Entergy 2005 Annual Report Download - page 74

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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represents transition to competition costs Entergy Gulf States
incurred from June 1, 1999 through June 17, 2005 in preparing for
competition in its service area, including attendant AFUDC, and all
carrying costs projected to be incurred on the transition to compe-
tition costs through February 28, 2006. The $189 million is before
any gross-up for taxes or carrying costs over the 15-year recovery
period. Entergy Gulf States has reached a unanimous settlement
agreement in principle on all issues with the active parties in the
transition to competition cost recovery case. The agreement in prin-
ciple allows Entergy Gulf States to recover $14.5 million per year in
transition to competition costs over a 15-year period. Entergy Gulf
States implemented interim rates based on this revenue level on
March 1, 2006, subject to refund. Entergy Gulf States expects that
the PUCT will consider the formal settlement document, which is
currently being developed, in the second quarter 2006.
The Texas law enacted also allowed Entergy Gulf States to
file with the PUCT for recovery of certain incremental purchased
capacity costs which was implemented effective December 1, 2005.
This proceeding is discussed above under “Deferred Fuel Costs.”
Recovery of River Bend Costs
In March 1998, the PUCT disallowed recovery of $1.4 billion of
company-wide abeyed River Bend plant costs, which have been held
in abeyance since 1988. Entergy Gulf States appealed the PUCT’s
decision on this matter to the Travis County District Court in Texas.
In April 2002, the Travis County District Court issued an order
affirming the PUCT’s order on remand disallowing recovery of the
abeyed plant costs. Entergy Gulf States appealed this ruling to the
Third District Court of Appeals. In July 2003, the Third District
Court of Appeals unanimously affirmed the judgment of the Travis
County District Court. After considering the progress of the proceed-
ing in light of the decision of the Court of Appeals, Entergy Gulf
States accrued for the loss that would be associated with a final, non-
appealable decision disallowing the abeyed plant costs. The net carry-
ing value of the abeyed plant costs was $107.7 million at the time of
the Court of Appeals decision. Accrual of the $107.7 million loss was
recorded in the second quarter of 2003 as miscellaneous other income
(deductions) and reduced net income by $65.6 million after-tax.
In September 2004, the Texas Supreme Court denied Entergy Gulf
States’ petition for review, and Entergy Gulf States filed a motion for
rehearing. In February 2005, the Texas Supreme Court denied the
motion for rehearing, and the proceeding is now final.
Filings with the LPSC
Global Settlement including Entergy Gulf States
and Entergy Louisiana
In March 2005, the LPSC approved a settlement proposal to resolve
various dockets covering a range of issues for Entergy Gulf States
and Entergy Louisiana. The settlement resulted in credits totaling
$76 million for retail electricity customers in Entergy Gulf States’
Louisiana service territory and credits totaling $14 million for retail
electricity customers of Entergy Louisiana. The net income effect of
$48.6 million for Entergy Gulf States and $8.6 million for Entergy
Louisiana was recognized primarily in 2004 when Entergy Gulf
States and Entergy Louisiana recorded provisions for the expected
outcome of the proceeding. The settlement dismissed Entergy Gulf
States’ fourth, fifth, sixth, seventh, and eighth annual earnings
reviews, Entergy Gulf States’ ninth post-merger earnings review
and revenue requirement analysis, the continuation of a fuel review
for Entergy Gulf States, dockets established to consider issues con-
cerning power purchases for Entergy Gulf States and Entergy
Louisiana for the summers of 2001, 2002, 2003, and 2004, all
prudence issues associated with decisions made through May 2005
related to the nuclear plant uprates at issue in these cases, and an
LPSC docket concerning retail issues arising under the System
Agreement. The settlement does not include the System Agreement
case at FERC. In addition, Entergy Gulf States agreed not to seek
recovery from customers of $2 million of excess refund amounts
associated with the fourth through the eighth annual earnings
reviews and Entergy Louisiana agreed to forgo recovery of $3.5 mil-
lion of deferred 2003 capacity costs associated with certain power
purchase agreements. The credits were issued in connection with
April 2005 billings. Entergy Gulf States and Entergy Louisiana
reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula
rate plan for Entergy Gulf States that, among other provisions,
establishes an ROE midpoint of 10.65% for the initial three-year
term of the plan and permits Entergy Gulf States to recover incre-
mental capacity costs outside of a traditional base rate proceeding.
Under the formula rate plan, over- and under-earnings outside an
allowed range of 9.9% to 11.4% will be allocated 60% to customers
and 40% to Entergy Gulf States. Entergy Gulf States made its
initial formula rate plan filing in June 2005, as discussed below. In
addition, there is the potential to extend the formula rate plan
beyond the initial three-year effective period by mutual agreement
of the LPSC and Entergy Gulf States.
Retail Rates – Electric (Entergy Louisiana)
Entergy Louisiana made a rate filing with the LPSC requesting a
base rate increase in January 2004. In March 2005, the LPSC staff
and Entergy Louisiana filed a proposed settlement that included an
annual base rate increase of approximately $18.3 million that was
implemented, subject to refund, effective with May 2005 billings. In
May 2005, the LPSC approved a modified settlement which, among
other things, reduces depreciation and decommissioning expense
due to assuming a life extension of Waterford 3 and results in no
change in rates. Subsequently, in June 2005, Entergy Louisiana
made a revised compliance filing with the LPSC supporting a
revised depreciation rate for Waterford 3, which reflects the
removal of interim additions, and a rate increase from the purchase
of the Perryville power plant, which results in a net $0.8 million
annual rate reduction. Entergy Louisiana reduced rates effective
with the first billing cycle in July 2005 and refunded excess revenue
collected during May 2005, including interest, in August 2005.
The May 2005 rate settlement includes the adoption of a three-
year formula rate plan, the terms of which include an ROE midpoint
of 10.25% for the initial three-year term of the plan and permit
Entergy Louisiana to recover incremental capacity costs outside of a
traditional base rate proceeding. Under the formula rate plan, over-
and under-earnings outside an allowed regulatory range of 9.45% to
11.05% will be allocated 60% to customers and 40% to Entergy
Louisiana. The initial formula rate plan filing will be in May 2006
based on a 2005 test year with rates effective September 2006. In
addition, there is the potential to extend the formula rate plan
beyond the initial three-year effective period by mutual agreement
of the LPSC and Entergy Louisiana.
(Entergy Gulf States)
In June 2005, Entergy Gulf States made its formula rate plan filing
with the LPSC for the test year ending December 31, 2004. The fil-
ing shows a net revenue deficiency of $2.58 million indicating that
no refund liability exists. The filing also indicates that a prospective
rate increase of $23.8 million is required in order for Entergy Gulf
States to earn the authorized ROE midpoint of 10.65%. A revision
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued