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__________________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

   
 

For the Quarterly Period Ended March 31, 2004

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   
 

For the transition period from ____________ to ____________

Commission
File Number

Registrant, State of Incorporation,
Address of Principal Executive Offices and Telephone Number

I.R.S. Employer
Identification No.

1-11299

ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000

72-1229752

1-10764

ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue, 40th Floor
Little Rock, Arkansas 72201
Telephone (501) 377-4000

71-0005900

1-27031

ENTERGY GULF STATES, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631

74-0662730

1-8474

ENTERGY LOUISIANA, INC.
(a Louisiana corporation)
4809 Jefferson Highway
Jefferson, Louisiana 70121
Telephone (504) 840-2734

72-0245590

1-31508

ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000

64-0205830

0-5807

ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street, Building 505
New Orleans, Louisiana 70112
Telephone (504) 670-3674

72-0273040

1-9067

SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000

72-0752777

__________________________________________________________________________________________

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

X

No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

 

Yes

No

Entergy Corporation

Ö

 

Entergy Arkansas, Inc.

 

Ö

Entergy Gulf States, Inc.

 

Ö

Entergy Louisiana, Inc.

 

Ö

Entergy Mississippi, Inc.

 

Ö

Entergy New Orleans, Inc.

 

Ö

System Energy Resources, Inc.

 

Ö

Common Stock Outstanding

 

Outstanding at April 30, 2004

Entergy Corporation

($0.01 par value)

230,271,986

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2003, filed by the individual registrants with the SEC, and should be read in conjunction therewith.

 

 

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2004

 

 

Page Number

Definitions

1

Entergy Corporation and Subsidiaries

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

4

        Liquidity and Capital Resources

7

        Significant Factors and Known Trends

8

        Critical Accounting Estimates

13

    Consolidated Statements of Income

15

    Consolidated Statements of Cash Flows

16

    Consolidated Balance Sheets

18

    Consolidated Statements of Retained Earnings, Comprehensive Income, and
     Paid-In Capital

20

    Selected Operating Results

21

    Notes to Consolidated Financial Statements

22

Entergy Arkansas, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

31

        Liquidity and Capital Resources

32

        Significant Factors and Known Trends

33

        Critical Accounting Estimates

34

    Income Statements

35

    Statements of Cash Flows

37

    Balance Sheets

38

    Selected Operating Results

40

Entergy Gulf States, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

41

        Liquidity and Capital Resources

42

        Significant Factors and Known Trends

43

        Critical Accounting Estimates

44

    Income Statements

45

    Statements of Cash Flows

47

    Balance Sheets

48

    Statements of Retained Earnings and Comprehensive Income

50

    Selected Operating Results

51

Entergy Louisiana, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

52

        Liquidity and Capital Resources

53

        Significant Factors and Known Trends

54

        Critical Accounting Estimates

55

    Income Statements

56

    Statements of Cash Flows

57

    Balance Sheets

58

    Selected Operating Results

60

Entergy Mississippi, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

61

        Liquidity and Capital Resources

61

        Significant Factors and Known Trends

63

        Critical Accounting Estimates

64

    Income Statements

65

    Statements of Cash Flows

67

ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2004

 

 

Page Number

    Balance Sheets

68

    Selected Operating Results

70

Entergy New Orleans, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

71

        Liquidity and Capital Resources

72

        Significant Factors and Known Trends

73

        Critical Accounting Estimates

74

    Statements of Operations

75

    Statements of Cash Flows

77

    Balance Sheets

78

    Selected Operating Results

80

System Energy Resources, Inc.

 

    Management's Financial Discussion and Analysis

 

        Results of Operations

81

        Liquidity and Capital Resources

81

        Significant Factors and Known Trends

82

        Critical Accounting Estimates

82

    Income Statements

83

    Statements of Cash Flows

85

    Balance Sheets

86

Notes to Respective Financial Statements

88

Item 4. Controls and Procedures

96

Part II. Other Information

 

    Item 1. Legal Proceedings

98

    Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
     Securities

98

    Item 4. Submission of Matters to a Vote of Security Holders

99

    Item 5. Other Information

100

    Item 6. Exhibits and Reports on Form 8-K

102

Signature

106

 

FORWARD-LOOKING INFORMATION

From time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some of those factors (in addition to others described elsewhere in this report and in subsequent securities filings) include:

 

 

 

 

 

 

 

 

 

 

 

 

(Page left blank intentionally)

DEFINITIONS

Certain abbreviations or acronyms used in the text are defined below:

Abbreviation or Acronym

Term

   

AFUDC

Allowance for Funds Used During Construction

ALJ

Administrative Law Judge

ANO 1 and 2

Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear)

APSC

Arkansas Public Service Commission

BCF

One billion cubic feet of natural gas

BCF/D

One billion cubic feet of natural gas per day

Board

Board of Directors of Entergy Corporation

BPS

British pounds sterling

Cajun

Cajun Electric Power Cooperative, Inc.

capacity factor

Actual plant output divided by maximum potential plant output for the period

City Council or Council

Council of the City of New Orleans, Louisiana

CPI-U

Consumer Price Index - Urban

Damhead Creek

800 MW (gas) combined cycle electric generating facility that entered commercial operations in the first quarter of 2001, located in the United Kingdom, which was sold by Entergy in 2002

DOE

United States Department of Energy

domestic utility companies

Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively

EITF

FASB's Emerging Issues Task Force

EPA

United States Environmental Protection Agency

EPDC

Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation

electricity marketed

Total physical volume marketed by Entergy-Koch in the U.S. and Europe during the period

electricity volatility

Measure of price fluctuation over time using standard deviation of daily price differences for into-Entergy and into-Cinergy power prices for the upcoming month

Energy Commodity Services

Entergy's business segment that is focused almost exclusively on providing energy commodity trading and gas transportation and storage services through Entergy-Koch, LP and also includes Entergy's non-nuclear wholesale assets business

Entergy

Entergy Corporation and its direct and indirect subsidiaries

Entergy Corporation

Entergy Corporation, a Delaware corporation

Entergy-Koch

Entergy-Koch, L.P., a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc.

FASB

Financial Accounting Standards Board

FEMA

Federal Emergency Management Agency

FERC

Federal Energy Regulatory Commission

FitzPatrick

James A. FitzPatrick nuclear power plant, 825 MW facility located near Oswego, New York, purchased in November 2000 from NYPA by Entergy's Non-Utility Nuclear business

DEFINITIONS (Continued)

Abbreviation or Acronym

Term

Form 10-K

The combined Annual Report on Form 10-K for the year ended December 31, 2003 of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

gain/loss days

Ratio of the number of days when Entergy-Koch recognized a net gain from commodity trading activities to the number of days when Entergy-Koch recognized a net loss from commodity trading activities

gas marketed

Total physical volume marketed by Entergy-Koch in the U.S. and Europe during the period

gas volatility

Measure of price fluctuation over time using standard deviation of daily price differences for Henry Hub natural gas prices for the upcoming month

Grand Gulf 1

Unit No. 1 of the Grand Gulf Nuclear Generating Station

GWh

Gigawatt hour(s), which equals one million kilowatt-hours

Independence

Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power

Indian Point 2

Indian Point Energy Center Unit 2 - nuclear power plant, 984 MW facility located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's Non-Utility Nuclear business

Indian Point 3

Indian Point Energy Center Unit 3 - nuclear power plant, 994 MW facility located in Westchester County, New York, purchased in November 2000 from NYPA by Entergy's Non-Utility Nuclear business

IRS

Internal Revenue Service

kV

Kilovolt

kW

Kilowatt

kWh

Kilowatt-hour(s)

LDEQ

Louisiana Department of Environmental Quality

LPSC

Louisiana Public Service Commission

Mcf

1,000 cubic feet of gas

miles of pipeline

Total miles of transmission and gathering pipeline

MMBtu

One million British Thermal Units

MPSC

Mississippi Public Service Commission

MW

Megawatt(s), which equals one thousand kilowatt(s)

MWh

Megawatt-hours

Nelson Unit 6

Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States

Net debt ratio

Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents

Net MW in operation

Installed capacity owned or operated

Net revenue

Operating revenue net of fuel, fuel-related, and purchased power expenses; other regulatory credits; and amortization of rate deferrals

Non-Utility Nuclear

Entergy's business segment that owns and operates five nuclear power plants and sells electric power produced by those plants to wholesale customers

NRC

Nuclear Regulatory Commission

NYPA

New York Power Authority

Pilgrim

Pilgrim Nuclear Station, 688 MW facility located in Plymouth, Massachusetts, purchased in July 1999 from Boston Edison by Entergy's Non-Utility Nuclear business

DEFINITIONS (Concluded)

Abbreviation or Acronym

Term

   

production cost

Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas

PPA

Purchased power agreement

PRP

Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination)

PUCT

Public Utility Commission of Texas

PUHCA

Public Utility Holding Company Act of 1935, as amended

PURPA

Public Utility Regulatory Policies Act of 1978

Ritchie Unit 2

Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil)

RTO

Regional transmission organization

River Bend

River Bend Steam Electric Generating Station (nuclear)

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board

SMEPA

South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf 1

spark spread

The dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity

storage capacity

Working gas storage capacity

System Agreement

Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources

System Energy

System Energy Resources, Inc.

System Fuels

System Fuels, Inc.

throughput

Gas in BCF/D transported through a pipeline during the period

Unit Power Sales Agreement

Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf 1

UK

The United Kingdom of Great Britain and Northern Ireland

U.S. Utility

Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution

Vermont Yankee

Vermont Yankee nuclear power plant, 510 MW facility located in Vernon, Vermont, purchased in July 2002 from Vermont Yankee Nuclear Power Corporation by Entergy's Non-Utility Nuclear business

Waterford 3

Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana

weather-adjusted usage

Electric usage excluding the effects of deviations from normal weather

White Bluff

White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas

 

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Entergy's consolidated earnings applicable to common stock for the first quarter 2004 and 2003 were as follows:

Operating Segment

 

2004

 

2003

(In Thousands)

U.S. Utility

 

$115,658 

 

$107,789 

Non-Utility Nuclear

 

68,833 

 

196,985 

Energy Commodity Services

 

9,809 

 

93,790 

Parent & Other

 

12,861 

 

(3,557)

   Total

 

$207,161 

 

$395,007 

Entergy's income before taxes is discussed below according to the operating segments listed above. Earnings for 2003 include the $142.9 million net-of-tax cumulative effect of changes in accounting principle that increased earnings in the first quarter of 2003, almost entirely resulting from the implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. See Note 7 to the consolidated financial statements for more information concerning Entergy's operating segments and their financial results for the first quarter of 2004 and 2003.

Refer to SELECTED OPERATING RESULTS OF ENTERGY CORPORATION AND SUBSIDIARIES for further information with respect to operating statistics.

U.S. Utility

The increase in earnings for the U.S. Utility for the first quarter of 2004 compared to the first quarter of 2003 from $107.8 million to $115.7 million was primarily due to the $21.3 million net-of-tax cumulative effect of a change in accounting principle that reduced earnings at Entergy Gulf States in the first quarter of 2003 upon implementation of SFAS 143. Income before the cumulative effect of accounting change decreased by $13.4 million in 2004 compared to 2003 primarily due to a decrease in net revenue, partially offset by a decrease in interest charges.

Net Revenue

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

(Dollars In Millions)

2003 net revenue

$966.8 

Volume/weather

32.9 

Base rates

8.5 

Deferred fuel cost revisions

(46.3)

Price applied to unbilled sales

(46.2)

Other

9.0 

2004 net revenue

$924.7 

The volume/weather variance resulted from increased usage in the service territories. Billed usage increased a total of 199 GWh in the industrial, commercial, and governmental sectors. The increase, however, was partially offset by a decrease of 117 GWh in the residential sector primarily due to colder than normal weather in the first quarter of 2003.

Base rates increased net revenue due to a base rate increase at Entergy New Orleans that became effective in June 2003.

The deferred fuel cost revision variance primarily resulted from a revised unbilled sales pricing estimate made in the first quarter of 2003 to more closely align the fuel component of that pricing with expected recoverable fuel costs at Entergy Louisiana. Deferred fuel cost revisions also decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider.

The price applied to unbilled sales variance resulted from a decrease in price in the first quarter of 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs.

Gross operating revenues, fuel and purchased power expenses, and regulatory charges (credits)

Gross operating revenues include an increase in fuel cost recovery revenues of $138.5 million primarily due to higher fuel rates in the first quarter of 2004 resulting from increases in the market prices of non-associated purchased power and natural gas and collections of previous deferrals of fuel costs. As such, this revenue increase is offset by increased fuel and purchased power expenses.

Other regulatory charges decreased primarily due to the cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003 in addition to the amortization of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana.

Other Income Statement Variances

Interest and other charges decreased primarily due to a decrease in interest on long-term debt as a result of the net retirement and refinancing of long-term debt in 2003. See Note 5 to the consolidated financial statements in the Form 10-K for detail of long-term debt.

Non-Utility Nuclear

Following are key performance measures for Non-Utility Nuclear for the first quarters of 2004 and 2003:

 

 

2004

 

2003

 

 

 

 

 

Net MW in operation at March 31

 

4,001

 

3,955

Generation in GWh for the quarter

 

8,687

 

8,093

Capacity factor for the quarter

 

98.9%

 

93.7%

Average realized price per MWh

 

$39.70

 

$38.28

The decrease in earnings for Non-Utility Nuclear for the first quarter of 2004 compared to the first quarter of 2003 from $197.0 million to $68.8 million was due to the $160.3 million net-of-tax cumulative effect of a change in accounting principle recognized in the first quarter of 2003 upon implementation of SFAS 143. See Note 9 to the consolidated financial statements in the Form 10-K for further discussion of the implementation of SFAS 143. Income before the cumulative effect of accounting change increased by $32.1 million. The increase was due to higher revenues, which increased by $35 million, resulting from increased generation in 2004 due to fewer unplanned outages in 2004 and power uprates completed in 2003, and higher contract pricing. Lower operation and maintenance expenses, which decreased by $23 million, also contributed to the increase in income.

Energy Commodity Services

The decrease in earnings for Energy Commodity Services from $93.8 million for the first quarter 2003 to $9.8 million for the first quarter 2004 was primarily due to lower earnings from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was lower by $77 million in 2004 primarily as a result of:

Earnings for Gulf South Pipeline were basically flat as compared to first quarter 2003, as revenues from higher throughput and contract prices were offset by the loss of disproportionate income sharing and by higher costs resulting from legal expenses and remediation costs incurred in connection with a casing leak that occurred in late 2003 at the Magnolia storage facility.

Following are key performance measures for Entergy-Koch's operations for the first quarters of 2004 and 2003:

 

 

2004

 

2003

Entergy-Koch Trading

 

 

 

 

  Gas volatility

 

50%

 

91%

  Electricity volatility

 

37%

 

86%

  Gas marketed (BCF/D)

 

7.3

 

7.8

  Electricity marketed (GWh)

 

117,931

 

123,480

  Gain/loss days

 

1.3

 

1.3

Gulf South Pipeline

 

 

 

 

  Throughput (BCF/D)

 

2.22

 

2.20

  Production cost ($/MMBtu)

 

$0.144

 

$0.113

As discussed in the Form 10-K, Entergy accounts for its 50% share in Entergy-Koch under the equity method of accounting. Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. Certain terms of the partnership arrangement allocated income from various sources, and the taxes on that income, on a significantly disproportionate basis through 2003. Losses and distributions from operations are allocated to the partners equally. Substantially all of Entergy-Koch's profits were allocated to Entergy in 2003, 2002, and 2001. Effective January 1, 2004, a revaluation of Entergy-Koch's assets for legal capital account purposes occurred, and profit allocations changed after the revaluation. The profit allocations other than for weather trading and international trading became equal. Profit allocations for weather trading and international trading remain disproportionate to the ownership interests. The weather trading and international trading allocations are unequal only within a specified range, such that the overall earnings allocation should not materially differ from 50/50. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners.

Income Taxes

The effective income tax rates for the first quarters of 2004 and 2003 were 33.2% and 38.0%, respectively. The decrease in the effective income tax rate in 2004 is primarily due to the favorable settlement of a tax audit issue and higher pre-tax income in 2003 decreasing the effect of flow-through and permanent differences. The favorable settlement is reported in Parent and Other and is the primary reason for the increase in earnings for that part of Entergy's business in 2004.

Liquidity and Capital Resources

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital.

As discussed in the Form 10-K, Entergy Corporation, Entergy Louisiana, and Entergy Mississippi each has a 364-day credit facility due to expire in May 2004, which each of them expects to renew prior to expiration. Entergy Corporation has bank commitments for participation in its facility sufficient to renew it for its current amount of $1.45 billion, with approximately two-thirds of the committed amount for a term of three years and the remainder for a 364-day term. Entergy Arkansas has a 364-day credit facility that it renewed in 2004, increasing the amount to $85 million, that is now due to expire in April 2005. As of March 31, 2004, no borrowings were outstanding on the credit facilities. See Note 4 to the consolidated financial statements for additional discussion of Entergy's short-term credit facilities.

Cash Flow Activity

As shown in Entergy's Statements of Cash Flows, cash flows for the three months ended March 31, 2004 and 2003 were as follows:

 

 

2004

 

2003

 

 

(In Millions)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$692 

 

$1,335 

 

 

 

 

 

Cash flow provided by (used in):

 

 

 

 

   Operating activities

 

399 

 

51 

   Investing activities

 

(255)

 

(610)

   Financing activities

 

41 

 

(398)

Effect of exchange rates on cash and cash equivalents

 

(2)

 

Net increase (decrease) in cash and cash equivalents

 

183 

 

(958)

 

 

 

 

 

Cash and cash equivalents at end of period

 

$875 

 

$377 

Operating Cash Flow Activity

Entergy's cash flow provided by operating activities increased by $348 million in the first quarter of 2004 compared to the first quarter of 2003 primarily due to the following:

Investing Activities

Net cash used in investing activities decreased by $355 million in the first quarter of 2004 compared to the first quarter of 2003 primarily due to the following:

Financing Activities

Financing activities provided $41 million in the first quarter of 2004 compared to using $398 million in the first quarter of 2003 primarily due to the following:

Significant Factors and Known Trends

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in the Form 10-K for discussions of rate regulation and fuel-cost recovery, market and credit risks, utility restructuring, and nuclear matters. Following are updates to the information provided in the Form 10-K.

Rate Regulation and Fuel-Cost Recovery

See the Form 10-K for the chart summarizing material rate proceedings.  Following are updates to that chart.  Regarding base rates in Entergy Gulf States' Texas jurisdiction, those rates are currently set at rates approved by the PUCT in June 1999.  Depending on the start date for retail open access in Entergy Gulf States' Texas service territory, base rates may remain unchanged until the implementation of retail open access.  Regarding Entergy Mississippi, it made its formula rate plan filing with the MPSC in March 2004 based on a 2003 test year.  In April 2004, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed regulatory earnings range of 9.3% to 12.2%.

System Agreement Litigation

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of any of the domestic utility companies, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that a pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

Market and Credit Risks

Commodity Price Risk

Power Generation

As discussed more fully in the Form 10-K, the sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business and Energy Commodity Services, unless otherwise contracted, is subject to the fluctuation of market power prices. Following is an updated summary of the amount of Non-Utility Nuclear's output that is sold forward as of April 30, 2004 under physical or financial contracts at fixed prices (2004 represents the remainder of the year):

 

2004

 

2005

 

2006

 

2007

 

2008

Non-Utility Nuclear:

 

 

 

 

 

 

 

 

 

% of planned generation sold forward

100%

 

92%

 

59%

 

36%

 

17%

Planned generation (GWh)

24,178

 

34,164

 

34,853

 

34,517

 

34,513

Average contracted price per MWh

$39

 

$39

 

$38

 

$38

 

$40

The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant, which is through the expiration of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below PPA prices. Accordingly, because the price is not fixed, the table above does not report power from that plant as sold forward after October 2005. Approximately 2% of Non-Utility Nuclear's planned generation in 2005, 13% in 2006, 12% in 2007, and 12% in 2008 is under contract from Vermont Yankee after October 2005.

In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the Independent System Operators in their area. Following is an updated summary of the amount of the Non-Utility Nuclear business' installed capacity that is sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward, as of April 30, 2004:

 

   

2004

 

2005

 

2006

 

2007

 

2008

Non-Utility Nuclear:

                   

Percent of capacity sold forward:

                   

   Bundled capacity and energy contracts

 

55%

 

15%

 

13%

 

13%

 

13%

   Capacity contracts

 

35%

 

35%

 

24%

 

13%

 

0%

   Total

 

90%

 

50%

 

37%

 

26%

 

13%

Planned MW in operation

 

4,111

 

4,203

 

4,203

 

4,203

 

4,203

Average capacity contract price per kW per month

 

$2.4

 

$1.3

 

$1.3

 

$1.3

 

N/A

Blended Capacity and Energy (based on revenues)

                   

% of planned generation and capacity sold forward

 

100%

 

91%

 

68%

 

46%

 

28%

Average contract revenue per MWh

 

$40

 

$40

 

$39

 

$39

 

$40

 

Utility Restructuring

Transmission

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends, Transmission" in the Form 10-K for discussion of Entergy's contemplated independent transmission entity proposal. In April 2004, Entergy filed a proposal with the FERC to commit voluntarily to retain an independent entity ("Independent Coordinator of Transmission" or "ICT") to oversee the granting of transmission or interconnection service on Entergy's transmission system, to implement a transmission pricing structure that ensures that Entergy's retail native load customers pay for only those upgrades required to reliably serve their needs, and to have the ICT serve as the security coordinator for the Entergy region. Assuming applicable regulatory support and approvals can be obtained, Entergy proposes to contract with the ICT to oversee the granting of transmission service on the Entergy system as well as the implemen tation of the proposed weekly procurement process. The proposal was structured to not transfer control of Entergy's transmission system to the ICT, but rather to vest with the ICT broad oversight authority over transmission planning and operations.

