8-KOther Events

ENTERGY CORP /DE/ 8-K Report, Corporate Update (Aug 12, 2011)

Filed August 12, 2011For Securities:ETR

Summary

Entergy Corporation (ETR) filed an 8-K on August 12, 2011, reporting a significant settlement agreement with the Internal Revenue Service (IRS) concerning the mark-to-market income tax treatment of wholesale electric power purchase and sale agreements. The most impactful element of this settlement is the recognition of approximately $1.5 billion in income for tax purposes, reversing previously deducted temporary differences for which deferred taxes had been provided. Additionally, the settlement includes a gain of approximately $1.030 billion related to a 2005 subsidiary formation, which will provide further tax depreciation benefits for Entergy Louisiana. This agreement is expected to have a material impact on Entergy's tax position, reducing its net operating loss carryover by an estimated $2.5 billion. The settlement specifically addresses certain tax positions related to the Vidalia power purchase contract, leading to the reversal of approximately $422 million in deferred tax liabilities and uncertain tax liabilities at Entergy Louisiana. While Entergy Louisiana anticipates sharing some benefits with its customers, the exact amount is yet to be determined. The overall financial impact on net income is contingent on customer sharing and accrued interest, though a reduction in income tax expense is projected for 2011.

Key Highlights

  • 1Entergy reached a settlement with the IRS regarding mark-to-market income tax treatment of wholesale power agreements.
  • 2The settlement involves recognizing $1.5 billion in income for tax purposes, reversing prior deductions.
  • 3A gain of $1.030 billion on a 2005 subsidiary formation is recognized for tax purposes, leading to increased depreciation for Entergy Louisiana.
  • 4Net operating loss carryover is projected to decrease by approximately $2.5 billion due to the settlement.
  • 5Deferred tax liabilities and uncertain tax positions related to the Vidalia power purchase contract are reversed, amounting to $422 million for Entergy Louisiana.
  • 6Entergy Louisiana expects to share a portion of the Vidalia settlement benefits with customers, though the amount is undetermined.
  • 7A reduction in income tax expense is anticipated for 2011, totaling approximately $415 million for Entergy Louisiana and $405 million for Entergy.

Frequently Asked Questions

The main event is Entergy Corporation's settlement with the Internal Revenue Service (IRS) concerning the tax treatment of certain wholesale electric power purchase and sale agreements, particularly related to mark-to-market accounting and the Vidalia hydroelectric facility contract.

The settlement will result in the recognition of approximately $1.5 billion in income for tax purposes and a $1.030 billion gain from a subsidiary formation, leading to increased tax depreciation. It also reduces net operating loss carryovers by about $2.5 billion. While income tax expense is expected to decrease significantly in 2011, the net impact on net income is not yet determinable due to pending customer sharing arrangements and accrued interest.

Yes, Entergy Louisiana expects to share a portion of the benefits derived from the settlement related to the Vidalia power purchase contract with its customers, as per a previous agreement with the LPSC. However, the exact amount of this sharing is currently unknown.

The settlement leads to the reversal of approximately $422 million in deferred tax liabilities and liabilities for uncertain tax positions for Entergy Louisiana specifically concerning the Vidalia contract. Overall, it results in a significant reduction in Entergy's net operating loss carryover.