Entergy 2007 Annual Report Download - page 72

70
Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
Filings with the LPSC
Global Settlement (Entergy Gulf States Louisiana 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
Louisiana and Entergy Louisiana. e settlement resulted in credits
totaling $76 million for retail electricity customers of Entergy Gulf
States Louisiana and credits totaling $14 million for retail electricity
customers of Entergy Louisiana. e credits were issued to customers
in connection with April 2005 billings. e net income eect of $48.6
million for Entergy Gulf States Louisiana and $8.6 million for Entergy
Louisiana was recognized primarily in 2004 when Entergy Gulf States
Louisiana and Entergy Louisiana recorded provisions for the expected
outcome of the proceeding.
e settlement includes the establishment of a three-year formula
rate plan for Entergy Gulf States Louisiana that, among other
provisions, establishes an ROE mid-point of 10.65% for the initial
three-year term of the plan and permits Entergy Gulf States Louisiana
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 Louisiana. Entergy Gulf
States Louisiana made its initial formula rate plan ling in June 2005.
In addition, there is the potential to extend the formula rate plan
beyond the initial three-year eective period by mutual agreement of
the LPSC and Entergy Gulf States Louisiana.
Retail Rates – Electric
(Entergy Louisiana)
In May 2007, Entergy Louisiana made its formula rate plan ling with
the LPSC for the 2006 test year, indicating a 7.6% return on common
equity. e $6.9 million rate decrease anticipated in this original ling
did not occur because securitization of storm costs associated with
Hurricane Katrina and Hurricane Rita and the establishment of a
storm reserve have not yet occurred. Entergy Louisiana is currently
exploring its securitization options. e May 2007 ling also included
Entergy Louisiana’s request to recover $39.8 million in unrecovered
xed costs associated with the loss of customers that resulted from
Hurricane Katrina and Hurricane Rita, which if approved by the LPSC
would increase the return on common equity under the original ling
to 9.4%, which is within the band of no change adjacent to the lower
end of the sharing bandwidth. In September 2007, Entergy Louisiana
modied its formula rate plan ling to reect its implementation of
certain adjustments proposed by the LPSC sta in its review of Entergy
Louisiana’s original ling with which Entergy Louisiana agreed, and to
reect its implementation of an $18.4 million annual formula rate plan
rate increase comprised of (1) a $23.8 million increase representing
60% of Entergy Louisiana’s revenue deciency, and (2) a $5.4 million
decrease for reduced incremental and deferred capacity costs. e
LPSC authorized Entergy Louisiana to defer for accounting purposes
the dierence between its $39.8 million claim for unrecovered
xed costs and 60% of the revenue deciency to preserve Entergy
Louisiana’s right to pursue that claim in full during the formula rate
plan proceeding. In October 2007, Entergy Louisiana implemented a
$7.1 million formula rate plan decrease that is due primarily to the
reclassication of certain franchise fees from base rates to collection
via a line item on customer bills pursuant to an LPSC order. e LPSC
sta and intervenors have recommended disallowance of certain costs
included in Entergy Louisiana’s ling, including stock option costs and
transmission restructuring costs. Entergy Louisiana disagrees with
these proposed adjustments. Hearings in the 2006 test year formula
rate plan proceedings are scheduled for August 2008.
In May 2006, Entergy Louisiana made its formula rate plan ling with
the LPSC for the 2005 test year. Entergy Louisiana modied the ling
in August 2006 to reect a 9.45% return on equity which is within the
allowed bandwidth. e modied ling 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. e ling requested
recovery of approximately $50 million for the amortization of capacity
deferrals over a three-year period, including carrying charges, and
approximately $70 million for ongoing capacity costs. e increase
was implemented, subject to refund, with the rst billing cycle of
September 2006. Entergy Louisiana subsequently updated its formula
rate plan rider to reect adjustments proposed by the LPSC Sta with
which it agrees. e adjusted return on equity of 9.56% remains within
the allowed bandwidth. Ongoing and deferred incremental capacity
costs were reduced to $118.7 million. e updated formula rate plan
rider was implemented, subject to refund, with the rst billing cycle of
October 2006. Resolution of this proceeding is still pending.
Entergy Louisiana made a rate ling with the LPSC requesting a
base rate increase in January 2004. In May 2005 the LPSC approved
a settlement that resulted in a net $0.8 million annual rate reduction.
Entergy Louisiana reduced rates eective with the rst billing cycle
in July 2005. e 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
traditional 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. e initial formula rate plan ling was made in May 2006
as discussed above. In addition, there is the potential to extend the
formula rate plan beyond the initial three-year eective period by
mutual agreement of the LPSC and Entergy Louisiana.
Little Gypsy Repowering
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. 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. 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. Entergy Louisiana
expects the project to be completed in 2012.