Entergy also proposes to have the ICT administer a transmission expansion pricing protocol that will increase the efficiency of transmission pricing on the Entergy system and that will be designed to protect Entergy's native load customers from bearing the cost of transmission upgrades not required to reliably serve these customers' needs. Entergy intends for the ICT to determine whether transmission upgrades associated with new requests for service should be funded directly by the party requesting such service or by a broader group of transmission customers, including Entergy's native load customers. This determination would be made in accordance with protocols approved by the FERC and any party contesting such determination, including Entergy, would be required to seek review at the FERC.

Entergy has requested that the FERC provide its retail regulators sufficient time to review the proposal and provide their comments prior to the FERC ruling on the proposal. In March 2004, the APSC initiated a proceeding to review Entergy's proposal and compare the benefits of such a proposal to the alternative of Entergy joining the Southwest Power Pool RTO. The APSC has sought comments from all interested parties on this issue, with initial comments due May 17, 2004 and reply comments due in June 2004. As discussed in "Retail-Texas," a proceeding is pending currently before the PUCT in which it is evaluating whether the Entergy transmission organization, with oversight, is sufficiently independent to facilitate retail open access in Texas. A hearing in that proceeding is currently scheduled in June 2004. The processes for obtaining comments from the other retail regulators on Entergy's transmission proposal have not yet been established.

FERC's Supply Margin Assessment

In November 2001, FERC issued an order that established a new generation market power screen (called Supply Margin Assessment) for purposes of evaluating a utility's request for market-based rate authority, applied that new screen to the Entergy System (among others), determined that Entergy and the others failed the screen within their respective control areas, and ordered these utilities to implement certain mitigation measures as a condition to their continued ability to buy and sell at market-based rates. Among other things, the mitigation measures would require that Entergy transact at cost-based rates when it sells in the hourly wholesale market within its control area. Entergy requested rehearing of the order, and FERC delayed the implementation of certain mitigation measures until such time as it had the opportunity to consider the rehearing request. In June 2003, the FERC proposed and ultimately adopted new market behavior rules and tariff provisions that would be applied to any market-based sale. Entergy modified its market-based rate tariffs to reflect the new provisions but requested rehearing of FERC's order.

In April 2004, the FERC issued its Order on Rehearing and Modifying Interim Generation Market Power Analysis and Mitigation Policy. In its Order on Rehearing, the FERC established a new interim generation market power analysis that will consider two indicative market power screens: (1) the uncommitted pivotal supplier screen that is designed to measure an applicant's market power based on the control area market's annual peak demand; and (2) the uncommitted market share screen that is designed to evaluate an applicant's market share of uncommitted capacity on a seasonal basis. An integrated utility's native load obligation will be reflected in both screens, however, the proxy for native load obligation differs between the screens. For the uncommitted pivotal supplier screen the proxy for native load is the average of the daily native load peaks during the month in which the annual peak load day occurs; for the uncommitted market share screen the proxy for native load is the minimum pea k load day for each season. In the event an applicant fails either of these screens, there will be a rebuttable presumption that market power exists. The applicant will then have the opportunity to either: (1) submit a more detailed market power analysis that reflects market prices and measures an applicant's "economic capacity" and "available economic capacity;" or (2) propose case-specific mitigation tailored to the applicant's specific circumstances or adopt cost-based rates for sales within the applicant's control area. In its Order on Rehearing, the FERC also determined: (1) that transmission market power and the need to employ an independent entity to operate and administer an applicant's OASIS site is more properly considered in other proceedings, to the extent appropriate, and would not be considered in evaluating an applicant's generation market power for purposes of granting market-based rate authority; and (2) to eliminate the exemption from the generation market power analysis for sales within an RTO/ISO that had approved market monitoring. Entergy must re-file its generation market analyses using the two indicative screens within 60 days of the issuance of the Order on Rehearing.

In a companion order, issued on the same day, the FERC initiated a rulemaking proceeding to address, among other things, whether the FERC should retain or modify its existing four-prong test for evaluating market-based rate applications (i.e., whether the applicant has generation or transmission market power, whether the applicant can erect barriers to entry, and whether there are affiliate abuse or reciprocal dealing concerns), and whether the FERC should adopt different approaches for affiliate transactions. Initially, the FERC will hold a series of technical conferences to determine the issues that need to be considered and the procedural direction the rulemaking should take. The first of these technical conferences is scheduled in June 2004.

Interconnection Orders

See the Form 10-K for discussion of the order on rehearing issued by FERC on March 5, 2004 that modified Order 2003 to, among other things, eliminate the requirement that the generation owners receive their money back in no more than five years and to include a requirement that the generation owners receive credits only when transmission service is taken from the specific generating facility served by the interconnection or upgrade. In addition, the order on rehearing clarified that a transmission provider continues to have the option to charge a transmission rate that is the higher of the incremental cost rate for network upgrades required to interconnect a generating facility or an embedded cost rate so as to ensure that "other transmission customers, including a Transmission Provider's native load, will not subsidize Network Upgrades required to interconnect merchant generation." Consistent with the principles articulated in the order on rehearing, Entergy incorporated into its recent ICT filing an approach to the pricing of transmission expansion that protects the transmission provider's native load customers from the effects of service requests by other transmission customers and provides more efficient price signals for resource procurement and siting decisions. In addition, the transmission expansion pricing protocol included in the ICT filing proposes that the ICT review all costs that were previously charged to interconnecting customers for interconnection facilities to determine whether, under the proposed pricing policy, such costs were properly classified as Supplemental Upgrades that are directly assigned to the interconnecting generator or whether such costs were properly Base Plan Upgrades that are rolled into transmission rates for all customers. Any payments made by an interconnecting generator that have not already been refunded to that customer through crediting for transmission service will be subject to the cost assignment by the ICT.

Retail-Texas

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT decided two key issues related to the proceeding and concluded that the December 2004 target date for the initiation of retail open access in Entergy Gulf States' Texas service territory is not feasible, but specifically declined to set a new target date at least until the market readiness proceeding was underway. The preliminary order addressed the following key issues: (1) whether the PUCT should delay further efforts to implement retail open access in Entergy Gulf States' Texas service territory until the establishment of a FERC-approved RTO, in view of the suspension of efforts to develop the SeTrans RTO; and (2) what cr iteria should be used to certify an independent organization for Entergy Gulf States' Texas service territory.

The PUCT found that it is not necessary to delay further efforts to establish retail competition in Entergy Gulf States' Texas service territory until after a FERC-approved RTO can serve as the independent organization for that region. The PUCT also determined that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. The PUCT identified the criteria that are to be considered in answering this ultimate question that includes (1) whether the independent organization's decisions are controlled or dominated by any market participant or market segment; and (2) whether the independent organization has day-to-day operational control over the facilities involved. In determining whether the Entergy Transmission Organization should be certified as independent, the PU CT further stated that the issues to be addressed were whether the proposed structure would ensure that the affiliate was independent, and if not, what additional safeguards should be imposed to assure independence. The PUCT also limited any finding of independence in this docket to be applicable to the pilot only and indicated that should it be necessary, the PUCT would review the issue of independence in the market readiness proceeding as well. The preliminary order also states that other issues to be addressed in this proceeding include (1) the costs of implementing Entergy Gulf States' proposal; (2) what changes or additions, if any, may be necessary to the approved protocols or other public documents; and (3) the date by which the pilot project under the protocols can begin. Hearings are scheduled for June 2004.

The preliminary order further directed the parties to the independence proceeding not to address the issue of when full retail competition should start in Entergy Gulf States' Texas service territory.

Critical Accounting Estimates

See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy's accounting for nuclear decommissioning costs, impairment of long-lived assets, mark-to-market derivative instruments, pension and other postretirement costs, and other contingencies.

 

 

 

 

 

 

 

 

 

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
                   
          2004       2003
          (In Thousands, Except Share Data)
                   
OPERATING REVENUES                  
Domestic electric         $1,701,327        $1,601,738 
Natural gas         83,816        80,238 
Competitive businesses         466,406        355,747 
TOTAL        

2,251,549 

     

2,037,723 

                   
OPERATING EXPENSES                  
Operating and Maintenance:                  
  Fuel, fuel-related expenses, and                  
   gas purchased for resale         550,127        388,040 
  Purchased power         435,817        368,699 
  Nuclear refueling outage expenses         41,607        38,892 
  Provision for turbine commitments, asset impairments                  
   and restructuring charges               (7,743)
  Other operation and maintenance         514,955        524,898 
Decommissioning         38,347        37,498 
Taxes other than income taxes         97,303        97,737 
Depreciation and amortization         210,648        211,046 
Other regulatory charges (credits) - net         (16,089)       15,253 
TOTAL        

1,872,715 

     

1,674,320 

                   
OPERATING INCOME        

378,834 

     

363,403 

                   
OTHER INCOME                  
Allowance for equity funds used during construction         7,463        7,286 
Interest and dividend income         28,251        29,824 
Equity in earnings of unconsolidated equity affiliates         19,819        128,061 
Miscellaneous - net         5,167        11,616 
TOTAL        

60,700 

     

176,787 

                   
INTEREST AND OTHER CHARGES                  
Interest on long-term debt         119,460        122,446 
Other interest - net         6,215        13,044 
Allowance for borrowed funds used during construction         (5,154)       (5,719)
TOTAL        

120,521 

     

129,771 

                   
INCOME BEFORE INCOME TAXES AND                  
CUMULATIVE EFFECT OF ACCOUNTING CHANGES         319,013        410,419 
                    
Income taxes        

105,997 

     

152,418 

                   
INCOME BEFORE CUMULATIVE EFFECT                  
OF ACCOUNTING CHANGES         213,016        258,001 
                   
CUMULATIVE EFFECT OF ACCOUNTING                  
CHANGES (net of income taxes of $93,754)        

     

142,922 

                   
CONSOLIDATED NET INCOME         213,016        400,923 
                   
Preferred dividend requirements and other        

5,855 

     

5,916 

                   
EARNINGS APPLICABLE TO                  
COMMON STOCK        

$207,161 

     

$395,007 

                   
Earnings per average common share before cumulative                  
effect of accounting changes:                  
  Basic         $0.90        $1.13 
  Diluted         $0.88        $1.10 
Earnings per average common share:                   
  Basic         $0.90        $1.77 
  Diluted         $0.88        $1.73 
Dividends declared per common share         $0.45        $0.35 
                   
Average number of common shares outstanding:                  
  Basic         230,264,638        223,673,332 
  Diluted         234,978,625        228,230,756 
                   
See Notes to Consolidated Financial Statements.                  
                   

 

 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
   
OPERATING ACTIVITIES        
Consolidated net income   $213,016    $400,923 
Noncash items included in net income:        
  Reserve for regulatory adjustments   (2,293)   (14,340)
  Other regulatory charges (credits) - net   (16,089)   15,253 
  Depreciation, amortization, and decommissioning   248,996    248,544 
  Deferred income taxes and investment tax credits   31,683    144,368 
  Cumulative effect of accounting changes     (142,922)
  Equity in undistributed earnings of unconsolidated equity affiliates   (19,819)   (128,061)
  Provision for turbine commitments, asset impairments, and restructuring charges     (7,743)
Changes in working capital:        
  Receivables   12,757    (42,759)
  Fuel inventory   (11,098)   (22,025)
  Accounts payable   (174,659)   (246,909)
  Taxes accrued   51,268    (26,844)
  Interest accrued   2,570    (23,678)
  Deferred fuel   59,799    (125,901)
  Other working capital accounts   15,747    9,580 
Provision for estimated losses and reserves   11,570    (8,318)
Changes in other regulatory assets   20,013    12,596 
Other   (44,688)   8,948 
Net cash flow provided by operating activities  

398,773 

 

50,712 

         
         
     
INVESTING ACTIVITIES        
Construction/capital expenditures   (253,075)   (274,614)
Allowance for equity funds used during construction   7,463    7,286 
Nuclear fuel purchases   (68,083)   (112,155)
Proceeds from sale/leaseback of nuclear fuel   51,076    26,887 
Proceeds from sale of assets and businesses   21,978    29,610 
Investment in non-utility properties   (2,791)   (46,290)
Increase in other investments   (15,312)   (166,439)
Changes in other temporary investments   50,000   
Decommissioning trust contributions and realized change in trust assets   (20,895)   (22,551)
Other regulatory investments   (25,595)   (42,127)
Other     (9,821)
Net cash flow used in investing activities  

(255,234)

 

(610,214)

         
See Notes to Consolidated Financial Statements.        
         
         
         
         
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
FINANCING ACTIVITIES        
Proceeds from the issuance of:        
  Long-term debt   99,250    356,497 
  Common stock and treasury stock   95,082    98,501 
Retirement of long-term debt   (21,232)   (796,686)
Repurchase of common stock   (27,969)  
Redemption of preferred stock   (2,250)   (2,250)
Changes in short-term borrowings - net   4,102    30,000 
Dividends paid:        
  Common stock   (100,229)   (78,142)
  Preferred stock   (5,855)   (5,916)
Net cash flow provided by (used in) financing activities  

40,899 

 

(397,996)

         
Effect of exchange rates on cash and cash equivalents  

(1,708)

 

(372)

         
Net increase (decrease) in cash and cash equivalents   182,730    (957,870)
         
Cash and cash equivalents at beginning of period  

692,233 

 

1,335,328 

         
Cash and cash equivalents at end of period  

$874,963 

 

$377,458 

         
     
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid (received) during the period for:        
  Interest - net of amount capitalized   $117,721    $155,305 
  Income taxes   ($9,549)   $2,653 
         
         
         
See Notes to Consolidated Financial Statements.        

 

 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
CURRENT ASSETS        
         
Cash and cash equivalents:        
  Cash   $248,043    $115,112 
  Temporary cash investments - at cost,        
   which approximates market   626,920    576,813 
  Special deposits   -    308 
      Total cash and cash equivalents  

874,963 

 

692,233 

Other temporary investments   -    50,000 
Notes receivable   2,143    1,730 
Accounts receivable:        
  Customer   389,666    398,091 
  Allowance for doubtful accounts   (24,380)   (25,976)
  Other   260,168    246,824 
  Accrued unbilled revenues   365,598    384,860 
      Total receivables  

991,052 

 

1,003,799 

Deferred fuel costs   211,769    245,973 
Fuel inventory - at average cost   121,580    110,482 
Materials and supplies - at average cost   555,064    548,921 
Deferred nuclear refueling outage costs   126,065    138,836 
Prepayments and other   152,683    127,270 
TOTAL  

3,035,319 

 

2,919,244 

         
OTHER PROPERTY AND INVESTMENTS        
       
Investment in affiliates - at equity   1,136,434    1,053,328 
Decommissioning trust funds   2,391,041    2,278,533 
Non-utility property - at cost (less accumulated depreciation)   261,415    262,384 
Other   95,635    152,681 
TOTAL  

3,884,525 

 

3,746,926 

         
PROPERTY, PLANT AND EQUIPMENT        
         
Electric   28,311,976    28,035,899 
Property under capital lease   748,309    751,815 
Natural gas   236,161    236,622 
Construction work in progress   1,205,132    1,380,982 
Nuclear fuel under capital lease   265,494    278,683 
Nuclear fuel  

260,129 

 

234,421 

TOTAL PROPERTY, PLANT AND EQUIPMENT   31,027,201    30,918,422 
Less - accumulated depreciation and amortization   12,710,444    12,619,625 
PROPERTY, PLANT AND EQUIPMENT - NET  

18,316,757 

 

18,298,797 

         
DEFERRED DEBITS AND OTHER ASSETS        
       
Regulatory assets:         
SFAS 109 regulatory asset - net   816,081    830,539 
Other regulatory assets   1,366,556    1,425,145 
Long-term receivables   19,847    20,886 
Goodwill   377,172    377,172 
Other   946,049    935,501 
TOTAL  

3,525,705 

 

3,589,243 

         
TOTAL ASSETS  

$28,762,306 

 

$28,554,210 

         
See Notes to Consolidated Financial Statements.        
         
         
         
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
CURRENT LIABILITIES        
         
Currently maturing long-term debt   $528,481   $524,372 
Notes payable   4,450   351 
Accounts payable   626,563   796,572 
Customer deposits   207,691   199,620 
Taxes accrued   178,448   224,926 
Accumulated deferred income taxes   4,040   22,963 
Nuclear refueling outage costs   11,413   8,238 
Interest accrued   141,780   139,603 
Obligations under capital leases   160,900   159,978 
Other   232,793   205,600 
TOTAL  

2,096,559

 

2,282,223 

         
NON-CURRENT LIABILITIES        
         
Accumulated deferred income taxes and taxes accrued   4,929,745   4,779,513 
Accumulated deferred investment tax credits   414,991   420,248 
Obligations under capital leases   170,538   153,898 
Other regulatory liabilities   353,842   291,239 
Decommissioning and retirement cost liabilities   2,172,720   2,242,312 
Transition to competition   79,098   79,098 
Regulatory reserves   67,235   69,528 
Accumulated provisions   517,257   506,960 
Long-term debt   7,399,136   7,322,940 
Preferred stock with sinking fund   18,602   20,852 
Other   1,319,567   1,347,404 
TOTAL  

17,442,731

 

17,233,992 

         
Preferred stock without sinking fund   334,337   334,337 
         
SHAREHOLDERS' EQUITY        
         
Common stock, $.01 par value, authorized 500,000,000        
shares; issued 248,174,087 shares in 2004 and in 2003   2,482   2,482 
Paid-in capital   4,792,171   4,767,615 
Retained earnings   4,605,907   4,502,508 
Accumulated other comprehensive income (loss)   6,493   (7,795)
Less - treasury stock, at cost (17,189,798 shares in 2004 and        
19,276,445 shares in 2003)   518,374   561,152 
TOTAL  

8,888,679

 

8,703,658 

         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  

$28,762,306

 

$28,554,210 

         
See Notes to Consolidated Financial Statements.        

 

 
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME,
 AND PAID-IN CAPITAL
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
                     
         
         
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $4,502,508        $3,938,693     
                     
  Add - Earnings applicable to common stock       207,161    $207,161    395,007    $395,007 
                     
  Deduct:                    
    Dividends declared on common stock       103,762        78,151     
    Capital stock and other expenses             171     
        Total      

103,762 

     

78,322 

   
                     
Retained Earnings - End of period      

$4,605,907 

     

$4,255,378 

   
                     
                     
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (LOSS) (Net of Taxes):                    
Balance at beginning of period                    
  Accumulated derivative instrument fair value changes       ($25,811)       $17,313     
  Other accumulated comprehensive income (loss) items       18,016        (39,673)    
    Total      

(7,795)

     

(22,360)

   
                     
                     
Net derivative instrument fair value changes                    
 arising during the period       (16,186)   (16,186)   (617)   (617)
                     
Foreign currency translation adjustments       1,708    1,708    156    156 
                     
Net unrealized investment gains (losses)      

28,766 

 

28,766 

 

(12,704)

 

(12,704)

                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes       ($41,997)       $16,696     
  Other accumulated comprehensive income (loss) items       48,490        (52,221)    
    Total      

$6,493 

     

($35,525)

   
Comprehensive Income          

$221,449 

     

$381,842 

                     
                     
                     
PAID-IN CAPITAL                    
Paid-in Capital - Beginning of period       $4,767,615        $4,666,753     
                     
  Add: Common stock issuances related to stock plans      

24,556 

     

7,757 

   
                     
Paid-in Capital - End of period      

$4,792,171 

     

$4,674,510 

   
                     
                     
                     
See Notes to Consolidated Financial Statements.                    

 

 

ENTERGY CORPORATION AND SUBSIDIARIES

SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
 
                   
        Increase/    
Description   2004     2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                  
  Residential   $609     $564   $45    8 
  Commercial   435     396   39    10 
  Industrial   514     452   62    14 
  Governmental  

44

   

44

 

- 

  - 
    Total retail  

1,602

   

1,456

 

146 

  10 
  Sales for resale   99     97   2    2 
  Other   -     49   (49)   (100)
    Total  

$1,701

   

$1,602

 

$99 

  6 
                   
Billed Electric Energy                  
 Sales (GWh):                  
  Residential   7,726     7,843   (117)   (1)
  Commercial   5,887     5,822   65    1 
  Industrial   9,490     9,324   166    2 
  Governmental  

600

   

633

 

(33)

  (5)
    Total retail   23,703     23,622   81    - 
  Sales for resale   2,418     2,513   (95)   (4)
    Total  

26,121

   

26,135

 

(14)

  - 
                   
                   
                   

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. COMMITMENTS AND CONTINGENCIES

Sales Warranties and Indemnities

See Notes 9 and 14 to the consolidated financial statements in the Form 10-K for information on certain warranties made by Entergy or its subsidiaries in the Saltend sales transaction.

Nuclear Insurance and Spent Nuclear Fuel

See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy's nuclear power plants.

The Property Insurance Policy renewed on April 1, 2004 with the following changes: 1) the deductibles for Indian Point 2 and 3 (each unit has a separate parameter), FitzPatrick, Pilgrim, and Vermont Yankee increased to $2.5 million per occurrence for other than equipment breakdown/failure; and 2) the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for equipment breakdown/failure and $5 million per occurrence for other than equipment breakdown/failure.

Under NEIL's Accidental Outage Coverage program, FitzPatrick's and Pilgrim's weekly indemnity decreased to $4 million and Vermont Yankee's weekly indemnity decreased to $3.5 million.

Under the property damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of March 31, 2004, the maximum amount of such possible assessments per occurrence were $68.9 million for the Non-Utility Nuclear plants and $48.3 million for the U.S. Utility plants.

Decommissioning Costs

See Note 9 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard for the rate-regulated busine ss of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change. For the Non-Utility Nuclear business, the implementation of SFAS 143 resulted in an increase in earnings of approximately $155 million net-of-tax ($0.67 per share) as a result of a one-time cumulative effect of accounting change.

In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and a $88.2 million reduction in the related regulatory asset.

CashPoint Bankruptcy

Entergy Arkansas, Entergy Louisiana, Entergy Gulf States, Entergy New Orleans, and Entergy Mississippi entered into an agreement with CashPoint Network Services ("CashPoint") dated June 2003, under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The pay agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use this process, with remittances ranging up to $5 million a day.

On April 19, 2004, CashPoint failed to pay funds due to Entergy that had been collected through pay agents. Entergy then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to Entergy that may not be repaid, the current estimate of maximum exposure to loss is approximately $35 million.

Employment Litigation

Entergy Corporation and certain subsidiaries are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.

NOTE 2. RATE AND REGULATORY MATTERS

Electric Industry Restructuring and the Continued Application of SFAS 71

Previous developments and information related to electric industry restructuring are presented in Note 2 to the consolidated financial statements in the Form 10-K.

Texas

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT decided two key issues related to the proceeding and concluded that the December 2004 target date for the initiation of retail open access in Entergy Gulf States' Texas service territory is not feasible, but specifically declined to set a new target date at least until the market readiness proceeding was underway. The preliminary order addressed the following key issues: (1) whether the PUCT should delay further efforts to implement retail open access in Entergy Gulf States' Texas service territory until the establishment of a FERC-approved RTO, in view of the suspension of efforts to develop the SeTrans RTO; and (2) what criteria should b e used to certify an independent organization for Entergy Gulf States' Texas service territory.

The PUCT found that it is not necessary to delay further efforts to establish retail competition in Entergy Gulf States' Texas service territory until after a FERC-approved RTO can serve as the independent organization for that region. The PUCT also determined that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. The PUCT identified the criteria that are to be considered in answering this ultimate question that includes (1) whether the independent organization's decisions are controlled or dominated by any market participant or market segment; and (2) whether the independent organization has day-to-day operational control over the facilities involved. In determining whether the Entergy Transmission Organization should be certified as independent, th e PUCT further stated that the issues to be addressed were whether the proposed structure would ensure that the affiliate was independent, and if not, what additional safeguards should be imposed to assure independence. The PUCT also limited any finding of independence in this docket to be applicable to the pilot only and indicated that should it be necessary, the PUCT would review the issue of independence in the market readiness proceeding as well. The preliminary order also states that other issues to be addressed in this proceeding include (1) the costs of implementing Entergy Gulf States' proposal; (2) what changes or additions, if any, may be necessary to the approved protocols or other public documents; and (3) the date by which the pilot project under the protocols can begin. Hearings are scheduled for June 2004.

The preliminary order further directed the parties to the independence proceeding not to address the issue of when full retail competition should start in Entergy Gulf States' Texas service territory.

Deferred Fuel Costs

In March 2004, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2004 through March 2005. The filed energy cost rate, which accounts for about 12 percent of a typical residential customer's bill using 1,000 kWh per month, increased 16 percent due primarily to a credit contained in the prior year's rate to refund previously over-recovered fuel costs. Also included in this year's energy cost calculation is a decrease in rates of $3.9 million as a result of Entergy Arkansas' proposed retail customer protections due to the operation of a life-of-resources power purchase agreement with Entergy New Orleans.

In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are scheduled to occur in October 2004 with a final PUCT decision expected in the first quarter of 2005.

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court was scheduled for May 2004, but the parties have asked that it be rescheduled.

As discussed in Note 2 to the consolidated financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in Ap ril 2005.

Retail Rate Proceedings

Filings with the PUCT and Texas Cities

Recovery of River Bend Costs

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.

Filings with the LPSC

Annual Earnings Reviews

See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of $30.6 million and a prospective rate reduction of approximately $50 million. Hearings began in April 2004.

Retail Rates

See Note 2 to the consolidated financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. Hearings are currently scheduled to begin in September 2004.

Filings with the City Council

Formula Rate Plan Filings

In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The review of the filings by the Council Advisors and intervenors has commenced. Management cannot predict the outcome of this proceeding.

Fuel Adjustment Clause Litigation

See "Fuel Adjustment Clause Litigation" in Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999.

 

NOTE 3. COMMON EQUITY

Common Stock

Earnings per Share

The following tables present Entergy's basic and diluted earnings per share (EPS) calculations included on the consolidated income statement:

 

   

For the Three Months Ended March 31,

   

2004

 

2003

   

(In Millions, Except Per Share Data)

       

$/share

     

$/share

Income before cumulative effect of accounting change

 


$207.2

     


$252.1

   
                 

Average number of common shares outstanding - basic

 


230.3

 


$ 0.90 

 


223.7

 


$ 1.13 

Average dilutive effect of:

               

  Stock Options

 

4.5

 

(0.017)

 

4.0

 

(0.020)

  Deferred Units

 

0.2

 

(0.001)

 

0.5

 

(0.003)

Average number of common shares outstanding - diluted

 


235.0

 


$ 0.88 

 


228.2

 


$ 1.10 

                 

Earnings applicable to common stock

 


$207.2

     


$395.0

   
                 

Average number of common shares outstanding - basic

 


230.3

 


$ 0.90 

 


223.7

 


$ 1.77 

Average dilutive effect of:

               

  Stock Options

 

4.5

 

(0.017)

 

4.0

 

(0.031)

  Deferred Units

 

0.2

 

(0.001)

 

0.5

 

(0.004)

Average number of common shares outstanding - diluted

 


235.0

 


$ 0.88 

 


228.2

 


$ 1.73 

Entergy's stock option and other stock compensation plans are discussed in Note 8 to the consolidated financial statements in the Form 10-K.

During the first quarter of 2004, Entergy Corporation issued 2,570,647 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. During the first quarter of 2004, Entergy Corporation repurchased 484,000 shares of common stock for a total purchase price of $28 million.

Retained Earnings

On April 7, 2004, Entergy Corporation's Board of Directors declared a common stock dividend of $0.45 per share, payable on June 1, 2004, to holders of record as of May 12, 2004.

 

NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT

Entergy Corporation has in place a 364-day bank credit facility with a borrowing capacity of $1.45 billion, none of which was outstanding as of March 31, 2004. Although the Entergy Corporation credit line expires in May 2004, Entergy has the discretionary option to extend the period to repay the amount then outstanding for an additional 364-day term. Because of this option, which Entergy intends to exercise if it does not renew the credit line or obtain an alternative source of financing, any debt outstanding under the credit line would be reflected in long-term debt on the balance sheet. The commitment fee for this facility is currently 0.20% of the line amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior debt ratings of the domestic utility companies.

The short-term borrowings of Entergy's subsidiaries are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, Entergy's subsidiaries are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. As of March 31, 2004, Entergy's subsidiaries' authorized limit was $1.6 billion and the outstanding borrowing from the money pool was $203.5 million. There were no borrowings outstanding from external sources.

Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows:


Company

 

Expiration Date

 

Amount of Facility

 

Amount Drawn as of March 31, 2004

             

Entergy Arkansas

 

April 2005

 

$85 million

 

-

Entergy Louisiana

 

May 2004

 

$15 million

 

-

Entergy Mississippi

 

May 2004

 

$25 million

 

-

The facilities have variable interest rates and the average commitment fee is 0.15%.

The following long-term debt has been issued by Entergy in 2004:

  

Issue Date

  

(In Thousands)

U.S. Utility

  

  

  

Mortgage Bonds:

  

  

  

5.50% Series due April 2019 - Entergy Louisiana

March 2004

  

$100,000

Issuances after the balance sheet date:

  

  

  

6.25% Series due April 2034 - Entergy Mississippi

April 2004

  

$100,000

4.65% Series due April 2011 - Entergy Mississippi

April 2004

  

$80,000

The following long-term debt has been retired by Entergy in 2004:

  

Retirement Date

  

(In Thousands)

U.S. Utility

  

  

  

Mortgage Bonds:

  

  

  

Retirement after balance sheet date:

  

  

  

8.25% Series due April 2004, Entergy Gulf States

April 2004

  

$292,000

Other Long-term Debt:

  

  

  

Grand Gulf Lease Obligation payment

N/A

  

$6,348

Waterford 3 Lease Obligation payment

N/A

  

$14,809

 

NOTE 5. STOCK-BASED COMPENSATION PLANS

Entergy has two plans that grant stock options, which are described more fully in Note 8 to the consolidated financial statements in the Form 10-K. Prior to 2003, Entergy applied the recognition and measurement principles of APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. Effective January 1, 2003, Entergy prospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation." Awards under Entergy's plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. The following table illustrates the effect on net income and earnings per share if Entergy would have historically applied the f air value based method of accounting to stock-based employee compensation.

 

   

First Quarter

   

2004

 

2003

   

(In Thousands, Except Per Share Data)

         

Earnings applicable to common stock

 

$207,161

 

$395,007

Add: Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects

 



973

 



704

Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects

 



3,855

 



6,129

         

Pro forma earnings applicable to common stock

 

$204,279

 

$389,582

         

Earnings per average common share:

       

  Basic

 

$0.90

 

$1.77

  Basic - pro forma

 

$0.89

 

$1.74

         

  Diluted

 

$0.88

 

$1.73

  Diluted - pro forma

 

$0.87

 

$1.71

         

 

 

NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

Components of Net Pension Cost

Entergy's pension cost, including amounts capitalized, for the first quarters of 2004 and 2003, included the following components:

2004

2003

(In Thousands)

Service cost - benefits earned during the period

$18,735 

$17,990 

Interest cost on projected benefit obligation

36,015 

37,705 

Expected return on assets

(38,725)

(47,327)

Amortization of transition asset

(191)

(225)

Amortization of prior service cost

1,413 

1,721 

Amortization of loss

4,401 

936 

Net pension costs

$21,648 

$10,800 

Components of Net Other Postretirement Benefit Cost

Entergy's other postretirement benefit cost, including amounts capitalized, for the first quarters of 2004 and 2003, included the following components:

2004

2003

(In Thousands)

Service cost - benefits earned during the period

 

$9,708 

 

$8,198 

 

Interest cost on APBO

 

14,297 

 

12,770 

 

Expected return on assets

 

(4,702)

 

(4,261)

 

Amortization of transition obligation

 

1,242 

 

2,868 

 

Amortization of prior service cost

 

(889)

 

248 

 

Amortization of loss

 

5,954 

 

2,590 

 

Net other postretirement benefit cost

 

$25,610 

 

$22,413 

 

 

Employer Contributions

Entergy previously disclosed in its 2003 Form 10-K that it expected to contribute $110 million to its pension plans in 2004. As of March 31, 2004, Entergy has contributed $5 million to its pension plans. In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution to $72.8 million. Therefore, Entergy presently anticipates contributing an additional $67.8 million to fund its pension plans in 2004.

Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)

As disclosed in Note 11 to the consolidated financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation by $56 million, and reduced the first quarter 2004 other postretirement benefit cost by $2.5 million. When specific guidance on accounting for the federal subsidy is issued, these estimates could change.

NOTE 7. BUSINESS SEGMENT INFORMATION

Entergy's reportable segments as of March 31, 2004 are U.S. Utility, Non-Utility Nuclear, and Energy Commodity Services. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Competitive Retail Services business and earnings on the proceeds of sales of previously-owned businesses.

Entergy's segment financial information for the first quarters of 2004 and 2003 is as follows:

  



U.S. Utility

  


Non-Utility Nuclear*

Energy Commodity Services*



All Other*

  



Eliminations

  



Consolidated

  

(In Thousands)

2004

  

  

  

  

  

  

  

  

  

  

  

Operating Revenues

$1,785,518 

  

$344,848 

  

$43,169

  

$93,384 

  

($15,370)

  

$2,251,549

Equity in earnings of

  

  

  

  

  

  

  

  

  

  

  

 unconsolidated equity affiliates

- 

  

- 

  

19,819

  

- 

  

- 

  

19,819

Income Taxes (Benefit)

72,678 

  

43,695 

  

3,369

  

(13,745)

  

- 

  

105,997

Net Income

121,514 

  

68,833 

  

9,809

  

12,860 

  

- 

  

213,016

Total Assets

22,497,775 

  

4,440,348 

  

2,248,842

  

1,162,675 

  

(1,484,892)

  

28,864,748

  

  

  

  

  

  

  

  

  

  

  

  

2003

  

  

  

  

  

  

  

  

  

  

  

Operating Revenues

$1,682,372 

  

$309,805 

  

$31,385

  

$14,617 

  

($456)

  

$2,037,723

Equity in earnings of

  

  

  

  

  

  

  

  

  

  

  

 unconsolidated equity affiliates

- 

  

- 

  

128,061

  

- 

  

- 

  

128,061

Income Taxes (Benefit)

81,881 

  

23,080 

  

51,025

  

(3,568)

  

- 

  

152,418

Cumulative effect of

  

  

   

  

  

  

  

  

  

  

  

 accounting changes, net of tax

(21,333)

  

160,360 

  

3,895

  

- 

  

- 

  

142,922

Net Income (Loss)

113,705 

  

196,985 

  

93,790

  

(3,557)

  

- 

  

400,923

Total Assets

21,639,623 

  

3,910,995 

  

2,356,482

  

1,428,172 

  

(1,934,483)

  

27,400,789

 

Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.

__________________________________

In the opinion of the management of Entergy Corporation, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the U.S. Utility segment, however, is subject to seasonal fluctuations with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.

ENTERGY ARKANSAS, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

Net Income

Net income decreased $7.9 million for the first quarter of 2004 compared to the first quarter of 2003 primarily due to a decrease in net revenue, partially offset by an increase in other income and a decrease in interest charges.

Net Revenue

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

 

(Dollars In Millions)

2003 net revenue

$227.6 

Volume/weather

2.0 

Deferred fuel cost revisions

(16.9)

Other

(5.9)

2004 net revenue

$206.8 


The volume/weather variance resulted from increased usage, partially offset by colder than normal weather in the first quarter of 2003.

Deferred fuel cost revisions decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue by $11.5 million. The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, that increased net revenue in that quarter.

Other Income Statement Variances

Other income increased primarily due to:

 

Interest charges decreased primarily due to the refinancing of first mortgage bonds in mid-2003 with lower interest rates.

Income Taxes

The effective income tax rates for the first quarters of 2004 and 2003 were 40.5% and 41.2%, respectively. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to flow-through of depreciation book and tax differences in addition to state income taxes net of federal. The difference in the effective income tax rate for the first quarter of 2003 versus the federal statutory rate of 35.0% is primarily due to the effect of depreciation and flow-through book and tax timing differences.

Liquidity and Capital Resources

Cash Flow

Cash flows for the first quarter of 2004 and 2003 were as follows:

2004

2003

(In Thousands)

Cash and cash equivalents at beginning of period

$8,834 

$95,513 

Cash flow provided by (used in):

  Operating activities

69,392 

62,825 

  Investing activities

(49,922)

(47,230)

  Financing activities

(10,244)

(80,544)

Net increase (decrease) in cash and cash equivalents

9,226 

(64,949)

Cash and cash equivalents at end of period

$18,060 

$30,564 

Operating Activities

Cash flow from operations increased $6.6 million for the first quarter of 2004 compared to the first quarter of 2003 primarily due to `recovery of deferred fuel costs for the first quarter of 2004 compared to the first quarter of 2003 and the timing of payables. The increase in cash flow from operations was partially offset by money pool activity and a decrease in net income.

Entergy Arkansas' receivables from or (payables) to the money pool were as follows:

March 31,
2004

 

December 31,
2003

 

March 31,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

($42,926)

 

($69,153)

 

$3,178

 

$4,279

Money pool activity used $26.2 million of Entergy Arkansas' operating cash flows in the first quarter of 2004 and provided $1.1 million in the first quarter of 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Financing Activities

The decrease of $70.3 million in net cash used by financing activities for the first quarter of 2004 compared to the first quarter of 2003 was primarily due to the redemption of $100 million of first mortgage bonds in the first quarter of 2003. The decrease was offset by a $25 million short-term borrowing made in the first quarter of 2003.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Arkansas' uses and sources of capital. Following is an update to the information provided in the Form 10-K.

In April 2004, Entergy Arkansas renewed its 364-day credit facility through April 30, 2005 and increased the amount available to $85 million. The previous amount available under the credit facility was $63 million, of which none was drawn at March 31, 2004.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, System Agreement proceedings, market and credit risks, state and local regulatory risks, nuclear matters, and environmental risks. The following is an update to the Form 10-K.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Arkansas, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that a pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas' accounting for nuclear decommissioning costs and pension and other retirement costs. Following is an update to the information provided in the Form 10-K.

Nuclear Decommissioning Costs

In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and a $88.2 million reduction in the related regulatory asset.

ENTERGY ARKANSAS, INC.
INCOME STATEMENTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
     
    2004   2003
   

 (In Thousands)

         
OPERATING REVENUES        
Domestic electric  
$363,461 
 
$362,749 
         
OPERATING EXPENSES        
Operation and Maintenance:        
  Fuel, fuel-related expenses, and        
   gas purchased for resale   59,787    35,881 
  Purchased power   102,328    106,051 
  Nuclear refueling outage expenses   6,337    5,943 
  Other operation and maintenance   84,441    85,510 
Decommissioning   9,344    8,972 
Taxes other than income taxes   8,396    8,834 
Depreciation and amortization   49,668    51,168 
Other regulatory credits - net   (5,406)   (6,740)
TOTAL  
314,895 
 
295,619 
         
OPERATING INCOME  
48,566 
 
67,130 
         
OTHER INCOME        
Allowance for equity funds used during construction   2,193    1,428 
Interest and dividend income   2,022    1,505 
Miscellaneous - net   (1,050)   (1,342)
TOTAL  
3,165 
 
1,591 
         
INTEREST AND OTHER CHARGES  
Interest on long-term debt   19,748    22,428 
Other interest - net   883    1,091 
Allowance for borrowed funds used during construction   (1,301)   (926)
TOTAL  
19,330 
 
22,593 
         
INCOME BEFORE INCOME TAXES   32,401    46,128 
           
Income taxes  
13,125 
 
18,983 
         
NET INCOME   19,276    27,145 
         
Preferred dividend requirements and other  
1,944 
 
1,944 
         
EARNINGS APPLICABLE TO        
COMMON STOCK  
$17,332 
 
$25,201 
         
See Notes to Respective Financial Statements.        

 

 

 

 

 

 

 

 

 

 

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ENTERGY ARKANSAS, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
         
    2004   2003
    (In Thousands)
         
OPERATING ACTIVITIES        
Net income   $19,276    $27,145 
Noncash items included in net income:        
  Other regulatory credits - net   (5,406)   (6,740)
  Depreciation, amortization, and decommissioning   59,012    60,140 
  Deferred income taxes and investment tax credits   37,822    1,161 
  Allowance for equity funds used during construction   (2,193)   (1,428)
Changes in working capital:        
  Receivables   4,917    5,495 
  Fuel inventory   (12,628)   (3,642)
  Accounts payable   (47,474)   (56,628)
  Taxes accrued     42,040 
  Interest accrued   4,508    (1,241)
  Deferred fuel costs   13,222    (3,652)
  Other working capital accounts   (13,069)   (2,308)
Provision for estimated losses and reserves   (3,921)   (4,135)
Changes in other regulatory assets   7,445    (9,520)
Other   7,881    16,138 
Net cash flow provided by operating activities  
69,392 
 
62,825 
         
INVESTING ACTIVITIES        
Construction expenditures   (50,251)   (47,471)
Allowance for equity funds used during construction   2,193    1,428 
Decommissioning trust contributions and realized        
  change in trust assets   (1,864)   (1,187)
Net cash flow used in investing activities  
(49,922)
 
(47,230)
         
FINANCING ACTIVITIES        
Retirement of long-term debt     (100,000)
Changes in short-term borrowings     25,000 
Dividends paid:        
  Common stock   (8,300)   (3,600)
  Preferred stock   (1,944)   (1,944)
Net cash flow used in financing activities  
(10,244)
 
(80,544)
         
Net increase (decrease) in cash and cash equivalents   9,226    (64,949)
         
Cash and cash equivalents at beginning of period  
8,834 
 
95,513 
         
Cash and cash equivalents at end of period  
$18,060 
 
$30,564 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid/(received) during the period for:        
  Interest - net of amount capitalized   $13,357    $23,050 
  Income taxes   ($5,400)   ($17,800)
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
ASSETS
March 31, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
         
CURRENT ASSETS        
Cash and cash equivalents   $18,060    $8,834 
Accounts receivable:        
  Customer   68,919    69,036 
  Allowance for doubtful accounts   (9,675)   (9,020)
  Associated companies   50,266    50,390 
  Other   37,682    30,930 
  Accrued unbilled revenues    53,959    64,732 
    Total accounts receivable  
201,151 
 
206,068 
Deferred fuel costs   -   10,557 
Accumulated deferred income taxes   27,102    18,362 
Fuel inventory - at average cost   19,350    6,722 
Materials and supplies - at average cost   81,346    80,506 
Deferred nuclear refueling outage costs   13,679    19,793 
Prepayments and other   46,517    23,938 
TOTAL  
407,205 
 
374,780 
         
OTHER PROPERTY AND INVESTMENTS        
Investment in affiliates - at equity   11,212    11,212 
Decommissioning trust funds   377,716    360,485 
Non-utility property - at cost (less accumulated depreciation)   1,456    1,456 
Other   4,792    4,832 
TOTAL  
395,176 
 
377,985 
         
UTILITY PLANT        
Electric   5,961,296    5,948,090 
Property under capital lease   23,241    24,047 
Construction work in progress   230,326    238,807 
Nuclear fuel under capital lease   98,393    102,691 
Nuclear fuel  
6,498 
 
7,466 
TOTAL UTILITY PLANT   6,319,754    6,321,101 
Less - accumulated depreciation and amortization   2,664,954    2,627,441 
UTILITY PLANT - NET  
3,654,800 
 
3,693,660 
         
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:        
  SFAS 109 regulatory asset - net   126,748    128,311 
  Other regulatory assets   366,323    437,544 
Other   47,412    45,798 
TOTAL  
540,483 
 
611,653 
          
TOTAL ASSETS  
$4,997,664 
 
$5,058,078 
         
See Notes to Respective Financial Statements.        
 
 
 
ENTERGY ARKANSAS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2004 and December 31, 2003
(Unaudited)
 
  2004   2003
  (In Thousands)
 
CURRENT LIABILITIES        
Accounts payable:        
  Associated companies   $68,221   $106,958
  Other   83,901   92,638
Customer deposits   39,111   37,693
Interest accrued   25,932   21,424
Deferred fuel costs   2,665   -
Obligations under capital leases   59,186   59,089
Other   19,742   16,924
TOTAL  
298,758
 
334,726
         
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued   1,048,935   996,455
Accumulated deferred investment tax credits   72,073   73,280
Obligations under capital leases   62,448   67,648
Other regulatory liabilities   68,289   52,923
Decommissioning   469,187   567,546
Accumulated provisions   36,228   40,149
Long-term debt   1,338,819   1,338,378
Other   199,122   192,200
TOTAL  
3,295,101
 
3,328,579
         
SHAREHOLDERS' EQUITY        
Preferred stock without sinking fund   116,350   116,350
Common stock, $0.01 par value, authorized 325,000,000        
  shares; issued and outstanding 46,980,196 shares in 2004        
  and 2003   470   470
Paid-in capital   591,127   591,127
Retained earnings   695,858   686,826
TOTAL  
1,403,805
 
1,394,773
         
Commitments and Contingencies        
         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  
$4,997,664
 
$5,058,078
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY ARKANSAS, INC.
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
 
          Increase/    
Description 2004   2003   (Decrease)   %
 

(In Millions)

   
Electric Operating Revenues:              
  Residential $ 131    $ 131    $ -   
  Commercial 65    65     
  Industrial 68    68     
  Governmental
 
 
 
      Total retail 268    268     
  Sales for resale              
    Associated companies 54    50     
    Non-associated companies 45    47    (2)   (4)
  Other (4)   (2)   (2)   100 
      Total
$ 363 
 
$ 363 
 
$ - 
 
               
Billed Electric Energy              
 Sales (GWh):              
  Residential  1,889    1,938    (49)   (3)
  Commercial 1,213    1,212     
  Industrial 1,647    1,611    36   
  Governmental
64 
 
63 
 
 
      Total retail 4,813    4,824    (11)  
  Sales for resale               
    Associated companies 1,672    1,607    65   
    Non-associated companies 1,273    1,432    (159)   (11)
     Total
7,758 
 
7,863 
 
(105)
  (1)
               
               
               

ENTERGY GULF STATES, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

 

Results of Operations

Net Income

Net income increased $29.9 million for the first quarter of 2004 primarily as a result of a one-time $21.3 million net-of-tax cumulative effect of accounting change in the first quarter of 2003 due to the implementation of SFAS 143. Increased net revenue and decreased operation and maintenance expenses also contributed to the increase in net income in 2004.

Net Revenue

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges/(credits). Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

 

(Dollars In Millions)

2003 net revenue

$257.7 

Volume/weather

3.9 

Net wholesale revenue

10.3 

Price applied to unbilled sales

(6.5)

Other

(2.7)

2004 net revenue

$262.7 

 

The volume/weather variance resulted from increased usage, partially offset by colder than normal weather in the first quarter of 2003.

The net wholesale revenue variance resulted from higher energy pricing on sales to municipal and co-op customers and increased volume associated with sales to affiliated systems.

The price applied to unbilled sales variance results primarily from a decrease in the fuel price applied to unbilled sales.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to an increase of $63.2 million in fuel cost recovery revenues due to higher fuel rates, partially offset by a decrease in the price applied to unbilled sales of $6.5 million.

Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas, oil, and coal, partially offset by decreased gas generation.

Other Income Statement Variances

Other operation and maintenance expenses decreased $3.2 million primarily due to staffing reductions in the nuclear organization, timing of transmission maintenance projects, and lower liability reserves.

Income Taxes

The effective income tax rates for the first quarters of 2004 and 2003 were 31.9% and 9.1%, respectively. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to flow-through of depreciation book and tax differences and the amortization of investment tax credits. The difference in the effective income tax rate for the first quarter of 2003 versus the federal statutory rate of 35% is primarily due to the cumulative effect of accounting change and the effect of flow-through book and tax timing differences.

Liquidity and Capital Resources

Cash Flow

Cash flows for the first quarters of 2004 and 2003 were as follows:

2004

2003

(In Thousands)

Cash and cash equivalents at beginning of period

$206,030 

$318,404 

Cash flow provided by (used in):

  Operating activities

57,133 

122,878 

  Investing activities

(59,351)

(105,402)

  Financing activities

(10,300)

(303,860)

Net decrease in cash and cash equivalents

(12,518)

(286,384)

Cash and cash equivalents at end of period

$193,512 

$32,020 

Operating Activities

Cash flow from operations decreased $65.7 million in the first quarter of 2004 compared to the first quarter of 2003 primarily due to money pool activity which used $20.9 million of Entergy Gulf States' operating cash flows in the first quarter of 2004 compared to providing $123.9 million in the first quarter of 2003. The decrease was partially offset by the increased collection of deferred fuel in 2004. Entergy Gulf States' receivables from or (payables) to the money pool were as follows:

March 31,
2004

 

December 31,
2003

 

March 31,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$90,270

 

$69,354

 

($105,791)

 

$18,131

See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Investing Activities

Net cash used in investing activities decreased $46.1 million for the first quarter of 2004 compared to the same period of 2003 primarily due to the maturity of $23.6 million of other temporary investments that provided cash in 2004. The decrease was also due to a decrease in under-recovered fuel and purchased power expenses of $16.5 million in Texas that have been deferred and are being collected over a period greater than twelve months. See Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for fuel costs.

Financing Activities

Net cash used in financing activities decreased $293.6 million for the first quarter of 2004 compared to the same period of 2003 primarily due to the retirement of $293 million of long-term debt in 2003.

Uses and Sources of Capital

See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Gulf States' uses and sources of capital. Following is an update to the information provided in the Form 10-K.

In April 2004, Entergy Gulf States retired, at maturity, $292 million of 8.25% Series First Mortgage Bonds due April 1, 2004, using cash on hand and internally generated funds.

Significant Factors and Known Trends

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of transition to retail competition, state and local regulatory risks, System Agreement proceedings, industrial, commercial, and wholesale customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provided in the Form 10-K.

Transition to Retail Competition

See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT decided two key issues related to the proceeding and concluded that the December 2004 target date for the initiation of retail open access in Entergy Gulf States' Texas service territory is not feasible, but specifically declined to set a new target date at least until the market readiness proceeding was underway. The preliminary order addressed the following key issues: (1) whether the PUCT should delay further efforts to implement retail open access in Entergy Gulf States' Texas service territory until the establishment of a FERC-approved RTO, in view of the suspension of efforts to develop the SeTrans RTO; and (2) what criteria should be used to certify an independent organization for Entergy Gulf States' Texas service territory.

The PUCT found that it is not necessary to delay further efforts to establish retail competition in Entergy Gulf States' Texas service territory until after a FERC-approved RTO can serve as the independent organization for that region. The PUCT also determined that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. The PUCT identified the criteria that are to be considered in answering this ultimate question that includes (1) whether the independent organization's decisions are controlled or dominated by any market participant or market segment; and (2) whether the independent organization has day-to-day operational control over the facilities involved. In determining whether the Entergy Transmission Organization should be certified as independent, the PU CT further stated that the issues to be addressed were whether the proposed structure would ensure that the affiliate was independent, and if not, what additional safeguards should be imposed to assure independence. The PUCT also limited any finding of independence in this docket to be applicable to the pilot only and indicated that should it be necessary, the PUCT would review the issue of independence in the market readiness proceeding as well. The preliminary order also states that other issues to be addressed in this proceeding include (1) the costs of implementing Entergy Gulf States' proposal; (2) what changes or additions, if any, may be necessary to the approved protocols or other public documents; and (3) the date by which the pilot project under the protocols can begin. Hearings are scheduled for June 2004.

The preliminary order further directed the parties to the independence proceeding not to address the issue of when full retail competition should start in Entergy Gulf States' Texas service territory.

System Agreement Proceedings

See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Gulf States, although the outcome of the proceeding at FERC cannot be predicted at this time.

Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that a pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

Critical Accounting Estimates

See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Gulf States' accounting for nuclear decommissioning costs, the application of SFAS 71, and pension and other postretirement costs.

 

ENTERGY GULF STATES, INC.
INCOME STATEMENTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
 
    2004   2003
   

(In Thousands)

 

       
OPERATING REVENUES        
Domestic electric   $612,371    $556,238 
Natural gas   26,625    28,116 
TOTAL  
638,996 
 
584,354 
         
OPERATING EXPENSES        
Operation and Maintenance:        
  Fuel, fuel-related expenses, and        
   gas purchased for resale   177,713    139,700 
  Purchased power   201,654    185,313 
  Nuclear refueling outage expenses   3,193    3,056 
  Other operation and maintenance   91,829    95,077 
Decommissioning   3,730    3,567 
Taxes other than income taxes   29,722    28,586 
Depreciation and amortization   45,868    50,116 
Other regulatory charges (credits) - net   (3,025)   1,678 
TOTAL  
550,684 
 
507,093 
         
OPERATING INCOME  
88,312 
 
77,261 
         
OTHER INCOME        
Allowance for equity funds used during construction   2,520    3,010 
Interest and dividend income   3,849    4,340 
Miscellaneous - net   1,884    (2,111)
TOTAL  
8,253 
 
5,239 
         
INTEREST AND OTHER CHARGES  
Interest on long-term debt   35,388    36,478 
Other interest - net   1,814    1,612 
Allowance for borrowed funds used during construction   (1,914)   (2,604)
TOTAL  
35,288 
 
35,486 
         
INCOME BEFORE INCOME TAXES AND        
CUMULATIVE EFFECT OF ACCOUNTING CHANGE   61,277    47,014 
          
Income taxes  
19,549 
 
13,889 
         
INCOME BEFORE CUMULATIVE EFFECT        
OF ACCOUNTING CHANGE   41,728    33,125 
         
CUMULATIVE EFFECT OF ACCOUNTING        
CHANGE (net of income taxes of $12,713)  
 
(21,333)
         
NET INCOME   41,728    11,792 
         
Preferred dividend requirements and other  
1,150 
 
1,210 
         
EARNINGS APPLICABLE TO        
COMMON STOCK  
$40,578 
 
$10,582 
         
See Notes to Respective Financial Statements.        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ENTERGY GULF STATES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
         
    2004   2003
   

(In Thousands)

         
OPERATING ACTIVITIES        
Net income   $41,728    $11,792 
Noncash items included in net income:        
  Reserve for regulatory adjustments   4,407    (14,340)
  Other regulatory charges (credits) - net   (3,025)   1,678 
  Depreciation, amortization, and decommissioning   49,598    55,251 
  Deferred income taxes and investment tax credits   3,885    37,064 
  Allowance for equity funds used during construction   (2,520)   (3,010)
  Cumulative effect of accounting change   -    21,333 
Changes in working capital:        
  Receivables   (22,442)   (21,156)
  Fuel inventory   (1,298)   1,747 
  Accounts payable   (69,718)   53,907 
  Taxes accrued   -    (24,996)
  Interest accrued   7,262    11,363 
  Deferred fuel costs   32,206    (26,727)
  Other working capital accounts   27,274    17,955 
Provision for estimated losses and reserves   403    315 
Changes in other regulatory assets   875    (7,722)
Other   (11,502)   8,424 
Net cash flow provided by operating activities  
57,133 
 
122,878 
         
INVESTING ACTIVITIES        
Construction expenditures   (56,889)   (57,467)
Allowance for equity funds used during construction   2,520    3,010 
Nuclear fuel purchases   (5,616)   (24,979)
Proceeds from sale/leaseback of nuclear fuel   5,616    19,211 
Decommissioning trust contributions and realized        
 change in trust assets   (2,966)   (3,050)
Changes in other temporary investments - net   23,579    - 
Other regulatory investments   (25,595)   (42,127)
Net cash flow used in investing activities  
(59,351)
 
(105,402)
         
FINANCING ACTIVITIES        
Retirement of long-term debt   -    (293,000)
Redemption of preferred stock   (2,250)   (2,250)
Dividends paid:        
  Common stock   (6,900)   (7,400)
  Preferred stock   (1,150)   (1,210)
Net cash flow used in financing activities  
(10,300)
 
(303,860)
         
Net decrease in cash and cash equivalents   (12,518)   (286,384)
         
Cash and cash equivalents at beginning of period  
206,030 
 
318,404 
         
Cash and cash equivalents at end of period  
$193,512 
 
$32,020 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
  Interest - net of amount capitalized   $33,346    $25,294 
         
See Notes to Respective Financial Statements.        

 

 
ENTERGY GULF STATES, INC.
BALANCE SHEETS
ASSETS
March 31, 2004 and December 31, 2003
(Unaudited)
         
    2004   2003
 

  (In Thousands)

       
CURRENT ASSETS            
Cash and cash equivalents:            
  Cash       $20,723    $20,754 
  Temporary cash investments - at cost,            
   which approximates market       172,789    185,276 
      Total cash and cash equivalents      
193,512 
 
206,030 
Other temporary investments         23,579 
Accounts receivable:            
  Customer       106,681    115,729 
  Allowance for doubtful accounts       (4,099)   (4,856)
  Associated companies       99,698    76,726 
  Other       34,955    27,243 
  Accrued unbilled revenues       114,491    114,442 
      Total accounts receivable      
351,726 
 
329,284 
Deferred fuel costs       111,838    118,449 
Accumulated deferred income taxes       8,071    6,116 
Fuel inventory - at average cost       52,161    50,863 
Materials and supplies - at average cost       101,066    99,357 
Prepayments and other       28,195    51,236 
TOTAL      
846,569 
 
884,914 
             
OTHER PROPERTY AND INVESTMENTS        
Decommissioning trust funds       283,519    267,917 
Non-utility property - at cost (less accumulated depreciation)       139,337    139,911 
Other       21,894    21,852 
TOTAL      
444,750 
 
429,680 
             
UTILITY PLANT        
Electric       8,246,998    8,208,394 
Property under capital lease       8,319    11,009 
Natural gas GAS     69,093    69,180 
Construction work in progress       293,793    325,888 
Nuclear fuel under capital lease      
56,817 
 
63,684 
TOTAL UTILITY PLANT       8,675,020    8,678,155 
Less - accumulated depreciation and amortization       3,947,610    3,953,275 
UTILITY PLANT - NET      
4,727,410 
 
4,724,880 
             
DEFERRED DEBITS AND OTHER ASSETS        
Regulatory assets:            
  SFAS 109 regulatory asset - net       441,188    442,062 
  Other regulatory assets       320,762    320,363 
Long-term receivables       18,347    19,375 
Other       37,060    33,588 
TOTAL      
817,357 
 
815,388 
              
TOTAL ASSETS      
$6,836,086 
 
$6,854,862 
             
See Notes to Respective Financial Statements.            
 
 
 
ENTERGY GULF STATES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2004 and December 31, 2003
(Unaudited)
 
    2004   2003
 

 (In Thousands)

 
CURRENT LIABILITIES        
Currently maturing long-term debt       $354,000   $354,000
Accounts payable:            
  Associated companies       68,665   84,000
  Other       101,783   156,166
Customer deposits       49,834   47,044
Nuclear refueling outage costs       11,413   8,238
Interest accrued       44,232   36,970
Obligations under capital leases       34,907   34,075
Other       14,732   14,755
TOTAL      
679,566
 
735,248
             
NON-CURRENT LIABILITIES        
Accumulated deferred income taxes and taxes accrued       1,422,410   1,422,776
Accumulated deferred investment tax credits       142,896   144,323
Obligations under capital leases       30,229   40,618
Other regulatory liabilities       20,728   13,885
Decommissioning and retirement cost liabilities       304,153   298,785
Transition to competition       79,098   79,098
Regulatory reserves       61,750   57,343
Accumulated provisions       76,271   75,868
Long-term debt       1,989,374   1,989,613
Preferred stock with sinking fund       18,602   20,852
Other       235,406   233,985
       
4,380,917
 
4,377,146
             
SHAREHOLDERS' EQUITY        
Preferred stock without sinking fund       47,327   47,327
Common stock, no par value, authorized 200,000,000            
  shares; issued and outstanding 100 shares in 2004 and 2003       114,055   114,055
Paid-in capital       1,157,484   1,157,484
Retained earnings       453,368   419,690
Accumulated other comprehensive income       3,369   3,912
TOTAL      
1,775,603
 
1,742,468
             
Commitments and Contingencies            
             
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      
$6,836,086
 
$6,854,862
             
See Notes to Respective Financial Statements.            

 

 
ENTERGY GULF STATES, INC.
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
                     
         
        2004   2003
        (In Thousands)
RETAINED EARNINGS                    
Retained Earnings - Beginning of period       $419,690        $449,929     
                     
  Add: Net Income       41,728    $41,728    11,792    $11,792 
                     
  Deduct:                    
    Dividends declared on common stock       6,900        7,400     
    Preferred dividend requirements and other      
1,150 
  1,150   
1,210 
  1,210 
       
8,050 
     
8,610 
   
                     
Retained Earnings - End of period      
$453,368 
     
$453,111 
   
                     
ACCUMULATED OTHER COMPREHENSIVE                    
INCOME (Net of Taxes):                    
Balance at beginning of period:                    
  Accumulated derivative instrument fair value changes       $3,912        $3,286     
                     
Net derivative instrument fair value changes                    
  arising during the period      
(543)
 
(543)
 
(1,191)
 
(1,191)
                     
Balance at end of period:                    
  Accumulated derivative instrument fair value changes      
$3,369 
     
$2,095 
   
Comprehensive Income          
$40,035 
     
$9,391 
                     
                     
See Notes to Respective Financial Statements.                    
                     

 

 
ENTERGY GULF STATES, INC.
SELECTED OPERATING RESULTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
 
        Increase/    
Description   2004     2003   (Decrease)   %
    (In Millions)        
Electric Operating Revenues:                  
  Residential   $184     $161   $23    14 
  Commercial   142     121   21    17 
  Industrial   212     173   39    23 
  Governmental  
9
   
9
 
- 
  - 
      Total retail   547     464   83    18 
  Sales for resale                  
    Associated companies   13     11   2    18 
    Non-associated companies   45     42   3    7 
  Other   7     39   (32)   (82)
      Total  
$612
   
$556
 
$56 
  10 
                   
Billed Electric Energy                  
 Sales (GWh):                  
  Residential   2,188     2,223   (35)   (2)
  Commercial   1,862     1,841   21    1 
  Industrial   3,923     3,658   265    7 
  Governmental  
111
   
122
 
(11)
  (9)
      Total retail   8,084     7,844   240    3 
  Sales for resale                  
    Associated companies   311     170   141    83 
    Non-associated companies   1,022     974   48    5 
      Total  
9,417
   
8,988
 
429 
  5 
                   
                   

ENTERGY LOUISIANA, INC.

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Net income decreased $22.6 million for the first quarter of 2004 compared to the first quarter of 2003 primarily due to decreased net revenue partially offset by decreased interest charges.

Net Revenue

Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

 

(Dollars In Millions)

2003 net revenue

$236.8 

Volume/weather

20.0 

Deferred fuel cost revisions

(29.4)

Price applied to unbilled sales

(35.5)

Other

5.3 

2004 net revenue

$197.2 


The volume/weather variance resulted from increased usage among residential and commercial customers primarily during the unbilled sales period.

The deferred fuel cost revisions variance resulted from a revised unbilled sales pricing estimate made in the first quarter of 2003 to more closely align the fuel component of that pricing with expected recoverable fuel costs.

The price applied to unbilled sales variance is due to a decrease in the price included in unbilled sales in the first quarter of 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs in 2003.

Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)

Gross operating revenues increased primarily due to an increase of $56.1 million in fuel cost recovery revenues due to higher fuel rates, partially offset by the following:

Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas, oil, and purchased power, partially offset by decreased generation.

Other regulatory charges decreased primarily due to:

 

Other Income Statement Variances

Interest charges decreased for the first quarter of 2004 compared to the first quarter of 2003 primarily due to the redemption of $150 million of First Mortgage Bonds in June 2003 and the repurchase of $110.95 million of governmental bonds in October 2003.

Income Taxes

The effective income tax rates for the first quarters of 2004 and 2003 were 37.2% and 38.2%, respectively. The difference in the effective income tax rate for the first quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to depreciation book and tax differences and state income taxes, partially offset by the amortization of investment tax credits. The difference in the effective income tax rate for the first quarter of 2003 versus the federal statutory rate of 35.0% is primarily due to state income taxes and depreciation book and tax differences.

Liquidity and Capital Resources

Cash Flow

Cash flows for the first quarters of 2004 and 2003 were as follows:

2004

2003

(In Thousands)

Cash and cash equivalents at beginning of period

$8,787 

$311,800 

Cash flow provided by (used in):

  Operating activities

8,562 

(126,060)

  Investing activities

(44,571)

(41,878)

  Financing activities

82,763 

(47,784)

Net increase (decrease) in cash and cash equivalents

46,754 

(215,722)

Cash and cash equivalents at end of period

$55,541 

$96,078 

Operating Activities

Cash flow from operations provided $8.6 million of cash in the first quarter of 2004 compared to using $126.1 million of cash in the first quarter of 2003 primarily due to money pool activity which used $66.9 million of Entergy Louisiana's operating cash flows in the first quarter of 2004 compared to $182.8 million used in the first quarter of 2003. Entergy Louisiana's receivables from or (payables) to the money pool were as follows:

March 31,
2004

 

December 31,
2003

 

March 31,
2003

 

December 31,
2002

(In Thousands)

 

 

 

 

 

 

 

$25,626

 

($41,317)

 

$201,679

 

$18,854

See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

Financing Activities

Entergy Louisiana provided $82.8 million of cash in financing activities in the first quarter of 2004 compared to using $47.8 million of cash in the first quarter of 2003 primarily due to:

  • the issuance of $100 million of 5.5% Series First Mortgage Bonds in March 2004;

  • a principal payment of $14.8 million in 2004 for the Waterford Lease Obligation compared to a principal payment of $33.2 million in 2003; and

  • a decrease of $12.9 million in common stock dividends paid.

  • Uses and Sources of Capital

    See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana's uses and sources of capital. Following is an update to the information provided in the Form 10-K.

    As discussed in the Form 10-K, Entergy Louisiana has a 364-day credit facility in the amount of $15 million that expires on May 31, 2004. It is expected that this facility will be renewed prior to expiration.

    Significant Factors and Known Trends

    See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state rate regulation, System Agreement proceedings, industrial and commercial customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the Form 10-K.

    Rate Proceedings

    See "Management's Financial Discussion and Analysis - Rate Proceedings" in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. Hearings are currently set for September 2004.

    System Agreement Proceedings

    See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

    As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Louisiana, although the outcome of the proceeding at FERC cannot be predicted at this time.

    Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

    In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that the pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

    Critical Accounting Estimates

    See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana's accounting for nuclear decommissioning costs and pension and other retirement costs.

     

    ENTERGY LOUISIANA, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
     
        2004   2003
        (In Thousands)
             
    OPERATING REVENUES        
    Domestic electric  
    $488,046 
     
    $462,361 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   137,779    70,308 
      Purchased power   157,730    151,687 
      Nuclear refueling outage expenses   3,177    2,745 
      Other operation and maintenance   77,698    74,968 
    Decommissioning   5,356    5,142 
    Taxes other than income taxes   16,074    16,724 
    Depreciation and amortization   46,586    47,832 
    Other regulatory charges (credits) - net   (4,672)   3,593 
    TOTAL  
    439,728 
     
    372,999 
             
    OPERATING INCOME  
    48,318 
     
    89,362 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   1,350    1,535 
    Interest and dividend income   1,727    3,142 
    Miscellaneous - net   (1,138)   (1,132)
    TOTAL  
    1,939 
     
    3,545 
             
    INTEREST AND OTHER CHARGES  
    Interest on long-term debt    16,458    22,282 
    Other interest - net   985    829 
    Allowance for borrowed funds used during construction   (976)   (1,112)
    TOTAL  
    16,467 
     
    21,999 
             
    INCOME BEFORE INCOME TAXES   33,790    70,908 
             
    Income taxes  
    12,579 
     
    27,101 
             
    NET INCOME   21,211    43,807 
             
    Preferred dividend requirements and other  
    1,678 
     
    1,678 
             
    EARNINGS APPLICABLE TO        
    COMMON STOCK  
    $19,533 
     
    $42,129 
             
    See Notes to Respective Financial Statements.        

     

     
    ENTERGY LOUISIANA, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
             
        2004   2003
        (In Thousands)
             
    OPERATING ACTIVITIES        
    Net income   $21,211    $43,807 
    Noncash items included in net income:        
      Other regulatory charges (credits) - net   (4,672)   3,593 
      Depreciation, amortization, and decommissioning   51,942    52,974 
      Deferred income taxes and investment tax credits   19,728    22,474 
      Allowance for equity funds used during construction   (1,350)   (1,535)
    Changes in working capital:        
      Receivables   (4,509)   (162,170)
      Accounts payable   (94,210)   (27,969)
      Taxes accrued   6,646    20,214 
      Interest accrued   (5,205)   (4,153)
      Deferred fuel costs   13,773    (77,511)
      Other working capital accounts   21,040    (8,370)
    Provision for estimated losses and reserves   1,778    2,369 
    Changes in other regulatory assets   519    22,819 
    Other   (18,129)   (12,602)
    Net cash flow provided by (used in) operating activities  
    8,562 
     
    (126,060)
             
    INVESTING ACTIVITIES        
    Construction expenditures   (44,758)   (39,122)
    Allowance for equity funds used during construction   1,350    1,535 
    Decommissioning trust contributions and realized        
     change in trust assets   (1,163)   (4,291)
    Net cash flow used in investing activities  
    (44,571)
     
    (41,878)
             
    FINANCING ACTIVITIES        
    Proceeds from the issuance of long-term debt   99,250    - 
    Retirement of long-term debt   (14,809)   (33,206)
    Dividends paid:        
      Common stock   -    (12,900)
      Preferred stock   (1,678)   (1,678)
    Net cash flow provided by (used in) financing activities  
    82,763 
     
    (47,784)
             
    Net increase (decrease) in cash and cash equivalents   46,754    (215,722)
             
    Cash and cash equivalents at beginning of period  
    8,787 
     
    311,800 
             
    Cash and cash equivalents at end of period  
    $55,541 
     
    $96,078 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid during the period for:        
      Interest - net of amount capitalized   $20,345    $26,489 
             
    See Notes to Respective Financial Statements.        

     

     
    ENTERGY LOUISIANA, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2004 and December 31, 2003
    (Unaudited)
             
        2004   2003
      (In Thousands)
                 
    CURRENT ASSETS            
    Cash and cash equivalents:            
      Cash       $6,586    $8,787 
      Temporary cash investments - at cost,            
       which approximates market       48,955   
          Total cash and cash equivalents      
    55,541 
     
    8,787 
    Accounts receivable:            
      Customer       87,847    93,393 
      Allowance for doubtful accounts       (3,073)   (4,487)
      Associated companies       35,315    9,074 
      Other       9,152    12,334 
      Accrued unbilled revenues       123,746    138,164 
          Total accounts receivable      
    252,987 
     
    248,478 
    Deferred fuel costs       16,836    30,609 
    Accumulated deferred income taxes       5,334   
    Materials and supplies - at average cost       75,713    74,349 
    Deferred nuclear refueling outage costs       15,990    19,226 
    Prepayments and other       74,541    67,623 
    TOTAL      
    496,942 
     
    449,072 
                 
    OTHER PROPERTY AND INVESTMENTS        
    Investment in affiliates - at equity       14,230    14,230 
    Decommissioning trust funds       160,241    151,996 
    Non-utility property - at cost (less accumulated depreciation)       21,274    21,307 
    Other       2,116    2,177 
    TOTAL      
    197,861 
     
    189,710 
                 
    UTILITY PLANT        
    Electric       5,857,800    5,836,914 
    Property under capital lease       250,102    250,102 
    Construction work in progress       163,665    172,405 
    Nuclear fuel under capital lease      
    56,829 
     
    65,066 
    TOTAL UTILITY PLANT       6,328,396    6,324,487 
    Less - accumulated depreciation and amortization       2,700,910    2,686,778 
    UTILITY PLANT - NET      
    3,627,486 
     
    3,637,709 
                 
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:            
      SFAS 109 regulatory asset - net       156,525    156,111 
      Other regulatory assets       219,306    217,689 
    Long-term receivables       1,500    1,511 
    Other       23,327    22,737 
    TOTAL      
    400,658 
     
    398,048 
                  
    TOTAL ASSETS      
    $4,722,947 
     
    $4,674,539 
                 
    See Notes to Respective Financial Statements.            
     
     
     
    ENTERGY LOUISIANA, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2004 and December 31, 2003
    (Unaudited)
     
        2004   2003
      (In Thousands)
     
    CURRENT LIABILITIES        
    Currently maturing long-term debt       $-    $14,809 
    Accounts payable:             
      Associated companies       35,338    101,191 
      Other       93,518    121,875 
    Customer deposits       63,193    61,215 
    Accumulated deferred income taxes         566 
    Interest accrued       15,024    20,229 
    Obligations under capital leases       35,506    35,506 
    Other       4,595    5,110 
    TOTAL      
    247,174 
     
    360,501 
                 
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued       1,753,009    1,728,156 
    Accumulated deferred investment tax credits       99,976    101,258 
    Obligations under capital leases       21,323    29,560 
    Other regulatory liabilities       30,306    12,204 
    Decommissioning and retirement cost liabilities       356,424    352,120 
    Accumulated provisions       88,312    86,534 
    Long-term debt       987,689    887,687 
    Other       50,663    47,981 
    TOTAL      
    3,387,702 
     
    3,245,500 
                 
                 
    SHAREHOLDERS' EQUITY        
    Preferred stock without sinking fund       100,500    100,500 
    Common stock, no par value, authorized 250,000,000            
      shares; issued 165,173,180 shares in 2004 and 2003       1,088,900    1,088,900 
    Capital stock expense and other       (1,718)   (1,718)
    Retained earnings       20,389    856 
    Less - treasury stock, at cost (18,202,573 shares in 2004 and 2003)       120,000    120,000 
    TOTAL      
    1,088,071 
     
    1,068,538 
                 
    Commitments and Contingencies            
                 
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      
    $4,722,947 
     
    $4,674,539 
                 
    See Notes to Respective Financial Statements.            

     

     
    ENTERGY LOUISIANA, INC.
    SELECTED OPERATING RESULTS
    For the Three Ended March 31, 2004 and 2003
    (Unaudited)
     
                       
            Increase/    
    Description   2004     2003   (Decrease)   %
        (In Millions)        
    Electric Operating Revenues:                  
      Residential   $170      $151   $19    13 
      Commercial   114      99   15    15 
      Industrial   186      164   22    13 
      Governmental  
    9 
       
    10
     
    (1)
      (10)
          Total retail   479      424   55    13 
      Sales for resale                  
        Associated companies   10      24   (14)   (58)
        Non-associated companies   4      3   1    33 
      Other   (5)     11   (16)   (145)
          Total  
    $488 
       
    $462
     
    $26 
      6 
                       
    Billed Electric Energy                  
     Sales (GWh):                  
      Residential     2,007      2,015   (8)   - 
      Commercial   1,283      1,257   26    2 
      Industrial   3,132      3,290   (158)   (5)
      Governmental  
    109 
       
    130
     
    (21)
      (16)
          Total retail   6,531      6,692   (161)   (2)
      Sales for resale                  
        Associated companies   106      296   (190)   (64)
        Non-associated companies   60      43   17    40 
          Total  
    6,697 
       
    7,031
     
    (334)
      (5)
                       

    ENTERGY MISSISSIPPI, INC.

    MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

    Results of Operations

    Net Income

    Net income decreased $3.7 million for the first quarter of 2004 compared to the first quarter of 2003 primarily due to decreased net revenue, which is explained below.

    Net Revenue

    Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

    (Dollars In Millions)

    2003 net revenue

    $92.0 

    Volume/weather

    (0.4)

    Price applied to unbilled sales

    (3.2)

    Net wholesale revenue

    (1.1)

    Other

    0.2 

    2004 net revenue

    $87.5 


    The volume/weather variance resulted primarily from colder than normal weather in first quarter of 2003.

    The price applied to unbilled sales variance results from a change in base rates applied to unbilled sales in the prior period.

    The net wholesale revenue variance results from increased retail demand resulting in less energy available for resale sales and a decrease in the average price of energy for resale sales.

    Income Taxes

    The effective income tax rates for the first quarters of 2004 and 2003 were 32.8% and 33.8%, respectively. The difference in the effective tax rates for the first quarters of 2004 and 2003 versus the federal statutory rate of 35.5% is primarily due to the flow-through of depreciation book and tax differences and amortization of investment tax credits, partially offset by state income tax.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2004 and 2003 were as follows:

    2004

    2003

    (In Thousands)

    Cash and cash equivalents at beginning of period

    $63,838 

    $147,721 

    Cash flow provided by (used in):

        Operating activities

    15,182 

    (44,616)

        Investing activities

    (30,119)

    (24,200)

        Financing activities

    (3,742)

    (60,645)

    Net decrease in cash and cash equivalents

    (18,679)

    (129,461)

    Cash and cash equivalents at end of period

    $45,159 

    $18,260 

    Operating Activities

    Cash flow from operations increased $59.8 million for the first quarter of 2004 compared to the first quarter of 2003 primarily due to increased recovery of deferred fuel and purchased power costs, money pool activity, and a decrease in interest payments.

    Entergy Mississippi's receivables from the money pool were as follows:

    March 31,
    2004

     

    December 31,
    2003

     

    March 31,
    2003

     

    December 31,
    2002

    (In Thousands)

     

     

     

     

     

     

     

    $17,289

     

    $22,076

     

    $20,038

     

    $8,702

    Money pool activity provided $4.8 million of Entergy Mississippi's operating cash flow for the first quarter of 2004 and used $11.3 million of operating cash flow for the first quarter of 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

    Investing Activities

    The increase of $5.9 million in net cash used in investing activities for the first quarter of 2004 compared to the first quarter of 2003 was primarily due to increased capital expenditures as a result of independent power producer transmission upgrades performed in 2004, partially offset by the maturity of other temporary investments in 2004.

    Financing Activities

    The decrease of $56.9 million in net cash used in financing activities for 2004 compared to 2003 was primarily due to decreased net retirements of $81.5 million of long-term debt during the first three months of 2004 compared to the same period of 2003, partially offset by a $25 million short-term borrowing made in the first quarter of 2003.

    Uses and Sources of Capital

    See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Mississippi's uses and sources of capital. Following are updates to the information provided in the Form 10-K.

    In April 2004, Entergy Mississippi issued $100 million of 6.25% Series First Mortgage Bonds due April 1, 2034. The proceeds from this issuance are being used to repay, at maturity, a portion of the $75 million 6.2% Series First Mortgage Bonds due May 2004, and to redeem, prior to maturity, the $60 million 7.7% Series First Mortgage Bonds due July 2023.

    In April 2004, Entergy Mississippi issued $80 million o f 4.65% Series First Mortgage Bonds due April 22, 2011. The proceeds from this issuance will be used to redeem, prior to maturity, the $80 million 6.45% Series First Mortgage Bonds due April 2008.

    Significant Factors and Known Trends

    See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state and local rate regulation, System Agreement proceedings, market and credit risks, state and local regulatory risks, and litigation risks. The following are updates to the Form 10-K.

    State and Local Rate Regulation

    As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, Entergy Mississippi made its anticipated formula rate plan filing with the MPSC in March 2004 based on a 2003 test year. In April 2004, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on an adjusted return on common equity midpoint of 10.77%, establishing an allowed regulatory earnings range of 9.3% to 12.2%.

    System Agreement Proceedings

    See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

    As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy Mississippi, although the outcome of the proceeding at FERC cannot be predicted at this time.

    Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

    In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that a pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

    Critical Accounting Estimates

    See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi's accounting for pension and other retirement costs.

    ENTERGY MISSISSIPPI, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
         
        2004   2003
       

    (In Thousands)

             
    OPERATING REVENUES        
    Domestic electric  
    $236,829 
     
    $227,369 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   59,175    31,953 
      Purchased power   92,702    102,948 
      Other operation and maintenance   37,048    35,712 
    Taxes other than income taxes   12,798    11,147 
    Depreciation and amortization   14,909    15,027 
    Other regulatory charges (credits) - net   (2,527)   486 
    TOTAL  
    214,105 
     
    197,273 
             
    OPERATING INCOME  
    22,724 
     
    30,096 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   767    797 
    Interest and dividend income   716    360 
    Miscellaneous - net   (640)   (937)
    TOTAL  
    843 
     
    220 
             
    INTEREST AND OTHER CHARGES  
    Interest on long-term debt   10,929    11,634 
    Other interest - net   400    803 
    Allowance for borrowed funds used during construction   (607)   (729)
    TOTAL  
    10,722 
     
    11,708 
             
    INCOME BEFORE INCOME TAXES   12,845    18,608 
             
    Income taxes  
    4,208 
     
    6,292 
             
    NET INCOME   8,637    12,316 
             
    Preferred dividend requirements and other  
    842 
     
    842 
             
    EARNINGS APPLICABLE TO        
    COMMON STOCK  
    $7,795 
     
    $11,474 
             
    See Notes to Respective Financial Statements.        

     

     
    ENTERGY MISSISSIPPI, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
                 
            2004   2003
            (In Thousands)
                 
    OPERATING ACTIVITIES            
    Net income       $8,637    $12,316 
    Noncash items included in net income:            
      Other regulatory charges (credits) - net       (2,527)   486 
      Depreciation and amortization       14,909    15,027 
      Deferred income taxes and investment tax credits       56,647    10,736 
      Allowance for equity funds used during construction       (767)   (797)
    Changes in working capital:            
      Receivables       12,328    (3,396)
      Fuel inventory       726    126 
      Accounts payable       (10,296)   (29,955)
      Taxes accrued       (12,679)   (20,908)
      Interest accrued       2,837    (8,519)
      Deferred fuel costs       8,244    (17,543)
      Other working capital accounts       (4,103)   (454)
    Provision for estimated losses and reserves       20    (1,034)
    Changes in other regulatory assets       1,200    (1,918)
    Other       (59,994)   1,217 
    Net cash flow provided by (used in) operating activities      
    15,182 
     
    (44,616)
                 
    INVESTING ACTIVITIES            
    Construction expenditures       (38,392)   (24,997)
    Allowance for equity funds used during construction       767    797 
    Changes in other temporary investments - net       7,506    -
    Net cash flow used in investing activities      
    (30,119)
     
    (24,200)
                 
    FINANCING ACTIVITIES            
    Proceeds from the issuance of long-term debt         198,497 
    Retirement of long-term debt         (280,000)
    Changes in short-term borrowings       25,000 
    Dividends paid:            
      Common stock     (2,900)   (3,300)
      Preferred stock     (842)   (842)
    Net cash flow used in financing activities      
    (3,742)
     
    (60,645)
                 
    Net decrease in cash and cash equivalents       (18,679)   (129,461)
                 
    Cash and cash equivalents at beginning of period      
    63,838 
     
    147,721 
                 
    Cash and cash equivalents at end of period      
    45,159 
     
    18,260 
                 
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:            
    Cash paid during the period for:            
      Interest - net of amount capitalized       $7,996    $20,409 
                 
    See Notes to Respective Financial Statements.            

     

     
    ENTERGY MISSISSIPPI, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2004 and December 31, 2003
    (Unaudited)
           
      2004   2003
      (In Thousands)
               
    CURRENT ASSETS          
    Cash and cash equivalents:          
      Cash     $12,132    $6,381 
    Temporary cash investment - at cost          
     which approximates market     33,027    57,457 
         Total cash and cash equivalents    
    45,159 
     
    63,838 
    Other temporary investments       7,506 
    Accounts receivable:           
      Customer     60,004    59,729 
      Allowance for doubtful accounts     (1,234)   (1,375)
      Associated companies     21,509    25,935 
      Other     3,562    6,400 
      Accrued unbilled revenues     25,729    31,209 
          Total accounts receivable    
    109,570 
     
    121,898 
    Deferred fuel costs     80,834    89,078 
    Fuel inventory - at average cost     4,351    5,077 
    Materials and supplies - at average cost     18,354    17,682 
    Prepayments and other     14,915    9,583 
    TOTAL    
    273,183 
     
    314,662 
               
    OTHER PROPERTY AND INVESTMENTS        
    Investment in affiliates - at equity     5,531    5,531 
    Non-utility property - at cost (less accumulated depreciation)     6,466    6,466 
    TOTAL    
    11,997 
     
    11,997 
                
    UTILITY PLANT         
    Electric     2,255,563    2,243,852 
    Property under capital lease     126    136 
    Construction work in progress    
    120,256 
     
    108,829 
    TOTAL UTILITY PLANT     2,375,945    2,352,817 
    Less - accumulated depreciation and amortization     839,661    837,492 
    UTILITY PLANT - NET    
    1,536,284 
     
    1,515,325 
               
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:          
      SFAS 109 regulatory asset - net     23,138    28,964 
      Other regulatory assets     63,799    58,287 
    Other     22,664    20,064 
    TOTAL    
    109,601 
     
    107,315 
                
    TOTAL ASSETS    
    $1,931,065 
     
    $1,949,299 
               
    See Notes to Respective Financial Statements.          
     
