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| ETR > SEC Filings for ETR > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
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.
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.
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.
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