense increased slightly primarily due to an increase in long-term debt outstanding as a result of the issuance of $300 million of 6.50% Series First Mortgage Bonds in August 2008, partially offset by an increase in the allowance for borrowed funds used during construction due to increased construction work in progress in 2009.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Other operation and maintenance expenses decreased primarily due to:

·  
a decrease of $9.7 million in loss reserves for storm damage in 2009 because of the completion of the Act 55 storm cost financing;
·  
a decrease of $5.4 million in payroll-related costs; and
·  
a decrease of $2.4 million due to lower fossil plant outage expenses compared to 2008.

The decrease was partially offset by the following:

·  
an increase of $2.8 million in nuclear expenses due to higher nuclear labor and contract costs; and
·  
an increase of $2.4 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.
 
 
98

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis


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

Other income increased primarily due to:

·  
distributions of $27.2 million earned on preferred membership interests purchased from Entergy Holdings Company with the proceeds received from the Act 55 storm cost financings.  See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Rita and Hurricane Katrina" and Note 2 to the financial statements in the Form 10-K for a discussion of the Act 55 storm cost financing; and
·  
an increase in the allowance for equity funds used during construction due to more construction work in progress in 2009.

Interest expense increased primarily due to an increase in long-term debt outstanding as a result of the issuance of $300 million of 6.50% Series First Mortgage Bonds in August 2008, partially offset by an increase in the allowance for borrowed funds used during construction due to more construction work in progress in 2009.

Income Taxes

The effective income tax rate was 29.9% for the second quarter of 2009 and 27.7% for the six months ended June 30, 2009.  The differences in the effective income tax rates for the second quarter 2009 and the six months ended June 30, 2009 versus the federal statutory rate of 35.0% are primarily due to book and tax differences related to the storm cost financing and allowance for equity funds used during construction, partially offset by certain book and tax differences related to utility plant items and state income taxes.

The effective income tax rate was 39.7% for the second quarter of 2008 and 41.5% for the six months ended June 30, 2008.  The differences in the effective income tax rates for the second quarter 2008 and the six months ended June 30, 2008 versus the federal statutory rate of 35.0% are primarily due to certain book and tax differences related to utility plant items and state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction and the amortization of investment tax credits.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$138,918 
 
$300 
         
Cash flow provided by (used in):
       
 
Operating activities
 
166,826 
 
15,820 
 
Investing activities
 
(212,944)
 
(201,257)
 
Financing activities
 
(19,972)
 
185,507 
Net increase (decrease) in cash and cash equivalents
 
(66,090)
 
70 
         
Cash and cash equivalents at end of period
 
$72,828 
 
$370 

Operating Activities

Cash flow provided by operating activities increased $151 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to increased recovery of fuel costs and income tax refunds of $31.0 million in 2009 compared to income tax payments of $1.3 million in 2008, partially offset by storm restoration spending caused by Hurricane Gustav.
 
 
 
99

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis


Investing Activities

Net cash flow used in investing activities increased $11.7 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to increased construction expenditures in 2009 due to Hurricane Gustav, the Little Gypsy Unit 3 repowering project and the Waterford 2 Generator Stator rewind project.  The increase was partially offset by decreased nuclear construction expenditures resulting from various nuclear projects in 2008 and money pool activity.

Decreases in Entergy Louisiana's receivable from the money pool are a source of cash flow, and Entergy Louisiana's receivable from the money pool decreased $14.7 million for the six months ended June 30, 2009.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' need for external short-term borrowings.

Financing Activities

Entergy Louisiana's financing activities used $20 million of cash for the six months ended June 30, 2009 compared to providing $185.5 million of cash for the six months ended June 30, 2008 primarily due to borrowings of $200 million on Entergy Louisiana's credit facility in 2008 and money pool activity, partially offset by the repurchase in 2008 of $60 million of Auction Rate governmental bonds.

Increases in Entergy Louisiana's payable to the money pool is a source of cash flow, and Entergy Louisiana's payable to the money pool increased by $49.6 million for the six months ended June 30, 2008.

Capital Structure

Entergy Louisiana's capitalization is balanced between equity and debt, as shown in the following table.

   
June 30,
2009
 
December 31,
2008
         
Net debt to net capital
 
43.4%
 
43.6%
Effect of subtracting cash from debt
 
1.2%
 
2.5%
Debt to capital
 
44.6%
 
46.1%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt and members' equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Louisiana 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 Louisiana's financial condition.

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 discussion in the Form 10-K.

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

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$46,559
 
$61,236
 
($52,419)
 
($2,791)

 
 
100

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

As discussed in the Form 10-K, Entergy Louisiana has a credit facility in the amount of $200 million scheduled to expire in August 2012.  No borrowings were outstanding under the facility as of June 30, 2009.

Little Gypsy Repowering Project

See the Form 10-K for a discussion of Entergy Louisiana's Little Gypsy repowering project.  On March 11, 2009, the LPSC voted in favor of a motion directing Entergy Louisiana to temporarily suspend the repowering project and, based upon an analysis of the project's economic viability, to make a recommendation regarding whether to proceed with the project.  This action was based upon a number of factors including the recent decline in natural gas prices, as well as environmental concerns, the unknown costs of carbon legislation and changes in the capital/financial markets. On April 1, 2009, Entergy Louisiana complied with the LPSC's directive and recommended that the project be suspended for an extended period of time of three years or more.  Entergy Louisiana estimates that its total costs for the project, if suspended, including actual spending to date and estimated contract cancellation costs, will be approximately $300 million.  Entergy Louisiana had obtained all major environmental permits required to begin construction.  A longer-term suspension places these permits at risk and may adversely affect the project's economics and technological feasibility.  On May 22, 2009, the LPSC issued an order declaring that Entergy Louisiana's decision to place the Little Gypsy project into a longer-term suspension of three years or more is in the public interest and prudent.  Entergy Louisiana expects to make a filing later in 2009 with the LPSC regarding the recovery of project costs.

Waterford 3 Steam Generator Replacement Project

In July 2009 the LPSC granted Entergy Louisiana's motion to dismiss, without prejudice, its application seeking recovery of cash earnings on construction work in progress (CWIP) for the steam generator replacement project, acknowledging Entergy Louisiana's right, at any time, to seek cash earnings on CWIP if Entergy Louisiana believes that circumstances or projected circumstances are such that a request for cash earnings on CWIP is merited.  The cash earnings on CWIP application had been consolidated with a similar request for the Little Gypsy repowering project that was also dismissed in response to the same motion.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.  Following are updates to the information provided in the Form 10-K.

In July 2009 the LPSC issued an order noting that the LPSC Staff and Entergy are continuing in negotiations that could result in the recommendation for the adoption of new Formula Rate Plans for Entergy Gulf States Louisiana and Entergy Louisiana, and the LPSC Staff will report to the LPSC on the progress of those negotiations at the LPSC's September meeting.  In the interim Entergy Gulf States Louisiana's and Entergy Louisiana's base rates will remain unchanged.  Entergy Gulf
States Louisiana and Entergy Louisiana will both implement previously approved capacity cost adjustments.  Entergy Gulf States Louisiana's net increase in capacity costs of $5 million will be deferred for future recovery.  Entergy Louisiana's net decrease in capacity costs of $17 million will be used to increase the storm reserve accrual.
 
 
 
101

 
Entergy Louisiana, LLC
Management's Financial Discussion and Analysis

 

In May 2007, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2006 test year, indicating a 7.6% earned return on common equity.  That filing included Entergy Louisiana's request to recover $39.8 million in unrecovered fixed costs associated with the loss of customers that resulted from Hurricane Katrina, a request that was reduced to $31.7 million.  In September 2007, Entergy Louisiana modified its formula rate plan filing to reflect its implementation of certain adjustments proposed by the LPSC Staff in its review of Entergy Louisiana's original filing with which Entergy Louisiana agreed, and to reflect its implementation of an $18.4 million annual formula rate plan increase comprised of (1) a $23.8 million increase representing 60% of Entergy Louisiana's revenue deficiency, and (2) a $5.4 million decrease for reduced incremental and deferred capacity costs.  The LPSC authorized Entergy Louisiana to defer for accounting purposes the difference between its $39.8 million claim, now at $31.7 million, for unrecovered fixed costs and 60% of the revenue deficiency to preserve Entergy Louisiana's right to pursue that claim in full during the formula rate plan proceeding.  In October 2007, Entergy Louisiana implemented a $7.1 million formula rate plan decrease that was due primarily to the reclassification of certain franchise fees from base rates to collection via a line item on customer bills pursuant to an LPSC Order.  The LPSC staff and intervenors recommended disallowance of certain costs included in Entergy Louisiana's filing.  Entergy Louisiana disagrees with the majority of the proposed disallowances and a hearing on the disputed issues was held in late-September/early-October 2008.  In March 2009 the ALJ issued a proposed recommendation, which does not allow recovery of the unrecovered fixed costs and also disallows recovery of all costs associated with Entergy's stock option plan.  Entergy Louisiana has filed exceptions to the ALJ's proposed recommendation.

Federal Regulation

See "System Agreement Proceedings" and "Independent Coordinator of Transmission" in the "Rate, Cost-recovery, and Other Regulation" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for updates to the discussion in the Form 10-K.

Utility Restructuring

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Utility Restructuring" in the Form 10-K for a discussion of utility restructuring.

Industrial and Commercial Customers

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Industrial and Commercial Customers" in the Form 10-K for a discussion of industrial and commercial customers.

Nuclear Matters

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of 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 Entergy Louisiana's accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.
 
 
102

 

Qualified Pension and Other Postretirement Benefits
 
See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.

New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.



 
103

 


 
ENTERGY LOUISIANA, LLC
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 527,156     $ 753,778     $ 1,056,413     $ 1,318,522  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    84,993       142,279       219,567       255,274  
   Purchased power
    194,614       342,322       371,136       564,849  
   Nuclear refueling outage expenses
    5,475       4,222       11,069       8,725  
   Other operation and maintenance
    108,169       111,537       201,811       212,409  
Decommissioning
    5,295       4,931       10,497       9,775  
Taxes other than income taxes
    17,071       16,507       33,715       31,248  
Depreciation and amortization
    50,569       47,909       100,016       94,970  
Other regulatory charges - net
    5,959       10,944       12,214       20,927  
TOTAL
    472,145       680,651       960,025       1,198,177  
                                 
OPERATING INCOME
    55,011       73,127       96,388       120,345  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    7,414       3,765       14,860       7,022  
Interest and dividend income
    16,820       3,956       38,332       8,705  
Miscellaneous - net
    (1,425 )     (727 )     (2,198 )     (1,939 )
TOTAL
    22,809       6,994       50,994       13,788  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    23,501       18,777       46,908       38,332  
Other interest - net
    2,045       3,031       4,205       4,186  
Allowance for borrowed funds used during construction
    (4,782 )     (2,308 )     (9,592 )     (4,304 )
TOTAL
    20,764       19,500       41,521       38,214  
                                 
INCOME BEFORE INCOME TAXES
    57,056       60,621       105,861       95,919  
                                 
Income taxes
    17,066       24,077       29,334       39,780  
                                 
NET INCOME
    39,990       36,544       76,527       56,139  
                                 
Preferred distribution requirements and other
    1,738       1,738       3,475       3,475  
                                 
EARNINGS APPLICABLE TO
                               
COMMON EQUITY
  $ 38,252     $ 34,806     $ 73,052     $ 52,664  
                                 
See Notes to Financial Statements.
                               

 
 
104

 
 
 
 
ENTERGY LOUISIANA, LLC
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Net income
  $ 76,527     $ 56,139  
Adjustments to reconcile net income to net cash flow provided by operating activities:
 
  Other regulatory charges - net
    12,214       20,927  
  Depreciation, amortization, and decommissioning
    110,513       104,745  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    80,720       55,975  
  Changes in working capital:
               
     Receivables
    102,838       (49,797 )
     Accounts payable
    (44,070 )     134,714  
     Taxes accrued
    283       19,130  
     Interest accrued
    (7,460 )     (7,248 )
     Deferred fuel costs
    (28,644 )     (260,114 )
     Other working capital accounts
    (32,904 )     (106,877 )
  Provision for estimated losses and reserves
    95       2,630  
  Changes in other regulatory assets
    (116,055 )     12,824  
  Other
    12,769       32,772  
Net cash flow provided by operating activities
    166,826       15,820  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (240,172 )     (203,859 )
Allowance for equity funds used during construction
    14,860       7,022  
Insurance proceeds
    -       612  
Nuclear fuel purchases
    (87 )     (70,626 )
Proceeds from the sale/leaseback of nuclear fuel
    125       70,216  
Investment in affiliates
    160       -  
Changes in other investments - net
    996       (500 )
Proceeds from nuclear decommissioning trust fund sales
    33,463       9,293  
Investment in nuclear decommissioning trust funds
    (36,966 )     (13,415 )
Change in money pool receivable - net
    14,677       -  
Net cash flow used in investing activities
    (212,944 )     (201,257 )
                 
FINANCING ACTIVITIES
               
Retirement of long-term debt
    (6,597 )     (60,000 )
Changes in credit borrowing - net
    -       200,000  
Change in money pool payable - net
    -       49,628  
Distributions paid:
               
   Common equity
    (9,700 )     -  
   Preferred membership interests
    (3,475 )     (2,897 )
Other
    (200 )     (1,224 )
Net cash flow provided by (used in) financing activities
    (19,972 )     185,507  
                 
Net increase (decrease) in cash and cash equivalents
    (66,090 )     70  
                 
Cash and cash equivalents at beginning of period
    138,918       300  
                 
Cash and cash equivalents at end of period
  $ 72,828     $ 370  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid (received) during the period for:
               
  Interest - net of amount capitalized
  $ 56,837     $ 48,039  
  Income taxes
  $ (31,044 )   $ 1,250  
                 
See Notes to Financial Statements.
               
