Entergy 2007 Annual Report Download - page 71

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Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
repair costs in an eort to provide rate relief for Entergy New Orleans
customers. e 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. Entergy New
Orleans led applications seeking City Council certication of its
storm-related costs incurred through December 2006. Entergy New
Orleans supplemented this request to include the estimated future cost
of the gas system rebuild.
In March 2007, the City Council certied that Entergy New Orleans
incurred $205 million in storm-related costs through December 2006
that are eligible for CDBG funding under the state action plan, and
certied Entergy New Orleans’ estimated costs of $465 million for
its gas system rebuild. In April 2007, Entergy New Orleans executed
an agreement with the Louisiana Oce of Community Development
(OCD) under which $200 million of CDBG funds will be made
available to Entergy New Orleans. Entergy New Orleans submitted the
agreement to the bankruptcy court, which approved it on April 25,
2007. Entergy New Orleans has received $180.8 million of the funds
as of December 31, 2007, and under the agreement with the OCD,
Entergy New Orleans expects to receive the remainder as it incurs and
submits additional eligible costs.
RE T A I L RA T E PR O C E E D I N G S
Filings with the APSC
Retail Rates
In August 2006, Entergy Arkansas led with the APSC a request for a
change in base rates. Entergy Arkansas requested a general base rate
increase (using an ROE of 11.25%), which it subsequently adjusted
to a request for a $106.5 million annual increase. Entergy Arkansas
also requested recovery of FERC-allocated costs pursuant to the
FERC decision on the System Agreement, and requested a capacity
management rider to recover incremental capacity costs.
In June 2007, aer hearings on the ling, the APSC ordered Entergy
Arkansas to reduce its annual rates by $5 million, and set a return
on common equity of 9.9% with a hypothetical common equity level
lower than Entergy Arkansas’ actual capital structure. For the purpose
of setting rates, the APSC disallowed a portion of costs associated
with incentive compensation based on nancial measures and all
costs associated with Entergy’s stock-based compensation plans. In
addition, under the terms of the APSC’s decision, recovery of storm
restoration costs in the future will be limited to a xed annual amount
of $14.4 million, regardless of the actual annual amount of future
restoration costs. e APSC did state in a separate December 2007
order, however, that it will consider a petition for nancial relief should
Entergy Arkansas experience “extraordinary” storm restoration costs.
e APSC’s June 2007 decision also threatens Entergy Arkansas’
ability to recover $52 million of costs previously accumulated in
Entergy Arkansas’ storm reserve and $18 million of removal costs
associated with the termination of a lease. Management believes,
however, that Entergy Arkansas is entitled to recover these prudently
incurred costs and will vigorously pursue its right to recover them. e
APSC rejected Entergy Arkansas’ request for a capacity management
rider to recover incremental capacity costs.
e APSC denied Entergy Arkansas’ request for rehearing of its
June 2007 decision, and the base rate change was implemented August
29, 2007, eective for bills rendered aer June 15, 2007. In September
2007, Entergy Arkansas appealed the decision to the Arkansas Court
of Appeals. In its Notice of Appeal, Entergy Arkansas states that the
APSC’s decision represents arbitrary decision-making and is unlawful.
Entergy Arkansas led its appellant’s brief in January 2008 seeking a
reversal of the APSC’s decision on 16 issues. e appellees’ briefs are
due in March 2008.
Ouachita Acquisition
Entergy Arkansas led with the APSC in September 2007 for its
approval of the Ouachita plant 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 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.
Filings with the PUCT and Texas Cities
Retail Rates
Entergy Texas made a rate ling in September 2007 with the PUCT
requesting an annual rate increase totaling $107.5 million, including
a base rate increase of $64.3 million and special riders totaling $43.2
million. e base rate increase includes $12.2 million for the storm
damage reserve. Entergy Texas is requesting an 11% return on
common equity. In December 2007 the PUCT issued an order setting
September 26, 2008 as the eective date for the rate change from the
rate ling. e hearing on the rate case is scheduled for May 2008.
Entergy Texas’ base rates are currently set at rates approved by the
PUCT in June 1999. As discussed in “Electric Industry Restructuring”
below, a Texas law was enacted in June 2005 which includes provisions
in the Texas legislation regarding Entergy Texas’ ability to le a general
rate case and to le for recovery of transition to competition costs.
As authorized by the legislation, in August 2005, Entergy Texas
led with the PUCT an application for recovery of its transition to
competition costs. Entergy Texas requested recovery of $189 million
in transition to competition costs through implementation of a 15-
year rider to be eective no later than March 1, 2006. e $189 million
represents transition to competition costs Entergy Texas 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. e $189 million is before any gross-up for
taxes or carrying costs over the 15-year recovery period. Entergy Texas
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. e agreement allows Entergy Texas
to recover $14.5 million per year in transition to competition costs
over a 15-year period. Entergy Texas implemented rates based on this
revenue level on March 1, 2006. e formal settlement agreement was
approved by the PUCT in June 2006.
e Texas law enacted also allowed Entergy Texas to le with the
PUCT for recovery of certain incremental purchased capacity costs.
Proceedings involving this rider are discussed above under “Deferred
Fuel Costs.”