Entergy 2007 Annual Report Download - page 39

37
Entergy Corporation and Subsidiaries 2007
potential interconnection between Entergy Texas and ERCOT that
is discussed in Note 2 to the nancial statements. ese potential
interconnection costs are currently estimated to be approximately
$1 billion. Estimated capital expenditures are also subject to periodic
review and modication and may vary based on the ongoing eects
of business restructuring, regulatory constraints, environmental
regulations, business opportunities, market volatility, economic trends,
and the ability to access capital.
In April 2007, Entergy’s Non-Utility Nuclear business purchased
the 798 MW Palisades nuclear energy plant located near South
Haven, Michigan from Consumers Energy Company for a net
cash payment of $336 million. Entergy received the plant, nuclear
fuel, inventories, and other assets. e liability to decommission
the plant, as well as related decommissioning trust funds, was also
transferred to Entergy’s Non-Utility Nuclear business. Entergy’s
Non-Utility Nuclear business executed a unit-contingent, 15-year
purchased power agreement (PPA) with Consumers Energy for 100%
of the plant’s output, excluding any future uprates. Prices under the
PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and
the average price under the PPA is $51/MWh. In the rst quarter
2007, the NRC renewed Palisades’ operating license until 2031. Also
as part of the transaction, Entergy’s Non-Utility Nuclear business
assumed responsibility for spent fuel at the decommissioned Big
Rock Point nuclear plant, which is located near Charlevoix, Michigan.
Palisades’ nancial results since April 2007 are included in Entergy’s
Non-Utility Nuclear business segment. See Note 15 to the nancial
statements herein for a discussion of the purchase price allocation
and the amortization to revenue of the below-market PPA.
In April 2007, Entergy Louisiana announced that it plans to pursue
the solid fuel repowering of a 538 MW unit at its Little Gypsy plant.
Petroleum coke and coal will be the unit’s primary fuel sources. In
July 2007, Entergy Louisiana led with the LPSC for approval of the
repowering project, and stated that it expects to spend $1.55 billion on
the project. In addition to seeking a nding that the project is in the
public interest, the ling with the LPSC asks that Entergy Louisiana
be allowed to recover a portion of the project’s nancing costs during
the construction period. Hearings were held in October 2007, and
the LPSC approved the certication of the project in November 2007,
subject to several conditions. One of the conditions is the development
and approval of a construction monitoring plan. e approval allowed
Entergy Louisiana to order equipment, such as boiler and piping
components, so that components can be manufactured to keep the
project on schedule. A decision regarding whether to allow Entergy
Louisiana to recover a portion of the project’s nancing costs during
the construction period was deferred to Phase II of the proceedings.
In December 2007, Entergy Louisiana led testimony in the Phase II
proceeding seeking nancing cost recovery and proposing a procedure
for synchronizing future base rate recovery by a formula rate plan or
base rate ling of the project’s non-fuel costs. Phase II hearings are
scheduled to begin in May 2008. In December 2007, Entergy Louisiana
signed a target cost contract with the engineering, procurement, and
construction services contractor, and issued the contractor a notice to
proceed with construction. Entergy Louisiana expects the project to be
completed in 2012.
In July 2007, Entergy Arkansas announced that it had signed an
agreement to purchase the Ouachita Generating Facility, a 789 MW
power plant, from a subsidiary of Cogentrix Energy, Inc., for $210
million. e facility is a combined-cycle gas-red generating facility
located near the city of Sterlington in northern Louisiana. e facility
entered commercial service in 2002. Entergy Arkansas plans to
invest approximately $40 million in spare parts purchases and plant
improvements, and has estimated transaction costs and contingencies
of $6 million. e acquisition also may require transmission upgrades
in order for the facility to qualify as a network resource, which
costs were recently estimated by the Independent Coordinator of
Transmission for the Entergy System to be approximately $70 million,
subject to additional evaluation. e Ouachita plant will be 100 percent
owned by Entergy Arkansas, and the acquisition is expected to close in
2008. It is planned that, as part of the transaction, Entergy Gulf States
Louisiana will purchase one-third of the capacity and output of the
facility from Entergy Arkansas. e purchase of the plant is contingent
upon obtaining necessary approvals, including full cost recovery, from
various federal and state regulatory and permitting agencies. Entergy
Arkansas led with the APSC in September 2007 for its approval of
the acquisition, including full cost recovery. e APSC Sta and
the Arkansas attorney general have supported Entergy Arkansas’
acquisition of the plant, but oppose the sale of one-third of the capacity
and energy to Entergy Gulf States Louisiana. e industrial group
Arkansas Electric Energy Consumers (AEEC) has opposed Entergy
Arkansas’ purchase of the plant. e Arkansas attorney general has
opposed recovery of the non-fuel costs of the plant through a separate
rider, while the APSC Sta recommended revisions to the rider. In
December 2007, the APSC issued an order approving recovery
through a rider of the capacity costs associated with the interim tolling
agreement, which will be in eect until APSC action on the acquisition
of the plant. e APSC has scheduled a hearing in April 2008 to address
Entergy Arkansas’ request for acquisition of the plant and concurrent
cost recovery. In January 2008 the FERC issued an order authorizing
the acquisition. In November 2007, Entergy Gulf States Louisiana led
a request with the LPSC for authorization to purchase one-third of
the capacity and energy of the Ouachita plant during the term of the
interim tolling agreement and for authorization to purchase one-third
of the plant’s capacity and energy on a life-of-unit basis aer the plant’s
acquisition. In January 2008 the LPSC approved the recovery of costs
associated with the interim tolling agreement. An LPSC hearing on
approval of the purchase of one-third of the plant’s capacity and energy
on a life-of-unit basis is scheduled for June 2008.
Entergy Louisiana plans to replace the Waterford 3 steam generators,
along with the reactor vessel closure head and control element drive
mechanisms, in 2011. Replacement of these components is common
to pressurized water reactors throughout the nuclear industry. e
nuclear industry continues to address susceptibility to stress corrosion
cracking of certain materials associated with these components within
the reactor coolant system. e issue is applicable to Waterford 3
and is managed in accordance with standard industry practices
and guidelines. Routine inspections of the steam generators during
Waterford 3’s Fall 2006 refueling outage identied degradation of
certain tube spacer supports in the steam generators that required
repair beyond that anticipated prior to the outage. Corrective measures
were successfully implemented to permit continued operation of
the steam generators. While potential future replacement of these
components had been contemplated, additional steam generator tube
and component degradation necessitates replacement of the steam
generators as soon as reasonably achievable. e earliest the new
steam generators can be manufactured and delivered for installation is
2011. A mid-cycle outage performed in 2007 supports Entergy’s 2011
replacement strategy. e reactor vessel head and control element
drive mechanisms will be replaced at the same time, utilizing the same
reactor building construction opening that is necessary for the steam
generator replacement. Entergy Louisiana estimates that it will spend
approximately $485 million on this project.
Management’s Financial Discussion and Analysis conti nued