 
 
 
105

 

 
ENTERGY LOUISIANA, LLC
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 332     $ -  
  Temporary cash investments
    72,496       138,918  
    Total cash and cash equivalents
    72,828       138,918  
Accounts receivable:
               
  Customer
    70,636       127,765  
  Allowance for doubtful accounts
    (1,889 )     (1,698 )
  Associated companies
    170,130       244,575  
  Other
    10,628       11,271  
  Accrued unbilled revenues
    82,405       67,512  
    Total accounts receivable
    331,910       449,425  
Accumulated deferred income taxes
    57,073       66,229  
Materials and supplies - at average cost
    124,746       128,388  
Deferred nuclear refueling outage costs
    9,208       19,962  
Prepayments and other
    18,974       10,046  
TOTAL
    614,739       812,968  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliate preferred membership interests
    544,994       545,154  
Decommissioning trust funds
    185,096       180,862  
Non-utility property - at cost (less accumulated depreciation)
    1,215       1,306  
Note receivable - Entergy New Orleans
    9,353       9,353  
Other
    809       1,805  
TOTAL
    741,467       738,480  
                 
UTILITY PLANT
               
Electric
    6,917,675       6,734,732  
Property under capital lease
    256,348       256,348  
Construction work in progress
    599,841       602,070  
Nuclear fuel under capital lease
    48,062       74,197  
TOTAL UTILITY PLANT
    7,821,926       7,667,347  
Less - accumulated depreciation and amortization
    3,312,236       3,245,701  
UTILITY PLANT - NET
    4,509,690       4,421,646  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    134,798       107,596  
  Other regulatory assets
    515,149       515,053  
  Deferred fuel costs
    67,998       67,998  
Long-term receivables
    1,209       1,209  
Other
    21,083       20,218  
TOTAL
    740,237       712,074  
                 
TOTAL ASSETS
  $ 6,606,133     $ 6,685,168  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
106

 
 
 
ENTERGY LOUISIANA, LLC
 
BALANCE SHEETS
 
LIABILITIES AND MEMBERS' EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing long-term debt
  $ 72,326     $ -  
Accounts payable:
               
  Associated companies
    51,619       67,465  
  Other
    125,445       254,055  
Customer deposits
    81,803       78,401  
Taxes accrued
    25,976       25,693  
Interest accrued
    30,820       38,280  
Deferred fuel costs
    62,919       91,563  
Obligations under capital leases
    38,362       38,362  
Pension and other postretirement liabilities
    9,153       8,935  
System agreement cost equalization
    120,000       156,000  
Gas hedge contracts
    23,464       26,668  
Other
    31,053       33,841  
TOTAL
    672,940       819,263  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    2,040,544       1,940,065  
Accumulated deferred investment tax credits
    81,249       82,848  
Obligations under capital leases
    9,700       35,843  
Other regulatory liabilities
    34,545       43,562  
Decommissioning
    287,337       276,839  
Accumulated provisions
    20,011       19,916  
Pension and other postretirement liabilities
    283,837       282,683  
Long-term debt
    1,308,566       1,387,473  
Other
    95,378       88,838  
TOTAL
    4,161,167       4,158,067  
                 
Commitments and Contingencies
               
                 
MEMBERS' EQUITY
               
Preferred membership interests without sinking fund
    100,000       100,000  
Members' equity
    1,695,405       1,632,053  
Accumulated other comprehensive loss
    (23,379 )     (24,215 )
TOTAL
    1,772,026       1,707,838  
                 
TOTAL LIABILITIES AND MEMBERS' EQUITY
  $ 6,606,133     $ 6,685,168  
                 
See Notes to Financial Statements.
               
 

 
107

 

 
ENTERGY LOUISIANA, LLC
 
STATEMENTS OF MEMBERS' EQUITY AND COMPREHENSIVE INCOME
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
MEMBERS' EQUITY
                       
Members' Equity - Beginning of period
  $ 1,662,253           $ 1,499,367        
                             
    Add:
                           
    Net income
    39,990     $ 39,990       36,544     $ 36,544  
      39,990               36,544          
                                 
    Deduct:
                               
      Distributions declared:
                               
          Preferred membership interests
    1,738       1,738       1,738       1,738  
          Common stock dividend to parent
    5,100               -          
      6,838               1,738          
                                 
Members' Equity - End of period
  $ 1,695,405             $ 1,534,173          
                                 
                                 
                                 
                                 
ACCUMULATED OTHER COMPREHENSIVE
                               
INCOME  (Net of Taxes):
                               
Balance at beginning of period:
                               
  Pension and other postretirement liabilities
  $ (23,797 )           $ (27,486 )        
                                 
Pension and other postretirement liabilities (net of tax expense of $348 and $409)
    418       418       482       482  
                                 
Balance at end of period:
                               
  Pension and other postretirement liabilities
  $ (23,379 )           $ (27,004 )        
Comprehensive Income
          $ 38,670             $ 35,288  
                                 
                                 
                                 
   
Six Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
MEMBERS' EQUITY
                               
Members' Equity - Beginning of period
  $ 1,632,053             $ 1,481,509          
                                 
    Add:
                               
    Net income
    76,527     $ 76,527       56,139     $ 56,139  
      76,527               56,139          
                                 
    Deduct:
                               
      Distributions declared:
                               
          Preferred membership interests
    3,475       3,475       3,475       3,475  
          Common stock dividend to parent
    9,700               -          
      13,175               3,475          
                                 
Members' Equity - End of period
  $ 1,695,405             $ 1,534,173          
                                 
                                 
                                 
                                 
ACCUMULATED OTHER COMPREHENSIVE
                               
INCOME  (Net of Taxes):
                               
Balance at beginning of period:
                               
  Pension and other postretirement liabilities
  $ (24,215 )           $ (27,968 )        
                                 
Pension and other postretirement liabilities (net of tax expense of $697 and $818)
    836       836       964       964  
                                 
Balance at end of period:
                               
  Pension and other postretirement liabilities
  $ (23,379 )           $ (27,004 )        
Comprehensive Income
          $ 73,888             $ 53,628  
                                 
                                 
                                 
                                 
See Notes to Financial Statements.
                               


 
108

 

ENTERGY LOUISIANA, LLC
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
       
Electric Operating Revenues:
                       
  Residential
  $ 151     $ 215     $ (64 )     (30 )
  Commercial
    112       155       (43 )     (28 )
  Industrial
    174       259       (85 )     (33 )
  Governmental
    9       11       (2 )     (18 )
    Total retail
    446       640       (194 )     (30 )
  Sales for resale
                               
     Associated companies
    46       66       (20 )     (30 )
     Non-associated companies
    1       3       (2 )     (67 )
  Other
    34       45       (11 )     (24 )
    Total
  $ 527     $ 754     $ (227 )     (30 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    1,902       1,976       (74 )     (4 )
  Commercial
    1,399       1,435       (36 )     (3 )
  Industrial
    3,435       3,437       (2 )     -  
  Governmental
    110       113       (3 )     (3 )
    Total retail
    6,846       6,961       (115 )     (2 )
  Sales for resale
                               
     Associated companies
    390       630       (240 )     (38 )
     Non-associated companies
    11       30       (19 )     (63 )
    Total
    7,247       7,621       (374 )     (5 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 315     $ 397     $ (82 )     (21 )
  Commercial
    230       283       (53 )     (19 )
  Industrial
    358       464       (106 )     (23 )
  Governmental
    19       22       (3 )     (14 )
    Total retail
    922       1,166       (244 )     (21 )
  Sales for resale
                               
     Associated companies
    78       97       (19 )     (20 )
     Non-associated companies
    3       5       (2 )     (40 )
  Other
    53       51       2       4  
    Total
  $ 1,056     $ 1,319     $ (263 )     (20 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    3,834       3,946       (112 )     (3 )
  Commercial
    2,711       2,743       (32 )     (1 )
  Industrial
    6,478       6,667       (189 )     (3 )
  Governmental
    225       230       (5 )     (2 )
    Total retail
    13,248       13,586       (338 )     (2 )
  Sales for resale
                               
     Associated companies
    739       1,110       (371 )     (33 )
     Non-associated companies
    66       53       13       25  
    Total
    14,053       14,749       (696 )     (5 )
                                 

 
109

 
 
 

ENTERGY MISSISSIPPI, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS


Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income increased $3.8 million primarily due to higher net revenue, partially offset by lower other income, a higher effective income tax rate, and higher depreciation and amortization expenses.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income increased $4.4 million primarily due to higher net revenue and lower other operation and maintenance expenses, offset by lower other income, higher taxes other than income taxes, higher depreciation and amortization expenses, and a higher effective income tax rate.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits).  Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$135.4 
Retail electric price
 
7.3 
Volume/weather
 
1.7 
Other
 
2.6 
2009 net revenue
 
$147.0 

The retail electric price variance is primarily due to an increase in the Attala power plant costs that are recovered through the power management rider.  The net income effect of this recovery is limited to a portion representing an allowed return on equity with the remainder offset by Attala power plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes.

The volume/weather variance is primarily due to more favorable volume during the unbilled sales period compared to the same period in 2008, offset by a 16% decrease in electricity usage in the industrial sector.  Billed electricity usage decreased a total of 217 GWh.

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

Gross operating revenues decreased primarily due to:

·  
a decrease of $35.1 million in fuel cost recovery revenues due to lower fuel rates and decreased usage; and
·  
a decrease of $25.6 million in gross wholesale revenues primarily due to a decrease in volume as a result of less energy available for resale sales.

 
110

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



Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power, significantly offset by an increase in deferred fuel expenses.

Other regulatory charges (credits) decreased primarily due to decreased recovery of costs associated with the power management recovery rider and decreased recovery through the Grand Gulf rider of Grand Gulf capacity costs due to lower rates and decreased usage. There is no material effect on net income due to quarterly adjustments to the power management recovery rider and annual adjustments to the Grand Gulf rider.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits).  Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$240.9  
Retail electric price
 
9.4  
Net wholesale revenue
 
1.8  
Volume/weather
 
 (2.4) 
Other
 
4.1  
2009 net revenue
 
$253.8  

The retail electric price variance is primarily due to an increase in the Attala power plant costs that are recovered through the power management rider.  The net income effect of this recovery is limited to a portion representing an allowed return on equity with the remainder offset by Attala power plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes.

The net wholesale revenue variance is primarily due to a change in a contract with a wholesale customer that increased the volume in its monthly demand charge.

The volume/weather variance is primarily due to the effect of less favorable weather and a 17.4% decrease in electricity usage in the industrial sector.  Billed electricity usage decreased a total of 365 GWh.

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

Gross operating revenues decreased primarily due to:

·  
a decrease of $40.8 million in gross wholesale revenues primarily due to a decrease in volume as a result of less energy available for resale sales;
·  
a decrease of $28.1 million in power management rider revenue;
·  
a decrease of $15.8 million in fuel cost recovery revenues due to lower fuel rates and decreased usage; and
·  
the volume/weather revenue variance discussed above.

Fuel and purchased power expenses decreased primarily due to decreased gas fuel generation and decreases in the average market prices of natural gas and purchased power, significantly offset by an increase in deferred fuel expenses.

Other regulatory charges (credits) decreased primarily due to decreased recovery of costs associated with the power management recovery rider and decreased recovery through the Grand Gulf Rider of Grand Gulf capacity costs due to lower rates and decreased usage. There is no material effect on net income due to quarterly adjustments to the power management recovery rider and annual adjustments to the Grand Gulf rider.
 
 
111

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


 
Other Income Statement Variances

Second Quarter 2009 Compared to Second Quarter 2008

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

Other income decreased primarily due to the potential buyer's forfeiture of a $1.7 million deposit in June 2008 for an option to purchase non-utility property.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Other operation and maintenance expenses decreased primarily due to:

·  
a decrease of $3.1 million in payroll-related costs; and
·  
a decrease of $1.1 million in loss reserves.

These decreases were partially offset by an increase of $2.1 million in legal spending due to increased regulatory activity.

Taxes other than income taxes increased primarily due to a revision in January 2008 based on the receipt of information to finalize 2007 expense.

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

Other income decreased primarily due to the potential buyer's forfeiture of a $1.7 million deposit in June 2008 for an option to purchase non-utility property.

Income Taxes

The effective income tax rate was 40.2% for the second quarter 2009 and 37.6% for the six months ended June 30, 2009.  The difference in the effective income tax rate for the second quarter of 2009 versus the federal statutory rate of 35% is primarily due to state income taxes. The difference in the effective income tax rate for the six months ended June 30, 2009 versus the federal statutory rate of 35% is primarily due to an adjustment to the provision for uncertain tax positions, book and tax differences related to utility plant items, and payroll and benefits related items, partially offset by book and tax differences related to the allowance for equity funds used during construction and the amortization of investment tax credits.

The effective income tax rate was 37.2% for the second quarter 2008 and 36% for the six months ended June 30, 2008.  The difference in the effective income tax rate for the second quarter of 2008 versus the federal statutory rate of 35% is primarily due to state income taxes.


 
112

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


Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$1,082 
 
$40,582 
         
Cash flow provided by (used in):
       
 
Operating activities
 
53,951 
 
12,372 
 
Investing activities
 
(84,773)
 
(77,357)
 
Financing activities
 
71,865 
 
37,519 
Net increase (decrease) in cash and cash equivalents
 
41,043 
 
(27,466)
         
Cash and cash equivalents at end of period
 
$42,125 
 
$13,116 

Operating Activities

Cash flow provided by operating activities increased $41.6 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to increased recovery of deferred fuel costs, partially offset by the timing of payments to vendors.

Investing Activities

Cash flow used in investing activities increased $7.4 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to money pool activity, offset by decreased construction expenditures related to various fossil and distribution projects.

Increases in Entergy Mississippi's receivable from the money pool are a use of cash flow, and Entergy Mississippi's receivable from the money pool increased by $27 million for the six months ended June 30, 2009 compared to increasing $7.4 million for the six months ended June 30, 2008.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' need for external short-term borrowings.

Financing Activities

Cash flow provided by financing activities increased $34.3 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to the issuance of $150 million of 6.64% Series First Mortgage Bonds in June 2009, offset by money pool activity and borrowings of $50 million on Entergy Mississippi's credit facilities in 2008.

Decreases in Entergy Mississippi's payable to the money pool are a use of cash flow, and Entergy Mississippi's payable to the money pool decreased by $66.0 million for the six months ended June 30, 2009.


 
113

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


Capital Structure

Entergy Mississippi's capitalization is balanced between equity and debt, as shown in the following table.  The increase in the debt to capital ratio is due to the issuance of $150 million of first mortgage bonds in June 2009, as discussed below.

   
June 30,
2009
 
December 31,
2008
         
Net debt to net capital
 
52.4%
 
49.5%
Effect of subtracting cash from debt
 
1.3%
 
0.0%
Debt to capital
 
53.7%
 
49.5%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and shareholders' equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Mississippi 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 Mississippi's financial condition.

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.

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

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$26,958
 
($66,044)
 
$28,398
 
$20,997

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

In May and June 2009, Entergy Mississippi renewed its two separate credit facilities through May 2010, increasing the borrowing limits to the aggregate amount of $60 million.  No borrowings were outstanding under the credit facilities as of June 30, 2009.

In June 2009, Entergy Mississippi issued $150 million of 6.64% Series First Mortgage Bonds due July 2019.  Entergy Mississippi used the proceeds to repay outstanding borrowings on its credit facilities, to repay short-term borrowings under the Entergy System money pool, and for other general corporate purposes.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation" in the Form 10-K for a discussion of the formula rate plan and fuel and purchased power cost recovery. Following is an update to that discussion.
 
