Why did Entergy's 1995 earnings rebound so strongly from 1994?

1994 results were depressed by the one-time $68.2 million after-tax effect of the FERC settlement (System Energy income tax allocation dispute), GSU Texas-related write-offs of about $137 million, and restructuring and Merger-related charges. In 1995 these largely did not recur, and revenues rose on higher retail energy sales. Net income still includes a $35.4 million cumulative-effect gain from an accounting change at AP&L.

How large is the River Bend risk for Entergy and GSU investors?

The Texas Supreme Court agreed in February 1996 to hear GSU's appeal, with oral argument set for March 19, 1996. Roughly $1.4 billion of River Bend plant costs are abeyed and not in rate base. If the PUCT adversely rules, a net-of-tax write-off of up to $289 million could follow, and $182 million of previously collected revenue could be subject to refund. Management says a loss contingency has not occurred and that substantially all abeyed costs should be recovered.

What is the Cajun bankruptcy's effect on GSU?

Cajun, the 30% co-owner of River Bend, has not paid its full share of costs since 1992; its unpaid 1995 share was about $58.7 million, and cumulative net exposure was $31.1 million. Cajun filed Chapter 11 in December 1994, and GSU has asked the court to deny Cajun's motion to reject the River Bend operating agreement. The filing says an adverse outcome in the GSU-Cajun litigation could force GSU into bankruptcy proceedings.

Is Entergy's international expansion a near-term earnings driver?

Not in the near term, by management's own account. Nonregulated investments reduced 1995 net income by about $64.8 million and are described as unlikely to contribute positively to earnings soon. Management expects future growth, citing the CitiPower acquisition (about $294 million equity, 234,500 customers) and Argentine and Peruvian power projects. Such investments carry higher risk, including expropriation, currency controls, and repatriation limits.

How does competition affect Entergy's regulated business?

Competition is a growing concern. Industrial customers have cogeneration and fuel-switching alternatives, and two large LP&L industrial customers are building cogeneration plants expected in 1997-1998, which will reduce their purchases. Retail wheeling studies are under way in about 40 states, including the New Orleans area, and the FERC open-access and stranded-cost rulemaking could reshape cost recovery. Entergy has also negotiated rate caps and freezes, and it is pursuing incentive-rate plans.

ETR 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 11, 1996. Cited figures are marked; the original filing is the authoritative source.

Entergy Corporation's 1995 combined Form 10-K (filed March 11, 1996, covering Entergy and its five operating utilities plus System Energy) shows a holding company in transition.

Consolidated 1995 net income rose to $520.0 million^a ($2.28 per share) from $341.8 million ($1.49) in 1994, which was depressed by a $68.2 million FERC settlement charge and other write-offs. Operating revenues grew 5% to $6.27 billion, driven by higher retail sales from warmer weather and a $120.5 million System Energy FERC-related revenue item. Return on average common equity recovered to 8.11% from 5.31%, though that remains modest.

Dividends were held at $1.80^b per share. The filing's central investor concern is GSU's River Bend exposure. The company carries about $1.4 billion of abeyed River Bend plant costs, with a potential net-of-tax write-off of up to $289 million if the Texas PUCT rules adversely, plus a required 1996 SFAS 121 write-off of $169 million in Texas deferrals.

Entergy also faces a Cajun Electric bankruptcy that threatens GSU's River Bend co-ownership economics, and a $4.8 billion^c Panda Energy lawsuit that management calls without merit. Dividend capacity from subsidiaries is also constrained by these matters, with GSU paying no dividends to the parent in 1995. Entergy is simultaneously expanding into nonregulated and international businesses, including the $1.2 billion CitiPower acquisition in Australia (closed January 1996, $294 million equity), Argentine and Peruvian power investments, and planned telecommunications and power marketing ventures.

Management acknowledges these investments reduced 1995 net income by about $64.8 million^d and are unlikely to help near-term earnings. The company's competitive exposure, including retail wheeling studies and industrial cogeneration threats, is also flagged as a growing challenge to the regulated franchise.

02—Key points

Key Highlights

1995 consolidated net income of $520.0 million ($2.28/share), up sharply from $341.8 million ($1.49/share) in 1994, which included a $68.2 million FERC settlement charge.
Operating revenues of $6.27 billion in 1995, up about 5% from $5.98 billion, with electric sales volume and weather as main drivers.
River Bend exposure: $1.4 billion of abeyed plant costs; up to $289 million net-of-tax write-off possible, plus a $169 million SFAS 121 write-off required in 1996.
Cajun Electric Power Cooperative bankruptcy and litigation over River Bend ownership pose risks to GSU's operations, cash flow, and dividend capacity.
Nonregulated investments of $555.5 million (net of $169 million accumulated losses), reducing 1995 net income by about $64.8 million; CitiPower (Australia) acquired January 1996 for about $1.2 billion.
Common dividend held at $1.80 per share; long-term obligations of about $7.5 billion and total assets of $22.3 billion at year-end 1995.
Panda Energy lawsuit seeking about $4.8 billion in damages against Entergy affiliates, which management believes is without merit.

03—Questions

Frequently Asked Questions

Why did Entergy's 1995 earnings rebound so strongly from 1994?
1994 results were depressed by the one-time $68.2 million after-tax effect of the FERC settlement (System Energy income tax allocation dispute), GSU Texas-related write-offs of about $137 million, and restructuring and Merger-related charges. In 1995 these largely did not recur, and revenues rose on higher retail energy sales. Net income still includes a $35.4 million cumulative-effect gain from an accounting change at AP&L.
How large is the River Bend risk for Entergy and GSU investors?
The Texas Supreme Court agreed in February 1996 to hear GSU's appeal, with oral argument set for March 19, 1996. Roughly $1.4 billion of River Bend plant costs are abeyed and not in rate base. If the PUCT adversely rules, a net-of-tax write-off of up to $289 million could follow, and $182 million of previously collected revenue could be subject to refund. Management says a loss contingency has not occurred and that substantially all abeyed costs should be recovered.
What is the Cajun bankruptcy's effect on GSU?
Cajun, the 30% co-owner of River Bend, has not paid its full share of costs since 1992; its unpaid 1995 share was about $58.7 million, and cumulative net exposure was $31.1 million. Cajun filed Chapter 11 in December 1994, and GSU has asked the court to deny Cajun's motion to reject the River Bend operating agreement. The filing says an adverse outcome in the GSU-Cajun litigation could force GSU into bankruptcy proceedings.
Is Entergy's international expansion a near-term earnings driver?
Not in the near term, by management's own account. Nonregulated investments reduced 1995 net income by about $64.8 million and are described as unlikely to contribute positively to earnings soon. Management expects future growth, citing the CitiPower acquisition (about $294 million equity, 234,500 customers) and Argentine and Peruvian power projects. Such investments carry higher risk, including expropriation, currency controls, and repatriation limits.
How does competition affect Entergy's regulated business?
Competition is a growing concern. Industrial customers have cogeneration and fuel-switching alternatives, and two large LP&L industrial customers are building cogeneration plants expected in 1997-1998, which will reduce their purchases. Retail wheeling studies are under way in about 40 states, including the New Orleans area, and the FERC open-access and stranded-cost rulemaking could reshape cost recovery. Entergy has also negotiated rate caps and freezes, and it is pursuing incentive-rate plans.

04—Continue

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