Entergy 2006 Annual Report Download - page 81

ENTERGY CORPORATION AND SUBSIDIARIES 2
2000066
Entergy New Orleans
In March 2006, Entergy New Orleans provided a justification state-
ment to state and local officials in connection with its pursuit of
CDBG funds to mitigate costs that otherwise would be borne by
ratepayers. The statement included all the estimated costs of
Hurricane Katrina damage, as well as a lost customer base component
intended to help offset the need for storm-related rate increases.
The statement included justification for a request for $718 million in
CDBG funding. In September 2006, Entergy New Orleans present-
ed a revised CDBG request to the Louisiana Recovery Authority’s
Infrastructure Committee. The updated request of $592 million takes
into account the sale of output of Entergy New Orleans’ share of
Grand Gulf nuclear power into the wholesale market for a period of
time longer than originally anticipated, lower operation and mainte-
nance expenses, and the cessation of interest payments on long-term
debt for an agreed-upon period of one year. In October 2006, the
Louisiana Recovery Authority (LRA) Board endorsed a resolution
proposing to allocate $200 million in CDBG funds to Entergy New
Orleans to defray gas and electric utility system repair costs in an
effort to provide rate relief for Entergy New Orleans customers. The
proposal was developed as an action plan amendment and published
for public comment. State lawmakers approved the action plan in
December 2006, and the U.S. Department of Housing and Urban
Development approved it in February 2007. In addition, the City
Council must review and certify the amount of Entergy New Orleans’
eligible storm costs before an application can be filed with the LRA
and CDBG funding can be released to Entergy New Orleans. Entergy
New Orleans filed applications seeking City Council certification of
$210 million in storm-related costs incurred through December
2006. Entergy New Orleans has supplemented this request to include
the estimated future cost of the gas system rebuild. In January 2007,
the City Council passed a resolution in which it stated its intent to
render a decision in the certification proceeding by March 2007.
In the first quarter 2006, Entergy New Orleans reduced its accrued
accounts payable for storm restoration costs by $97.4 million, with
corresponding reductions of $88.7 million in construction work in
progress and $8.7 million in regulatory assets, based on a reassessment
of the nature and timing of expected restoration and rebuilding costs
and the obligations associated with restoring service. Although
Entergy New Orleans reduced its accrual for restoration spending by
these amounts, it continues to expect to incur the related costs over
time and Entergy New Orleans still expects its storm restoration and
business continuity costs to total approximately $275 million, includ-
ing $80 million related to the gas rebuild project discussed below.
The estimated storm restoration costs do not include the longer-
term accelerated rebuilding of the gas system in New Orleans that
Entergy New Orleans expects will be necessary due to the massive salt
water intrusion into the system caused by the flooding in New
Orleans. The salt water intrusion is expected to shorten the life of the
gas system, making it necessary to rebuild that system over time, ear-
lier than otherwise would be expected. Entergy New Orleans
currently expects the additional longer-term cost to rebuild the gas
system to be $385 million, with the project extending many years into
the future.
RETAIL RATE PROCEEDINGS
Filings with the APSC
Retail Rates
In August 2006, Entergy Arkansas filed with the APSC a request for
a change in base rates. Entergy Arkansas requested a general base rate
increase of $150 million (using an ROE of 11.25%), as well as recov-
ery of FERC-allocated costs pursuant to the FERC decision on the
System Agreement. Entergy Arkansas also requested a capacity man-
agement rider to recover incremental capacity costs. In February
2007, the APSC Staff and intervenors filed testimony in the case
indicating that the parties generally favor recovery of the FERC-
allocated System Agreement costs through a new rider. Moreover, the
parties commenting on the energy cost recovery rider supported
retention of the energy cost recovery rider to recover fuel and pur-
chased energy expense. Regarding the level of base rates, the APSC
staff found a revenue requirement excess of $13.5 million. The parties
generally opposed recovering incremental capacity purchase charges
through the proposed capacity management rider, although the APSC
staff indicated such a rider might be appropriate for a proposed power
plant acquisition once more facts were known. EAI rebuttal testimo-
ny is scheduled to be filed in March 2007. The procedural schedule
calls for hearings to begin in April 2007.
In November 2006, Entergy Arkansas filed with the APSC a request
to approve Entergy Arkansas’ need for load-following generation
resources. In January 2007, the APSC staff recommended
that the APSC issue an order declaring that Entergy Arkansas has
demonstrated a need to acquire capacity for load-following generation.
Upon completion of negotiations with the final selected bidder, which
is expected in third quarter 2007, Entergy Arkansas will file with the
APSC a request to approve the specific capacity acquisition. Cost recov-
ery for the new resource is being addressed in the general rate case.
See Entergy Corporation and Subsidiaries’ “Management’s
Financial Discussion And Analysis - Significant Factors and Known
Trends - Federal Regulation - System Agreement Litigation” for a dis-
cussion of Entergy’s compliance filing in that proceeding. If the FERC
approves the compliance tariff as filed, then payments under that tar-
iff will be classified as energy costs, which would then be included in
setting the retail energy cost rate as part of the normal working of the
energy cost recovery rider. As noted above under “Deferred fuel
costs,” the APSC has given notice that it is considering the prospec-
tive elimination of the energy cost recovery rider. Therefore, Entergy
Arkansas proposed in the August 2006 base rate case an alternative to
the energy cost recovery rider for recovery of the costs allocated to it
as a result of the System Agreement litigation should the energy cost
recovery rider be lawfully terminated by the APSC. A separate exact
recovery rider, similar to the energy cost recovery rider, would ensure
that Entergy Arkansas customers pay only the amount allocated by
the FERC.
Filings with the PUCT and Texas Cities
Retail Rates
Entergy Gulf States is operating in Texas under a base rate freeze that
has remained in effect during the delay in the implementation of retail
open access in Entergy Gulf States’ Texas service territory. As discussed
in “Electric Industry Restructuring and the Continued Application of
SFAS 71” below, a Texas law was enacted in June 2005 which includes
provisions in the Texas legislation regarding Entergy Gulf States’ abil-
ity to file a general rate case and to file for recovery of transition to
competition costs. As authorized by the legislation, in August 2005,
Entergy Gulf States filed with the PUCT an application for recovery
of its transition to competition costs. Entergy Gulf States requested
recovery of $189 million in transition to competition costs through
implementation of a 15-year rider to be effective no later than March
1, 2006. The $189 million represents transition to competition costs
Entergy Gulf States incurred from June 1, 1999 through June 17,
2005 in preparing for competition in its Texas service area, including
attendant AFUDC, and all carrying costs projected to be incurred on
the transition to competition 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 reached a unanimous
settlement agreement, which the PUCT approved in June 2006, on
all issues with the active parties in the transition to competition cost
recovery case. The agreement 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 rates based on this
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued
65