 
 
114

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


 
Formula Rate Plan

In March 2009, Entergy Mississippi made with the MPSC its annual scheduled formula rate plan filing for the 2008 test year.  The filing reported a $27.0 million revenue deficiency and an earned return on common equity of 7.41%.  Entergy Mississippi requested a $14.5 million increase in annual electric revenues, which is the maximum increase allowed under the terms of the formula rate plan.  The MPSC issued an order on June 30, 2009, finding that Entergy Mississippi's earned return was sufficiently below the lower bandwidth limit set by the formula rate plan to require a $14.5 million increase in annual revenues, effective for bills rendered on or after June 30, 2009.

In March 2008, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2007 test year with the MPSC.  The filing showed that a $10.1 million increase in annual electric revenues is warranted.  In June 2008, Entergy Mississippi reached a settlement with the Mississippi Public Utilities Staff that would result in a $3.8 million rate increase.  In January 2009 the MPSC rejected the settlement and left the current rates in effect.  Entergy Mississippi appealed the MPSC's decision to the Mississippi Supreme Court.  After the decision of the MPSC regarding the formula rate plan filing for the 2008 test year, Entergy Mississippi filed a motion to dismiss its appeal to the Mississippi Supreme Court.

Fuel and Purchased Power Recovery

On June 30, 2009, the MPSC issued an order stating that it may hire an independent audit firm to audit Entergy Mississippi's fuel adjustment clause or other mechanism directly related to the purchase of fuel or energy for the period October 2007 through September 2009.

Federal Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Federal Regulation" in the Form 10-K for a discussion of "System Agreement Proceedings," "Transmission," and "Interconnection Orders."

Utility Restructuring

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Utility Restructuring" in the Form 10-K for a discussion of utility restructuring.

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 unbilled revenue and qualified pension and other postretirement benefits.

Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.

New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.


 
115

 


ENTERGY MISSISSIPPI, INC.
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 290,615     $ 351,982     $ 552,320     $ 646,832  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    79,748       70,428       180,561       149,192  
   Purchased power
    79,850       120,269       175,119       216,368  
   Other operation and maintenance
    58,796       59,240       109,025       110,346  
Taxes other than income taxes
    15,203       15,163       31,812       29,974  
Depreciation and amortization
    21,730       20,860       43,013       41,274  
Other regulatory charges (credits) - net
    (16,021 )     25,915       (57,168 )     40,400  
TOTAL
    239,306       311,875       482,362       587,554  
                                 
OPERATING INCOME
    51,309       40,107       69,958       59,278  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    754       838       1,718       1,614  
Interest and dividend income
    223       564       449       774  
Miscellaneous - net
    (674 )     1,606       (1,180 )     944  
TOTAL
    303       3,008       987       3,332  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    10,993       10,195       21,460       20,745  
Other interest - net
    1,066       1,309       2,220       2,445  
Allowance for borrowed funds used during construction
    (429 )     (468 )     (1,046 )     (902 )
TOTAL
    11,630       11,036       22,634       22,288  
                                 
INCOME BEFORE INCOME TAXES
    39,982       32,079       48,311       40,322  
                                 
Income taxes
    16,055       11,949       18,146       14,513  
                                 
NET INCOME
    23,927       20,130       30,165       25,809  
                                 
Preferred dividend requirements and other
    707       707       1,414       1,414  
                                 
EARNINGS APPLICABLE TO
                               
COMMON STOCK
  $ 23,220     $ 19,423     $ 28,751     $ 24,395  
                                 
See Notes to Financial Statements.
                               
                                 
 

 
116

 

ENTERGY MISSISSIPPI, INC.
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Net income
  $ 30,165     $ 25,809  
Adjustments to reconcile net income to net cash flow provided by operating activities:
         
  Other regulatory charges (credits) - net
    (57,168 )     40,400  
  Depreciation and amortization
    43,013       41,274  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    5,007       (899 )
  Changes in working capital:
               
    Receivables
    11,333       (44,248 )
    Fuel inventory
    (892 )     817  
    Accounts payable
    (625 )     78,455  
    Taxes accrued
    (8,590 )     (4,678 )
    Interest accrued
    (3,942 )     1,026  
    Deferred fuel costs
    55,830       (121,576 )
    Other working capital accounts
    (3,608 )     (27,681 )
  Provision for estimated losses and reserves
    2,950       (7,320 )
  Changes in other regulatory assets
    (51,609 )     6,250  
  Other
    32,087       24,743  
Net cash flow provided by operating activities
    53,951       12,372  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (59,434 )     (70,992 )
Allowance for equity funds used during construction
    1,718       1,614  
Change in money pool receivable - net
    (26,958 )     (7,401 )
Payment to storm reserve escrow account
    (180 )     (578 )
Other
    81       -  
Net cash flow used in investing activities
    (84,773 )     (77,357 )
                 
FINANCING ACTIVITIES
               
Proceeds from the issuance of long-term debt
    148,723       29,533  
Retirement of long-term debt
    -       (30,000 )
Change in credit borrowings - net
    -       50,000  
Change in money pool payable - net
    (66,044 )     -  
Dividends paid:
               
  Common stock
    (9,400 )     (10,600 )
  Preferred stock
    (1,414 )     (1,414 )
Net cash flow provided by financing activities
    71,865       37,519  
                 
Net increase (decrease) in cash and cash equivalents
    41,043       (27,466 )
                 
Cash and cash equivalents at beginning of period
    1,082       40,582  
                 
Cash and cash equivalents at end of period
  $ 42,125     $ 13,116  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid during the period for:
               
  Interest - net of amount capitalized
  $ 26,538     $ 21,120  
  Income taxes
  $ -     $ 4,209  
                 
                 
See Notes to Financial Statements.
               
 

 
117

 


ENTERGY MISSISSIPPI, INC.
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 141     $ 1,072  
  Temporary cash investment
    41,984       10  
    Total cash and cash equivalents
    42,125       1,082  
Accounts receivable:
               
  Customer
    56,868       76,503  
  Allowance for doubtful accounts
    (729 )     (687 )
  Associated companies
    52,252       29,291  
  Other
    10,099       11,675  
  Accrued unbilled revenues
    49,368       35,451  
    Total accounts receivable
    167,858       152,233  
Deferred fuel costs
    -       5,025  
Accumulated deferred income taxes
    25,096       19,335  
Fuel inventory - at average cost
    10,180       9,288  
Materials and supplies - at average cost
    30,967       31,921  
Prepayments and other
    9,538       6,290  
TOTAL
    285,764       225,174  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliates - at equity
    5,535       5,615  
Non-utility property - at cost (less accumulated depreciation)
    4,933       5,000  
Storm reserve escrow account
    31,871       31,692  
Note receivable - Entergy New Orleans
    7,610       7,610  
TOTAL
    49,949       49,917  
                 
UTILITY PLANT
               
Electric
    3,023,143       2,951,636  
Property under capital lease
    7,122       7,806  
Construction work in progress
    51,442       81,959  
TOTAL UTILITY PLANT
    3,081,707       3,041,401  
Less - accumulated depreciation and amortization
    1,086,371       1,058,426  
UTILITY PLANT - NET
    1,995,336       1,982,975  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    32,568       23,693  
  Other regulatory assets
    267,207       226,933  
Other
    21,575       19,451  
TOTAL
    321,350       270,077  
                 
TOTAL ASSETS
  $ 2,652,399     $ 2,528,143  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
118

 
 
 
ENTERGY MISSISSIPPI, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Accounts payable:
               
  Associated companies
  $ 45,985     $ 115,876  
  Other
    39,868       39,623  
Customer deposits
    61,405       58,517  
Taxes accrued
    32,306       40,896  
Interest accrued
    13,171       17,113  
Deferred fuel costs
    50,805       -  
System agreement cost equalization
    20,571       23,000  
Gas hedge contracts
    15,414       15,610  
Other
    3,796       5,373  
TOTAL
    283,321       316,008  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    590,774       571,193  
Accumulated deferred investment tax credits
    8,060       8,605  
Obligations under capital lease
    5,694       6,418  
Other regulatory liabilities
    -       22,331  
Asset retirement cost liabilities
    4,925       4,784  
Accumulated provisions
    39,907       36,957  
Pension and other postretirement liabilities
    115,257       118,223  
Long-term debt
    845,267       695,330  
Other
    24,205       32,656  
TOTAL
    1,634,089       1,496,497  
                 
Commitments and Contingencies
               
                 
Preferred stock without sinking fund
    50,381       50,381  
                 
SHAREHOLDERS' EQUITY
               
Common stock, no par value, authorized 12,000,000
               
 shares; issued and outstanding 8,666,357 shares in 2009 and 2008
    199,326       199,326  
Capital stock expense and other
    (690 )     (690 )
Retained earnings
    485,972       466,621  
TOTAL
    684,608       665,257  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 2,652,399     $ 2,528,143  
                 
See Notes to Financial Statements.
               
 

 
119

 


ENTERGY MISSISSIPPI, INC.
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
       
Electric Operating Revenues:
                       
  Residential
  $ 101     $ 116     $ ( 15 )     (13 )
  Commercial
    95       108       (13 )     (12 )
  Industrial
    36       44       (8 )     (18 )
  Governmental
    9       10       (1 )     (10 )
    Total retail
    241       278       (37 )     (13 )
  Sales for resale
                               
     Associated companies
    10       36       (26 )     (72 )
     Non-associated companies
    7       9       (2 )     (22 )
  Other
    33       29       4       14  
    Total
  $ 291     $ 352     $ ( 61 )     (17 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    1,094       1,157       (63 )     (5 )
  Commercial
    1,115       1,162       (47 )     (4 )
  Industrial
    519       621       (102 )     (16 )
  Governmental
    96       101       (5 )     (5 )
    Total retail
    2,824       3,041       (217 )     (7 )
  Sales for resale
                               
     Associated companies
    66       217       (151 )     (70 )
     Non-associated companies
    81       113       (32 )     (28 )
    Total
    2,971       3,371       (400 )     (12 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 208     $ 227     $ ( 19 )     (8 )
  Commercial
    188       207       (19 )     (9 )
  Industrial
    72       86       (14 )     (16 )
  Governmental
    18       20       (2 )     (10 )
    Total retail
    486       540       (54 )     (10 )
  Sales for resale
                               
     Associated companies
    15       56       (41 )     (73 )
     Non-associated companies
    14       15       (1 )     (7 )
  Other
    37       36       1       3  
    Total
  $ 552     $ 647     $ ( 95 )     (15 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    2,378       2,446       (68 )     (3 )
  Commercial
    2,186       2,259       (73 )     (3 )
  Industrial
    1,026       1,243       (217 )     (17 )
  Governmental
    189       196       (7 )     (4 )
    Total retail
    5,779       6,144       (365 )     (6 )
  Sales for resale
                               
     Associated companies
    86       398       (312 )     (78 )
     Non-associated companies
    152       149       3       2  
    Total
    6,017       6,691       (674 )     (10 )
                                 
 

 
120

 
 
 

 
ENTERGY NEW ORLEANS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS


Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income decreased $2.6 million primarily due to lower net revenue.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income decreased $5.2 million primarily due to lower net revenue, partially offset by lower interest expense.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the changes in net revenue comparing the second quarter 2009 to the second quarter 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$66.6 
Price applied to unbilled sales
 
(4.6)
Effect of rate case settlement
 
(1.0)
Volume/weather
 
4.1 
Other
 
(1.2)
2009 net revenue
 
$63.9 

The price applied to unbilled sales variance results from a decline in natural gas and purchased power prices.

The effect of rate case settlement variance results from the April 2009 settlement of Entergy New Orleans' rate case, and includes the effects of realigning non-fuel costs associated with the operation of Grand Gulf from the fuel adjustment clause to electric base rates effective June 2009.  See Note 2 to the financial statements for further discussion of the rate case settlement.

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

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to:

·  
a decrease of $47.5 million in affiliated wholesale revenue primarily due to a decrease in the average price of the energy available for resale sales;
·  
a decrease of $31.6 million in electric fuel cost recovery revenues due to lower fuel rates and lower usage; and
·  
a decrease of $14.3 million in gross gas revenues primarily due to lower fuel cost recovery revenues.

 
121

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



Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the changes in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$129.0 
Price applied to unbilled sales
 
(7.2)
Effect of rate case settlement
 
(2.2)
Volume/weather
 
3.3 
Other
 
(2.9)
2009 net revenue
 
$120.0 

The price applied to unbilled sales variance results from a decline in natural gas and purchased power prices.

The effect of rate case settlement variance results from the April 2009 settlement of Entergy New Orleans' rate case, and includes the effects of realigning non-fuel costs associated with the operation of Grand Gulf from the fuel adjustment clause to electric base rates effective June 2009.  See Note 2 to the financial statements for further discussion of the rate case settlement.

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

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to:

·  
a decrease of $53.3 million in gross wholesale revenue due to a decrease in the average price of energy available for resale sales;
·  
a decrease of $32.9 million in electric fuel cost recovery revenues due to lower fuel rates and lower usage; and
·  
a decrease of $19.9 million in gross gas revenues due to decreased fuel recovery revenue as a result of lower price.

Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power.

Other Income Statement Variances

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Other income decreased primarily due to a reduction in interest earned on money pool investments.

Interest and other charges decreased primarily due to a reduction in the interest rate on notes payable issued to affiliates as part of Entergy New Orleans' plan of reorganization, as described more fully in Note 18 to the financial statements in the Form 10-K.


 
122

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


Income Taxes

The effective income tax rate was 39.8% for the second quarter 2009 and 39.6% for the six months ended June 30, 2009.  The differences in the effective income tax rates for the second quarter of 2009 and the six months ended June 30, 2009 versus the federal statutory rate of 35% are primarily due to state income taxes and book and tax differences related to utility plant items.

The effective income tax rate was 35.1% for the second quarter 2008 and 41.4% for the six months ended June 30, 2008.  The difference in the effective income tax rate for the second quarter of 2008 versus the federal statutory rate of 35% is primarily due to state income taxes, substantially offset by a $1.1 million adjustment to income tax expense that related to expense for the first quarter 2008.  The difference in the effective income tax rate for the six months ended June 30, 2008 versus the federal statutory rate of 35% 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 six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$137,444 
 
$92,010 
         
Cash flow provided by (used in):
       
 
Operating activities
 
44,787
 
42,836 
 
Investing activities
 
(51,267)
 
(80,221)
 
Financing activities
 
(9,238)
 
(1,056)
Net decrease in cash and cash equivalents
 
(15,718)
 
(38,441)
         
Cash and cash equivalents at end of period
 
$121,726
 
$53,569

Operating Activities

Net cash flow provided by operating activities increased $2 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to increased recovery of deferred fuel costs  and the timing of collections of receivables from customers partially offset by the timing of payments to vendors.