     
     
    ENTERGY MISSISSIPPI, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2004 and December 31, 2003
    (Unaudited)
           
      2004   2003
      (In Thousands)
     
    CURRENT LIABILITIES        
    Currently maturing long-term debt     $75,000    $75,000 
    Accounts payable:           
      Associated companies     65,627    62,705 
      Other     14,994    28,212 
    Customer deposits     34,871    33,861 
    Taxes accrued     26,362    39,041 
    Accumulated deferred income taxes     3,835    7,120 
    Interest accrued     16,609    13,772 
    Obligations under capital leases     35    41 
    Other     3,459    2,567 
    TOTAL    
    240,792 
     
    262,319 
               
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued     376,795    385,395 
    Accumulated deferred investment tax credits     14,741    15,092 
    Obligations under capital leases     91    95 
    Accumulated provisions     6,896    6,876 
    Long-term debt     654,996    654,956 
    Other     67,375    60,082 
    TOTAL    
    1,120,894 
     
    1,122,496 
               
    SHAREHOLDERS' EQUITY        
    Preferred stock without sinking fund     50,381    50,381 
    Common stock, no par value, authorized 15,000,000          
     shares; issued and outstanding 8,666,357 shares in 2004 and 2003     199,326    199,326 
    Capital stock expense and other     (59)   (59)
    Retained earnings     319,731    314,836 
    TOTAL    
    569,379 
     
    564,484 
               
    Commitments and Contingencies          
               
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY    
    $1,931,065 
     
    $1,949,299 
               
    See Notes to Respective Financial Statements.          

     

     
    ENTERGY MISSISSIPPI, INC.
    SELECTED OPERATING RESULTS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
     
                       
            Increase/    
    Description   2004     2003   (Decrease)   %
        (In Millions)        
    Electric Operating Revenues:                  
      Residential   $ 95     $ 89    
      Commercial   80     75    
      Industrial   42     40    
      Governmental  
    8
       
    8
     
    - 
     
           Total retail   225     212   13   
      Sales for resale                  
        Associated companies   4     5   (1)   (20)
        Non-associated companies   5     5   -   
      Other   3     5   (2)   (40)
          Total  
    $ 237
       
    $ 227
     
    $ 10 
     
                       
    Billed Electric Energy                  
     Sales (GWh):                  
      Residential   1,225     1,253   (28)   (2)
      Commercial   1,004     1,012   (8)   (1)
      Industrial   676     672    
      Governmental  
    91
       
    93
     
    (2)
      22 
        Total retail   2,996     3,030   (34)  
      Sales for resale                  
        Associated companies   13     18   (5)   (28)
        Non-associated companies   66     70   (4)  
          Total  
    3,075
       
    3,118
     
    (43)
      (1)
                       

    ENTERGY NEW ORLEANS, INC.

    MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

    Results of Operations

    Net Income (Loss)

    Entergy New Orleans had net income of $7.1 million for the first quarter 2004 compared to a net loss for the first quarter 2003. The increase in net income is due to an increase in net revenue and a decrease in other operation and maintenance expenses.

    Net Revenue

    Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory charges. Following is an analysis of the change in net revenue comparing the first quarter of 2004 to the first quarter of 2003.

    (Dollars In Millions)

    2003 net revenue

    $39.4 

    Volume/weather

    7.2 

    Base rates

    8.5 

    Rate refund provisions

    (4.1)

    Other

    2.6 

    2004 net revenue

    $53.6 


    The volume/weather variance is due to increased electric usage in the service territory. Billed usage increased a total of 47 GWh in the service territory after adjusting for the effects of weather.  Weather slightly reduced sales due to colder than normal weather in the first quarter of 2003.

    The increase in base rates was effective June 2003. The rate increase is discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.

    Rate refund provisions decreased net revenue due to higher accruals in the first quarter 2004 primarily as a result of a resolution adopted by the City Council in February 2004. The resolution is discussed in Note 2 to the domestic utility companies and System Energy financial statements.

    Gross operating revenues and fuel and purchased power expenses

    Gross operating revenues increased primarily due to an increase of $25.4 million in gross wholesale revenue as a result of increased sales to affiliates.

    Fuel and purchased power expenses increased primarily due to an increase in electricity generated.

    Other Income Statement Variances

    Other operation and maintenance expenses decreased $2.1 million primarily due to a maintenance outage at a fossil plant in 2003.

    Income Taxes

    The effective income tax rates for the first quarters of 2004 and 2003 were 38.2% and 34.9%, respectively. The difference for the first quarter of 2004 in the effective income tax rate versus the federal statutory rate of 35.0% is primarily due to state income taxes and the flow-through of depreciation book and tax differences.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2004 and 2003 were as follows:

    2004

    2003

    (In Thousands)

    Cash and cash equivalents at beginning of period

    $4,669 

    $66,247 

    Cash flow provided by (used in):

        Operating activities

    12,973 

    (46,776)

        Investing activities

    (9,191)

    (12,410)

        Financing activities

    (841)

    (241)

    Net increase (decrease) in cash and cash equivalents

    2,941 

    (59,427)

    Cash and cash equivalents at end of period

    $7,610 

    $6,820 

    Operating Activities

    The increase of $59.7 million in net cash provided by operating activities was primarily due to the timing of receivable collections, the effect of higher fuel costs in 2003, and money pool activity.

    Entergy New Orleans' receivables from or (payables) to the money pool were as follows:

    March 31,
    2004

     

    December 31,
     2003

     

    March 31,
    2003

     

    December 31,
     2002

    (In Thousands)

     

     

     

     

     

     

     

    ($8,023)

     

    $1,783

     

    $11,581

     

    $3,500

    Money pool activity provided $9.8 million of Entergy New Orleans' operating cash flows for the first quarter 2004 and used $8.1 million of operating cash flows for the first quarter 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

    Investing Activities

    The decrease in net cash used in investing activities for the first quarter was primarily due to decreased capital expenditures of $2.6 million related to a turbine inspection project at a fossil plant in 2003.

    Uses and Sources of Capital

    See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy New Orleans' uses and sources of capital.

    Significant Factors and Known Trends

    See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of System Agreement proceedings, market and credit risks, state and local regulatory risks, environmental risks, and litigation risks. The following is an update to the Form 10-K.

    System Agreement Proceedings

    See the Form 10-K for a discussion of the proceeding commenced at FERC by the LPSC regarding production cost equalization under the System Agreement, the ALJ Initial Decision in the proceeding, and the "Order of Investigation" issued by the APSC. Several parties, including Entergy, the LPSC, the APSC, the MPSC, the City Council, and the FERC Staff, filed briefs on exceptions in response to the ALJ's Initial Decision. Entergy's exceptions to the ALJ's Initial Decision include that: the practical effect of the Initial Decision is full production cost equalization, which was rejected in the Initial Decision and previously has been rejected by the FERC; implementation of resource planning for the Entergy System will be impeded; the remedy in the Initial Decision is inconsistent with the history, structure, and precedent regarding the System Agreement; the Initial Decision's remedy ignores the historical pattern of production cost disparities on the Entergy System and would result in s ubstantial, sudden transfers of costs between groups of Entergy customers; the numerical standards proposed in the Initial Decision are arbitrary and are so complex they will be difficult to implement; the Initial Decision improperly rejected Entergy's resource planning remedy; the Initial Decision erroneously determined that the costs of the Vidalia project should be included in Entergy Louisiana's relative production costs for purposes of calculating relative production costs; and the Initial Decision erroneously adopted a new method of calculating reserve sharing costs rather than the current method.

    As reported in the Form 10-K, if FERC grants the relief requested by the LPSC in the proceeding, the relief may result in a material increase in production costs allocated to companies whose costs currently are projected to be less than the Entergy System average, and a material decrease in production costs allocated to companies whose costs currently are projected to exceed that average. Management believes that any changes in the allocation of production costs resulting from a FERC decision should result in similar rate changes for retail customers. Therefore, management does not believe that this proceeding will have a material effect on the financial condition of Entergy New Orleans, although the outcome of the proceeding at FERC cannot be predicted at this time.

    Entergy Arkansas also filed its initial testimony in response to the APSC's February Order of Investigation discussed in the Form 10-K. The testimony emphasizes that the ALJ Initial Decision is not a final order by the FERC; briefly discusses some of the aspects of the Initial Decision that are included in Entergy's exceptions filed with FERC; emphasizes that Entergy will seek to reverse the production cost-related portions of the Initial Decision; and states that Entergy Arkansas believes that it is premature, before FERC makes a decision, for Entergy Arkansas to determine whether its continued participation in the System Agreement is appropriate.

    In addition, as discussed in the Form 10-K, the APSC had publicly announced its intention to initiate an inquiry into Entergy Louisiana's Vidalia purchased power contract. In April 2004, the APSC commenced the investigation, and has requested historical documents, records, and information from Entergy Arkansas. Also in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers. Procedural schedules have not been established yet in these investigations. Also in April, the City Council issued a resolution directing Entergy New Orleans and Entergy Louisiana to notify the City Council and obtain prior approval for any action that would materially modify, amend, or terminate the Sys tem Agreement for one or more of the domestic utility companies. In addition, the LPSC staff has proposed that a pending LPSC proceeding investigating the System Agreement should now include certain additional issues that are pending before the FERC at this time.

    Formula Rate Plan Filings

    In conformance with the City Council's May 2003 resolution discussed in the Form 10-K, in April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The review of the filings by the Council Advisors and intervenors has commenced. Management cannot predict the outcome of this proceeding.

    Critical Accounting Estimates

    See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans' accounting for pension and other retirement costs.

    ENTERGY NEW ORLEANS, INC.
    STATEMENTS OF OPERATIONS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
     
        2004   2003
       

     (In Thousands)

             
    OPERATING REVENUES        
    Domestic electric   $112,576    $88,785 
    Natural gas   57,191    52,122 
    TOTAL  
    169,767 
     
    140,907 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   56,511    53,494 
      Purchased power   58,919    46,119 
      Other operation and maintenance   21,316    23,448 
    Taxes other than income taxes   9,995    10,350 
    Depreciation and amortization   6,831    7,465 
    Other regulatory charges - net   708    1,918 
    TOTAL  
    154,280 
     
    142,794 
             
    OPERATING INCOME (LOSS)  
    15,487 
     
    (1,887)
             
    OTHER INCOME        
    Allowance for equity funds used during construction   218    248 
    Interest and dividend income   170    311 
    Miscellaneous - net   (294)   (448)
    TOTAL  
    94 
     
    111 
             
    INTEREST AND OTHER CHARGES      
    Interest on long-term debt   3,866    4,467 
    Other interest - net   416    658 
    Allowance for borrowed funds used during construction   (222)   (255)
    TOTAL  
    4,060 
     
    4,870 
             
    INCOME (LOSS) BEFORE INCOME TAXES   11,521    (6,646)
             
    Income taxes  
    4,407 
     
    (2,319)
             
    NET INCOME (LOSS)   7,114    (4,327)
             
    Preferred dividend requirements and other  
    241 
     
    241 
             
    EARNINGS (LOSS) APPLICABLE TO        
    COMMON STOCK  
    $6,873 
     
    ($4,568)
             
    See Notes to Respective Financial Statements.        
             

     

     
    ENTERGY NEW ORLEANS, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
             
        2004   2003
       

    (In Thousands)

    OPERATING ACTIVITIES        
    Net income (loss)   $7,114    ($4,327)
    Noncash items included in net income (loss):        
      Other regulatory charges - net   708    1,918 
      Depreciation and amortization   6,831    7,465 
      Deferred income taxes and investment tax credits   17,125    2,537 
      Allowance for equity funds used during construction   (218)   (248)
    Changes in working capital:        
      Receivables   14,858    (29,384)
      Fuel inventory   4,561    3,259 
      Accounts payable   (19,295)   (7,358)
      Taxes accrued   2,252    (1,999)
      Interest accrued   (3,929)   (4,040)
      Deferred fuel costs   (7,646)   (467)
      Other working capital accounts   14,571    (8,308)
    Provision for estimated losses and reserves   (33)   (2,233)
    Changes in other regulatory assets   708    - 
    Other   (24,634)   (3,591)
    Net cash flow provided by (used in) operating activities  
    12,973 
     
    (46,776)
             
    INVESTING ACTIVITIES        
    Construction expenditures   (10,015)   (12,658)
    Allowance for equity funds used during construction   218    248 
    Changes in other temporary investments - net   606    - 
    Net cash flow used in investing activities  
    (9,191)
     
    (12,410)
             
    FINANCING ACTIVITIES        
    Dividends paid:        
      Common stock   (600)   - 
      Preferred stock   (241)   (241)
    Net cash flow used in financing activities  
    (841)
     
    (241)
             
    Net increase (decrease) in cash and cash equivalents   2,941    (59,427)
              
    Cash and cash equivalents at beginning of period  
    4,669 
     
    66,247 
              
    Cash and cash equivalents at end of period  
    $7,610 
     
    $6,820 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid/(received) during the period for:        
      Interest - net of amount capitalized   $8,052    $9,018 
      Income taxes   ($5,010)   - 
             
    See Notes to Respective Financial Statements.        

     

     
    ENTERGY NEW ORLEANS, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2004 and December 31, 2003
    (Unaudited)
     
      2004   2003
     

    (In Thousands)

             
    CURRENT ASSETS        
    Cash and cash equivalents:        
      Cash   $7,610    $28 
      Temporary cash investments - at cost,        
       which approxiates market     4,641 
          Total cash and cash equivalents  
    7,610 
     
    4,669 
    Other temporary investments     606 
    Accounts receivable:        
      Customer   49,818    44,663 
      Allowance for doubtful accounts   (3,166)   (3,104)
      Associated companies   4,767    24,697 
      Other   9,318    10,057 
      Accrued unbilled revenues   21,831    21,113 
          Total accounts receivable  
    82,568 
     
    97,426 
    Deferred fuel costs   4,926   
    Accumulated deferred income taxes     460 
    Fuel inventory - at average cost   1,019    5,580 
    Materials and supplies - at average cost   8,547    8,660 
    Prepayments and other   6,647    8,050 
    TOTAL  
    111,317 
     
    125,451 
              
    OTHER PROPERTY AND INVESTMENTS         
    Investment in affiliates - at equity  
    3,259 
     
    3,259 
             
    UTILITY PLANT        
    Electric   671,404    666,122 
    Natural gas GAS 166,636    167,011 
    Construction work in progress  
    45,709 
     
    45,061 
    TOTAL UTILITY PLANT   883,749    878,194 
    Less - accumulated depreciation and amortization   422,874    420,745 
    UTILITY PLANT - NET  
    460,875 
     
    457,449 
             
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:        
      Other regulatory assets   26,435    27,222 
    Other   7,712    6,438 
    TOTAL  
    34,147 
     
    33,660 
             
    TOTAL ASSETS  
    $609,598 
     
    $619,819 
             
    See Notes to Respective Financial Statements.        
     
     
     
    ENTERGY NEW ORLEANS, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDERS' EQUITY
    March 31, 2004 and December 31, 2003
    (Unaudited)
     
      2004   2003
      (In Thousands)
     
    CURRENT LIABILITIES        
    Accounts payable:        
      Associated companies   $37,040   $35,008
      Other   21,391   42,718
    Customer deposits   16,259   15,575
    Taxes accrued   2,252   -
    Accumulated deferred income taxes   2,232   -
    Interest accrued   2,283   6,212
    Deferred fuel costs   -   2,720
    Energy Efficiency Program provision   6,415   6,356
    Other   14,400   2,088
    TOTAL  
    102,272
     
    110,677
             
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued   39,639   39,486
    Accumulated deferred investment tax credits   4,329   4,441
    SFAS 109 regulatory liability - net   39,857   40,543
    Other regulatory liabilities   -   954
    Accumulated provisions   787   820
    Long-term debt   229,235   229,217
    Other   34,871   41,346
    TOTAL  
    348,718
     
    356,807
             
             
    SHAREHOLDERS' EQUITY        
    Preferred stock without sinking fund   19,780   19,780
    Common stock, $4 par value, authorized 10,000,000        
      shares; issued and outstanding 8,435,900 shares in 2004        
      and 2003   33,744   33,744
    Paid-in capital   36,294   36,294
    Retained earnings   68,790   62,517
    TOTAL  
    158,608
     
    152,335
             
    Commitments and Contingencies        
             
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 
    $609,598
     
    $619,819
             
    See Notes to Respective Financial Statements.        

     

     
    ENTERGY NEW ORLEANS, INC.
    SELECTED OPERATING RESULTS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
     
                       
            Increase/    
    Description   2004     2003   (Decrease)   %
        (In Millions)        
    Electric Operating Revenues:                  
      Residential   $30     $32    ($2)   (6)
      Commercial   34     35    (1)   (3)
      Industrial   6     6    -    - 
      Governmental  
    13
       
    14 
     
    (1)
      (7)
          Total retail   83     87    (4)   (5)
      Sales for resale                  
        Associated companies   27     2    25    1,250 
        Non-associated companies   1     1    -    - 
      Other   2     (1)   3    300 
          Total  
    $113
       
    $89 
     
    $24 
      27 
                       
    Billed Electric Energy                  
     Sales (GWh):                   
      Residential    417     414    3    1 
      Commercial   525     500    25    5 
      Industrial   112     93    19    20 
      Governmental  
    225
       
    225 
     
    - 
      - 
          Total retail   1,279     1,232    47    4 
      Sales for resale                  
        Associated companies   360     22    338    1,536 
        Non-associated companies   9     8    1    13 
          Total  
    1,648
       
    1,262 
     
    386 
      31 
                       
                       

    SYSTEM ENERGY RESOURCES, INC.

    MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

     

    Results of Operations

    System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf 1. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf 1 pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. For the first quarter of 2004, the decrease in System Energy's operating revenues compared to the first quarter 2003 was more than offset by a decline in its operating expenses; therefore, System Energy's net income increased slightly compared to the first quarter of 2003.

    Liquidity and Capital Resources

    Cash Flow

    Cash flows for the first quarters of 2004 and 2003 were as follows:

    2004

    2003

    (In Thousands)

    Cash and cash equivalents at beginning of period

    $52,536 

    $113,159 

    Cash flow provided by (used in):

        Operating activities

    37,268 

    122,867 

        Investing activities

    (2,648)

    (201,044)

        Financing activities

    (30,348)

    (34,875)

    Net increase (decrease) in cash and cash equivalents

    4,272 

    (113,052)

    Cash and cash equivalents at end of period

    $56,808 

    $107 

    Operating Activities

    Cash flow from operations decreased $85.6 million for the first quarter 2004 compared to the first quarter 2003 primarily due to money pool activity and the cessation of the Entergy Mississippi GGART. System Energy collected $21.7 million in 2003 from Entergy Mississippi in conjunction with the GGART, which provided for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligations. The MPSC authorized the cessation of the GGART effective July 1, 2003. See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the GGART. Partially offsetting the decrease in operating cash flows was a decrease in interest paid during the first quarter of 2004.

    System Energy's receivables from or (payables) to the money pool were as follows:

    March 31,
     2004

     

    December 31,
    2003

     

    March 31,
    2003

     

    December 31,
    2002

    (In Thousands)

     

     

     

     

     

     

     

    $29,728

     

    $19,064

     

    ($54,344)

     

    $7,046

    Money pool activity used $10.7 million of System Energy's operating cash flows for the first quarter of 2004 and provided $61.4 million for the first quarter of 2003. See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.

    Investing Activities

    The decrease of $198.4 million in net cash used in investing activities for the first quarter of 2004 compared to the first quarter of 2003 was primarily due to cash collateral of $193 million provided in 2003. System Energy had three-year letters of credit in place that were scheduled to expire in March 2003 securing certain of its obligations related to the sale-leaseback of a portion of Grand Gulf 1. System Energy replaced the letters of credit with new three-year letters of credit totaling approximately $198 million that were backed by cash collateral. In December 2003, System Energy replaced the cash-backed letters of credit with syndicated bank letters of credit that expire in May 2007.

    Financing Activities

    The decrease of $4.5 million in net cash used by financing activities for the first quarter of 2004 compared to the first quarter of 2003 was primarily due to a decrease of $5 million in the January 2004 principal payment made on the Grand Gulf 1 sale-leaseback compared to the January 2003 principal payment.

    Uses and Sources of Capital

    See "Management's Financial Discussion and Analysis - Liquidity and Capital Resources" in the Form 10-K for a discussion of System Energy's uses and sources of capital.

