Entergy 2004 Annual Report Download - page 36

-34 -
Entergy Corporation and Subsidiaries 2004
SIGNIFICANT FACTORS AND KNOWN TRENDS
Following are discussions of significant factors and known trends affecting Entergy’s business, including rate regulation and fuel-cost
recovery, federal regulation, market and credit risks, and nuclear matters.
State and Local 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 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. The status of material retail rate proceedings is 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 base rate cases are pending. Transition cost recovery rider approved to collect $8.5 million effective October 2004 with
recovery expected over subsequent 16 months. It is likely that a rate filing will be made in 2005 in connection
with the ANO 1 steam generator and reactor vessel head replacement.
Entergy Gulf States-Texas 10.95% Base rates are currently set at rates approved by the PUCT in June 1999. Entergy Gulf States filed a retail electric rate case with
the PUCT in August 2004. In October 2004, the PUCT issued a written order in which it dismissed the rate case indicating that
Entergy Gulf States is still subject to a rate freeze based on an agreement, approved by PUCT order in 2001, stipulating that a
rate freeze would remain in effect until retail open access commenced in Entergy Gulf States’ service territory, unless lifted by
the PUCT prior thereto. Entergy Gulf States has appealed this decision and intends to pursue other available remedies,
including legislation that would clarify that it is no longer operating under a rate freeze. In February 2005, bills were filed in the
Texas legislature that would clarify that Entergy Gulf States is no longer operating under a rate freeze and specify that retail open
access will not commence in Entergy Gulf States’ territory until the PUCT certifies a power region.
Entergy Gulf States-Louisiana 11.1% 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 ninth post-merger earnings analysis (2002). Hearings concluded in May 2004. In January 2005,
Entergy Gulf States and Entergy Louisiana filed testimony with the LPSC in support of a proposed settlement that would
resolve, among other dockets, Entergy Gulf States’ ninth post-merger review, and dockets established to consider issues
concerning the companies’ power purchases for the summers of 2001, 2002, 2003, and 2004. The proposed settlement currently
includes an offer to refund $76 million to Entergy Gulf States’ Louisiana customers through a credit on bills rendered in March
2005, with no immediate change in the current base rates. The settlement also proposes a formula rate plan with an ROE
midpoint of 10.65%. The LPSC has solicited comments on the proposed settlement from the parties to the various proceedings
at issue in the settlement. The proposed settlement is scheduled to be presented to the LPSC for consideration on
March 23, 2005.
Entergy Louisiana 9.7%-11.3%(1) In January 2004, Entergy Louisiana filed with the LPSC an application for a $167 million base rate increase and an ROE of
11.4%. The currently authorized ROE midpoint is 10.5%. Hearings in this matter concluded in December 2004. Based on
the evidence submitted at the hearing, the LPSC staff is recommending approximately a $7 million base rate increase. The LPSC
staff proposed the implementation of a formula rate plan that includes a provision for the recovery of incremental capacity costs,
including those related to the proposed Perryville acquisition. A decision by the LPSC is expected in mid- to late-March 2005 on
these issues.
Entergy Louisiana 9.7%-11.3%(1) In January2005, EntergyGulf States and Entergy Louisiana filed testimony with the LPSC in support of a proposed settlement
with the LPSC that would resolve, among other dockets, dockets established to consider issues concerning the companies’ power
purchases for the summers of 2001, 2002, 2003, and 2004. The proposed settlement currently includes an offer to refund
$14 million to Entergy Louisiana’s customers. The LPSC has solicited comments on the proposed settlement from the parties to
the various proceedings at issue in the proposed settlement. The proposed settlement is scheduled to be presented to the LPSC
for consideration on March 23, 2005.
Entergy Mississippi 9.3%-12.2%(2) An annual formula rate plan is in place. Entergy Mississippi made its annual formula rate plan filing in March 2004 based
on a 2003 test year. There was no change in rates based on an adjusted ROE midpoint of 10.77%.
Entergy New Orleans 10.25%-12.25%(3) The midpoint ROE of the electric and gas plans is 11.25%, with a target equity component of the capital structure of 42%.
Entergy New Orleans made a formula rate plan filing in April 2004. The City Council ordered that electric and gas rates remain
unchanged from levels set in 2003. Entergy New Orleans will file its formula rate plan for the year ended December 31, 2004 by
May 1, 2005 and also intends to file for an extension of the formula rate plan by September 1, 2005. If the formula rate plan is
not extended by the City Council, the rate adjustments in effect based on the December 31, 2004 test year shall continue.
System Energy 10.94% ROE approved by July 2001 FERC order. No cases pending before FERC.
(1) Entergy Louisiana’sformula 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 amount necessary to bring earnings down to the top of the bandwidth, and if earnings were below the
bandwidth range, rates would be increased by 60 percent of the corresponding shortfall.
(2) Under Mississippi law and Entergy Mississippi’sformula rate plan, if Entergy Mississippi’searned ROE is above the top of the range-of-no-change at the top of the bandwidth, then Entergy
Mississippi’srates 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’sretail 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 Entergy Mississippi’sformula rate plan on a prospective
basis only.) In the situation where Entergy Mississippi’searned 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 Entergy Mississippi’sformula rate plan, each annual formula rate plan filing incorporates a revised calculation of the benchmark ROE.
(3) If Entergy New Orleans earns outside 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 (between
11.5% and 12.25%), and if the ROE falls between 10.25% and 11%, rates are increased by 40 percent of the difference (between 10.25% and 11%). 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 shareof energycost savings under the generation performance-based recovery plan.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued