Entergy 2006 Annual Report Download - page 55

ENTERGY CORPORATION AND SUBSIDIARIES 2
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payments/receipts among the Utility operating companies to the
extent required to maintain rough production cost equalization pur-
suant to the FERC’s decision. The FERC accepted the compliance
filing in November 2006, with limited modifications. In accordance
with the FERC’s order, the first payments/receipts would be based on
calendar year 2006 production costs, with any payments/receipts
among the Utility operating companies to be made in seven monthly
installments commencing in June 2007. Various parties have filed
requests for rehearing of the FERC’s order accepting the compliance
filing. Among other things, the LPSC requests rehearing of the
FERC’s decision to have the first payments commence in June 2007,
rather than earlier; to not require interest on the unpaid balance, and
the FERC’s decision with regard to the re-pricing of energy from the
Vidalia hydroelectric project for purposes of calculating production
cost disparities. Various Arkansas parties request rehearing of the
FERC’s decision (1) to require payments be made over seven months,
rather than 12; (2) on the application of the +/- 11% bandwidth; and
(3) the FERC’s decision to reject various accounting allocations pro-
posed by the Utility operating companies. The Utility operating
companies filed a revised compliance plan on December 18, 2006
implementing the provisions of the FERC’s November order.
APSC System Agreement Investigation
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 author-
ized by the FERC. Entergy Arkansas indicated, however, that a
properly structured replacement agreement could be a viable alterna-
tive. The APSC had previously commenced an investigation, in 2004,
into whether Entergy Arkansas’ continued participation in the System
Agreement is in the best interests of its customers. In June 2006 the
APSC issued an order in its investigation requiring Entergy Arkansas
President Hugh McDonald to file testimony in response to several
questions involving details of what action Entergy Arkansas or
Entergy has taken to ensure that Entergy Arkansas’ customers are pro-
tected from additional costs including those related to the following
areas: construction of new generating plants located outside of
Arkansas, costs of the Entergy New Orleans bankruptcy, and costs
associated with restoration of facilities damaged by Hurricanes
Katrina and Rita. Mr. McDonald was also directed to describe actions
taken since December 19, 2005 to encourage or persuade the FERC
to authorize Entergy Arkansas to exit the Entergy System Agreement
sooner than 96 months, and to describe current and future actions
related to development of a replacement system agreement.
Responsive testimony was filed with the APSC in July and August
2006. A public hearing for the purpose of cross-examination of Mr.
McDonald on his testimony and for questioning by the APSC was
also conducted in July 2006. There is no further procedural schedule
set in this investigation at this time.
The APSC also commenced investigations concerning Entergy
Louisiana’s Vidalia purchased power contract and Entergy Louisiana’s
then pending acquisition of the Perryville power plant. Entergy
Arkansas has provided information to the APSC in these investiga-
tions and no further activity has occurred in them.
APSC Complaint at the FERC
In June 2006, the APSC filed a complaint with the FERC against
Entergy Services as the representative of Entergy Corporation and the
Utility operating companies, pursuant to Sections 205, 206 and 207
of the Federal Power Act (FPA). The APSC complaint states, “the pur-
pose of the complaint is to institute an investigation into the prudence
of Entergy’s practices affecting the wholesale rates that flow through
its System Agreement." The complaint requests, among other things,
that the FERC disallow any costs found to be imprudent, with a
refund effective date to be set at the earliest possible time. Specific
areas of requested investigation include:
■The Utility operating companies’ transmission expansion and
planning process, including the construction, or lack thereof, of
economic transmission upgrades;
■The Utility operating companies’ wholesale purchasing practices,
including the potential savings due to integration of independent
power producers into their economic dispatch;
■The Utility operating companies’ alleged failure to retire their
aging, inefficient gas- and oil-fired generation; and
■The alleged failure to construct or acquire coal capacity for the
generation portfolio of Entergy Louisiana.
The complaint also requests that the FERC exercise its authority
under Section 207 of the FPA to investigate the adequacy of Entergy’s
transmission system and direct it to make all necessary upgrades to
ensure that its transmission facilities provide reliable, adequate and
economic service.
In July 2006, the Utility operating companies submitted their answer
to the APSC complaint. In their answer, the Utility operating compa-
nies acknowledge that while the FERC is the appropriate forum to
consider the issues raised in the APSC’s complaint, the APSC has pro-
vided no probative evidence supporting its allegations and has not met
the standards under the FPA to have a matter set for hearing. Under the
FPA standards, the APSC must create “serious doubt” as to the propri-
ety of the challenged actions. As indicated in the Utility operating
companies’ answer, the APSC complaint does not raise a “serious
doubt” but instead largely relies on unsupported assertions, many of
which have been investigated in other proceedings. In those limited
instances when the APSC complaint references “evidence” in an
attempt to support its request for a hearing, the “evidence” to which it
refers in fact does nothing to support its position but, rather, shows that
the Utility operating companies have acted prudently. As further indi-
cated in the Utility operating companies’ answer, following the issuance
of the FERC’s System Agreement decision, all of the production costs
of the Utility operating companies are now inputs to a formula rate that
will result in bandwidth payments among the Utility operating compa-
nies in order to roughly equalize production costs. The Utility operating
companies’ answer further explains that based on well-established
Supreme Court precedent, the FERC has exclusive jurisdiction over all
inputs that will be included in the System Agreement bandwidth for-
mula rates filed in compliance with the FERC’s System Agreement
decision and retail regulators are preempted from taking any action that
disturbs the FERC’s findings with respect to these production cost
inputs and the FERC-determined allocation of production costs among
the Utility operating companies. The Utility operating companies
believe that their conduct with respect to these issues has been prudent
and will vigorously defend such conduct.
Several parties have intervened in the proceeding, including the
MPSC, the LPSC, and the City Council. The LPSC’s answer and
comments in response to the APSC complaint ask the FERC to inves-
tigate whether Entergy Arkansas’ withdrawal from the System
Agreement is fair, just, and reasonable. In September 2006, the Utility
operating companies, the APSC, and other intervenors in the pro-
ceeding filed responses to the answers and comments submitted by
the various intervenors in July 2006. In their responses, the APSC and
the LPSC, among others, argue that the FERC need not address at
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
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