    Significant Factors and Known Trends

    See "Management's Financial Discussion and Analysis - Significant Factors and Known Trends" in the Form 10-K for a discussion of market risks, nuclear matters, litigation risks, and environmental risks.

    Critical Accounting Estimates

    See "Management's Financial Discussion and Analysis - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy's accounting for nuclear decommissioning costs and pension and other retirement costs.

    SYSTEM ENERGY RESOURCES, INC.
    INCOME STATEMENTS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
     
        2004   2003
       

     (In Thousands)

             
    OPERATING REVENUES        
    Domestic electric  
    $127,168 
     
    $141,985 
             
    OPERATING EXPENSES        
    Operation and Maintenance:        
      Fuel, fuel-related expenses, and        
       gas purchased for resale   7,246    10,178 
      Nuclear refueling outage expenses   3,627    2,992 
      Other operation and maintenance   21,509    20,746 
    Decommissioning   5,701    5,450 
    Taxes other than income taxes   5,945    5,974 
    Depreciation and amortization   26,541    26,588 
    Other regulatory charges (credits) - net   (1,168)   14,318 
    TOTAL  
    69,401 
     
    86,246 
             
    OPERATING INCOME   
    57,767 
     
    55,739 
             
    OTHER INCOME        
    Allowance for equity funds used during construction   414    269 
    Interest and dividend income   1,355    1,926 
    Miscellaneous - net   (221)   (574)
    TOTAL  
    1,548 
     
    1,621 
             
    INTEREST AND OTHER CHARGES      
    Interest on long-term debt   15,240    14,701 
    Other interest - net   211    573 
    Allowance for borrowed funds used during construction   (134)   (95)
    TOTAL  
    15,317 
     
    15,179 
             
    INCOME BEFORE INCOME TAXES   43,998    42,181 
             
    Income taxes  
    19,334 
     
    18,446 
             
    NET INCOME   
    $24,664 
     
    $23,735 
             
             
    See Notes to Respective Financial Statements.        
             

     

     

     

     

     

     

     

     

     

     

     

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    SYSTEM ENERGY RESOURCES, INC.
    STATEMENTS OF CASH FLOWS
    For the Three Months Ended March 31, 2004 and 2003
    (Unaudited)
             
        2004   2003
       

    (In Thousands)

             
    OPERATING ACTIVITIES        
    Net income   $24,664    $23,735 
    Noncash items included in net income:        
      Other regulatory charges (credits) - net   (1,168)   14,318 
      Depreciation, amortization, and decommissioning   32,242    32,038 
      Deferred income taxes and investment tax credits   (163,415)   (7,946)
      Allowance for equity funds used during construction   (414)   (269)
    Changes in working capital:        
      Receivables   5,006    21,795 
      Accounts payable   (725)   47,190 
      Taxes accrued   (55,585)   11,235 
      Interest accrued   (11,947)   (25,951)
      Other working capital accounts   (94,842)   (1,940)
    Provision for estimated losses and reserves   (1,096)   (298)
    Changes in other regulatory assets   8,782    9,045 
    Other   295,766    (85)
    Net cash flow provided by operating activities  
    37,268 
     
    122,867 
             
    INVESTING ACTIVITIES        
    Construction expenditures   (5,737)   (2,697)
    Allowance for equity funds used during construction   414    269 
    Nuclear fuel purchases   (45,460)  
    Proceeds from sale/leaseback of nuclear fuel   45,460   
    Decommissioning trust contributions and realized        
      change in trust assets   (3,807)   (5,669)
    Changes in other temporary investments - net   6,482   
    Increase in other cash investments     (192,947)
    Net cash flow used in investing activities  
    (2,648)
     
    (201,044)
             
    FINANCING ACTIVITIES        
    Retirement of long-term debt   (6,348)   (11,375)
    Dividends paid:        
      Common stock   (24,000)   (23,500)
    Net cash flow used in financing activities  
    (30,348)
     
    (34,875)
             
    Net increase (decrease) in cash and cash equivalents   4,272    (113,052)
             
    Cash and cash equivalents at beginning of period  
    52,536 
     
    113,159 
             
    Cash and cash equivalents at end of period  
    $56,808 
     
    $107 
             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
    Cash paid during the period for:        
     Interest - net of amount capitalized   $26,322    $40,283 
             
    See Notes to Respective Financial Statements.        
             

     

     
    SYSTEM ENERGY RESOURCES, INC.
    BALANCE SHEETS
    ASSETS
    March 31, 2004 and December 31, 2003
    (Unaudited)
                 
        2004   2003
      (In Thousands)
                 
    CURRENT ASSETS            
    Cash and cash equivalents:            
      Cash       $17   $2,918
      Temporary cash investments - at cost,            
       which approximates market       56,791   49,618
          Total cash and cash equivalents      
    56,808
     
    52,536
    Other temporary investments       -   6,482
    Accounts receivable:            
      Associated companies       66,777   72,477
      Other       2,471   1,777
          Total accounts receivable      
    69,248
     
    74,254
    Materials and supplies - at average cost       60,525   63,047
    Deferred nuclear refueling outage costs       21,320   2,979
    Prepayments and other       79,846   1,031
    TOTAL      
    287,747
     
    200,329
                 
    OTHER PROPERTY AND INVESTMENTS        
    Decommissioning trust funds      
    186,211
     
    172,916
                 
    UTILITY PLANT        
    Electric       3,214,761   3,205,895
    Property under capital lease       466,521   466,521
    Construction work in progress       27,597   31,344
    Nuclear fuel under capital lease      
    87,713
     
    47,242
    TOTAL UTILITY PLANT       3,796,592   3,751,002
    Less - accumulated depreciation and amortization       1,700,105   1,672,658
    UTILITY PLANT - NET      
    2,096,487
     
    2,078,344
                 
    DEFERRED DEBITS AND OTHER ASSETS        
    Regulatory assets:            
      SFAS 109 regulatory asset - net       108,339   115,633
      Other regulatory assets       301,355   301,233
    Other       10,076   12,269
    TOTAL      
    419,770
     
    429,135
                 
    TOTAL ASSETS      
    $2,990,215
     
    $2,880,724
                 
    See Notes to Respective Financial Statements.            
     
     
     
    SYSTEM ENERGY RESOURCES, INC.
    BALANCE SHEETS
    LIABILITIES AND SHAREHOLDER'S EQUITY
    March 31, 2004 and December 31, 2003
    (Unaudited)
                 
        2004   2003
      (In Thousands)
     
    CURRENT LIABILITIES        
    Currently maturing long-term debt       $25,266   $6,348
    Accounts payable:            
      Associated companies       5,593   -
      Other       23,937   30,255
    Taxes accrued       -   55,585
    Accumulated deferred income taxes       8,045   942
    Interest accrued       17,676   29,623
    Obligations under capital leases       31,266   31,266
    Other       1,763   1,971
    TOTAL      
    113,546
     
    155,990
                 
    NON-CURRENT LIABILITIES        
    Accumulated deferred income taxes and taxes accrued       409,773   290,964
    Accumulated deferred investment tax credits       78,219   79,088
    Obligations under capital leases       56,447   15,976
    Other regulatory liabilities       228,079   213,093
    Decommissioning       318,159   312,459
    Accumulated provisions       2,686   3,782
    Long-term debt       857,154   882,401
    Other       32,252   33,735
    TOTAL      
    1,982,769
     
    1,831,498
                 
                 
    SHAREHOLDER'S EQUITY        
    Common stock, no par value, authorized 1,000,000 shares;            
      issued and outstanding 789,350 shares in 2004 and 2003       789,350   789,350
    Retained earnings       104,550   103,886
    TOTAL      
    893,900
     
    893,236
                 
    Commitments and Contingencies            
                 
    TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY      
    $2,990,215
     
    $2,880,724
                 
    See Notes to Respective Financial Statements.            

    ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY

    NOTES TO RESPECTIVE FINANCIAL STATEMENTS

    (Unaudited)

    NOTE 1. COMMITMENTS AND CONTINGENCIES

    Nuclear Insurance and Spent Nuclear Fuel (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, and the disposal of spent nuclear fuel associated with Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants. The following are updates to the Form 10-K.

    The Property Insurance Policy renewed on April 1, 2004 with the following changes: the deductibles for ANO 1 and 2, Grand Gulf 1, River Bend, and Waterford 3 increased to $5 million per occurrence for equipment breakdown/failure and $5 million per occurrence for other than equipment breakdown/failure.

    Under the property damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of March 31, 2004, the maximum amount of such possible assessments per occurrence were $15.1 million for Entergy Arkansas, $11.1 million for Entergy Gulf States, $10.5 million for Entergy Louisiana, $0.06 million for Entergy Mississippi, $0.06 million for Entergy New Orleans, and $11.5 million for System Energy.

    Decommissioning and Other Retirement Costs (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear decommissioning costs. SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are recorded at their fair values (which are likely to be the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. The net effect of implementing this standard fo r the rate-regulated business of the domestic utility companies and System Energy was recorded as a regulatory asset, with no resulting impact on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction are based on the principle that Entergy will recover all ultimate costs of decommissioning from customers. The implementation of SFAS 143 for the portion of River Bend not subject to cost-based ratemaking decreased earnings in the first quarter of 2003 by approximately $21 million net-of-tax ($0.09 per share) as a result of a one-time cumulative effect of accounting change.

    In accordance with a new decommissioning cost study for ANO 1 and 2, which resulted in a lower estimate of the cost required to decommission the plants, in the first quarter of 2004 Entergy Arkansas recorded a revision to its estimated decommissioning cost liability. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with an $19.5 million reduction in utility plant and a $88.2 million reduction in the related regulatory asset.

    In accordance with ratemaking treatment and as required by SFAS 71, the depreciation provisions for the domestic utility companies and System Energy include a component for removal costs that are not asset retirement obligations under SFAS 143. In accordance with regulatory accounting principles, Entergy has recorded a regulatory asset (liability) to reflect its estimate of the difference between estimated incurred removal costs and estimated removal costs recovered in rates previously recorded as a component of accumulated depreciation.

    CashPoint Bankruptcy (Entergy Arkansas, Entergy Louisiana, Entergy Gulf States, Entergy New Orleans, and Entergy Mississippi)

    The domestic utility companies entered into an agreement with CashPoint Network Services ("CashPoint") dated June 2003, under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The pay agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use this process, with remittances ranging up to $5 million a day.

    On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through pay agents. Entergy then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. Although Entergy cannot precisely determine at this time the amounts that CashPoint owes to the domestic utility companies that may not be repaid, the current estimates of maximum exposure to loss are as follows:

     

     

    (In Millions)

         

    Entergy Arkansas

     

    $2

    Entergy Gulf States

     

    11

    Entergy Louisiana

     

    11

    Entergy Mississippi

     

    6

    Entergy New Orleans

     

    5

    Environmental Issues

    (Entergy Gulf States)

    See Note 9 to the domestic utility companies and System Energy financial statements in the Form 10-K for information related to the designation of Entergy Gulf States as a PRP for the cleanup of certain hazardous waste disposal sites. As of March 31, 2004, a remaining recorded liability of approximately $11.6 million existed related to the cleanup of the sites at which the EPA has designated Entergy Gulf States as a PRP.

    (Entergy Louisiana and Entergy New Orleans)

    During 1993, the LDEQ issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana and Entergy New Orleans have determined that certain of their power plant wastewater impoundments were affected by these regulations and have chosen to upgrade or close them. Recorded liabilities in the amounts of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at March 31, 2004 for wastewater upgrades and closures. Completion of this work is awaiting LDEQ approval.

    City Franchise Ordinances (Entergy New Orleans)

    Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties.

    Employment Litigation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.

    Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)

    Numerous lawsuits have been filed in federal and state courts in Texas, Louisiana, and Mississippi primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, Entergy New Orleans, and Entergy Mississippi, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Generally, many other defendants are named in these lawsuits as well. Presently there are approximately 480 lawsuits involving just over 10,000 claims. Reserves have been established that should be adequate to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement, while new coverage is being secured to minimize anticipated future potential exposures. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial position or results of oper ation of the domestic utility companies involved in these lawsuits.

     

    NOTE 2. RATE AND REGULATORY MATTERS

    Electric Industry Restructuring and the Continued Application of SFAS 71

    Previous developments and information related to electric industry restructuring are presented in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.

    Texas (Entergy Gulf States)

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request. On March 15, 2004, the PUCT issued a preliminary order in Entergy Gulf States' independence proceeding in which the PUCT decided two key issues related to the proceeding and concluded that the December 2004 target date for the initiation of retail open access in Entergy Gulf States' Texas service territory is not feasible, but specifically declined to set a new target date at least until the market readiness proceeding was underway. The preliminary order addressed the following key issues: (1) whether the PUCT should delay further efforts to implement retail open access in Entergy Gulf States' Texas service territory until the establishment of a FERC-approved RTO, in view of the suspension of efforts to develop the SeTrans RTO ; and (2) what criteria should be used to certify an independent organization for Entergy Gulf States' Texas service territory.

    The PUCT found that it is not necessary to delay further efforts to establish retail competition in Entergy Gulf States' Texas service territory until after a FERC-approved RTO can serve as the independent organization for that region. The PUCT also determined that the ultimate question in the proceeding is whether Entergy Gulf States' proposed independent organization, Entergy Transmission Organization, is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. The PUCT identified the criteria that are to be considered in answering this ultimate question that includes (1) whether the independent organization's decisions are controlled or dominated by any market participant or market segment; and (2) whether the independent organization has day-to-day operational control over the facilities involved. In determining whether the Entergy Transmission Organization should be certified as independent, the PU CT further stated that the issues to be addressed were whether the proposed structure would ensure that the affiliate was independent, and if not, what additional safeguards should be imposed to assure independence. The PUCT also limited any finding of independence in this docket to be applicable to the pilot only and indicated that should it be necessary, the PUCT would review the issue of independence in the market readiness proceeding as well. The preliminary order also states that other issues to be addressed in this proceeding include (1) the costs of implementing Entergy Gulf States' proposal; (2) what changes or additions, if any, may be necessary to the approved protocols or other public documents; and (3) the date by which the pilot project under the protocols can begin. Hearings are scheduled for June 2004.

    The preliminary order further directed the parties to the independence proceeding not to address the issue of when full retail competition should start in Entergy Gulf States' Texas service territory.

    Deferred Fuel Costs

    (Entergy Arkansas)

    In March 2004, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2004 through March 2005. The filed energy cost rate, which accounts for about 12 percent of a typical residential customer's bill using 1,000 kWh per month, increased 16 percent due primarily to a credit contained in the prior year's rate to refund previously over-recovered fuel costs. Also included in this year's energy cost calculation is a decrease in rates of $3.9 million as a result of Entergy Arkansas' proposed retail customer protections due to the operation of a life-of-resources power purchase agreement with Entergy New Orleans.

    (Entergy Gulf States)

    In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are scheduled to occur in October 2004 with a final PUCT decision expected in the first quarter of 2005.

    See Note 2 to the domestic utility and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' January 2001 fuel reconciliation case filed with the PUCT covering the period from March 1999 through August 2000 and subsequent proceedings at Travis County District Court and the Third District Court of Appeals. Entergy Gulf States appealed to the Court of Appeals the disallowance of approximately $4.2 million related to imputed capacity costs and the disallowance related to costs for energy delivered from the 30% non-regulated share of River Bend. Oral argument before the appellate court was scheduled for May 2004, but the parties have requested that it be rescheduled.

    (Entergy Louisiana)

    As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, in August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana notified the LPSC that it will contest the recommendation. A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quan tified, are scheduled to begin in April 2005.

    Retail Rate Proceedings

    Filings with the PUCT and Texas Cities (Entergy Gulf States)

    Recovery of River Bend Costs

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the March 1998 PUCT disallowance of recovery of River Bend plant costs that had been held in abeyance since 1988, and subsequent proceedings at Travis County District Court and the Third District Court of Appeals that affirmed the PUCT disallowance. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review, and briefs have been submitted. Management cannot predict what action, if any, the Texas Supreme Court will take with respect to Entergy Gulf States' petition for review.

    Filings with the LPSC

    Annual Earnings Reviews (Entergy Gulf States)

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of Entergy Gulf States' ninth and last required post-merger analysis filed with the LPSC in May 2002. In the LPSC staff's December 2003 testimony, the staff recommended a rate refund of $30.6 million and a prospective rate reduction of approximately $50 million. Hearings began in April 2004.

    Retail Rates (Entergy Louisiana)

    See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. Hearings are currently set for September 2004.

    Filings with the City Council (Entergy New Orleans)

    Formula Rate Plan Filings

    In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the Council. The filings show an increase in Entergy New Orleans' electric revenues of $1.15 million and an increase in Entergy New Orleans gas revenues of $32,000 are warranted. The review of the filings by the Council Advisors and intervenors has commenced. Management cannot predict the outcome of this proceeding.

    Fuel Adjustment Clause Litigation

    See "Fuel Adjustment Clause Litigation" in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers in state court in Orleans Parish and with the City Council regarding certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In February 2004, the City Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs have appealed the City Council resolution to the state court in Orleans Parish. In addition, in March 2004, the plaintiffs supplemented and amended the class action petition that had been filed in state court in April 1999.

     

    NOTE 3. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT

    The short-term borrowings of the domestic utility companies and System Energy are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2004. In addition to borrowing from commercial banks, the domestic utility companies and System Energy are authorized to borrow from the Entergy System Money Pool (money pool). The money pool is an inter-company borrowing arrangement designed to reduce the domestic utility companies' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. The following are the short-term borrowings from the money pool and the SEC-authorized limits for short-term borrowings for the domestic utility companies and System Energy as of March 31, 2004:

     

     

    Authorized

     

    Borrowings

       

    (In Millions)

     

    (In Millions)

     

     

     

     

     

    Entergy Arkansas

     

    $235

     

    $42.9

    Entergy Gulf States

     

    $340

     

    -

    Entergy Louisiana

     

    $225

     

    -

    Entergy Mississippi

     

    $160

     

    -

    Entergy New Orleans

     

    $100

     

    $8.0

    System Energy

     

    $140

     

    -

    Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows:


    Company

     


    Expiration Date

     

    Amount of Facility

     

    Amount Drawn as of March 31, 2004

     

     

     

     

     

     

     

    Entergy Arkansas

     

    April 2005

     

    $85 million

     

    -

    Entergy Louisiana

     

    May 2004

     

    $15 million

     

    -

    Entergy Mississippi

     

    May 2004

     

    $25 million

     

    -

     

    The facilities have variable interest rates and the average commitment fee is 0.15%.

