Entergy 2007 Annual Report Download - page 45

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Entergy Corporation and Subsidiaries 2007
Several parties intervened in the rate proceeding at the FERC, including
the APSC, the MPSC, the Council, and the LPSC, which have also
led protests. e PUCT also intervened. Certain Entergy Arkansas
wholesale customers also intervened, raising issues regarding whether
the bandwidth payments are properly reected in the wholesale rate
that Entergy Arkansas charges. e APSC, the MPSC, and the Council
asked the FERC to conrm that the FERC did not intend to preempt a
retail regulator from undertaking an independent prudence review of
the production costs in setting retail rates, or ask the FERC to set the
rough production cost equalization payments/receipts for hearing to
allow the retail regulators the opportunity to evaluate the prudence of
the underlying production costs. In July 2007, the FERC accepted the
proposed rates for ling, allowed them to go into eect as of June 1,
2007, subject to refund, and set the ling, including the calculation and
underlying production costs, for hearing and settlement procedures.
Settlement procedures have been terminated, and the proceeding is set
for hearing in May 2008.
Intervenors in the proceeding led testimony on February 4, 2008
responding to the Utility operating companies’ initial direct testimony.
In its testimony, the LPSC argues that Entergy Arkansas was imprudent
for failing to exercise a right of rst refusal to repurchase up to 180
MW of the Independence plant in 1996 when Entergy Arkansas was
oered the power by Entergy Power. According to the LPSC, Entergy
Arkansas’ failure to exercise this option has resulted in Entergy
Arkansas’ 2006 production costs being approximately $29 million
higher than they otherwise would have been. Another intervenor,
AmerenUE, argues that its current wholesale power contract with
Entergy Arkansas, pursuant to which Entergy Arkansas sells power
to AmerenUE, does not permit Entergy Arkansas to ow through to
AmerenUE any portion of Entergy Arkansas’ bandwidth payment.
According to AmerenUE, Entergy Arkansas has sought to collect from
AmerenUE approximately $14.5 million of the 2007 Entergy Arkansas
bandwidth payment. e AmerenUE contract is scheduled to expire
in August 2009. In addition to these allegations, several intervenors,
including the LPSC, the FERC Sta, and the APSC have proposed
various accounting changes designed to alter the allocation of costs
among the Utility operating companies for purposes of calculating
each Utility operating company’s production costs. e Utility
operating companies’ rebuttal testimony is due April 28, 2008.
Entergy Arkansas paid $36 million per month to Entergy Gulf
States, Entergy Louisiana, and Entergy Mississippi for seven months,
beginning in June 2007. Management believes that any changes in the
allocation of production costs resulting from the FERC’s decision and
related retail proceedings should result in similar rate changes for retail
customers. e APSC has approved a production cost allocation rider
for recovery from customers of the retail portion of the costs allocated
to Entergy Arkansas, but set a termination date of December 31, 2008
for the rider. In December 2007, the APSC issued a subsequent order
stating the production cost allocation rider will remain in eect, and
any future termination of the rider will be subject to eighteen months
advance notice by the APSC, which would occur following notice
and hearing.
Based on the FERC’s April 27, 2007 order on rehearing that is
discussed above, in the second quarter 2007 Entergy Arkansas
recorded accounts payable and Entergy Gulf States Louisiana,
Entergy Louisiana, Entergy Mississippi, and Entergy Texas recorded
accounts receivable to reect the rough production cost equalization
payments and receipts required to implement the FERC’s remedy
based on calendar year 2006 production costs. Entergy Arkansas
recorded a corresponding regulatory asset for its right to collect the
payments from its customers, and Entergy Gulf States Louisiana,
Entergy Louisiana, Entergy Mississippi, and Entergy Texas recorded
corresponding regulatory liabilities for their obligations to pass the
receipts on to their customers. e regulatory asset and liabilities are
shown as “System Agreement cost equalization” on the respective
balance sheets.
e liabilities and assets for the preliminary estimate of the payments
and receipts required to implement the FERC’s remedy based on
calendar year 2007 production costs were recorded in December
2007, aer all production costs for 2007 had been incurred. e
preliminary estimate was recorded based on the following estimate
of the payments/receipts among the Utility operating companies for
2008, based on calendar year 2007 production costs (in millions):
Payments or (Receipts)
Entergy Arkansas $ 268
Entergy Gulf States Louisiana $(147)
Entergy Louisiana $ (46)
Entergy Mississippi $ 0
Entergy New Orleans $ (5)
Entergy Texas $ (70)
e actual payments/receipts for 2008, based on calendar year 2007
production costs, will not be calculated until the Utility operating
companies’ FERC Form 1s have been led. e level of any payments
and receipts is signicantly aected by a number of factors, including,
among others, weather, the price of alternative fuels, the operating
characteristics of the Entergy System generating eet, and multiple
factors aecting the calculation of the non-fuel related revenue
requirement components of the total production costs, such as
plant investment.
e Utility operating companies had also led with the FERC certain
proposed modications to the rough production cost equalization
calculation. e FERC rejected certain of the proposed modications,
accepted certain of the proposed modications without further
proceedings, and set two of the proposed modications for hearing
and settlement procedures. Settlement discussions are ongoing in one
of the proceedings. Settlement procedures were terminated in the
second proceeding that involves changes to the functionalization of
costs to the production function and a hearing in that proceeding is
currently scheduled for March 2008.
In April 2007, the LPSC led a complaint with the FERC in
which it sought to have the FERC order the following modications
to Entergy’s rough production costs equalization calculation: (1)
elimination of interruptible loads from the methodology used to
allocate demand-related capacity costs; and (2) change of the method
used to re-price energy from the Vidalia hydroelectric project for
purposes of calculating production cost disparities. Entergy led an
intervention and protest in this proceeding. In May 2007 the FERC
denied the LPSC’s complaint. e LPSC has requested rehearing, and
FERC consideration of that request is still pending.
APSC Complaint at the FERC
In June 2006 the APSC led 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). e APSC complaint states,
“the purpose of the complaint is to institute an investigation into the
prudence of Entergy’s practices aecting the wholesale rates that ow
through its System Agreement.” e complaint requests, among other
Management’s Financial Discussion and Analysis conti nued