Entergy 2005 Annual Report Download - page 49

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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Citing its concerns that the benefits of its continued participation
in the current form of the System Agreement have been seriously
eroded, in December 2005, Entergy Arkansas submitted its notice
that it will terminate its participation in the current System
Agreement effective 96 months from December 19, 2005 or such
earlier date as authorized by the FERC. Entergy Arkansas indicat-
ed, however, that a properly structured replacement agreement
could be a viable alternative. In response to an Administrative Law
Judge (ALJ) Initial Decision in the System Agreement proceeding in
2004, the APSC had previously commenced an investigation into
whether Entergy Arkansas’ continued participation in the System
Agreement is in the best interest of its customers, and had also
commenced investigations concerning Entergy Louisiana’s Vidalia
purchased power contract and Entergy Louisiana’s then pending
acquisition of the Perryville power plant.
Independent Coordinator of Transmission
In 2000, the FERC issued an order encouraging utilities to voluntar-
ily place their transmission facilities under the control of independent
RTOs (regional transmission organizations) by December 15, 2001.
Delays in implementing the FERC order have occurred due to a variety
of reasons, including the fact that utility companies, other stakeholders,
and federal and state regulators continue to work to resolve various
issues related to the establishment of such RTOs.
In April 2004, Entergy filed a proposal with the FERC to commit
voluntarily to retain an independent entity (Independent
Coordinator of Transmission or ICT) to oversee the granting of
transmission or interconnection service on Entergy’s transmission
system, to implement a transmission pricing structure that ensures
that Entergy’s retail native load customers are required to pay for
only those upgrades necessary to reliably serve their needs, and to
have the ICT serve as the security coordinator for the Entergy
region. The proposal was structured to not transfer control of
Entergy’s transmission system to the ICT, but rather to vest with
the ICT broad oversight authority over transmission planning
and operations.
After additional filings and subsequent declaratory orders issued
by the FERC, on May 27, 2005, the domestic utility companies filed
an enhanced ICT proposal with the FERC. Entergy believes that
the filing is consistent with the FERC guidance received in the
FERC’s declaratory orders on the ICT. Among other things,
the enhanced ICT filing states that the ICT will (1) grant or deny
transmission service on the domestic utility companies’ transmission
system; (2) administer the domestic utility companies’ OASIS node
for purposes of processing and evaluating transmission service
requests and ensuring compliance with the domestic utility companies’
obligation to post transmission-related information; (3) develop a base
plan for the domestic utility companies’ transmission system that
will result in the ICT making the determination on whether costs of
transmission upgrades should be rolled into the domestic utility
companies’ transmission rates or directly assigned to the customer
requesting or causing an upgrade to be constructed; (4) serve as the
reliability coordinator for the Entergy transmission system; and
(5) oversee the operation of the weekly procurement process. The
enhanced ICT proposal clarifies the rights that customers receive
when they fund a supplemental upgrade and also contains a detailed
methodology describing the process by which the ICT will evaluate
interconnection-related investments already made on the Entergy
System for purposes of determining the future allocation of the
uncredited portion of these investments.
On June 3, 2005, a group of generators filed with the FERC a
request that the FERC schedule a technical conference on the
enhanced ICT proposal in order for Entergy to provide additional
information on the enhanced ICT proposal. In response, a stake-
holder meeting was held in New Orleans on June 30, 2005.
Interventions, protests, and comments were filed by interested parties
on August 5, 2005. Entergy filed a response to the various pleadings
on August 22, 2005. Entergy anticipates receiving a FERC order on
the May 27, 2005 filing during the second quarter 2006.
As discussed below in “Available Flowgate Capacity Proceedings,”
on October 31, 2005, the domestic utility companies notified parties
to the ICT proceeding of the potential loss of historical data
related to Entergy’s calculation of available transfer capability for its
transmission system.
In March 2004, the APSC initiated a proceeding to review
Entergy’s proposal and compare the benefits of such a proposal to
the alternative of Entergy joining the Southwest Power Pool RTO.
The APSC sought comments from all interested parties on this
issue. Various parties, including the APSC General Staff, filed com-
ments opposing the ICT proposal. A public hearing has not been
scheduled by the APSC at this time, although Entergy Arkansas has
responded to various APSC data requests. In May 2004, Entergy
Mississippi filed a petition for review with the MPSC requesting
MPSC support for the ICT proposal. A hearing in that proceeding
was held in August 2004. Entergy New Orleans appeared before the
Utility Committee of the City Council in June 2005 to provide
information on the ICT proposal. Entergy Louisiana and Entergy
Gulf States have filed an application with the LPSC requesting that
the LPSC find that the ICT proposal is a prudent and appropriate
course of action. A hearing in the LPSC proceeding on the ICT
proposal was held in October 2005, and Entergy Louisiana and
Entergy Gulf States await the ALJ’s initial decision.
Market-based Rate Authority
On May 5, 2005, the FERC instituted a proceeding under Section
206 of the Federal Power Act to investigate whether Entergy
satisfies the FERC’s transmission market power and affiliate
abuse/reciprocal dealing standards for the granting of market-based
rate authority, and established a refund effective date pursuant to the
provisions of Section 206, for purposes of the additional issues set
for hearing. However, the FERC decided to hold that investigation
in abeyance pending the outcomes of the ICT proceeding and
Entergy’s affiliate purchased power agreements proceeding. On
June 6, 2005, Entergy sought rehearing of the May 5 Order and that
request for rehearing is pending.
On July 22, 2005, Entergy notified the FERC that it was with-
drawing its request for market-based rate authority for sales within
its control area. Instead, the domestic utility companies and their
affiliates will transact at cost-based rates for wholesale sales within
the Entergy control area. On November 1, 2005, Entergy submit-
ted proposed cost-based rates for both the domestic utility compa-
nies and Entergy’s non-regulated entities that sell at wholesale with-
in the Entergy control area. Separately, the FERC accepted for fil-
ing Entergy Gulf States’ proposed cost-based rates for wholesale
sales to three separate municipalities. Additionally, Entergy reserves
its right to request market-based rate authority for sales within its
control area in the future. The relinquishment of market-based rates
for sales within the Entergy control area is not expected to have a
material effect on the financial results of Entergy.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued