Entergy 2005 Annual Report Download - page 47

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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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 RAT E 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 the 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.
■Base rates have been in effect since 1998. The timing of its next general rate case will depend on, among
other factors, the ultimate resolution of the System Agreement case at the FERC involving rough
production cost equalization.
■Entergy Arkansas completed recovery in January 2006 of transition to competition costs through
an $8.5 million transition cost recovery rider that has been in effect since October 2004.
Entergy Gulf States-Texas 10.95% ■Base rates are currently set at rates approved by the PUCT in June 1999.
■In June 2005, a Texas law was enacted that provides for a base rate freeze until mid-2008, but
allows Entergy Gulf States to seek before then recovery of certain incremental purchased power
capacity costs and recover reasonable and necessary transition to competition costs. An $18 million
annual capacity rider was implemented effective December 31, 2005. A $14.5 million annual
transition cost recovery rider was implemented effective March 1, 2006, subject to finalization of
a settlement among the parties and approval by the PUCT.
Entergy Gulf States-Louisiana 9.9%-11.4% ■A filing was made in December 2005 with the LPSC for interim recovery of $141 million of
storm costs. A hearing was held and the LPSC ordered recovery of up to $6 million of storm
costs through the fuel adjustment clause during the period March 2006 to September 2006.
Beginning September 2006, Entergy Gulf States will recover $0.85 million per month of interim
storm costs through base rates. The filing included provisions for updating the surcharge to
reflect actual costs incurred as well as the receipt of insurance or federal aid.
■In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a
range of issues. The settlement resulted in credits of $76 million to retail electricity customers in
Entergy Gulf States’ Louisiana service territory. The credits were issued in connection with the
April 2005 billings.
■A three-year formula rate plan is in place with an ROE midpoint of 10.65% for the initial
three-year term of the plan. Entergy Gulf States made its first formula rate plan filing in June
2005 for the test year ending December 31, 2004.
■A base rate increase of $37.2 million associated with the initial formula rate plan filing and the
purchase of Perryville was effective in October 2005, subject to refund after consideration by
the LPSC.
Entergy Louisiana 9.45%-11.05% ■A filing was made in December 2005 with the LPSC for interim recovery of $355 million of
storm costs. A hearing was held and the LPSC ordered recovery of up to $14 million of storm
costs through the fuel adjustment clause during the period March 2006 to September 2006.
Beginning September 2006, Entergy Louisiana will recover $2 million per month of interim
storm costs through base rates. The filing included provisions for updating the surcharge to
reflect actual costs incurred as well as the receipt of insurance or federal aid.
■In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a
range of issues. The settlement resulted in credits of $14 million to retail electricity customers
which were issued in connection with the April 2005 billings.
■A three-year formula rate plan is in place with an ROE midpoint of 10.25% for the initial
three-year term of the plan. The initial formula rate plan filing will be in May 2006 based on a
2005 test year with rates effective September 2006.
Entergy Mississippi 9.1%-11.9% ■In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates
by implementing a Storm Damage Rider to recover storm damage restoration costs associated
with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005.
The notice proposes recovery of approximately $14.7 million, including carrying charges,
annually over a five-year period. A hearing on this matter is expected in April 2006. Entergy
Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration
costs associated with the hurricanes incurred after November 30, 2005.
■An annual formula rate plan is in place. Entergy Mississippi made its annual formula rate plan
filing in March 2005 based on a 2004 test year. There was no change in rates based on an
adjusted ROE midpoint of 10.50%.
Entergy New Orleans 9.75%-11.75% ■Entergy New Orleans made a formula rate plan filing in April 2005. The midpoint ROE of
Electric; the electric and gas plans is 10.75%. The City Council ordered a reduction in electric rates of
10.25%-11.25% $2.5 million and no change in gas rates. The City Council approved the continuation of the
Gas formula rate plan for two more annual cycles, including a target equity component of the capital
structure of 45%. The ROE midpoint for gas operations for the 2005 test year is 10.75% with a
zero basis point bandwidth.
System Energy 10.94% ■ROE approved by July 2001 FERC order. No cases pending before FERC.
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.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued