10-QPeriod: Q3 FY2006

ENTERGY CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 8, 2006For Securities:ETR

Summary

Entergy Corporation's (ETR) third-quarter 2006 10-Q filing highlights ongoing legal proceedings and regulatory reviews, particularly concerning its subsidiaries Entergy New Orleans and Entergy Gulf States. While management has certified the effectiveness of disclosure controls and procedures, significant litigation and regulatory matters continue to demand attention. The company's purchased power agreements (PPAs) faced regulatory scrutiny from the FERC. Although most were affirmed, the FERC imposed limitations on the ISES PPAs' term and found a code of conduct violation related to the WBL PPAs, impacting Entergy Arkansas' retained share of Grand Gulf. Additionally, Entergy Gulf States is identified as a potentially responsible party for contamination at a Texas superfund site. These factors, alongside previously disclosed risks and a temporary suspension of its share repurchase program due to hurricanes, indicate a complex operating environment for Entergy.

Key Highlights

  • 1Disclosure controls and procedures certified as effective by management, including CEOs and CFOs, across various subsidiaries.
  • 2Updates on significant legal proceedings, including the Texas Power Price Lawsuit, Entergy New Orleans rate of return and fuel clause litigation (where class certification was denied and appeals are ongoing), and the Murphy Oil Lawsuit with a reduced damages amount for Entergy Louisiana.
  • 3Environmental matters are under scrutiny, including a potential citizen's suit under RCRA regarding radioactive material release at Indian Point and Entergy Gulf States being named a potentially responsible party for contamination at a Texas superfund site.
  • 4The FERC issued an order on Entergy's purchased power agreements (PPAs), affirming most but limiting the term of ISES PPAs and identifying a code of conduct violation related to WBL PPAs, affecting Entergy Arkansas' Grand Gulf share.
  • 5Entergy Corporation did not repurchase shares in the first nine months of 2006 but resumed repurchases in Q4 2006, with the $1.5 billion program extended through 2008 due to hurricane impacts.
  • 6The FERC dismissed LEPA's petition for transmission service, ruling that Entergy properly applied its Open Access Transmission Tariff and that LEPA must bear upgrade costs if it pursues the service.
  • 7Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Dividends/Distributions are provided for various subsidiaries, showing fluctuations year-over-year, with Entergy New Orleans experiencing shortfalls in prior periods noted.

Frequently Asked Questions

Entergy is involved in several significant legal and regulatory matters. These include a class-action lawsuit regarding Texas power prices, ongoing litigation and appeals related to Entergy New Orleans' rates and fuel clauses (with class certification denied), and a lawsuit concerning an oil refinery explosion impacting Entergy Louisiana. Environmentally, Entergy faces potential citizen suits under RCRA for a radioactive material release and is identified as a potentially responsible party for contamination at a Texas superfund site. Additionally, the FERC has issued orders concerning Entergy's purchased power agreements, finding a code of conduct violation and limiting contract terms, and has denied a transmission service request from LEPA.

Yes, the $1.5 billion share repurchase program, initially announced in August 2004, was temporarily suspended due to Hurricanes Katrina and Rita. The Board has extended the authorization for its completion through 2008. Entergy Corporation did not repurchase any shares during the first nine months of 2006 but resumed repurchases in the fourth quarter of 2006.

The FERC affirmed the ALJ's decision that most of the PPAs (RB PPAs, WBL PPAs, and ISES PPAs) were just and reasonable. However, the FERC limited the term of the ISES PPAs to ten years. It also found a violation of Entergy's code of conduct regarding the WBL PPAs, ordering Entergy Arkansas' retained share of Grand Gulf to be removed from these agreements, but approved the remaining portion. The FERC suggested Entergy Arkansas' retained share could be separately contracted at a cost-based price.

The filing includes ratios of earnings to fixed charges and to combined fixed charges and preferred dividends/distributions for several subsidiaries. While most subsidiaries show ratios significantly above 1.0, indicating earnings adequacy, historical notes for Entergy New Orleans mention periods where earnings were not adequate to cover fixed charges. The ratios for all subsidiaries have shown some year-over-year fluctuations. Investors should review these ratios in conjunction with the full financial statements for a comprehensive understanding of financial health.