Entergy 2006 Annual Report Download - page 82

ENTERGY CORPORATION AND SUBSIDIARIES 2
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revenue level on March 1, 2006. The formal settlement agreement
was approved by the PUCT in June 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.”
Filings with the LPSC
Global Settlement (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 concerning power
purchases for Entergy Gulf States and Entergy Louisiana for the sum-
mers 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 million of deferred 2003 capacity costs associated
with certain power purchase agreements. The credits were issued to
customers in connection with April 2005 billings.
The settlement includes the establishment of a three-year formula
rate plan for Entergy Gulf States that, among other provisions, estab-
lishes an ROE mid-point of 10.65% for the initial three-year term of
the plan and permits Entergy Gulf States to recover incremental
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 annu-
al 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 depre-
ciation 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 mid-point of
10.25% for the initial three-year term of the plan and permit Entergy
Louisiana to recover incremental capacity costs outside of a tradition-
al 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 was made in May 2006
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 Louisiana.
In May 2006, Entergy Louisiana made its formula rate plan filing
with the LPSC for the 2005 test year. Entergy Louisiana modified the
filing in August 2006 to reflect a 9.45% return on equity which is
within the allowed bandwidth. The modified filing includes an
increase of $24.2 million for interim recovery of storm costs from
Hurricanes Katrina and Rita and a $119.2 million rate increase to
recover LPSC-approved incremental deferred and ongoing capacity
costs. The filing requested recovery of approximately $50 million for
the amortization of capacity deferrals over a three-year period, includ-
ing carrying charges, and approximately $70 million for ongoing
capacity costs. The increase was implemented, subject to refund, with
the first billing cycle of September 2006. Entergy Louisiana subse-
quently updated its formula rate plan rider to reflect adjustments
proposed by the LPSC Staff with which it agrees. The adjusted return
on equity of 9.56% remains within the allowed bandwidth. Ongoing
and deferred incremental capacity costs were reduced to $118.7 mil-
lion. The updated formula rate plan rider was implemented, subject
to refund, with the first billing cycle of October 2006.
Retail Rates – Electric (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 mid-point of 10.65%. A revision 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, sub-
ject 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. In March 2006, the LPSC approved an uncontested
stipulated settlement that includes a revenue requirement increase of
$36.8 million and calls for Entergy Gulf States to apply a refund lia-
bility of $744 thousand to capacity deferrals. The refund liability
pertained to the periods 2004-2005 as well as the interim period in
which a $37.2 million revenue increase was in place.
In May 2006, Entergy Gulf States made its formula rate plan filing
with the LPSC for the 2005 test year. Entergy Gulf States modified
the filing in August 2006 to reflect an 11.1% return on equity which
is within the allowed bandwidth. The modified filing includes a for-
mula rate plan increase of $17.2 million annually which provides for
1) interim recovery of $10.5 million of storm costs from Hurricanes
Katrina and Rita and 2) recovery of $6.7 million of LPSC-approved
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued