Entergy 2002 Annual Report Download - page 35

SIGNIFICANT FACTORS AND KNOWN TRENDS
RATE REGULATION AND FUEL-COST RECOVERY
The rates that the domestic utility companies and System Energy charge for their services are an important item influencing
Entergy’s financial position, results of operations, and liquidity. These companies are closely regulated and the rates charged to
their customers are determined in regulatory proceedings, except for a portion of Entergy Gulf States’ operations. Governmental
agencies, including the APSC, the Council of the City of New Orleans, Louisiana (City Council), the LPSC, the Mississippi Public
Service Commission (MPSC), the Public Utility Commission of Texas (PUCT), and FERC, are primarily responsible for approval
of the rates charged to customers. Material retail rate proceedings are summarized below and described in more detail in Note 2
to the consolidated financial statements.
Company Authorized ROE Pending Proceedings/Events
Entergy Arkansas 11.0% No cases are pending. Transition cost account mechanism expired on December 31, 2001.
Entergy Gulf 10.95% Base rates have been frozen since settlement order issued in June 1999. Freeze will likely extend to the
States – Texas start of retail open access, which is currently not expected to occur until at least the first quarter of 2004.
Entergy Gulf 11.1% The LPSC approved a settlement in December 2002 resolving the 4th – 8th post-merger earnings reviews
States – Louisiana resulting in a $22.1 million prospective rate reduction effective January 2003 and a refund of $16.3 million.
Also, the 9th earnings analysis (2002), the last required post-merger earnings analysis, and prospective
revenue study are currently pending before the LPSC with hearings set for October 2003. In conjunction
with the LPSC staff, Entergy Gulf States is currently pursuing a formula rate plan proposal.
Entergy Louisiana 9.7%-11.3%(1) The LPSC approved a settlement in July 2002 covering the 5th and 6th annual rate reviews and future rate
regulation that included a small rate reduction and reaffirmed the ROE midpoint of 10.5%. Entergy Louisiana’s
current rates will remain in effect until changed pursuant to a new formula rate plan filing or revenue
analysis to be filed by June 30, 2003. In conjunction with the LPSC staff, Entergy Louisiana is currently
pursuing a formula rate plan proposal.
Entergy Mississippi 10.64%-12.86%(2) An annual formula rate plan is in place. In December 2002, the MPSC approved a joint stipulation that
resulted in a $48.2 million rate increase and an ROE midpoint of 11.75%. Entergy Mississippi will make its
next formula rate plan filing in March 2004.
Entergy New Orleans 11.4% Rate case filed with the City Council in May 2002 requesting a rate increase of $44 million. An agreement in
principle reached in March 2003 with the Advisors to the City Council would result in a $30 million base rate
increase, if approved by the City Council. A decision is expected in mid-2003.
System Energy 10.94% ROE approved by July 2001 FERC order. No cases pending before FERC.
(1) Entergy Louisiana’s formula rate plan expired with the 2001 test year. Under the expired formula, if Entergy Louisiana earned outside of the bandwidth range, rates
would be adjusted on a prospective basis. If earnings were above the bandwidth range, rates would be reduced by 60% of the overage, and if below, increased by
60% of the shortfall.
(2) If Entergy Mississippi earns outside of the bandwidth range, rates will be adjusted on a prospective basis. If earnings are above the bandwidth range, rates are
reduced by 50% of the overage, and if below, increased by 50% of the shortfall. The range presented is not adjusted for performance measures, under which the
ROE midpoint can increase or decrease by as much as 1%.
ENTERGY CORPORATION AND SUBSIDIARIES 2002 33
In addition to the regulatory scrutiny connected with base rate
proceedings, the domestic utility companies’ fuel costs recov-
ered from customers are subject to regulatory scrutiny. The
domestic utility companies’ significant fuel cost proceedings are
described in Note 2 to the consolidated financial statements.
The domestic utility companies have historically engaged in
the coordinated planning, construction, and operation of
generating and transmission facilities under the terms of an
agreement called the System Agreement that has been approved
by FERC. Litigation involving the System Agreement has been
initiated by the LPSC and City Council. These proceedings
include challenges to the allocation of costs as defined by the
System Agreement, raise questions of imprudence by the domes-
tic utility companies in their execution of the System
Agreement, and seek support for local regulatory authority over
System Agreement issues. Entergy believes that any changes in
the allocation of costs would not have a material effect on
Entergy’s financial condition because any changes should result
in similar rate changes for retail customers. Entergy further
believes that state and local regulators are pre-empted by federal
law from reviewing and deciding System Agreement issues for
themselves. An unrelated case currently pending between the
LPSC and Entergy Louisiana raises the question whether a state
regulator is pre-empted by federal law from reviewing and
interpreting FERC rate schedules that are part of the System
Agreement, and from subsequently enforcing that interpretation.
The LPSC interpreted a System Agreement rate schedule in the
unrelated case, and then sought to enforce its interpretation.
The Louisiana Supreme Court affirmed. In January 2003, the
U.S. Supreme Court granted Entergy Louisiana’s request for a
writ of certiorari for purposes of reviewing the decision of the
LPSC and the Louisiana Supreme Court. Entergy cannot predict
the timing or outcome of these proceedings.