Investing Activities

Net cash used in investing activities decreased $29 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to money pool activity and lower capital expenditures due to the timing of various projects, partially offset by insurance proceeds received in 2008 on the Hurricane Katrina claim.

Increases in Entergy New Orleans' receivable from the money pool are a use of cash flow, and Entergy New Orleans' receivable from the money pool increased by $18 million in the six months ended June 30, 2009 compared to increasing $77.1 million in the six months ended June 30, 2008.

Financing Activities

Net cash used in financing activities increased $8.2 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to dividends paid on common stock in 2009.
 
 
 
123

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


Capital Structure

Entergy New Orleans' capitalization is balanced between equity and debt, as shown in the following table.

   
June 30,
 2009
 
December 31,
2008
         
Net debt to net capital
 
38.8%
 
37.0%
Effect of subtracting cash from debt
 
14.6%
 
17.1%
Debt to capital
 
53.4%
 
54.1%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and shareholders' equity.  Net capital consists of capital less cash and cash equivalents.  Entergy New Orleans 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 New Orleans' financial condition.

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.  The following are updates to the Form 10-K.

Entergy New Orleans' receivables from the money pool were as follows:

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$78,079
 
$60,093
 
$124,796
 
$47,705

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.  Following are updates to the information provided in the Form 10-K.

Filings with the City Council

Retail Rates

As discussed in the Form 10-K, on July 31, 2008, Entergy New Orleans filed an electric and gas base rate case with the City Council.  On April 2, 2009, the City Council approved a comprehensive settlement.  The settlement provides for a net $35.3 million reduction in combined fuel and non-fuel revenue requirement, including conversion of the $10.6 million voluntary recovery credit to a permanent reduction and complete realignment of Grand Gulf cost recovery from fuel to base rates, and a $4.95 million gas rate increase, both effective June 1, 2009.  A new three-year formula rate plan was also adopted, with terms including an 11.1% electric
 
 
124

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

 
return on common equity (ROE) with a +/- 40 basis point bandwidth and a 10.75% gas ROE with a +/- 50 basis point bandwidth.  Earnings outside the bandwidth reset to the midpoint ROE, with the difference flowing prospectively to customers or Entergy New Orleans depending on whether Entergy New Orleans is over- or under-earning.  The formula rate plan also includes a recovery mechanism for City Council-approved capacity additions, plus provisions for extraordinary cost changes and force majeure.

Fuel Adjustment Clause Litigation

See the Form 10-K for a discussion of the lawsuit filed by a group of ratepayers in April 1999 against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers.  In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004.  In May 2005 the Civil District Court for the Parish of Orleans affirmed the City Council resolution, finding no support for the plaintiffs' claim that the refund amount should be higher.  In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.  On February 25, 2008, the Fourth Circuit Court of Appeal issued a decision affirming in part, and reversing in part, the Civil District Court's decision.  Although the Fourth Circuit Court of Appeal did not reverse any of the substantive findings and conclusions of the City Council or the Civil District Court, the Fourth Circuit found that the amount of the refund was arbitrary and capricious and increased the amount of the refund to $34.3 million.  In April 2009 the Louisiana Supreme Court reversed the decision of the Louisiana Fourth Circuit Court of Appeal and reinstated the decision of the Civil District Court.  On April 17, 2009, the plaintiffs requested rehearing by the Louisiana Supreme Court.  On May 29, 2009, the Louisiana Supreme Court denied the request for rehearing.

Federal Regulation

See "System Agreement Proceedings" and "Independent Coordinator of Transmission" in the "Federal Regulation" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for updates to the discussion in the Form 10-K.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of 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 Entergy New Orleans' accounting for unbilled revenue and qualified pension and other postretirement benefits.

Unbilled Revenue

As discussed in the Form 10-K, Entergy New Orleans records an estimate of the revenues earned for energy delivered since the latest customer billing.  Effective June 1, 2009 the fuel cost component is no longer included in the unbilled revenue calculation at Entergy New Orleans.

Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.
 
 
125

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

 
 
New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.



 
126

 


 
ENTERGY NEW ORLEANS, INC.
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 118,700     $ 194,567     $ 245,644     $ 334,795  
Natural gas
    18,437       32,941       62,587       84,067  
TOTAL
    137,137       227,508       308,231       418,862  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    25,946       101,058       93,733       180,957  
   Purchased power
    47,087       58,795       94,364       106,806  
   Other operation and maintenance
    28,085       27,413       54,535       52,233  
Taxes other than income taxes
    8,761       10,099       19,216       20,233  
Depreciation and amortization
    8,455       8,209       16,770       16,303  
Other regulatory charges - net
    224       1,029       178       2,059  
TOTAL
    118,558       206,603       278,796       378,591  
                                 
OPERATING INCOME
    18,579       20,905       29,435       40,271  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    (109 )     57       109       135  
Interest and dividend income
    1,236       2,492       3,017       4,846  
Miscellaneous - net
    (266 )     (255 )     (521 )     (1,016 )
TOTAL
    861       2,294       2,605       3,965  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    2,908       3,239       5,819       6,480  
Other interest - net
    1,513       2,076       2,414       4,408  
Allowance for borrowed funds used during construction
    82       (37 )     (39 )     (87 )
TOTAL
    4,503       5,278       8,194       10,801  
                                 
INCOME BEFORE INCOME TAXES
    14,937       17,921       23,846       33,435  
                                 
Income taxes
    5,942       6,290       9,452       13,857  
                                 
NET INCOME
    8,995       11,631       14,394       19,578  
                                 
Preferred dividend requirements and other
    241       241       482       482  
                                 
EARNINGS APPLICABLE TO
                               
COMMON STOCK
  $ 8,754     $ 11,390     $ 13,912     $ 19,096  
                                 
See Notes to Financial Statements.
                               

 
 
127

 

 
 
 
 
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128

 
 
ENTERGY NEW ORLEANS, INC.
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
OPERATING ACTIVITIES
           
Net income
  $ 14,394     $ 19,578  
Adjustments to reconcile net income to net cash flow provided by operating activities:
         
  Other regulatory charges - net
    178       2,059  
  Depreciation and amortization
    16,770       16,303  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    (3,596 )     16,878  
  Changes in working capital:
               
    Receivables
    28,382       (17,115 )
    Fuel inventory
    4,886       1,206  
    Accounts payable
    (11,896 )     18,311  
    Taxes accrued
    15,094       (2,285 )
    Interest accrued
    (437 )     (334 )
    Deferred fuel costs
    (6,989 )     (16,153 )
    Other working capital accounts
    (9,504 )     (6,929 )
  Provision for estimated losses and reserves
    3,048       3,330  
  Changes in other regulatory assets
    (6,493 )     11,516  
  Other
    950       (3,529 )
Net cash flow provided by operating activities
    44,787       42,836  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (30,063 )     (50,770 )
Allowance for equity funds used during construction
    109       135  
Insurance proceeds
    -       50,953  
Change in money pool receivable - net
    (17,986 )     (77,092 )
Change in other investments - net
    (3,327 )     (3,447 )
Net cash flow used in investing activities
    (51,267 )     (80,221 )
                 
FINANCING ACTIVITIES
               
Retirement of long term debt
    (728 )     (541 )
Dividends paid:
               
  Common stock
    (8,000 )     -  
  Preferred stock
    (482 )     (482 )
Other
    (28 )     (33 )
Net cash flow used in financing activities
    (9,238 )     (1,056 )
                 
Net decrease in cash and cash equivalents
    (15,718 )     (38,441 )
                 
Cash and cash equivalents at beginning of period
    137,444       92,010  
                 
Cash and cash equivalents at end of period
  $ 121,726     $ 53,569  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid (received) during the period for:
               
  Interest - net of amount capitalized
  $ 4,698     $ 10,848  
  Income taxes
  $ (3,212 )   $ 1,270  
                 
See Notes to Financial Statements.
               
 

 
129

 

 
ENTERGY NEW ORLEANS, INC.
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
             
   
2009
   
2008
 
   
(In Thousands)
             
CURRENT ASSETS
           
Cash and cash equivalents
           
  Cash
  $ 152     $ 1,119  
  Temporary cash investments
    121,574       136,325  
        Total cash and cash equivalents
    121,726       137,444  
Accounts receivable:
               
  Customer
    35,010       53,934  
  Allowance for doubtful accounts
    (1,145 )     (1,112 )
  Associated companies
    81,553       70,608  
  Other
    5,829       3,270  
  Accrued unbilled revenues
    23,164       28,107  
    Total accounts receivable
    144,411       154,807  
Deferred fuel costs
    24,736       21,827  
Fuel inventory - at average cost
    3,312       8,198  
Materials and supplies - at average cost
    9,809       9,472  
Prepayments and other
    10,428       4,483  
TOTAL
    314,422       336,231  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investment in affiliates - at equity
    3,259       3,259  
Non-utility property at cost (less accumulated depreciation)
    1,016       1,016  
Other property and investments
    6,205       2,878  
TOTAL
    10,480       7,153  
                 
UTILITY PLANT
               
Electric
    729,964       767,327  
Natural gas
    196,697       197,231  
Construction work in progress
    68,819       22,314  
TOTAL UTILITY PLANT
    995,480       986,872  
Less - accumulated depreciation and amortization
    514,065       542,499  
UTILITY PLANT - NET
    481,415       444,373  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  Deferred fuel costs
    4,080       -  
  Other regulatory assets
    148,546       208,524  
Other
    7,411       7,254  
TOTAL
    160,037       215,778  
                 
TOTAL ASSETS
  $ 966,354     $ 1,003,535  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
130

 
 
ENTERGY NEW ORLEANS, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Accounts payable:
               
  Associated companies
  $ 22,349     $ 24,523  
  Other
    21,415       39,327  
Customer deposits
    19,806       18,944  
Taxes accrued
    35,440       20,346  
Accumulated deferred income taxes
    10,062       7,387  
Interest accrued
    3,493       3,930  
Other
    5,119       9,203  
TOTAL CURRENT LIABILITIES
    117,684       123,660  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    72,665       112,827  
Accumulated deferred investment tax credits
    2,311       2,471  
SFAS 109 regulatory liability - net
    60,460       72,046  
Other regulatory liabilities
    45,439       12,040  
Retirement cost liability
    3,068       2,966  
Accumulated provisions
    13,657       10,609  
Pension and other postretirement liabilities
    47,542       49,322  
Long-term debt
    272,249       272,973  
Gas system rebuild insurance proceeds
    88,828       98,418  
Other
    5,333       14,997  
TOTAL NON-CURRENT LIABILITIES
    611,552       648,669  
                 
                 
Commitments and Contingencies
               
                 
Preferred stock without sinking fund
    19,780       19,780  
                 
SHAREHOLDERS' EQUITY
               
                 
Common stock, $4 par value, authorized 10,000,000
               
  shares; issued and outstanding 8,435,900 shares in 2009
               
  and 2008
    33,744       33,744  
Paid-in capital
    36,294       36,294  
Retained earnings
    147,300       141,388  
TOTAL
    217,338       211,426  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 966,354     $ 1,003,535  
                 
See Notes to Financial Statements.
               
 
 
 
131

 


ENTERGY NEW ORLEANS, INC.
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
       
Electric Operating Revenues:
                       
  Residential
  $ 32     $ 38     $ (6 )     (16 )
  Commercial
    36       47       (11 )     (23 )
  Industrial
    8       12       (4 )     (33 )
  Governmental
    14       19       (5 )     (26 )
    Total retail
    90       116       (26 )     (22 )
  Sales for resale
                               
     Associated companies
    20       67       (47 )     (70 )
     Non-associated companies
    -       2       (2 )     (100 )
  Other
    9       10       (1 )     (10 )
    Total
  $ 119     $ 195     $ (76 )     (39 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    336       322       14       4  
  Commercial
    439       452       (13 )     (3 )
  Industrial
    134       139       (5 )     (4 )
  Governmental
    192       192       -       -  
    Total retail
    1,101       1,105       (4 )     -  
  Sales for resale
                               
     Associated companies
    378       478       (100 )     (21 )
     Non-associated companies
    2       7       (5 )     (71 )
    Total
    1,481       1,590       (109 )     (7 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 67     $ 71     $ (4 )     (6 )
  Commercial
    75       87       (12 )     (14 )
  Industrial
    17       22       (5 )     (23 )
  Governmental
    30       35       (5 )     (14 )
    Total retail
    189       215       (26 )     (12 )
  Sales for resale
                               
     Associated companies
    51       103       (52 )     (50 )
     Non-associated companies
    -       2       (2 )     (100 )
  Other
    6       15       (9 )     (60 )
    Total
  $ 246     $ 335     $ (89 )     (27 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    669       628       41       7  
  Commercial
    844       860       (16 )     (2 )
  Industrial
    247       270       (23 )     (9 )
  Governmental
    374       370       4       1  
    Total retail
    2,134       2,128       6       -  
  Sales for resale
                               
     Associated companies
    866       804       62       8  
     Non-associated companies
    10       10       -       -  
    Total
    3,010       2,942       68       2  
                                 
 

 
132

 

 
 
ENTERGY TEXAS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Hurricane Ike and Hurricane Gustav

See the Form 10-K for a discussion of Hurricane Ike, which caused catastrophic damage to Entergy Texas' service territory in September 2008.  In April 2009 a law was enacted in Texas that authorizes recovery of these types of costs by securitization.  Entergy Texas filed its storm cost recovery case in April 2009 seeking a determination that $577.5 million of Hurricane Ike and Hurricane Gustav restoration costs are recoverable, including estimated costs for work to be completed.  On August 5, 2009, Entergy Texas submitted to the ALJ an unopposed settlement agreement that will, if approved resolve all issues in the storm cost recovery case.  Under the terms of the agreement $566.4 million, plus carrying costs, are eligible for recovery.  In addition, $70 million in anticipated insurance proceeds will be credited as an offset to the securitized amount, subject to true-up based on actual proceeds received.  Of the $11.1 million difference between Entergy Texas' request and the amount agreed to, which is part of the black box agreement and not directly attributable to any specific individual issues raised, $6.8 million is operation and maintenance expense for which Entergy Texas has recorded a charge in the second quarter 2009.  The remaining $4.3 million will be recorded as utility plant.  The PUCT is expected to consider the agreement at its August 13, 2009, meeting.

On July 16, 2009, Entergy Texas also made its financing request filing seeking approval to recover its approved costs, plus carrying costs, by securitization.  A prehearing conference was held on August 4, 2009, and the ALJ ordered a procedural schedule that includes a September 25, 2009 hearing date.

Results of Operations

Net Income

Second Quarter 2009 Compared to Second Quarter 2008

Net income decreased by $16.2 million primarily due to lower net revenue, higher other operation and maintenance expenses, and higher interest and other charges, partially offset by higher other income.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net income decreased by $17.7 million primarily due to lower net revenue, higher other operation and maintenance expenses, and higher interest and other charges, partially offset by higher other income.

Net Revenue

Second Quarter 2009 Compared to Second Quarter 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the second quarter 2009 to the second quarter 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$120.4 
Rough production cost equalization
 
(18.6)
Retail electric price
 
5.7 
Other
 
1.6 
2009 net revenue
 
$109.1 
 
 
133

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis


As discussed further in Note 2 to the financial statements, the rough production cost equalization variance is due to an additional $18.6 million allocation of 2007 rough production cost equalization receipts ordered by the PUCT to Texas retail customers over what was originally allocated to Entergy Texas prior to the jurisdictional separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas, effective December 2007.

The retail electric price variance is primarily due to rate increases effective late-January 2009.  See Note 2 to the financial statements for further discussion of the rate increases.

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

Gross operating revenues decreased primarily due to a decrease of $108.3 million in fuel cost recovery revenues primarily attributable to lower fuel rates and a decrease in affiliated wholesale revenue of $85.9 million due to a decrease in the average price of energy available for resale sales.

Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power, partially offset by an increase in deferred fuel expense due to fuel and purchased power expense decreases in excess of lower fuel cost recovery revenues.

Other regulatory charges increased primarily due to rough production cost equalization charges as described above.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the six months ended June 30, 2009 to the six months ended June 30, 2008.

   
Amount
   
(In Millions)
     
2008 net revenue
 
$217.9 
Rough production cost equalization
 
(18.6)
Reserve equalization
 
(5.2)
Retail electric price
 
12.1 
Other
 
1.6 
2009 net revenue
 
$207.8 

As discussed further in Note 2 to the financial statements, the rough production cost equalization variance is due to an additional $18.6 million allocation of 2007 rough production cost equalization receipts ordered by the PUCT to Texas retail customers over what was originally allocated to Entergy Texas prior to the jurisdictional separation of Entergy Gulf States, Inc. into Entergy Gulf States Louisiana and Entergy Texas, effective December 2007.

The reserve equalization variance is primarily due to increased reserve equalization expense related to changes in the Entergy System generation mix compared to the same period in 2008.

The retail electric price variance is primarily due to rate increases effective late-January 2009.  See Note 2 to the financial statements for further discussion of the rate increases.

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

Gross operating revenues decreased primarily due to a decrease in affiliated wholesale revenue of $123.9 million due to a decrease in the average price of
 
 
134

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis

 
 
energy available for resale sales and a decrease of $52 million in fuel cost recovery revenues primarily attributable to lower fuel rates, partially offset by the interim fuel refund in the first quarter 2008.  The interim refund and the PUCT approval is discussed in Note 2 to the financial statements in the Form 10-K.

Fuel and purchased power expenses decreased primarily due to decreases in the average market prices of natural gas and purchased power, partially offset by an increase in deferred fuel expense due to fuel and purchased power expense decreases in excess of lower fuel cost recovery revenues.

Other regulatory charges increased primarily due to rough production cost equalization charges as described above.

Other Income Statement Variances

Second Quarter 2009 Compared to Second Quarter 2008

Other operation and maintenance expenses increased primarily due to:

·  
an increase of $6.8 million due to the Hurricane Ike and Hurricane Gustav storm cost recovery settlement agreement, as discussed above under Hurricane Ike and Hurricane Gustav;
·  
an increase of $4.3 million in fossil expenses primarily due to higher plant maintenance costs and plant outages; and
·  
an increase of $1.4 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts.

Other income increased primarily due to carrying charges on Hurricane Ike storm restoration costs as authorized by Texas legislation in the second quarter 2009, partially offset by a decrease in taxes collected on advances for transmission projects which is offset in income tax expense and a decrease in interest earned on money pool investments.

Interest and other charges increased primarily due to an increase in long-term debt outstanding and higher interest on deferred fuel costs.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Other operation and maintenance expenses increased primarily due to:

·  
an increase of $6.8 million due to the Hurricane Ike and Hurricane Gustav storm cost recovery settlement agreement, as discussed above under Hurricane Ike and Hurricane Gustav;
·  
an increase of $4.2 million in fossil expenses primarily due to higher plant maintenance costs and plant outages;
·  
an increase of $2.0 million in customer service costs primarily as a result of write-offs of uncollectible customer accounts;
·  
an increase of $1.7 million in transmission spending for transmission equalization expenses and costs related to the Independent Coordinator of Transmission;
·  
an increase of $1.5 million in local easement fees as the result of higher gross revenues in certain locations within the Texas jurisdiction; and
·  
an increase of $1.2 million in legal spending due to increased litigation and legal fees.

Other income increased primarily due to carrying charges on Hurricane Ike storm restoration costs as authorized by Texas legislation in the second quarter 2009 and an increase in the allowance for equity funds used during construction due to more construction work in progress due to the effects of Hurricane Ike.  The increase was partially offset by a decrease in taxes collected on advances for transmission projects and a decrease in interest earned on money pool investments.
 
 
 
135

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis


 
Interest and other charges increased primarily due to an increase in long-term debt outstanding and higher interest on deferred fuel costs.

Income Taxes

The effective income tax rate was 54.3% for the second quarter 2009 and 46.8% for the six months ended June 30, 2009.  The differences in the effective income tax rate for the second quarter 2009 and for the six months ended June 30, 2009 versus the federal statutory rate of 35% were primarily due to book and tax differences related to state income taxes, payroll- and benefits-related items, and utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction and the amortization of investment tax credits.

The effective income tax rate was 37.5% for the second quarter 2008 and 37.3% for the six months ended June 30, 2008.  The differences in the effective income tax rate for the second quarter 2008 and for the six months ended June 30, 2008 versus the federal statutory rate of 35% were primarily due to state income taxes, partially offset by an adjustment to the provision for uncertain tax positions.
 
Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$2,239 
 
$297,082 
         
Cash flow provided by (used in):
       
 
Operating activities
 
(26,998)
 
(13,383)
 
Investing activities
 
(145,929)
 
60,404 
 
Financing activities
 
246,220 
 
(321,354)
Net increase (decrease) in cash and cash equivalents
 
73,293 
 
(274,333)
         
Cash and cash equivalents at end of period
 
$75,532 
 
$22,749 

Operating Activities

Net cash flow used in operating activities increased $13.6 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to Hurricane Ike restoration spending, partially offset by increased recovery of deferred fuel costs and the timing of the collection of receivables from customers.  The increased fuel recovery was primarily caused by the $71 million fuel cost over-recovery refund in 2008 that is discussed in Note 2 to the financial statements in the Form 10-K, in addition to the over-recovery of fuel costs in 2009 compared to 2008.

Investing Activities

Investing activities used cash of $145.9 million for the six months ended June 30, 2009 compared to providing cash of $60.4 million for the six months ended June 30, 2008 primarily due to money pool activity and increased construction expenditures due to Hurricane Ike.  Increases in Entergy Texas' receivable from the money pool are a use of cash flow, and Entergy Texas' receivable from the money pool increased by $48.4 million for the six months ended June 30, 2009 compared to decreasing by $104.3 million for the six months ended June 30, 2008.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries' need for external short-term borrowings.

 
 
136

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis



Financing Activities

Financing activities provided cash of $246.2 million for the six months ended June 30, 2009 compared to using cash of $321.4 million for the six months ended June 30, 2008 primarily due to:

·  
the issuance of $500 million of 7.125% Series Mortgage Bonds in January 2009;
·  
the issuance of $150 million of 7.875% Series Mortgage Bonds in May 2009;
·  
$150 million of capital returned to Entergy Corporation in February 2008 as discussed in the Form 10-K; and
·  
the retirement of $80 million of long-term debt in 2009 compared to $159.2 million in 2008.
 
The cash provided was partially offset by:

·  
the repayment of Entergy Texas' $160 million note payable from Entergy Corporation in January 2009;
·  
the repayment of $100 million outstanding on Entergy Texas' credit facility in February 2009; and
·  
money pool activity.

Decreases in Entergy Texas' payable to the money pool are a use of cash flow, and Entergy Texas' payable to the money pool decreased by $50.8 million for the six months ended June 30, 2009.

Capital Structure

Entergy Texas' capitalization is balanced between equity and debt, as shown in the following table.  The increase in the debt to capital ratio for Entergy Texas as of June 30, 2009 is primarily due to the issuance of $500 million 7.125% Series Mortgage Bonds in January 2009 and the issuance of $150 million 7.875% Series Mortgage Bonds in May 2009, partially offset by the repayment of Entergy Texas' $160 million note payable from Entergy Corporation in January 2009, the repayment of $100 million outstanding on Entergy Texas' credit facility in February 2009, and the retirement of $80 million of long-term debt prior to maturity.

   
June 30,
 2009
 
December 31,
2008
         
Net debt to net capital
 
63.4%
 
59.9%
Effect of subtracting cash from debt
 
1.0%
 
0.0%
Debt to capital
 
64.4%
 
59.9%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable and long-term debt, including the currently maturing portion and also including the debt assumption liability.  Capital consists of debt and shareholder's equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Texas 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 Texas' financial condition.

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 Texas' uses and sources of capital.  Following are updates to the information provided in the Form 10-K.
 
Entergy Texas' receivables from or (payables to) the money pool were as follows:

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$48,363
 
($50,794)
 
$49,920
 
$154,176
 
 
137

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis



See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

As discussed in the Form 10-K, Entergy Texas has a credit facility in the amount of $100 million scheduled to expire in August 2012.  No borrowings were outstanding under the facility as of June 30, 2009.

In December 2008, Entergy Texas borrowed $160 million from its parent company, Entergy Corporation, under a $300 million revolving credit facility pursuant to an Inter-Company Credit Agreement between Entergy Corporation and Entergy Texas.  This borrowing would have matured on December 3, 2013.  Entergy Texas used the proceeds, together with other available corporate funds, to pay at maturity the portion of the $350 million Floating Rate series of First Mortgage Bonds due December 2008 that had been assumed by Entergy Texas, and that bond series is no longer outstanding.  In January 2009, Entergy Texas repaid its $160 million note payable to Entergy Corporation with the proceeds from the bond issuance discussed below.
 
    In January 2009, Entergy Texas issued $500 million of 7.125% Series Mortgage Bonds due February 2019. Entergy Texas used a portion of the proceeds to repay its $160 million note payable to Entergy Corporation, to repay the $100 million outstanding on its credit facility, to repay short-term borrowings under the Entergy System money pool, and to repay prior to maturity the following obligations that had been assumed by Entergy Texas under the debt assumption agreement with Entergy Gulf States Louisiana:

Governmental Bonds share assumed under debt assumption agreement:
 
 
Amount
   
(In Thousands)
     
6.75% Series due 2012, Calcasieu Parish
 
$22,115
6.7% Series due 2013, Point Coupee Parish
 
$7,990
7.0% Series due 2015, West Feliciana Parish
 
$22,400
6.6% Series due 2028, West Feliciana Parish
 
$18,320

Entergy Texas used the remaining proceeds for other general corporate purposes.

In May 2009, Entergy Texas issued $150 million of 7.875% Series Mortgage Bonds due June 2039.  Entergy Texas intends to use the proceeds to repay on or prior to maturity $100,509,000 of the Floating Rate Series Mortgage Bonds due December 2009 that had been assumed by Entergy Texas under the debt assumption agreement with Entergy Gulf States Louisiana and for other general corporate purposes.  A portion of the net proceeds were used to repay borrowings from the Entergy System money pool and invested in temporary cash investments and the Entergy System money pool.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

Transition to Retail Competition in Texas

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Transition to Retail Competition in Texas" in the Form 10-K for a discussion of electric restructuring activity that involves Entergy Texas.  In June 2009, a law was enacted in Texas that requires Entergy Texas to cease all activities relating to Entergy Texas' transition to competition.  The law allows Entergy Texas to remain a part of the SERC Region, although it does not prevent Entergy Texas from joining the Southwest Power Pool.  The law provides that any further proceedings to certify a power region that Entergy Texas belongs to as a qualified power region can be initiated by the PUCT, or on motion by another party, when the conditions supporting such a proceeding exist.  Under the new law, the PUCT may not approve a transition to competition plan for Entergy Texas until the expiration of four years from the PUCT's certification of Entergy Texas' power region.  In response to the new law, Entergy Texas in June 2009 gave notice to the PUCT of the withdrawal of its transition to competition plan, and requested that its transition to competition proceeding be dismissed.  In July 2009 the ALJ dismissed the proceeding.
 
 
138

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis

 

The new law also contains provisions that allow Entergy Texas to be included in a cost recovery mechanism that permits annual filings for the recovery of reasonable and necessary expenditures for transmission infrastructure improvement and changes in wholesale transmission charges.  This mechanism was previously available to other non-ERCOT Texas utility companies, but not to Entergy Texas.

The new law further amends already existing law that had required Entergy Texas to propose for PUCT approval a tariff to allow eligible customers the ability to contract for competitive generation.  The amending language in the new law provides, among other things, that:  1) the tariff shall not be implemented in a manner that harms the sustainability or competitiveness of manufacturers who choose not to participate in the tariff; 2) Entergy Texas shall "purchase competitive generation service, selected by the customer, and provide the generation at retail to the customer" and 3)  Entergy Texas shall provide and price transmission service and ancillary services under that tariff at a rate that is unbundled from its cost of service.  The new law directs that the PUCT may not issue an order on the tariff that is contrary to an applicable decision, rule, or policy statement of a federal regulatory agency having jurisdiction.  Entergy Texas has thus far not made a filing with the PUCT in response to the newly adopted law addressing the tariff.  The new law provides that the PUCT shall approve, reject, or modify the proposed tariff not later than September 1, 2010.

State and Local Rate Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.  Following are updates to that discussion.

PUCT Proceedings

In January 2008, Entergy Texas made a compliance filing with the PUCT describing how its 2007 Rough Production Cost Equalization receipts under the System Agreement were allocated between Entergy Gulf States, Inc.'s Texas and Louisiana jurisdictions.  A hearing was held at the end of July 2008, and in October 2008 the ALJ issued a proposal for decision recommending an additional $18.6 million allocation to Texas retail customers.  The PUCT adopted the ALJ's proposal for decision in December 2008.  Because the PUCT allocation to Texas retail customers is inconsistent with the LPSC allocation to Louisiana retail customers, adoption of the proposal for decision by the PUCT could result in trapped costs between the Texas and Louisiana jurisdictions with no mechanism for recovery.  The PUCT denied Entergy Texas' motion for rehearing and Entergy Texas commenced proceedings in both state and federal district courts seeking to reverse the PUCT's decision.  On May 12, 2009, certain defendants, in their official capacities as Commissioners of the PUCT, filed a motion to dismiss Entergy Texas' pending complaint before the U.S. District Court for the Western District of Texas.  The federal proceeding, including a ruling on the motion to dismiss, has been abated pending further action by the FERC in the proceeding discussed below.

