Entergy 2007 Annual Report Download - page 74

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Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
to recover the electric and gas restoration costs that it had actually
spent through March 31, 2006. Entergy New Orleans also proposed
semiannual lings to update the rider for additional restoration
spending and also to consider the receipt of CDBG funds or insurance
proceeds that it may receive. With the second rider, Entergy New
Orleans sought to establish a storm reserve to provide for the risk of
another storm.
In October 2006, the City Council approved a settlement agreement
that resolves Entergy New Orleans’ rate and storm-related rider lings
by providing for phased-in rate increases, while taking into account
with respect to storm restoration costs the anticipated receipt of
CDBG funding as recommended by the Louisiana Recovery Authority.
e settlement provides for a 0% increase in electric base rates
through December 2007, with a $3.9 million increase implemented
in January 2008. Recovery of all Grand Gulf costs through the fuel
adjustment clause will continue. Gas base rates increased by $4.75
million in November 2006 and increased by additional $1.5 million in
March 2007 and an additional $4.75 million in November 2007. e
settlement calls for Entergy New Orleans to le a base rate case by
July 31, 2008. e settlement agreement discontinues the formula rate
plan and the generation performance-based plan but permits Entergy
New Orleans to le an application to seek authority to implement
formula rate plan mechanisms no sooner than six months following
the eective date of the implementation of the base rates resulting
from the July 31, 2008 base rate case. Any storm costs in excess of
CDBG funding and insurance proceeds will be addressed in that base
rate case. e settlement also authorizes a $75 million storm reserve
for damage from future storms, which will be created over a ten-year
period through a storm reserve rider beginning in March 2007. ese
storm reserve funds will be held in a restricted escrow account.
In January 2008, Entergy New Orleans voluntarily implemented
a 6.15% base rate credit for electric customers, which Entergy New
Orleans estimates will return $10.6 million to electric customers in
2008. Entergy New Orleans was able to implement this credit because
the recovery of New Orleans aer Hurricane Katrina has been
occurring faster than expected.
Fuel Adjustment Clause Litigation
In April 1999, a group of ratepayers led a complaint against Entergy
New Orleans, Entergy Corporation, Entergy Services, and Entergy
Power in state court in Orleans Parish purportedly on behalf of all
Entergy New Orleans ratepayers. e plaintis seek treble damages
for alleged injuries arising from the defendants’ alleged violations of
Louisiana’s antitrust laws in connection with certain costs passed on
to ratepayers in Entergy New Orleans’ fuel adjustment lings with
the City Council. In particular, plaintis allege that Entergy New
Orleans improperly included certain costs in the calculation of fuel
charges and that Entergy New Orleans imprudently purchased high-
cost fuel or energy from other Entergy aliates. Plaintis allege that
Entergy New Orleans and the other defendant Entergy companies
conspired to make these purchases to the detriment of Entergy New
Orleans’ ratepayers and to the benet of Entergy’s shareholders, in
violation of Louisiana’s antitrust laws. Plaintis also seek to recover
interest and attorneys’ fees. Entergy led exceptions to the plaintis’
allegations, asserting, among other things, that jurisdiction over these
issues rests with the City Council and the FERC. In March 2004, the
plaintis supplemented and amended their petition. If necessary, at
the appropriate time, Entergy will also raise its defenses to the antitrust
claims. e suit in state court was stayed by stipulation of the parties
and order of the court pending review of the decision by the City
Council in the proceeding discussed in the next paragraph. Subsequent
to Entergy New Orleans’ ling of a bankruptcy petition in September
2005 in the Eastern District of Louisiana, Entergy New Orleans led a
notice removing the class action lawsuit from the Civil District Court
to the U.S. District Court for the Eastern District of Louisiana.
Plaintis also led a corresponding complaint with the City Council
in order to initiate a review by the City Council of the plaintis’
allegations and to force restitution to ratepayers of all costs they allege
were improperly and imprudently included in the fuel adjustment
lings. Testimony was led on behalf of the plaintis in this proceeding
asserting, among other things, that Entergy New Orleans and other
defendants have engaged in fuel procurement and power purchasing
practices and included costs in Entergy New Orleans’ fuel adjustment
that could have resulted in Entergy New Orleans customers being
overcharged by more than $100 million over a period of years. Hearings
were held in February and March 2002. In February 2004, the City
Council approved a resolution that resulted in a refund to customers
of $11.3 million, including interest, during the months of June through
September 2004. e resolution concludes, among other things, that the
record does not support an allegation that Entergy New Orleans’ actions
or inactions, either alone or in concert with Entergy Corporation or
any of its aliates, constituted a misrepresentation or a suppression
of the truth made in order to obtain an unjust advantage of Entergy
New Orleans, or to cause loss, inconvenience or harm to its ratepayers.
Management believes that it has adequately provided for the liability
associated with this proceeding. e plaintis appealed the City Council
resolution to the state courts. On May 26, 2005, the Civil District Court
for the Parish of Orleans armed the City Council resolution, nding
no support for the plaintis’ claim that the refund amount should be
higher. In June 2005, the plaintis appealed the Civil District Court
decision to the Louisiana Fourth Circuit Court of Appeal. e court of
appeal held an oral argument in September 2006. On February 25, 2008,
the Fourth Circuit Court of Appeal issued a decision arming in part,
and reversing in part, the Civil District Court’s decision. Although the
Fourth Circuit Court of Appeal did not reverse any of the substantive
ndings and conclusions of the City Council or the Civil District Court,
the Fourth Circuit found that the amount of damages awarded was
arbitrary and capricious and increased the amount of damages to $34.3
million. Entergy New Orleans believes that the increase in damages
ordered by the Fourth Circuit is not justied. Entergy New Orleans is
continuing to review and evaluate this decision and is considering its
options for requesting rehearing, a writ application to or other review by
the Louisiana Supreme Court, recourse to the federal courts, and other
potential avenues for relief.
In the Entergy New Orleans bankruptcy proceeding, the named
plaintis in the Entergy New Orleans fuel clause lawsuit, together with
the named plaintis in the Entergy New Orleans rate of return lawsuit,
led a Complaint for Declaratory Judgment asking the court to declare
that Entergy New Orleans, Entergy Corporation, and Entergy Services
are a single business enterprise, and, as such, are liable in solido
with Entergy New Orleans for any claims asserted in the Entergy
New Orleans fuel adjustment clause lawsuit and the Entergy New
Orleans rate of return lawsuit, and, alternatively, that the automatic
stay be lied to permit the movants to pursue the same relief in state
court. e bankruptcy court dismissed the action on April 26, 2006.
e matter was appealed to the U.S. District Court for the Eastern
District of Louisiana, and the district court armed the dismissal in
October 2006, but on dierent grounds, concluding that the lawsuit
was premature. In Entergy New Orleans’ plan of reorganization that
was conrmed by the bankruptcy court in May 2007, the plaintis’
claims are treated as unimpaired “Litigation Claims,” which will “ride
through” the bankruptcy proceeding, with any legal, equitable and
contractual rights to which the plaintis’ Litigation Claim entitles the
plaintis unaltered by the plan of reorganization.