    The following long-term debt has been issued by the domestic utility companies and System Energy in 2004:

    Mortgage Bonds:

    Issue Date

     

    (In Thousands)

    5.50% Series due April 2019, Entergy Louisiana

    March 2004

     

    $100,000

    Issuances after balance sheet date:

     

     

     

    6.25% Series due April 2034, Entergy Mississippi

    April 2004

     

    $100,000

    4.65% Series due April 2011, Entergy Mississippi

    April 2004

     

    $80,000

    The following long-term debt has been retired by the domestic utility companies and System Energy in 2004:

    Mortgage Bonds and Certain Lease Obligation Payments:

    Retirement Date

     

    (In Thousands)

    Grand Gulf Lease Obligation payment, System Energy

    N/A

     

    $6,348

    Waterford 3 Lease Obligation payment, Entergy Louisiana

    N/A

     

    $14,809

    Retirement after balance sheet date:

     

     

     

    8.25% Series due April 2004, Entergy Gulf States

    April 2004

     

    $292,000

     

    NOTE 4. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

    Components of Net Pension Cost

    The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the first quarters of 2004 and 2003, included the following components:

     

    Entergy

    Entergy

    Entergy

    Entergy

    Entergy

    System

    2004

    Arkansas

    Gulf States

    Louisiana

    Mississippi

    New Orleans

    Energy

    (In Thousands)

    Service cost - benefits earned

     during the period

    $3,003 

    $2,454 

    $1,724 

    $954 

    $425 

    $845 

    Interest cost on projected

     

     benefit obligation

    8,617 

    7,111 

    5,183 

    2,891 

    1,042 

    1,232 

    Expected return on assets

    (9,245)

    (9,892)

    (6,796)

    (3,691)

    (928)

    (1,034)

    Amortization of transition asset

    (80)

    Amortization of prior service cost

    417 

    465 

    189 

    141 

    57 

    18 

    Amortization of loss

    868 

    641 

    297 

    285 

    59 

    113 

    Net pension cost

    $3,660 

    $779 

    $597 

    $580 

    $655 

    $1,094 

     

     

    Entergy

    Entergy

    Entergy

    Entergy

    Entergy

    System

    2003

    Arkansas

    Gulf States

    Louisiana

    Mississippi

    New Orleans

    Energy

    (In Thousands)

    Service cost - benefits earned

     during the period

    $1,901 

    $2,754 

    $1,799 

    $1,612 

    $381 

    $630 

    Interest cost on projected

     benefit obligation

    5,758 

    9,676 

    5,814 

    5,463 

    972 

    907 

    Expected return on assets

    (7,319)

    (14,796)

    (8,851)

    (7,769)

    (720)

    (856)

    Amortization of transition asset

    (74)

    Amortization of prior service cost

    324 

    674 

    216 

    291 

    62 

    16 

    Net pension cost

    $664 

    ($1,692)

    ($1,022)

    ($403)

    $695 

    $623 

     

    Components of Net Other Postretirement Benefit Cost

    The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the first quarters of 2004 and 2003, included the following components:

    Entergy

    Entergy

    Entergy

    Entergy

    Entergy

    System

    2004

    Arkansas

    Gulf States

    Louisiana

    Mississippi

    New Orleans

    Energy

    (In Thousands)

    Service cost - benefits earned

     during the period

    $1,632 

    $1,529 

    $720 

    $477 

    $205 

    $388 

    Interest cost on APBO

    2,833 

    2,941 

    1,701 

    878 

    827 

    388 

    Expected return on assets

    (1,603)

    (1,236)

    (653)

    (566)

    (310)

    Amortization of transition obligation

    609 

    1,147 

    300 

    254 

    529 

    Amortization of prior service cost

    (91)

    Amortization of loss

    1,074 

    651 

    562 

    348 

    156 

    131 

    Net other postretirement benefit cost

    $4,545 

    $5,032 

    $3,283 

    $1,304 

    $1,151 

    $510 

     

    Entergy

    Entergy

    Entergy

    Entergy

    Entergy

    System

    2003

    Arkansas

    Gulf States

    Louisiana

    Mississippi

    New Orleans

    Energy

    (In Thousands)

    Service cost - benefits earned

     during the period

    $1,310 

    $1,111 

    $794

    $392 

    $201 

    $358 

    Interest cost on APBO

    2,615 

    2,650 

    1,674

    852 

    884 

    336 

    Expected return on assets

    (1,231)

    (1,119)

    -

    (583)

    (537)

    (289)

    Amortization of transition obligation

    989 

    1,451 

    743

    376 

    670 

    55 

    Amortization of prior service cost

    61 

    70 

    35

    22 

    22 

    Amortization of loss

    367 

    71 

    111

    133 

    30 

    27 

    Net other postretirement benefit cost

    $4,111 

    $4,234 

    $3,357

    $1,192 

    $1,270 

    $493 

    Employer Contributions

    In April 2004, the President signed the Pension Funding Equity Act of 2004 into law, which reduced Entergy's estimated 2004 pension contribution. The domestic utility companies and System Energy expect to contribute the following to pension plans in 2004:

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

     

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

    Expected 2004 pension contributions

     

     

     

     

     

     

     

     

     

     

     

     

    disclosed in Form 10-K

     

    $5,342

     

    $37

     

    $8,630

     

    $2,989

     

    $4,678

     

    $5,369

    Contributions made in the first quarter

     

    -

     

    -

     

    -

     

    -

     

    -

     

    -

    Revised expected 2004 pension

     

     

     

     

     

     

     

     

     

     

     

     

    contributions

     

    $5,342

     

    $17

     

    $3,907

     

    $1,823

     

    $2,118

     

    $3,742

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)

    As disclosed in Note 11 to the domestic utility companies and System Energy's financial statements in the Form 10-K, Entergy elected to record an estimate of the effects of the Medicare Act in December 2003. Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2003 Accumulated Postretirement Benefit Obligation (APBO) and first quarter 2004 other postretirement benefit cost for the domestic utility companies and System Energy as follows:

     

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    Entergy

     

    System

     

     

    Arkansas

     

    Gulf States

     

    Louisiana

     

    Mississippi

     

    New Orleans

     

    Energy

     

     

    (In Thousands)

     

     

     

     

     

     

     

     

     

     

     

     

     

    Reduction in 12/31/2003 APBO

     

    ($11,589)

     

    ($13,032)

     

    ($6,359)

     

    ($3,740)

     

    ($3,956)

     

    ($1,133)

    Reduction in first quarter 2004

     

     

     

     

     

     

     

     

     

     

     

     

    other postretirement benefit cost

     

    ($498)

     

    ($554)

     

    ($232)

     

    ($156)

     

    ($144)

     

    ($53)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    When specific guidance on accounting for the federal subsidy is issued, these estimates could change.

    __________________________________

    In the opinion of the management of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the domestic utility companies and System Energy is subject to seasonal fluctuations, however, with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.

     

    Item 4. Controls and Procedures

    Disclosure Controls and Procedures

    As of March 31, 2004, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Resources (individually "Registrant" and collectively the "Registrants") management, including their respective Chief Executive Officers (CEO) and Chief Financial Officers (CFO). The evaluations assessed the effectiveness of the Registrants' disclosure controls and procedures. Based on the evaluations, each CEO and CFO has concluded that, as to the Registrant or Registrants for which they serve as CEO or CFO, the Registrants' disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

    Changes in Internal Control Over Financial Reporting

    In management's evaluation of the Registrants' disclosure controls and procedures, management identified the following initiative as a change that is reasonably likely to affect the Registrants' internal control over financial reporting. Over the last two years, Entergy has been working on an initiative to streamline financial processes, automate and enhance internal controls, and implement or update the systems that support these processes.  During the first quarter 2004, the first phase of this effort was completed, the primary focus of which was an upgrade of the existing financial information systems, data warehouse, and financial reporting tools, as well as an update of Entergy's chart of accounts. The implemented product suite includes additional controls and edits which are applied to transactions at the point of entry.  Entergy plans to implement subsequent phases of this initiative later in 2004 and 2005, replacing several custom-built computer applications with capabil ities now available within the newly-implemented core financial information systems, such as inter-company cost allocation processes.

     

     

    ENTERGY CORPORATION AND SUBSIDIARIES

    PART II. OTHER INFORMATION

    Item 1. Legal Proceedings

    See "PART I, Item 1, Litigation" in the Form 10-K for a discussion of legal proceedings affecting Entergy. Following are updates to that discussion.

    Entergy New Orleans Rate of Return Lawsuit (Entergy Corporation and Entergy New Orleans)

    See "PART I, Item 1, Entergy New Orleans Rate of Return Lawsuit" in the Form 10-K for a discussion of the motion filed by the City Council Advisors to bifurcate the hearing for the motions filed by the plaintiffs. In April 2004, the City Council adopted a resolution granting the Advisors' motion to bifurcate and setting for hearing on the merits the issue of the proper effect to be given to the 1922 Ordinance in setting lawful rates, on September 27, 2004.

    Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf States and Entergy Louisiana)

    See "PART I, Item 1, Fiber Optic Cable Litigation" in the Form 10-K for a discussion of the litigation pending in the United States District Court in Beaumont, Texas pertaining to the alleged installment by defendants of fiber optic cable across plaintiffs' property without obtaining appropriate easements. In April 2004, the court entered an order denying the plaintiffs' request for class certification. The plaintiffs have advised that they intend to request that the court reconsider its ruling.

    With respect to the lawsuit against Entergy Louisiana, Entergy Services, ETHC and Entergy Technology Company pending in state court in St. James Parish, Louisiana purportedly on behalf of all property owners in Louisiana who have conveyed easements to the defendants, the state district judge has entered an order certifying a class. Entergy is seeking appellate review of this order.

    Power Generation Mexico, Inc. Lawsuit (Entergy Corporation)

    See "PART I, Item 1, Power Generation Mexico, Inc. Lawsuit " in the Form 10-K for a discussion of the lawsuit filed by Power Generation Mexico, Inc. (PGI) against Entergy Power Development Corporation (EPDC), Entergy Power Netherlands Company, B.V., and Entergy Corporation in the San Francisco Superior Court. In April 2004, the parties agreed to a settlement of the proceeding that includes mutual dismissals. Entergy agreed to pay an immaterial amount to the plaintiff.

    Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

    Issuer Purchases of Equity Securities (1)

    Period

     

    Total Number of Shares Purchased

     

    Average Price Paid per Share

     

    Total Number of Shares Purchased as Part of a Publicly Announced Plan

     

    Maximum Number of Shares that May Yet be Purchased Under the Plan

                     

    1/01/2004-1/31/2004

     

    -

     

    -

     

    -

     

    6,960,000

    2/01/2004-2/29/2004

     

    -

     

    -

     

    -

     

    6,960,000

    3/01/2004-3/31/2004

     

    484,000

     

    $57.77

     

    484,000

     

    6,476,000

    Total

     

    484,000

     

    $57.77

     

    484,000

       

    (1) In accordance with Entergy's stock option plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. See Note 8 to the consolidated financial statements in the Form 10-K for additional discussion of the stock option plans. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans, and this authorization does not have an expiration date. Under this authorization, on June 1, 2002, Entergy publicly announced a plan to repurchase up to 10,000,000 shares of common stock over a period of two years to reduce the increase in outstanding common shares caused by option exercises. As stated above, the authorization to repurchase shares does not have an expiration date, and depending on market conditi ons after the two year period passes Entergy may continue to repurchase shares to fund the exercise of stock options.

    An additional 2,005,000 shares have been repurchased since March 31, 2004, for a total of 2,489,000 shares repurchased in 2004 through May 10. The average purchase price for the 2004 repurchases is $55.72 through May 10, 2004.

    Item 4. Submission of Matters to a Vote of Security Holders

    Entergy Arkansas

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Donald C. Hintz, Richard J. Smith, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

    Entergy Gulf States

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Donald C. Hintz, Richard J. Smith, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.

    Entergy Louisiana

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Donald C. Hintz, Richard J. Smith, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

    Entergy Mississippi

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Donald C. Hintz, Richard J. Smith, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

    Entergy New Orleans

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Donald C. Hintz, Richard J. Smith, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.

    System Energy

    A consent in lieu of the annual meeting of common stockholders was executed on February 23, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Donald C. Hintz, and Leo P. Denault.

    A consent in lieu of a meeting of common stockholders was executed on May 1, 2004. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.

    Item 5. Other Information

    Property and Other Generation Resources

    See "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the agreement that Entergy Louisiana signed in January 2004 to acquire the Perryville power plant from a subsidiary of Cleco Corporation. As reported in the Form 10-K, the plant's owner is in Chapter 11 bankruptcy proceedings. In April 2004, the bankruptcy court approved Entergy Louisiana's agreement to acquire the plant. Also, in March 2004, Entergy Gulf States and Entergy Louisiana filed with the LPSC for its approval of the acquisition and long-term cost-of-service power purchase agreement. Also, in April 2004, the APSC issued an order directing Entergy Arkansas to show cause why Entergy Arkansas should not have to indemnify and hold its customers harmless from any adverse financial effects related to Entergy Louisiana's pending acquisition of the Perryville power plant, or show that the Perryville unit will produce economic benefits for Entergy Arkansas' customers.

    Also see "PART I, Item 1, Generating Stations" in the Form 10-K for discussion of the affiliate purchase transactions that resulted from Entergy's requests for proposals for supply-side resources. In the proceeding at the FERC to review the justness and reasonableness of the affiliate agreements, in March 2004 the FERC staff filed testimony that claims Entergy conveyed undue preference to its affiliates in the bidding process. Entergy plans to file testimony to rebut the claims of affiliate preference, and hearings in the proceeding are still scheduled for June 2004.

    Wholesale Rate Matters

    See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends" in this report for updates of the information contained in " PART I, Item 1, Wholesale Rate Matters" regarding the System Agreement, Transmission, FERC's Supply Margin Assessment, and Interconnection Orders.

    FERC Audits of Transmission

    In August 2002 and March 2004, the FERC initiated  audits and reviews of Entergy's compliance with Order Nos. 888 and 889 and Entergy's administration of the Generator Operating Limits ("GOL") processes, respectively.  Entergy has responded to numerous FERC data requests and the FERC staff members have interviewed several employees.  The FERC staff has provided Entergy with preliminary draft reports of their findings and recommendations on some issues that they have been examining. For instance, the GOL draft audit report preliminarily recommends, among other things, that Entergy employ an independent third party to conduct certain transmission access modeling. Entergy believes that these recommendations are based on a number of inaccuracies and has and will continue to work with the FERC staff and provide comments on  the findings and the recommendations.  As part of this process, Entergy has agreed to FERC staff's request that Entergy prov ide an audit of the issues raised in the GOL draft audit report.  These draft audit reports are not final reports; they may be modified by the FERC staff based on Entergy's responses or otherwise.  In addition, Entergy has the ability to appeal the final audit report to the FERC.

    Environmental Regulation

    See "PART I, Item 1, Clean Air Act and Subsequent Amendments, Ozone Non-attainment" in the Form 10-K for information related to Louisiana and Texas emission control strategies to address continued ozone non-attainment status of areas in and around Houston-Galveston, Texas; Beaumont-Port Arthur, Texas; and Baton Rouge, Louisiana. The EPA has now reclassified the Beaumont-Port-Arthur area from "moderate" to "serious" and has reclassified the Baton Rouge area from "serious" to "severe". These actions will require that Texas and Louisiana adopt plans to restrict the emission of certain air pollutants and to make progress toward eventual attainment of national standards. The Louisiana plan must be submitted to the EPA by June 2004; the Texas plan must be submitted by April 2005. The content and impact on Entergy Gulf States of these developing plans is unknown, but Entergy continues to monitor events in these areas. If new NOx control equipment is required to be installed, th e cost could be as much as $4 million for the facilities in Louisiana in 2004 and early 2005. Entergy Gulf States continues to assess possible costs for the Texas facilities.

    See "PART I, Item 1, Clean Water Act, 316(b) Cooling Water Intake Structures" in the Form 10-K for information related to the draft permit issued by the New York State Department of Environmental Conservation (NYDEC) indicating that closed cycle cooling would be considered the "best technology available" for minimizing perceived adverse environmental impacts attributable to the intake and discharge of cooling water at Indian Point 2 and 3, if Entergy moves forward to obtain license extensions for these facilities.  Entergy has filed an action in New York state court seeking a determination that the state cooling water intake structure regulation underpinning the NYDEC's draft permit for Indian Point 2 and 3 was improperly promulgated and is thus void.  Entergy also continues to contest the contents of the draft permit in an administrative process before the NYDEC.

    Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)

    The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of Regulation S-K of the SEC as follows:

     

    Ratios of Earnings to Fixed Charges

     

    Twelve Months Ended

     

    December 31,

     

    March 31,

     

    1999

     

    2000

     

    2001

     

    2002

     

    2003

     

    2004

                           

    Entergy Arkansas

    2.08

     

    3.01

     

    3.29

     

    2.79

     

    3.17

     

    3.11

    Entergy Gulf States

    2.18

     

    2.60

     

    2.36

     

    2.49

     

    1.51

     

    1.59

    Entergy Louisiana

    3.48

     

    3.33

     

    2.76

     

    3.14

     

    3.93

     

    3.66

    Entergy Mississippi

    2.44

     

    2.33

     

    2.14

     

    2.48

     

    3.06

     

    2.99

    Entergy New Orleans

    3.00

     

    2.66

     

    (b)

     

    (c)

     

    1.73

     

    2.79

    System Energy

    1.90

     

    2.41

     

    2.12

     

    3.25

     

    3.66

     

    3.69

     

    Ratios of Earnings to Combined Fixed Charges
    and Preferred Dividends

     

    Twelve Months Ended

     

    December 31,

     

    March 31,

     

    1999

     

    2000

     

    2001

     

    2002

     

    2003

     

    2004

                           

    Entergy Arkansas

    1.80

     

    2.70

     

    2.99

     

    2.53

     

    2.79

     

    3.02

    Entergy Gulf States (a)

    1.86

     

    2.39

     

    2.21

     

    2.40

     

    1.45

     

    1.57

    Entergy Louisiana

    3.09

     

    2.93

     

    2.51

     

    2.86

     

    3.46

     

    3.54

    Entergy Mississippi

    2.18

     

    2.09

     

    1.96

     

    2.27

     

    2.77

     

    2.91

    Entergy New Orleans

    2.74

     

    2.43

     

    (b)

     

    (c)

     

    1.59

     

    2.73

    (a)

    "Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock for the twelve months ended December 31, 1999.

    (b)

    Earnings for the twelve months ended December 31, 2001, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively.

    (c)

    Earnings for the twelve months ended December 31, 2002, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively.

    Item 6. Exhibits and Reports on Form 8-K

    (a) Exhibits*

         

    **

    4(a) -

    Fifty-seventh Supplemental Indenture, dated as of March 1, 2004, to Entergy Louisiana's Mortgage and Deed of Trust, dated as of April 1, 1944 (filed as Exhibit A-3(a) to Rule 24 Certificate dated March 30, 2004 in File No. 70-10086).

         

    **

    4(b) -

    Twenty-second Supplemental Indenture, dated as of March 1, 2004, to Entergy Mississippi's Mortgage and Deed of Trust, dated as of February 1, 1988 (filed as Exhibit A-3(a) to Rule 24 Certificate dated April 8, 2004 in File No. 70-10157).

         

    **

    4(c) -

    Twenty-third Supplemental Indenture, dated as of April 1, 2004, to Entergy Mississippi's Mortgage and Deed of Trust, dated as of February 1, 1988 (filed as Exhibit A-3(b) to Rule 24 Certificate dated April 29, 2004 in File No. 70-10157).

         
     

    10(a) -

    Employment Agreement effective February 9, 1999 between Leo P. Denault and Entergy Services, Inc.

         
     

    10(b) -

    Amendment to Employment Agreement between Leo P. Denault and Entergy Corporation effective March 5, 2004.

         
     

    10(c) -

    Amendment to Retention Agreement of J. Wayne Leonard effective March 8, 2004.

         
     

    10(d) -

    Restatement effective March 8, 2004 of the System Executive Continuity Plan of Entergy Corporation and Subsidiaries.

         
     

    10(e) -

    System Executive Continuity Plan II of Entergy Corporation and Subsidiaries effective March 8, 2004.

         
     

    10(f) -

    Entergy Corporation Shareholder Approval of Future Severance Agreements Policy, effective March 8, 2004.

         
     

    31(a) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.

         
     

    31(b) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.

         
     

    31(c) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.

         
     

    31(d) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States.

         
     

    31(e) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States and Entergy Louisiana.

         
     

    31(f) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.

         
     

    31(g) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.

         
     

    31(h) -

    Rule 13a-14(a)/15d-14(a) Certification for System Energy.

         
     

    31(i) -

    Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.

         
     

    31(j) -

    Rule 13a-14(a)/15d-14(a) Certification for System Energy.

         
     

    32(a) -

    Section 1350 Certification for Entergy Corporation.

         
     

    32(b) -

    Section 1350 Certification for Entergy Corporation.

         
     

    32(c) -

    Section 1350 Certification for Entergy Arkansas.

         
     

    32(d) -

    Section 1350 Certification for Entergy Gulf States.

         
     

    32(e) -

    Section 1350 Certification for Entergy Gulf States and Entergy Louisiana.

         
     

    32(f) -

    Section 1350 Certification for Entergy Mississippi.

         
     

    32(g) -

    Section 1350 Certification for Entergy New Orleans.

         
     

    32(h) -

    Section 1350 Certification for System Energy.

         
     

    32(i) -

    Section 1350 Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans.

         
     

    32(j) -

    Section 1350 Certification for System Energy.

         
     

    99(a) -

    Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

         
     

    99(b) -

    Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

         
     

    99(c) -

    Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

         
     

    99(d) -

    Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

         
     

    99(e) -

    Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.

         
     

    99(f) -

    System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined.

    ___________________________

    Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.

    *

    Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended March 31, 2004, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended March 31, 2004.

       

    **

    Incorporated herein by reference as indicated.

     

    (b)

    Reports on Form 8-K

       
     

    Entergy Corporation

         
       

    A Current Report on Form 8-K, dated January 20, 2004, was submitted to the SEC on January 20, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

       
     

    Entergy Corporation

         
       

    A Current Report on Form 8-K, dated February 2, 2004, was submitted to the SEC on February 2, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

       
     

    Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi

         
       

    A Current Report on Form 8-K, dated February 12, 2004, was submitted to the SEC on February 12, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".

       
     

    Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Mississippi, and Entergy New Orleans

         
       

    A Current Report on Form 8-K, dated February 16, 2004, was submitted to the SEC on February 17, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

       
     

    Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

         
       

    A Current Report on Form 8-K, dated February 20, 2004, was submitted to the SEC on February 23, 2004, reporting information under Item 5. "Other Events" and Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits".

       
     

    Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy

         
       

    A Current Report on Form 8-K, dated March 11, 2004, was submitted to the SEC on April 13, 2004 reporting information under Item 5. "Other Events and Regulation FD Disclosure".

       
     

    Entergy Corporation

         
       

    A Current Report on Form 8-K, dated March 24, 2004, was submitted to the SEC on March 24, 2004 reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure".

       
     

    Entergy Corporation

         
       

    A Current Report on Form 8-K, dated April 12, 2004, was submitted to the SEC on April 12, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

       
     

    Entergy Corporation

         
       

    A Current Report on Form 8-K, dated April 26, 2004, was submitted to the SEC on April 26, 2004, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits", Item 9. "Regulation FD Disclosure", and Item 12. "Results of Operations and Financial Condition".

     

     

    SIGNATURE

     

    Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

    ENTERGY CORPORATION
    ENTERGY ARKANSAS, INC.
    ENTERGY GULF STATES, INC.
    ENTERGY LOUISIANA, INC.
    ENTERGY MISSISSIPPI, INC.
    ENTERGY NEW ORLEANS, INC.
    SYSTEM ENERGY RESOURCES, INC.

     

    /s/ Nathan E. Langston
    Nathan E. Langston
    Senior Vice President and Chief Accounting Officer
    (For each Registrant and for each as
    Principal Accounting Officer)

     

    Date: May 10, 2004