Entergy Texas also filed with the FERC a proposed amendment to the System Agreement bandwidth formula to specifically calculate the payments to Entergy Gulf States Louisiana and Entergy Texas of Entergy Gulf States, Inc.'s rough production cost equalization receipts for 2007.  On May 8, 2009, the FERC issued an order rejecting the proposed amendment, stating, among other things, that the FERC does not have jurisdiction over the allocation of an individual utility's receipts/payments among or between its retail jurisdictions and that this was a matter for the courts to review in the pending proceedings noted above.  Because of the FERC's order, Entergy Texas recorded the effects of the PUCT's allocation of the additional $18.6 million to retail customers in the second quarter of 2009.  On an after-tax basis, the charge to earnings was approximately $13.0 million (including interest).  Entergy requested rehearing of the FERC's order, and on July 8, 2009, the FERC granted the request for rehearing for the limited purpose of affording more time for consideration of Entergy's request.
 
 
139

 
Entergy Texas, Inc.
Management's Financial Discussion and Analysis

 

In May 2009, Entergy Texas filed with the PUCT a request to refund $46.1 million, including interest, of fuel cost recovery over-collections through February 2009.  Entergy Texas requested that the proposed refund be made over a four-month period beginning June 2009.  Pursuant to a stipulation among the various parties, in June 2009 the PUCT issued an order approving a refund of $59.2 million, including interest, of fuel cost recovery overcollections through March 2009.  The refund will be made over a three-month period beginning July 2009.

As discussed in the Form 10-K, Entergy Texas made a rate filing in September 2007 with the PUCT requesting an annual rate increase totaling $107.5 million, including a base rate increase of $64.3 million and riders totaling $43.2 million.  On December 16, 2008, Entergy Texas filed a term sheet that reflected a settlement agreement that included the PUCT Staff and the other active participants in the rate case.  On December 19, 2008, the ALJs approved Entergy Texas' request to implement interim rates reflecting the agreement.  The agreement includes a $46.7 million base rate increase, among other provisions.  Under the ALJs' interim order, Entergy Texas implemented interim rates, subject to refund and surcharge, reflecting the rates established through the settlement.  These rates became effective with bills rendered on and after January 28, 2009, for usage on and after December 19, 2008.  In addition, the existing recovery mechanism for incremental purchased power capacity costs ceased as of January 28, 2009, with purchased power capacity costs then subsumed within the base rates set in this proceeding.  Certain Texas municipalities exercised their original jurisdiction and took final action to approve rates consistent with the interim rates approved by the ALJs.  In March 2009, the PUCT approved the settlement, which made the interim rates final, and this PUCT decision is now final and non-appealable.

Federal Regulation

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Federal Regulation" in the Form 10-K for a discussion of "System Agreement Proceedings," "Transmission," and "Interconnection Orders."

Industrial and Commercial Customers

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Industrial and Commercial Customers" in the Form 10-K for a discussion of industrial and commercial customers.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of 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 Entergy Texas' accounting for the application of SFAS 71, unbilled revenue, and qualified pension and other postretirement benefits.

Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.
 
New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries' Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.
 
 
140

 
 


 
ENTERGY TEXAS, INC. AND SUBSIDIARIES
 
CONSOLIDATED INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 377,319     $ 565,349     $ 790,793     $ 962,391  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    102,900       158,288       269,832       227,182  
   Purchased power
    138,160       280,189       279,417       505,593  
   Other operation and maintenance
    60,109       46,254       105,629       84,675  
Decommissioning
    48       46       96       91  
Taxes other than income taxes
    13,821       12,944       27,942       26,544  
Depreciation and amortization
    18,680       18,872       37,203       37,237  
Other regulatory charges - net
    27,167       6,518       33,787       11,697  
TOTAL
    360,885       523,111       753,906       893,019  
                                 
OPERATING INCOME
    16,434       42,238       36,887       69,372  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    1,149       402       3,519       978  
Interest and dividend income
    21,724       1,346       28,448       5,553  
Miscellaneous - net
    (313 )     9,276       994       11,086  
TOTAL
    22,560       11,024       32,961       17,617  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    24,435       18,545       45,947       38,507  
Other interest - net
    3,764       698       4,059       2,575  
Allowance for borrowed funds used during construction
    (531 )     (230 )     (1,719 )     (557 )
TOTAL
    27,668       19,013       48,287       40,525  
                                 
INCOME BEFORE INCOME TAXES
    11,326       34,249       21,561       46,464  
                                 
Income taxes
    6,154       12,833       10,086       17,336  
                                 
NET INCOME
  $ 5,172     $ 21,416     $ 11,475     $ 29,128  
                                 
See Notes to Financial Statements.
                               
                                 
 

 
141

 

 
 
 
 
 
 
 
 
 
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142

 

 
ENTERGY TEXAS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
             
OPERATING ACTIVITIES
           
Net income
  $ 11,475     $ 29,128  
Adjustments to reconcile net income to net cash flow used in operating activities:
         
  Reserve for regulatory adjustments
    -       188  
  Other regulatory charges - net
    33,787       11,697  
  Depreciation, amortization, and decommissioning
    37,299       37,328  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    (34,723 )     (1,695 )
  Changes in working capital:
               
    Receivables
    123,816       (22,625 )
    Fuel inventory
    (5,221 )     (2,385 )
    Accounts payable
    (84,815 )     168,607  
    Taxes accrued
    (49,595 )     10,907  
    Interest accrued
    14,303       (5,735 )
    Deferred fuel costs
    108,688       (130,734 )
    Other working capital accounts
    (20,771 )     (25,115 )
  Provision for estimated losses and reserves
    (2,905 )     1,208  
  Changes in other regulatory assets
    (211,089 )     17,342  
  Other
    52,753       (101,499 )
Net cash flow used in operating activities
    (26,998 )     (13,383 )
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (104,047 )     (53,993 )
Allowance for equity funds used during construction
    3,519       978  
Change in money pool receivable - net
    (48,363 )     104,256  
Changes in transition charge account
    2,962       9,171  
Other
    -       (8 )
Net cash flow provided by (used in) investing activities
    (145,929 )     60,404  
                 
FINANCING ACTIVITIES
               
Proceeds from the issuance of long-term debt
    637,692       -  
Return of capital to parent
    -       (150,000 )
Retirement of long-term debt
    (79,978 )     (159,232 )
Changes in money pool payable - net
    (50,794 )     -  
Repayment of loan from Entergy Corporation
    (160,000 )     -  
Changes in credit borrowings - net
    (100,000 )     -  
Dividends paid:
               
  Common stock
    (700 )     (12,000 )
Other
    -       (122 )
Net cash flow provided by (used in) financing activities
    246,220       (321,354 )
                 
Net increase (decrease) in cash and cash equivalents
    73,293       (274,333 )
                 
Cash and cash equivalents at beginning of period
    2,239       297,082  
                 
Cash and cash equivalents at end of period
  $ 75,532     $ 22,749  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid during the period for:
               
  Interest - net of amount capitalized
  $ 33,881     $ 44,855  
  Income taxes
  $ 6,000     $ 6,493  
                 
See Notes to Financial Statements.
               
                 
 

 
143

 


ENTERGY TEXAS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 191     $ 2,201  
   Temporary cash investments
    75,341       38  
    Total cash and cash equivalents
    75,532       2,239  
Securitization recovery trust account
    9,100       12,062  
Accounts receivable:
               
  Customer
    58,518       82,583  
  Allowance for doubtful accounts
    (935 )     (1,001 )
  Associated companies
    201,241       258,629  
  Other
    6,586       14,122  
  Accrued unbilled revenues
    43,732       30,262  
    Total accounts receivable
    309,142       384,595  
Deferred fuel costs
    -       21,179  
Accumulated deferred income taxes
    83,870       88,611  
Fuel inventory - at average cost
    62,866       57,645  
Materials and supplies - at average cost
    29,116       36,329  
Prepayments and other
    10,425       12,785  
TOTAL
    580,051       615,445  
                 
OTHER PROPERTY AND INVESTMENTS
               
Investments in affiliates - at equity
    835       845  
Non-utility property - at cost (less accumulated depreciation)
    1,642       1,788  
Other
    18,127       17,451  
TOTAL
    20,604       20,084  
                 
UTILITY PLANT
               
Electric
    3,078,987       2,912,972  
Construction work in progress
    112,511       221,387  
TOTAL UTILITY PLANT
    3,191,498       3,134,359  
Less - accumulated depreciation and amortization
    1,098,438       1,104,116  
UTILITY PLANT - NET
    2,093,060       2,030,243  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    87,619       84,997  
  Other regulatory assets
    1,119,270       1,117,257  
Long-term receivables
    559       559  
Other
    56,093       116,186  
TOTAL
    1,263,541       1,318,999  
                 
TOTAL ASSETS
  $ 3,957,256     $ 3,984,771  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
144

 
 
 
ENTERGY TEXAS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDER'S EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing portion of debt assumption liability
  $ 100,509     $ 100,509  
Accounts payable:
               
  Associated companies
    63,273       144,662  
  Other
    77,860       342,449  
Customer deposits
    40,454       40,589  
Taxes accrued
    -       49,595  
Interest accrued
    36,405       22,102  
Deferred fuel costs
    87,509       -  
Pension and other postretirement liabilities
    1,269       1,269  
System agreement cost equalization
    186,354       214,315  
Other
    2,303       4,551  
TOTAL
    595,936       920,041  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    719,984       756,996  
Accumulated deferred investment tax credits
    23,330       24,128  
Other regulatory liabilities
    20,097       -  
Asset retirement cost liabilities
    3,346       3,250  
Accumulated provisions
    10,031       12,936  
Pension and other postretirement liabilities
    83,437       91,316  
Note payable to Entergy Corporation
    -       160,000  
Long-term debt - assumption liability
    598,637       669,462  
Other long-term debt
    952,233       414,906  
Other
    39,301       31,587  
TOTAL
    2,450,396       2,164,581  
                 
Commitments and Contingencies
               
                 
SHAREHOLDER'S EQUITY
               
Common stock, no par value, authorized 200,000,000 shares;
               
  issued and outstanding 46,525,000 shares in 2009 and 2008
    49,452       49,452  
Paid-in capital
    481,994       481,994  
Retained earnings
    379,478       368,703  
TOTAL
    910,924       900,149  
                 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
  $ 3,957,256     $ 3,984,771  
                 
See Notes to Financial Statements.
               
 

 
145

 

 
ENTERGY TEXAS, INC. AND SUBSIDIAIRES
 
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND PAID-IN CAPITAL
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
Three Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
RETAINED EARNINGS
           
Retained Earnings - Beginning of period
  $ 374,606     $ 330,520  
                 
    Add:
               
      Net Income
    5,172       21,416  
      5,172       21,416  
                 
    Deduct:
               
      Dividends declared on common stock
    300       12,000  
                 
Retained Earnings - End of period
  $ 379,478     $ 339,936  
                 
PAID-IN CAPITAL
               
Paid-in Capital - Beginning of period
  $ 481,994     $ 481,994  
                 
    Deduct:
               
      Return of capital to parent
    -       -  
                 
Paid-in capital - End of period
  $ 481,994     $ 481,994  
                 
                 
   
Six Months Ended
 
   
2009
   
2008
 
   
(In Thousands)
 
RETAINED EARNINGS
               
Retained Earnings - Beginning of period
  $ 368,703     $ 322,808  
                 
    Add:
               
      Net Income
    11,475       29,128  
      11,475       29,128  
                 
    Deduct:
               
      Dividends declared on common stock
    700       12,000  
                 
Retained Earnings - End of period
  $ 379,478     $ 339,936  
                 
PAID-IN CAPITAL
               
Paid-in Capital - Beginning of period
  $ 481,994     $ 631,994  
                 
    Deduct:
               
      Return of capital to parent
    -       (150,000 )
                 
Paid-in capital - End of period
  $ 481,994     $ 481,994  
                 
                 
See Notes to Financial Statements.
               
 

 
146

 
 

ENTERGY TEXAS, INC. AND SUBSIDIARIES
 
SELECTED OPERATING RESULTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Increase/
       
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
       
Electric Operating Revenues:
                       
  Residential
  $ 120     $ 149     $ (29 )     (19 )
  Commercial
    86       110       (24 )     (22 )
  Industrial
    87       135       (48 )     (36 )
  Governmental
    6       8       (2 )     (25 )
    Total retail
    299       402       (103 )     (26 )
  Sales for resale
                               
     Associated companies
    57       143       (86 )     (60 )
     Non-associated companies
    1       3       (2 )     (67 )
  Other
    20       17       3       18  
    Total
  $ 377     $ 565     $ (188 )     (33 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    1,162       1,232       (70 )     (6 )
  Commercial
    994       1,042       (48 )     (5 )
  Industrial
    1,393       1,607       (214 )     (13 )
  Governmental
    61       62       (1 )     (2 )
    Total retail
    3,610       3,943       (333 )     (8 )
  Sales for resale
                               
     Associated companies
    955       1,079       (124 )     (11 )
     Non-associated companies
    12       29       (17 )     (59 )
    Total
    4,577       5,051       (474 )     (9 )
                                 
                                 
   
Six Months Ended
   
Increase/
         
Description
 
2009
   
2008
   
(Decrease)
   
%
 
   
(Dollars In Millions)
         
Electric Operating Revenues:
                               
  Residential
  $ 259     $ 260     $ (1 )     -  
  Commercial
    184       187       (3 )     (2 )
  Industrial
    191       239       (48 )     (20 )
  Governmental
    12       13       (1 )     (8 )
    Total retail
    646       699       (53 )     (8 )
  Sales for resale
                               
     Associated companies
    115       239       (124 )     (52 )
     Non-associated companies
    2       5       (3 )     (60 )
  Other
    28       19       9       47  
    Total
  $ 791     $ 962     $ (171 )     (18 )
                                 
Billed Electric Energy
                               
 Sales (GWh):
                               
  Residential
    2,341       2,444       (103 )     (4 )
  Commercial
    1,922       1,985       (63 )     (3 )
  Industrial
    2,709       3,151       (442 )     (14 )
  Governmental
    121       123       (2 )     (2 )
    Total retail
    7,093       7,703       (610 )     (8 )
  Sales for resale
                               
     Associated companies
    1,843       1,976       (133 )     (7 )
     Non-associated companies
    41       51       (10 )     (20 )
    Total
    8,977       9,730       (753 )     (8 )
                                 

 
 
147

 

 
 
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 remained relatively flat, increasing $1.6 million for the second quarter 2009 and $2.4 million for the six months ended June 30, 2009 compared to the same periods in 2008.  Losses realized on System Energy's decommissioning trust funds in the second quarter 2009 were offset by corresponding regulatory credits in accordance with regulatory treatment.

