Entergy 2005 Annual Report Download - page 75

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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to the filing was made in September 2005 resulting in a $37.2 million
base rate increase effective with the first billing cycle of October
2005, subject to refund. The base rate increase consists of two
components. The first is a base rate increase of approximately
$21.1 million due to the formula rate plan 2004 test year revenue
requirement. The second component of the increase is the recovery
of the annual revenue requirement of $16.1 million associated with
the purchase of power from the Perryville generating station, which
purchase was approved by the LPSC. A final order from the LPSC
is expected by the second quarter of 2006.
Retail Rates – Gas (Entergy Gulf States)
In July 2004, Entergy Gulf States filed with the LPSC an applica-
tion for a change in its rates and charges seeking an increase of
$9.1 million in gas base rates in order to allow Entergy Gulf States
an opportunity to earn a fair and reasonable rate of return. In June
2005, the LPSC unanimously approved Entergy Gulf States’
proposed settlement that includes a $5.8 million gas base rate
increase effective the first billing cycle of July 2005 and a rate stabi-
lization plan with an ROE midpoint of 10.5%.
In January 2006, Entergy Gulf States filed with the LPSC its gas
rate stabilization plan. The filing showed a revenue deficiency of
$4.1 million based on an ROE midpoint of 10.5%. Approval by
the LPSC and implementation are not expected until the second
quarter of 2006.
Filings with the MPSC
Formula Rate Plan Filings
Entergy Mississippi made its annual formula rate plan filing with the
MPSC in March 2005 based on a 2004 test year. In May 2005,
the MPSC approved a joint stipulation entered into between the
Mississippi Public Utilities Staff and Entergy Mississippi that
provides for no change in rates based on a performance-adjusted
ROE midpoint of 10.50%, establishing an allowed regulatory
earnings range of 9.1% to 11.9%.
Power Management Rider
The MPSC approved the purchase of the Attala power plant in
November 2005. In December 2005, the MPSC issued an order
approving the investment cost recovery through its power manage-
ment rider and limited the recovery to a period that begins with the
closing date of the purchase and ends the earlier of the date costs are
incorporated into base rates or December 31, 2006. The MPSC
order also provided that any reserve equalization benefits be credited
to the annual ownership costs beginning with the date that Entergy
Mississippi begins recovery of the Hurricane Katrina restoration
costs or July 1, 2006, whichever is earlier. On December 9, 2005,
Entergy Mississippi filed a compliance rider.
Filings with the City Council
Formula Rate Plans
In April 2005, Entergy New Orleans made its annual scheduled
formula rate plan filings with the City Council. The filings showed
that a decrease of $0.2 million in electric revenues was warranted
and an increase of $3.9 million in gas revenues was warranted. In
addition, in May 2005, Entergy New Orleans filed with the City
Council a request for continuation of the formula rate plans and
generation performance-based rate plan (GPBR) for an additional
three years. In August 2005, Entergy New Orleans, the City
Council advisors, and the intervenors entered into an agreement in
principle which provided, among other things, for a reduction in the
Customer Care System investment of $3.2 million and for a reduc-
tion in Entergy New Orleans’ electric base rates of $2.5 million and
no change in Entergy New Orleans’ gas base rates. The agreement
provided for the continuation of the electric and gas formula rate
plans for two more annual cycles, effective September 1, 2005, with
a target equity ratio of 45% as well as a midpoint return on equity
(ROE) of 10.75%. The ROE bandwidth is 100 basis points from the
midpoint for electric operations. For gas operations, the ROE
bandwidth is 50 basis points from the midpoint and zero basis points
for the 2005 evaluation period. The agreement in principle also
includes the continuation and modification of the GPBR by separating
the operation of the GPBR from the formula rate plan so that the
core business’ electric rates are not set on a prospective basis by
reference to GPBR earnings. The agreement in principle provided
for a $4.5 million cap on Entergy New Orleans’ share of GPBR
savings. The GPBR plan, however, has been temporarily suspended
due to impacts from Hurricane Katrina. Entergy New Orleans will
notify the City Council’s advisors and the City Council at such time
as it is reasonable to resume the operation of the GPBR.
In August 2005, prior to Hurricane Katrina, the Council Utility,
Cable and Telecommunications Committee voted to recommend to
the City Council a resolution approving this agreement in principle.
The City Council was to consider this recommendation at its regu-
larly scheduled meeting on September 1, 2005, but this meeting did
not occur due to Hurricane Katrina. On August 31, 2005, the chairman
of the Council Utility, Cable and Telecommunications Committee
issued a letter authorizing Entergy New Orleans to implement the
agreement in principle in accordance with the resolution previously
considered by this Council committee, and advising Entergy New
Orleans that the City Council would consider the ratification of this
letter authorization at the first available opportunity. On September
27, 2005, the City Council ratified the August 31, 2005 letter, and
deemed the resolution approving the agreement in principle to be
effective as of September 1, 2005.
Fuel Adjustment Clause Litigation
In April 1999, a group of ratepayers filed a complaint against Entergy
New Orleans, Entergy Corporation, Entergy Services, and Entergy
Power in state court in Orleans Parish purportedly on behalf of all
Entergy New Orleans’ ratepayers. The plaintiffs seek treble damages for
alleged injuries arising from the defendants’ alleged violations of
Louisiana’s antitrust laws in connection with certain costs passed on to
ratepayers in Entergy New Orleans’ fuel adjustment filings with the City
Council. In particular, plaintiffs allege that Entergy New Orleans
improperly included certain costs in the calculation of fuel charges and
that Entergy New Orleans imprudently purchased high-cost fuel from
other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and
the other defendant Entergy companies conspired to make these pur-
chases to the detriment of Entergy New Orleans’ ratepayers and to the
benefit of Entergy’s shareholders, in violation of Louisiana’s antitrust
laws. Plaintiffs also seek to recover interest and attorneys’ fees. Entergy
filed exceptions to the plaintiffs’ allegations, asserting, among other
things, that jurisdiction over these issues rests with the City Council and
FERC. In March 2004, the plaintiffs supplemented and amended their
petition. If necessary, at the appropriate time, Entergy will also raise its
defenses to the antitrust claims. The suit in state court has been stayed
by stipulation of the parties pending review of the decision by the City
Council in the proceeding discussed in the next paragraph.
Plaintiffs also filed a corresponding complaint with the City
Council in order to initiate a review by the City Council of the
plaintiffs’ allegations and to force restitution to ratepayers of all costs
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued