Entergy 2008 Annual Report Download - page 69

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Notes to Consolidated Financial Statements continued
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Fuel and Purchased Power Cost Recovery
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy
Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy
Texas are allowed to recover certain fuel and purchased power
costs through fuel mechanisms included in electric and gas rates
that are recorded as fuel cost recovery revenues. The difference
between revenues collected and the current fuel and purchased
power costs is recorded as “Deferred fuel costs” on the Utility
operating companies’ financial statements. The table below shows
the amount of deferred fuel costs as of December 31, 2008 and
2007, that Entergy expects to recover (or return to customers)
through fuel mechanisms, subject to subsequent regulatory review
(in millions):
2008 2007
Entergy Arkansas $119.1 $114.8
Entergy Gulf States Louisiana(a) $ 8.1 $105.8
Entergy Louisiana(a) $(23.6) $ 19.2
Entergy Mississippi $ 5.0 $( 76.6)
Entergy New Orleans $ 21.8 $ 17.3
Entergy Texas $ 21.2 $ (67.3)
(a) 2008 and 2007 include $100.1 million for Entergy Gulf States Louisiana
and $68 million for Entergy Louisiana of fuel, purchased power, and
capacity costs that are expected to be recovered over a period greater than
twelve months.
Entergy Arkansas
Production Cost Allocation Rider
In its June 2007 decision on Entergy Arkansas’ August 2006 rate
filing, discussed below in “Retail Rate Proceedings,” the APSC
approved a production cost allocation rider for recovery from
customers of the retail portion of the costs allocated to Entergy
Arkansas as a result of the System Agreement proceedings,
but set a termination date of December 31, 2008 for the rider.
These costs cause an increase in Entergy Arkansas’ deferred fuel
cost balance, because Entergy Arkansas pays them over seven
months but collects them from customers over twelve months.
In December 2007, the APSC issued a subsequent order stating
the production cost allocation rider will remain in effect, 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. On March 18, 2008, the Arkansas attorney general
and the AEEC filed a notice of appeal of the December 2007 APSC
order. The appellants’ and appellees’ briefs have been filed with
the court of appeals.
In June 2008, Entergy Arkansas filed with the APSC its annual
redetermination of the production cost allocation rider. The
redetermination resulted in a slight increase in the rates beginning
with the first billing cycle of July 2008.
Energy Cost Recovery Rider
Entergy Arkansas’ retail rates include an energy cost recovery rider.
In December 2007, the APSC issued an order stating that Entergy
Arkansas’ energy cost recovery rider will remain in effect, 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. On March 18, 2008, the Arkansas attorney general
and the AEEC filed a notice of appeal of the December 2007 APSC
order. The appellants’ and appellees’ briefs have been filed with
the court of appeals.
In March 2008, Entergy Arkansas filed with the APSC its
annual energy cost rate for the period April 2008 through March
2009. The filed energy cost rate increased from $0.01179/kWh
to $0.01869/kWh. The increase was caused by the following: 1) all
three of the nuclear power plants from which Entergy Arkansas
obtains power, Arkansas Nuclear One (ANO) 1 and 2 and Grand
Gulf, were scheduled to have refueling outages in 2008, and the
energy cost rate is adjusted to account for the replacement power
costs expected to be incurred while these units were down; 2) Entergy
Arkansas has a deferred fuel cost balance from under-recovered fuel
costs at December 31, 2007; and 3) fuel and purchased power prices
have increased.
In August 2008, as provided for by its energy cost recovery rider,
Entergy Arkansas filed with the APSC an interim revision to its
energy cost rate. The revised energy cost rate is an increase from
$0.01869/kWh to $0.02456/kWh. The increase was caused by the
continued increase in natural gas and purchased power prices
from the levels used in setting the rate in March 2008. The interim
revised energy cost rate went into effect for the first billing cycle
of September 2008. In October 2008 the APSC issued an order
that requires Entergy Arkansas to file for investigative purposes
only monthly updates of its actual and projected over/under-
recovery of fuel and purchased power costs. The APSC order also
states that the interim revised energy cost rate will remain in effect
pending further investigation and order of the APSC, and the
APSC reserves the right after notice and hearing to prospectively
modify the energy cost rate.
APSC Investigations
In September 2005, Entergy Arkansas filed with the APSC an
interim energy cost rate per the energy cost recovery rider, which
provides for an interim adjustment should the cumulative over-
or under-recovery for the energy period exceed 10 percent of
the energy costs for that period. As of the end of July 2005, the
cumulative under-recovery of fuel and purchased power expenses
had exceeded the 10 percent threshold due to increases in
purchased power expenditures resulting from higher natural gas
prices. The interim cost rate of $0.01900 per kWh became effective
the first billing cycle in October 2005.
In early October 2005, the APSC initiated an investigation into
Entergy Arkansas’ interim energy cost rate. The investigation is
focused on Entergy Arkansas’ 1) gas contracting, portfolio, and
hedging practices; 2) wholesale purchases during the period;
3) management of the coal inventory at its coal generation plants;
and 4) response to the contractual failure of the railroads to provide
coal deliveries. In March 2006, the APSC extended its investigation
to cover the costs included in Entergy Arkansas’ March 2006 filing
that requested an energy cost rate of $0.02827 per kWh, suspended
implementation of the $0.02827 per kWh energy cost rate, and
ordered that the $0.01900 per kWh interim rate remain in effect
pending the APSC proceedings on the energy cost recovery filings.
On April 7, 2006, the APSC issued a show cause order in the
investigation proceeding that ordered Entergy Arkansas to file a
cost of service study by June 8, 2006. The order also directed Entergy
Arkansas to file testimony to support the cost of service study, to
support the $0.02827 per kWh cost rate, and to address the general
topic of elimination of the energy cost recovery rider.
In June 2006, Entergy Arkansas filed a cost of service study
and testimony supporting the redetermined energy cost rate of
$0.02827 per kWh and testimony addressing the prospective
elimination of the energy cost recovery rider as ordered by the
APSC. Entergy Arkansas also filed a motion with the APSC seeking
again to implement the redetermined energy cost rate of $0.02827
per kWh. After a hearing, the APSC approved Entergy Arkansas’
request and the redetermined rate was implemented in July
2006, subject to refund pending the outcome of the APSC energy