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2009 and 2008 were as follows:

   
2009
 
2008
   
(In Thousands)
         
Cash and cash equivalents at beginning of period
 
$102,788 
 
$105,005 
         
Cash flow provided by (used in):
       
 
Operating activities
 
112,296 
 
97,862 
 
Investing activities
 
(56,142)
 
(84,271)
 
Financing activities
 
(67,855)
 
(71,901)
Net decrease in cash and cash equivalents
 
(11,701)
 
(58,310)
         
Cash and cash equivalents at end of period
 
$91,087 
 
$46,695 

Operating Activities

Net cash provided by operating activities increased $14.4 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to a decrease of $8.9 million in income tax payments.

Investing Activities

Net cash used in investing activities decreased $28.1 million for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to money pool activity.  Increases in System Energy's receivable from the money pool are a use of cash flow, and System Energy's receivable from the money pool increased by $14.1 million for the six months ended June 30, 2009 compared to an increase of $47.9 million for the six months ended June 30, 2008.


 
148

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


Capital Structure

System Energy's capitalization is balanced between equity and debt, as shown in the following table.

   
June 30,
 2009
 
December 31,
2008
         
Net debt to net capital
 
46.6%
 
48.2%
Effect of subtracting cash from debt
 
2.8%
 
3.0%
Debt to capital
 
49.4%
 
51.2%

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt and common shareholder's equity.  Net capital consists of capital less cash and cash equivalents.  System Energy 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 System Energy's financial condition.

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.  The following are updates to the Form 10-K.

As discussed in the Form 10-K as a potential use of capital, System Energy plans a 178 MW uprate of the Grand Gulf nuclear plant.  The project is expected to cost $575 million.  On May 22, 2009, a petition and supporting testimony were filed at the MPSC requesting a Certificate of Public Convenience and Necessity for implementation of the uprate.  The City of New Orleans is the only party that has intervened in the case.  No procedural schedule has been set for the case.

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

June 30,
2009
 
December 31,
2008
 
June 30,
2008
 
December 31,
2007
(In Thousands)
             
$57,000
 
$42,915
 
$101,497
 
$53,620

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Pension Contributions

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on pension contributions.

Nuclear Matters

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS – Environmental Risks" in the Form 10-K for a discussion of environmental risks.
 
 
 
149

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


 
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 qualified pension and other postretirement benefits.

Nuclear Decommissioning Costs

In the second quarter 2009, System Energy recorded a revision to its estimated decommissioning cost liabilities for Grand Gulf as a result of a revised decommissioning cost study.  The revised estimate resulted in a $4.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.

Qualified Pension and Other Postretirement Benefits

See the "Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits - Costs and Funding" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update to the Form 10-K discussion on qualified pension and other postretirement benefits.

New Accounting Pronouncements

See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.



 
150

 


 
SYSTEM ENERGY RESOURCES, INC.
 
INCOME STATEMENTS
 
For the Three and Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
2009
   
2008
   
2009
   
2008
 
   
(In Thousands)
   
(In Thousands)
 
                         
OPERATING REVENUES
                       
Electric
  $ 130,387     $ 128,366     $ 257,759     $ 242,738  
                                 
OPERATING EXPENSES
                               
Operation and Maintenance:
                               
   Fuel, fuel-related expenses, and
                               
     gas purchased for resale
    15,561       12,688       31,328       23,304  
   Nuclear refueling outage expenses
    4,820       4,209       9,587       8,413  
   Other operation and maintenance
    33,110       32,008       58,465       56,997  
Decommissioning
    7,360       6,847       14,589       13,571  
Taxes other than income taxes
    6,323       6,101       12,506       4,029  
Depreciation and amortization
    24,868       24,522       52,161       51,077  
Other regulatory credits - net
    (7,777 )     (2,571 )     (10,481 )     (4,557 )
TOTAL
    84,265       83,804       168,155       152,834  
                                 
OPERATING INCOME
    46,122       44,562       89,604       89,904  
                                 
OTHER INCOME
                               
Allowance for equity funds used during construction
    4,713       1,237       6,614       2,366  
Interest and dividend income (loss)
    (1,761 )     3,665       1,556       6,212  
Miscellaneous - net
    (90 )     (121 )     (262 )     (288 )
TOTAL
    2,862       4,781       7,908       8,290  
                                 
INTEREST AND OTHER CHARGES
                               
Interest on long-term debt
    11,145       11,321       22,356       23,283  
Other interest - net
    108       37       127       80  
Allowance for borrowed funds used during construction
    (1,578 )     (415 )     (2,217 )     (793 )
TOTAL
    9,675       10,943       20,266       22,570  
                                 
INCOME BEFORE INCOME TAXES
    39,309       38,400       77,246       75,624  
                                 
Income taxes
    15,616       16,309       31,160       31,932  
                                 
NET INCOME
  $ 23,693     $ 22,091     $ 46,086     $ 43,692  
                                 
See Notes to Financial Statements.
                               
 

 
151

 

 
 
 
 
 
 
 
(Page left blank intentionally)
 
 
 
 
 
 
 
152

 
 
 
SYSTEM ENERGY RESOURCES, INC.
 
STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2009 and 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
             
OPERATING ACTIVITIES
           
Net income
  $ 46,086     $ 43,692  
Adjustments to reconcile net income to net cash flow provided by operating activities:
         
  Other regulatory credits - net
    (10,481 )     (4,557 )
  Depreciation, amortization, and decommissioning
    66,750       64,648  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
    9,432       (3,659 )
  Changes in working capital:
               
     Receivables
    4,270       16,909  
     Accounts payable
    1,604       (11,747 )
     Prepaid taxes
    4,377       -  
     Interest accrued
    (37,088 )     (34,959 )
     Other working capital accounts
    3,420       1,713  
  Provision for estimated losses and reserves
    (99 )     (488 )
  Changes in other regulatory assets
    (16,761 )     (5,679 )
  Other
    40,786       31,989  
Net cash flow provided by operating activities
    112,296       97,862  
                 
INVESTING ACTIVITIES
               
Construction expenditures
    (36,678 )     (23,966 )
Allowance for equity funds used during construction
    6,614       2,366  
Proceeds from nuclear decommissioning trust fund sales
    322,003       176,470  
Investment in nuclear decommissioning trust funds
    (334,176 )     (191,266 )
Changes in money pool receivable - net
    (14,085 )     (47,878 )
Other
    180       3  
Net cash flow used in investing activities
    (56,142 )     (84,271 )
                 
FINANCING ACTIVITIES
               
Retirement of long-term debt
    (28,440 )     (26,701 )
Dividends paid:
               
   Common stock
    (36,500 )     (45,200 )
Other
    (2,915 )     -  
Net cash flow used in financing activities
    (67,855 )     (71,901 )
                 
Net decrease in cash and cash equivalents
    (11,701 )     (58,310 )
                 
Cash and cash equivalents at beginning of period
    102,788       105,005  
                 
Cash and cash equivalents at end of period
  $ 91,087     $ 46,695  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         
Cash paid during the period for:
               
  Interest - net of amount capitalized
  $ 88,615     $ 55,753  
  Income taxes
  $ 7,136     $ 16,072  
                 
See Notes to Financial Statements.
               
 

 
153

 

 
SYSTEM ENERGY RESOURCES, INC.
 
BALANCE SHEETS
 
ASSETS
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
             
   
2009
   
2008
 
   
(In Thousands)
 
             
CURRENT ASSETS
           
Cash and cash equivalents:
           
  Cash
  $ 22     $ 250  
  Temporary cash investments
    91,065       102,538  
        Total cash and cash equivalents
    91,087       102,788  
Accounts receivable:
               
  Associated companies
    100,127       91,119  
  Other
    3,881       3,074  
    Total accounts receivable
    104,008       94,193  
Materials and supplies - at average cost
    77,458       74,496  
Deferred nuclear refueling outage costs
    16,775       26,485  
Prepaid taxes
    70,402       74,779  
Prepayments and other
    4,321       993  
TOTAL
    364,051       373,734  
                 
OTHER PROPERTY AND INVESTMENTS
               
Decommissioning trust funds
    280,863       268,822  
Note receivable - Entergy New Orleans
    25,560       25,560  
TOTAL
    306,423       294,382  
                 
UTILITY PLANT
               
Electric
    3,312,638       3,314,473  
Property under capital lease
    479,933       479,933  
Construction work in progress
    157,680       122,952  
Nuclear fuel under capital lease
    101,176       125,416  
Nuclear fuel
    5,477       7,448  
TOTAL UTILITY PLANT
    4,056,904       4,050,222  
Less - accumulated depreciation and amortization
    2,259,829       2,206,780  
UTILITY PLANT - NET
    1,797,075       1,843,442  
                 
DEFERRED DEBITS AND OTHER ASSETS
               
Regulatory assets:
               
  SFAS 109 regulatory asset - net
    95,684       89,473  
  Other regulatory assets
    339,427       333,389  
Other
    12,686       10,970  
TOTAL
    447,797       433,832  
                 
TOTAL ASSETS
  $ 2,915,346     $ 2,945,390  
                 
See Notes to Financial Statements.
               
                 
                 
                 
 
 
 
154

 
 
 
SYSTEM ENERGY RESOURCES, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDER'S EQUITY
 
June 30, 2009 and December 31, 2008
 
(Unaudited)
 
                 
   
2009
   
2008
 
   
(In Thousands)
 
                 
CURRENT LIABILITIES
               
Currently maturing long-term debt
  $ 41,715     $ 28,440  
Accounts payable:
               
  Associated companies
    4,361       2,723  
  Other
    35,181       35,215  
Accumulated deferred income taxes
    5,893       9,645  
Interest accrued
    11,502       48,590  
Obligations under capital leases
    37,619       37,619  
TOTAL
    136,271       162,232  
                 
NON-CURRENT LIABILITIES
               
Accumulated deferred income taxes and taxes accrued
    381,574       365,134  
Accumulated deferred investment tax credits
    59,969       61,708  
Obligations under capital leases
    63,557       87,797  
Other regulatory liabilities
    226,156       197,051  
Decommissioning
    406,546       396,201  
Accumulated provisions
    1,926       2,025  
Pension and other postretirement liabilities
    70,204       72,008  
Long-term debt
    703,223       744,900  
TOTAL
    1,913,155       1,926,824  
                 
Commitments and Contingencies
               
                 
SHAREHOLDER'S EQUITY
               
Common stock, no par value, authorized 1,000,000 shares;
               
  issued and outstanding 789,350 shares in 2009 and 2008
    789,350       789,350  
Retained earnings
    76,570       66,984  
TOTAL
    865,920       856,334  
                 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
  $ 2,915,346     $ 2,945,390  
                 
See Notes to Financial Statements.
               

 
155

 

 
 
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, administrative, and other regulatory proceedings affecting Entergy, and also see "Item 5, Other Information, Environmental Regulation", below, for updates regarding environmental proceedings and regulation.

Ratepayer Lawsuits

Entergy New Orleans Fuel Adjustment Clause Litigation

See the Form 10-K for a discussion of the lawsuit filed by a group of ratepayers in April 1999 against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers.  In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004.  In May 2005 the Civil District Court for the Parish of Orleans affirmed the City Council resolution, finding no support for the plaintiffs' claim that the refund amount should be higher.  In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.  On February 25, 2008, the Fourth Circuit Court of Appeal issued a decision affirming in part, and reversing in part, the Civil District Court's decision.  Although the Fourth Circuit Court of Appeal did not reverse any of the substantive findings and conclusions of the City Council or the Civil District Court, the Fourth Circuit found that the amount of the refund was arbitrary and capricious and increased the amount of the refund to $34.3 million.  In April 2009 the Louisiana Supreme Court reversed the decision of the Louisiana Fourth Circuit Court of Appeal and reinstated the decision of the Civil District Court.  On April 17, 2009, the plaintiffs requested rehearing by the Louisiana Supreme Court.  On May 29, 2009, the Louisiana Supreme Court denied the request for rehearing.

Item 1A.  Risk Factors

There have been no material changes to the risk factors discussed in "PART I, Item 1A, Risk Factors" in the Form 10-K.

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)
                 
4/01/2009-4/30/2009
 
-
 
$-
 
-
 
$596,766,948
5/01/2009-5/31/2009
 
-
 
$-
 
-
 
$596,766,948
6/01/2009-6/30/2009
 
-
 
$-
 
-
 
$596,766,948
Total
 
-
 
$-
 
-
   

(1)  
In accordance with Entergy's stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy's common stock.  According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market.  Entergy's management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.  In addition to this authority, on January 29, 2007, the Board approved a repurchase program under which Entergy is authorized to repurchase up to $1.5 billion of its common stock.  In January 2008, the Board authorized an incremental $500 million share repurchase program to enable Entergy to consider opportunistic purchases in response to equity market conditions.  The programs do not have an expiration date, but Entergy expects to complete both of them in 2009.  See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans.
 
 
 
156

 
 
(2)  
Maximum amount of shares that may yet be repurchased relates only to the $1.5 billion and $500 million plans 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.

The amount of share repurchases may vary as a result of material changes in business results or capital spending or new investment opportunities.

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

Election of Board of Directors

Entergy Corporation

The annual meeting of stockholders of Entergy Corporation was held on May 8, 2009.  The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes:

1.  
Election of Directors:

Name of Nominee
 
Votes For
 
Votes Against
 
Abstentions
             
Maureen S. Bateman
 
166,966,501
 
4,912,044
 
507,386
W. Frank Blount
 
164,080,410
 
7,876,605
 
428,915
Gary W. Edwards
 
160,317,898
 
11,561,364
 
506,669
Alexis M. Herman
 
159,434,985
 
12,415,348
 
535,599
Donald C. Hintz
 
167,846,896
 
4,167,060
 
371,975
J. Wayne Leonard
 
166,024,530
 
5,972,453
 
388,948
Stuart L. Levenick
 
167,863,311
 
4,040,428
 
482,192
James R. Nichols
 
167,172,890
 
4,762,373
 
450,668
William A. Percy, II
 
160,892,058
 
11,030,540
 
463,334
W. J. "Billy" Tauzin
 
159,926,875
 
11,899,985
 
559,071
Steven V. Wilkinson
 
167,745,177
 
4,171,917
 
468,837

2.  
Ratify the appointment of independent public accountants, Deloitte & Touche LLP for the year 2009  170,786,508 votes for; 1,217,754 votes against; and 381,669 abstentions.

Entergy Arkansas

A consent in lieu of a meeting of common stockholders was executed on June 30, 2009.  The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock.  The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas:  Hugh T. McDonald, Chairman, Leo P. Denault, Mark T. Savoff, and Gary J. Taylor.

Entergy Gulf States Louisiana

A consent in lieu of a meeting of members was executed on June 30, 2009.  The consent was signed on behalf of EGS Holdings, Inc., the holder of all issued and outstanding common membership interests.  The holder of the common membership interests, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States Louisiana:  E. Renae Conley, Chair, Leo P. Denault, Mark T. Savoff, and Gary J. Taylor.
 
 
 
157

 

 
Entergy Louisiana

A consent in lieu of a meeting of members was executed on June 30, 2009.  The consent was signed on behalf of Entergy Louisiana Holdings, Inc., the holder of all issued and outstanding common membership interests.  The holder of the common membership interests, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana:  E. Renae Conley, Chair, Leo P. Denault, Mark T. Savoff, and Gary J. Taylor.

Entergy Mississippi

A consent in lieu of a meeting of common stockholders was executed on June 30, 2009.  The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock.  The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Haley R. Fisackerly, Chairman, Leo P. Denault, Mark T. Savoff, and Gary J. Taylor.

Entergy New Orleans

A consent in lieu of a meeting of common stockholders was executed on June 30, 2009.  The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock.  The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Roderick K. West, Chairman, Gary J. Taylor, Tracie L. Boutte, and Sherri L. Winslow.

Entergy Texas

A consent in lieu of a meeting of common stockholders was executed on June 30, 2009.  The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock.  The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Texas:  Joseph F. Domino, Chairman, Leo P. Denault, Mark T. Savoff, and Gary J. Taylor.

System Energy

A consent in lieu of a meeting of common stockholders was executed on June 30, 2009.  The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock.  The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Michael R. Kansler, Chairman, Steven C. McNeal, and Leo P. Denault.

Item 5.  Other Information

Environmental Regulation

Clean Air Act and Subsequent Amendments

Ozone Nonattainment

As disclosed in the Form 10-K, on March 12, 2008, the EPA revised the National Ambient Air Quality Standard for ozone, creating the potential for additional counties and parishes in which Entergy operates to be placed in nonattainment status.  The LDEQ recommended eleven parishes be designated as nonattainment for the 75 parts per billion ozone standard.  Entergy Gulf States Louisiana has two fossil plants and Entergy Louisiana has one fossil plant affected by this recommendation.  In Arkansas, the Governor recommended that Pulaski County be designated in nonattainment with the new ozone standard, where two of Entergy Arkansas' smaller facilities are located.  These recommendations have not been approved yet by the EPA, however, so additional counties or parishes may be affected.  Following nonattainment designation, states will be required to develop state implementation plans that outline control requirements that will enable the affected counties and parishes to reach attainment status.  Entergy facilities in these areas may be subject to installation of NOx controls, but the degree of control will
 
 
 
158

 
remain unknown until the state implementation plans are developed.  Entergy will continue to monitor and engage in the state implementation plan development process in Entergy states.

Regional Haze

Entergy Arkansas has withdrawn its petition (discussed in the Form 10-K) to the Arkansas Commission on Environmental Quality requesting the revision of Regulation 19, which sets an operational deadline of September 2013 for the regional haze air emissions control project at Entergy Arkansas' White Bluff facility.  Entergy Arkansas is proceeding with the regulatory approval process for the installation and operation of required emission controls.

Potential Legislative, Regulatory, and Judicial Developments

In April 2009, the EPA issued a proposal "to find that greenhouse gases in the atmosphere endanger the public health and welfare of current and future generations" pursuant to section 202(a) of the Clean Air Act in response to the opinion of the United States Supreme Court in Massachusetts v. EPA.  The EPA published the proposed endangerment finding in the Federal Register on April 24, 2009, and began a sixty-day notice and comment period on the proposal.  The current proposal applies directly only to emissions from mobile sources such as cars and trucks.  The proposed endangerment finding lists six air pollutants, including CO2, that would undergo further proposed EPA regulation as mobile source emissions under the federal Clean Air Act.  The EPA has stated that the endangerment finding itself does not create any immediate requirements for any emissions source, but this regulatory action may lead to the proposal of similar regulations to control greenhouse gas emissions, including CO2, from stationary sources such as Entergy's facilities either through new EPA regulations or through the Clean Air Act's current new source review program, new source performance standard program, or otherwise.  Such a proposal of new regulations applicable to stationary sources also would undergo a notice-and-comment rulemaking process through the EPA.  Application of the current new source review program or the new source performance standards programs to new or modified sources of emissions through state or federal air permitting programs could occur.  Proposed new regulations for stationary sources could take the form of market-based cap-and-trade programs, direct requirements for the installation of air emission controls onto air emission sources, or other or combined regulatory programs.  The effect on Entergy is impossible to estimate at this time due to the uncertainty of the regulatory format.

Clean Water Act

316(b) Cooling Water Intake Structures

The EPA finalized new regulations in July 2004 governing the intake of water at large existing power plants employing cooling water intake structures.  The rule sought to reduce perceived impacts on aquatic resources by requiring covered facilities to implement technology or other measures to meet EPA-targeted reductions in water use and corresponding perceived aquatic impacts.  Entergy, other industry members and industry groups, environmental groups, and a coalition of northeastern and mid-Atlantic states challenged various aspects of the rule.  In January 2007, the United States Court of Appeals for the Second Circuit remanded the rule to the EPA for reconsideration.  The court instructed the EPA to reconsider several aspects of the rule that were beneficial to the regulated community after finding that these provisions of the rule were contrary to the language of the Clean Water Act or were not sufficiently explained in the rule.  In April 2008, the United States Supreme Court agreed to review the decision of the Second Circuit on the question of whether the EPA may take into consideration a cost-benefit analysis in developing these regulations, a consideration of potential benefit to the regulated community that the Second Circuit disallowed.  In March 2009, the Supreme Court ruled in favor of the petitioners that cost-benefit analysis may be taken into consideration.  The EPA may now reissue a rule similar in structure to the rule remanded by the Second Circuit, or the EPA may issue a rule with a substantially different structure and effect.  Until the EPA issues guidance to the regulated community on what actions should be taken to comply with the Clean Water Act, and until the form and substance of the new rule itself is determined, it is impossible to estimate the effect of the Supreme Court's decision on Entergy's business.



 
159

 

In April 2009, Entergy submitted a section 401 water quality certification for Indian Point to the New York State Department of Environmental Conservation (NYSDEC).  The certification, or a waiver or exemption of the same, is required pursuant to section 401 of the federal Clean Water Act as a supporting document to the NRC's license renewal decision.  On May 13, 2009, the NYSDEC deemed the application incomplete, requested additional information, and requested that Entergy respond within 120 days or by September 10, 2009.  Entergy already has provided some of the requested information and continues to work with the NYSDEC in order to provide the additional information before the requested deadline.  By law, the NYSDEC must approve or deny the application within one-year of receipt.

Groundwater at Certain Nuclear Sites

As discussed in the Form 10-K, Entergy joined other nuclear utilities and the Nuclear Energy Institute in 2006 to develop a voluntary groundwater monitoring and protection program.  This initiative began after detection of very low levels of radioactive material, primarily tritium, in groundwater at several plants in the United States.  To date, radionuclides have been detected at Entergy's Indian Point, Palisades and Pilgrim plants.  The situation at Indian Point is described in the Form 10-K.

At Palisades, Entergy identified tritium in two monitoring wells in December 2007 due to leakage from the buried piping for a recirculation line.  Non-destructive evaluation of the line identified one area of leakage and repairs were completed in 2008.  Since early 2008, groundwater from three wells has been sampled and analyzed on a bi-weekly basis.  Following the repairs, tritium declined in all of the wells and trended downward until one well spiked in March 2008.  Additional investigation was performed to locate the source, including installation of eighteen temporary monitoring wells along the path of the recirculation line.  A new leak from a different line was located and repairs are currently underway.  Following repairs, bi-weekly sampling will continue until the groundwater is below the method detection limit.

At Pilgrim, six existing monitoring wells are being sampled and analyzed on a periodic basis.  Results continue to show low levels of tritium.  A hydrogeological analysis will be performed in 2009 to pinpoint the location for six additional wells to further study the situation.  Currently, the detections are believed to be from wash out of naturally occurring atmospheric tritium.  Precipitation studies are being performed to confirm this theory.

Other Environmental Matters

Entergy Louisiana and Entergy New Orleans

In March 2009, Entergy Louisiana received a Certificate of Completion from the LDEQ for the former site of the Southern Transformer Shop, located in Algiers, Orleans Parish.  This document certifies completion of the soil remediation in compliance with Louisiana's "Voluntary Remediation Program."  Prior to the soil remediation, which was completed in January 2008, a thorough site assessment and risk evaluation had been performed at the property utilizing Louisiana's Risk Evaluation and Corrective Action Program.

Entergy Arkansas

In February 2009, Entergy Arkansas received notice that the Arkansas Natural Resources Commission has proposed a rule that would set minimum stream flows for the White River, from which Entergy Arkansas' Independence generating facility withdraws its cooling water.  If the river reaches the low flow conditions described in the proposed regulation, at a time when riparian users of the river were withdrawing 300 cubic feet per second or more, all riparian users of the river other than municipal and domestic users would be required to cease all withdrawals from the river.  Because current riparian withdrawals do not total 300 cubic feet per second, and are not expected to reach this level in the near future, the regulation would have no immediate effect on Independence; however, Entergy Arkansas estimates that if and when the regulation becomes effective, it could cause Independence to cease water withdrawals, and thus to cease operation, for as many as 18 days during an average flow year and for as many as 90 days during a very low flow year, based on historical flows.  Entergy Arkansas has submitted comments to the agency expressing its concern and the potential costs to customers for replacement power and will continue to monitor the rule's development.

 
160

 

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

The Registrant Subsidiaries have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:
 
Ratios of Earnings to Fixed Charges
 
Twelve Months Ended
 
December 31,
 
June 30,
 
 
2004
 
2005
 
2006
 
2007
 
2008
 
2009
 
                         
Entergy Arkansas
3.37
 
3.75
 
3.37
 
3.19
 
2.33
 
2.18
 
Entergy Gulf States Louisiana
3.04
 
3.34
 
3.01
 
2.84
 
2.44
 
2.57
 
Entergy Louisiana
3.60
 
3.50
 
3.23
 
3.44
 
3.14
 
3.16
 
Entergy Mississippi
3.41
 
3.16
 
2.54
 
3.22
 
2.92
 
3.05
 
Entergy New Orleans
 3.60
 
1.22
 
1.52
 
2.74
 
3.71
 
3.58
 
Entergy Texas
2.07
 
2.06
 
2.12
 
2.07
 
2.04
 
1.66
 
System Energy
3.95
 
3.85
 
4.05
 
3.95
 
3.29
 
3.48
 



 
Ratios of Earnings to Combined Fixed Charges
and Preferred Dividends/Distributions
 
Twelve Months Ended
 
December 31,
 
June 30,
 
 
2004
 
2005
 
2006
 
2007
 
2008
 
2009
 
                         
Entergy Arkansas
2.98
 
3.34
 
3.06
 
2.88
 
1.95
 
1.75
 
Entergy Gulf States Louisiana
2.90
 
3.18
 
2.90
 
2.73
 
2.42
 
2.54
 
Entergy Louisiana
3.60
 
3.50
 
2.90
 
3.08
 
2.87
 
3.12
 
Entergy Mississippi
3.07
 
2.83
 
2.34
 
2.97
 
2.67
 
2.73
 
Entergy New Orleans
3.31
 
1.12
 
1.35
 
2.54
 
3.45
 
3.24
 

Item 6.  Exhibits *

 
4(a) -
Officer's Certificate No. 2-B-2 dated May 14, 2009 supplemented to the Entergy Texas, Inc. Indenture of Trust and Security Agreement dated as of October 1, 2008, establishing the form and certain terms of the Mortgage Bonds, 7.875% Series due June 1, 2039.
     
 
4(b) -
Twenty-sixth Supplemental Indenture, dated as of June 1, 2009, to the Entergy Mississippi, Inc. Mortgage and Deed of Trust, dated as of February 1, 1988.
     
 
12(a) -
Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
     
 
12(b) -
Entergy Gulf States Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined.
     
 
12(c) -
Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined.
     
 
12(d) -
Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
     
 
 
 
161

 
 
 
  12(e) - Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Pre­ferred Dividends, as defined.
     
 
12(f) -
Entergy Texas' Computation of Ratios of Earnings to Fixed Charges, as defined.
     
 
12(g) -
System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined.
     
 
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 Arkansas.
     
 
31(e) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States Louisiana.
     
 
31(f) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States Louisiana.
     
 
31(g) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
     
 
31(h) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
     
 
31(i) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
     
 
31(j) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
     
 
31(k) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
     
 
31(l) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
     
 
31(m) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
     
 
31(n) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
     
 
31(o) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
     
 
31(p) -
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 Arkansas.
     
 
32(e) -
Section 1350 Certification for Entergy Gulf States Louisiana.
     
 
32(f) -
Section 1350 Certification for Entergy Gulf States Louisiana.
     
 
32(g) -
Section 1350 Certification for Entergy Louisiana.
     
 
32(h) -
Section 1350 Certification for Entergy Louisiana.
     
 
32(i) -
Section 1350 Certification for Entergy Mississippi.
     
 
 
 
162

 
 
  32(j) -  Section 1350 Certification for Entergy Mississippi.
     
 
32(k) -
Section 1350 Certification for Entergy New Orleans.
     
 
32(l) -
Section 1350 Certification for Entergy New Orleans.
     
 
32(m) -
Section 1350 Certification for Entergy Texas.
     
 
32(n) -
Section 1350 Certification for Entergy Texas.
     
 
32(o) -
Section 1350 Certification for System Energy.
     
 
32(p) -
Section 1350 Certification for System Energy.

___________________________

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

*
Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, 2009, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended June 30, 2009.

 
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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 LOUISIANA, L.L.C.
ENTERGY LOUISIANA, LLC
ENTERGY MISSISSIPPI, INC.
ENTERGY NEW ORLEANS, INC.
ENTERGY TEXAS, INC.
SYSTEM ENERGY RESOURCES, INC.
 
 
/s/ Theodore H. Bunting, Jr.
Theodore H. Bunting, Jr
Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer)


Date:    August 7, 2009

 
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