8-KFinancial Events

ENTERGY CORP /DE/ 8-K Report, Material Impairment (Dec 23, 2008)

Filed December 23, 2008For Securities:ETR

Summary

This 8-K filing from Entergy Corporation, dated December 23, 2008, reports on a significant development concerning its subsidiary, Entergy Arkansas. On December 17, 2008, the Arkansas Court of Appeals largely upheld a prior decision by the Arkansas Public Service Commission (APSC) regarding Entergy Arkansas's base rate case. As a result of this ruling, Entergy Arkansas will record an estimated $70 million charge to earnings in the fourth quarter of 2008. This charge reflects the regulatory assets associated with storm reserve costs, lease termination removal costs, and stock-based compensation that are now deemed unlikely to be recovered. Importantly, this charge is non-cash, as the associated expenditures have already occurred. While management believes these costs were prudently incurred, Entergy Arkansas is evaluating its next steps for potential recovery.

Key Highlights

  • 1Entergy Arkansas will record an estimated $70 million non-cash charge to earnings in Q4 2008.
  • 2The charge is due to the Arkansas Court of Appeals upholding a prior APSC decision disallowing recovery of certain costs.
  • 3Costs impacted include storm reserve, lease termination removal, and stock-based compensation.
  • 4The charge relates to regulatory assets previously recorded that are now deemed unrecoverable.
  • 5The APSC's prior decision limited storm restoration cost recovery to a fixed annual amount ($14.4 million).
  • 6Entergy Arkansas appealed the APSC decision, but the Court of Appeals largely affirmed it.
  • 7Entergy management continues to believe these costs are recoverable and is evaluating further actions.

Frequently Asked Questions

The $70 million charge is primarily due to the Arkansas Court of Appeals upholding a decision by the Arkansas Public Service Commission (APSC) that disallowed the recovery of certain costs. These costs include previously accumulated storm reserve expenses, lease termination removal costs, and stock-based compensation expenses for Entergy Arkansas.

No, the $70 million charge is a non-cash charge. This means that the actual cash expenditures related to these costs have already occurred in previous periods. The charge reflects the accounting recognition that these costs are no longer probable of recovery from ratepayers.

The APSC ordered Entergy Arkansas to reduce annual rates, set a lower return on common equity, disallowed certain incentive and stock-based compensation costs, and capped future storm restoration cost recovery to a fixed annual amount of $14.4 million, regardless of actual costs incurred. This left a significant portion of previously incurred storm costs unrecoverable.

Entergy management continues to believe that Entergy Arkansas prudently incurred these costs and is entitled to recover them. The company is currently evaluating what actions it should take regarding the recovery of these disallowed costs.