Entergy 2003 Annual Report Download - page 36

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
continued
In addition to the regulatory scrutiny connected with base rate proceedings, the domestic utility companies’ fuel and
purchased power costs recovered from customers are subject to regulatory scrutiny. The domestic utility companies’ significant
fuel and purchased power cost proceedings are described in Note 2 to the consolidated financial statements.
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 or
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. The status of 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. It is
likely that a rate filing will be made in mid-2005 in connection with the steam generator
replacement at ANO.
Entergy Gulf 10.95% Base rates have been frozen since settlement order issued in June 1999. Freeze will likely extend
States - Texas to the start of retail open access, given management’s current expectations as to the start date of
retail open access.
Entergy Gulf 11.1% The LPSC approved a settlement resolving the 4th - 8th post-merger earning reviews resulting in
States - Louisiana a $22.1 million prospective rate reduction effective January 2003 and a refund of $16.3 million.
In December 2003, the LPSC staff recommended a $30.6 million rate refund and a prospective rate
reduction of approximately $50 million as a result of the 9th earnings analysis (2002). Hearings
are set for April 2004. With the LPSC staff, Entergy Gulf States continues to pursue the
development of a generation incentive structure.
Entergy Louisiana 9.7%-11.3%(1) In January 2004, Entergy Louisiana filed with the LPSC for a $167 million base rate increase
and an ROE of 11.4%. The current ROE midpoint is 10.5%. Hearings are currently set for
September 2004. With the LPSC staff, Entergy Louisiana continues to pursue the development
of a generation incentive structure.
Entergy Mississippi 10.64%-12.86%(2) An annual formula rate plan is in place. The MPSC approved a $48.2 million rate increase
effective January 2003 and an ROE midpoint of 11.75%. Entergy Mississippi will make a
formula rate plan filing in March 2004.
Entergy New Orleans 10.25%-12.25%(3) The City Council approved an agreement in May 2003 allowing for a $30.2 million increase in
base rates effective June 1, 2003 and approved the implementation of formula rate plans for the
electric and gas service that will be evaluated annually until 2005. An appeal of the approval by
intervenors is pending, but the rates remain in effect. The midpoint ROE of both plans is 11.25%,
with a target equity component of 42%. Entergy New Orleans will make a formula rate plan
filing in May 2004.
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 percent of the overage, and if below, increased by 60 percent of the shortfall.
(2) Under Mississippi law and Entergy Mississippi’s formula rate plan, if Entergy Mississippi’s earned ROE is above the top of the range-of-no-change at the top of the bandwidth,
then Entergy Mississippi’s rates are reduced by 50 percent of the difference between the earned ROE and the top of the bandwidth. In such circumstance, Entergy Mississippi’s
“Allowed ROE” for the next twelve-month period is the point halfway between such earned ROE and the top of the bandwidth – Entergy Mississippi’s retail rates are set at that
halfway-point ROE level. (Before the comparison is made of the earned ROE to the bandwidth, the bandwidth can be adjusted for performance measures by as much as 1%.
Rates are adjusted pursuant to the company’s formula rate plan on a prospective basis only.) In the situation where Entergy Mississippi’s earned ROE is not above the top of the
range-of-no-change at the top of the bandwidth, then Entergy Mississippi’s “Allowed ROE” for the next twelve-month period is the top of the range-of-no-change at the top of the
bandwidth. If earnings are below the bandwidth range, rates are increased by 50 percent of the difference between the earned ROE and the bottom of the bandwidth. Under
the provisions of the company’s formula rate plan, each annual formula rate plan filing incorporates a revised calculation of the benchmark ROE. The benchmark ROE set out
in the March 15, 2004 formula rate plan filing likely will differ from the last approved ROE. The company anticipates the March 15, 2004 filing will show an allowed regulatory
earnings range of 9.3% to 12.2%. The company does not anticipate a reduction in revenues going forward.
(3) If Entergy New Orleans earns outside of the bandwidth range, rates will be adjusted on a prospective basis. Under the gas formula rate plan, if earnings are above the bandwidth
range, rates are reduced by 100 percent of the overage, and if below, increased by 100 percent of the shortfall. In addition, if the ROE falls between 11.5% and 12.25%, rates are
reduced by 60 percent of the difference, and if the ROE falls between 10.25% and 11%, rates are increased by 40 percent of the differential. Under the electric formula rate plan,
rates are adjusted accordingly by 100 percent of the amount of any overage or shortfall. Entergy New Orleans may earn up to 13.25% under the electric formula rate plan
provided that the increase is caused by its share of energy cost savings under the generation performance-based recovery plan discussed below.