Entergy 2011 Annual Report Download - page 44

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
costs, and contingencies, to be approximately $277 million. A new
transmission service request has been submitted to the ICT to
determine if investments for supplemental upgrades in the Entergy
transmission system are needed to make energy from the Hot Spring
Energy Facility deliverable to Entergy Arkansas for the period after
Entergy Arkansas exits the System Agreement. The initial results
of the service request were received in January 2012 and indicate
that available transfer capability does not exist with existing
transmission facilities and that upgrades are required. The studies do
not provide a final and definitive indication of what those upgrades
would be. Entergy Arkansas has submitted transmission service
requests for facilities studies which, when performed by the ICT,
will provide more detailed estimates of the transmission upgrades
and the associated costs required to obtain network service for the
Hot Spring plant. Accordingly there are still uncertainties that must
be resolved. The purchase is contingent upon, among other things,
obtaining necessary approvals, including full cost recovery, from
various federal and state regulatory and permitting agencies. These
include regulatory approvals from the APSC and the FERC, as well
as clearance under the Hart-Scott-Rodino anti-trust law. In February
2012 the FERC issued an order approving the acquisition. Closing is
expected to occur in mid-2012.
In July 2011, Entergy Arkansas filed its application with the APSC
requesting approval of the acquisition and full cost recovery. In
January 2012, Entergy Arkansas, the APSC General Staff, and the
Arkansas Attorney General filed a Motion to Suspend the Procedural
Schedule and Joint Stipulation and Settlement for consideration
by the APSC. Under the settlement, the parties agreed that the
acquisition costs may be recovered through a capacity acquisition
rider and agreed that the level of the return on equity reflected in
the rider would be submitted to the APSC for resolution. Because
the transmission upgrade costs remain uncertain, the parties
requested that the APSC suspend the procedural schedule and cancel
the hearing scheduled for January 24, 2012, pending resolution of
the transmission costs. The APSC issued an order accepting the
settlement as part of the record and directing Entergy Arkansas to file
the transmission studies when available and directing the parties to
propose a procedural schedule to address the results of those studies.
Hinds Energy Facility Purchase Agreement
In April 2011, Entergy Mississippi announced that it has signed an
asset purchase agreement to acquire the Hinds Energy Facility, a 450
MW natural gas-fired combined-cycle turbine plant located in Jackson,
Mississippi, from a subsidiary of KGen Power Corporation. The
purchase price is expected to be approximately $206 million. Entergy
Mississippi also expects to invest in various plant upgrades at the
facility after closing and expects the total cost of the acquisition to be
approximately $246 million. A new transmission service request has
been submitted to determine if investments for supplemental upgrades
in the Entergy transmission system are needed to make the Hinds Energy
Facility deliverable to Entergy Mississippi for the period after Entergy
Mississippi exits the System Agreement. Facilities studies are ongoing
to determine transmission upgrades costs associated with the plant,
with results expected by early March 2012. The purchase is contingent
upon, among other things, obtaining necessary approvals, including full
cost recovery, from various federal and state regulatory and permitting
agencies. These include regulatory approvals from the MPSC and the
FERC, as well as clearance under the Hart-Scott-Rodino anti-trust law.
In February 2012 the FERC issued an order approving the acquisition.
Closing is expected to occur in mid-2012. In July 2011, Entergy Mississippi
filed with the MPSC requesting approval of the acquisition and full cost
recovery. A hearing on the request for a certificate of public convenience
and necessity is scheduled for February, 28 2012. A hearing on Entergy
Mississippi’s proposed cost recovery has not been scheduled.
WATERFORD 3 STEAM GENERATOR
REPLACEMENT PROJECT
Entergy Louisiana planned to replace the Waterford 3 steam
generators, along with the reactor vessel closure head and control
element drive mechanisms, in the spring 2011. Replacement of these
components is common to pressurized water reactors throughout
the nuclear industry. In December 2010, Entergy Louisiana advised
the LPSC that the replacement generators would not be completed
and delivered by the manufacturer in time to install them during
the spring 2011 refueling outage. During the final steps in the
manufacturing process, the manufacturer discovered separation
of stainless steel cladding from the carbon steel base metal in the
channel head of both replacement steam generators (RSGs), in areas
beneath and adjacent to the divider plate. As a result of this damage,
the manufacturer was unable to meet the contractual delivery
deadlines, and the RSGs were not installed in the spring 2011.
Entergy Louisiana worked with the manufacturer to fully develop
and evaluate repair options, and expects the replacement steam
generators to be delivered in time for the Fall 2012 refueling outage.
Extensive inspections of the existing steam generators at Waterford
3 in cooperation with the manufacturer were completed in April
2011. The review of data obtained during these inspections supports
the conclusion that Waterford 3 can operate safely for another full
cycle before the replacement of the existing steam generators.
Entergy Louisiana has formally reported its findings to the NRC. At
this time, a requirement to perform a mid-cycle outage for further
inspections in order to allow the plant to continue operation until
its Fall 2012 refueling outage is not anticipated. Entergy Louisiana
currently expects the cost of the project, including carrying costs,
to be approximately $687 million, assuming the replacement occurs
during the Fall 2012 refueling outage.
In June 2008, Entergy Louisiana filed with the LPSC for approval
of the replacement project, including full cost recovery. Following
discovery and the filing of testimony by the LPSC staff and an
intervenor, the parties entered into a stipulated settlement of the
proceeding. The LPSC unanimously approved the settlement in
November 2008. The settlement resolved the following issues:
1) the accelerated degradation of the steam generators is not the
result of any imprudence on the part of Entergy Louisiana; 2) the
decision to undertake the replacement project at the then-estimated
cost of $511 million is in the public interest, is prudent, and would
serve the public convenience and necessity; 3) the scope of the
replacement project is in the public interest; 4) undertaking the
replacement project at the target installation date during the 2011
refueling outage is in the public interest; and 5) the jurisdictional
costs determined to be prudent in a future prudence review are
eligible for cost recovery, either in an extension or renewal of the
formula rate plan or in a full base rate case including necessary pro
forma adjustments. Upon completion of the replacement project, the
LPSC will undertake a prudence review with regard to the following
aspects of the replacement project: 1) project management; 2) cost
controls; 3) success in achieving stated objectives; 4) the costs of
the replacement project; and 5) the outage length and replacement
power costs.
In November 2011 the LPSC approved a one-year extension of
Entergy Louisiana’s current formula rate plan. The next formula rate
plan filing, for the 2011 test year, will be made in May 2012 and will
include a separate identification of any operating and maintenance
expense savings that are expected to occur once the Waterford 3
steam generator replacement project is complete. Pursuant to the
LPSC decision, from September 2012 through December 2012 earnings
above an 11.05% return on common equity (based on the 2011 test
year) would be accrued and used to offset the Waterford 3 replacement
steam generator revenue requirement for the first twelve months that
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