Entergy 2008 Annual Report Download - page 74

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
Notes to Consolidated Financial Statements continued
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incurred $205 million in storm-related costs through December
2006 that are eligible for CDBG funding under the state action
plan, and certified Entergy New Orleans’ estimated costs of
$465 million for its gas system rebuild (which is discussed below). In
April 2007, Entergy New Orleans executed an agreement with the
Louisiana Office of Community Development (OCD) under which
$200 million of CDBG funds will be made available to Entergy New
Orleans. Entergy New Orleans has received $180.8 million of the
funds as of December 31, 2008. Entergy New Orleans has submitted
additional costs and awaits reimbursement in accordance with the
contract covering disbursement of the funds.
RE T A I L RA T E PR O C E E D I N G S
Filings with the APSC (Entergy Arkansas)
Retail Rates
In August 2006, Entergy Arkansas filed 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. In
June 2007, after hearings on the filing, 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 financial
measures and all costs associated with Entergy’s stock-based
compensation plans. In addition, under the terms of the APSC’s
decision, the order eliminated storm reserve accounting and set an
amount of $14.4 million in base rates to address storm restoration
costs, regardless of the actual annual amount of future restoration
costs. The APSC did state in a subsequent December 2007 order,
however, that it will consider a petition for financial relief should
Entergy Arkansas experience “extraordinary” storm restoration
costs. The APSC’s June 2007 decision left Entergy Arkansas with no
mechanism 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.
The APSC denied Entergy Arkansas’ request for rehearing of
its June 2007 decision, and the base rate change was implemented
August 29, 2007, effective for bills rendered after June 15, 2007. In
September 2007, Entergy Arkansas appealed the decision to the
Arkansas Court of Appeals. On December 17, 2008, the Arkansas
Court of Appeals upheld almost all aspects of the APSC decision.
After considering the progress of the proceeding in light of the
decision of the Court of Appeals, Entergy Arkansas recorded in
the fourth quarter 2008 an approximately $70 million charge
to earnings, on both a pre- and after-tax basis because these are
primarily flow-through items, to recognize that the regulatory
assets associated with the storm reserve costs, lease termination
removal costs, and stock-based compensation are no longer
probable of recovery.
Management continues to believe that Entergy Arkansas
is entitled to recover these prudently incurred costs, however,
and on January 5, 2009, filed a petition for review before the
Arkansas Supreme Court, requesting a review of the Court of
Appeals decision.
Ouachita Acquisition
Entergy Arkansas filed with the APSC in September 2007 for its
approval of the Ouachita plant acquisition, including full cost
recovery. The APSC Staff and the Arkansas attorney general
supported Entergy Arkansas’ acquisition of the plant, but opposed
the sale of one-third of the capacity and energy to Entergy Gulf
States Louisiana. The industrial group AEEC opposed Entergy
Arkansas’ purchase of the plant. The Arkansas attorney general
opposed recovery of the non-fuel costs of the plant through a
separate rider, while the APSC Staff 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 was in effect until the APSC took
action on the acquisition of the plant. A hearing before the APSC
was held in April 2008 to address Entergy Arkansas’ request for
acquisition of the plant and concurrent cost recovery. In June 2008
the APSC approved Entergy Arkansas’ acquisition of the Ouachita
plant and approved recovery of the acquisition and ownership
costs through a rate rider. The APSC also approved the planned
sale of one-third of the capacity and energy to Entergy Gulf States
Louisiana. The Arkansas attorney general, the AEEC, and Entergy
Arkansas requests for rehearing of the APSC order were denied.
Entergy Arkansas’ request for rehearing concerned the 7.61%
before-tax return on rate base approved by the APSC, which
reflects significant sources of zero-cost capital already reflected in
base rates. Entergy Arkansas had requested a 10.87% before-tax
return on rate base reflecting the cost of the debt and equity capital
resources available to finance the Ouachita plant acquisition.
On March 18, 2008 the Arkansas attorney general and the AEEC
filed a notice of appeal of the December 2007 APSC order that
approved recovery through a rider of the capacity costs associated
with the interim tolling agreement. This order also rejected
various annual earnings review proposals. The appellants’ and
appellees’ briefs, including Entergy Arkansas’, have been filed in
the proceeding.
In August 2008 the AEEC also filed a complaint at the FERC seeking
a review by the FERC of “Entergy Corporation’s efforts” to acquire
the Ouachita plant, alleging that the acquisition violates the System
Agreement and the Federal Power Act and that the plant should be
an “[Entergy Arkansas] only resource.” The AEEC complaint also
states that it seeks clarity on whether Entergy Arkansas’ termination
of its participation in the System Agreement will affect Entergy
Arkansas’ rights to the Ouachita facility. The APSC, LPSC, MPSC,
and City Council have intervened in the proceeding. In January
2009 the FERC denied the AEEC’s complaint.
Entergy Arkansas purchased the Ouachita plant on September
30, 2008.
Filings with the PUCT and Texas Cities (Entergy Texas)
Retail Rates
Entergy Texas made a rate filing 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 riders totaling $43.2 million.
The base rate increase request includes a $12.2 million annual
increase for the storm damage reserve. Entergy Texas requested
an 11% return on common equity. In December 2007 the PUCT
issued an order setting September 26, 2008 (which it subsequently
moved to November 27, 2008) as the effective date for the rate
change proposed in this matter. In May 2008, Entergy Texas and
certain parties in the rate case filed a non-unanimous settlement,
but on November 5, 2008, the PUCT rejected the non-unanimous
settlement and remanded the case for further hearings on the merits
of the rate request. Entergy Texas agreed to extend until March 16,
2009 the PUCT’s jurisdictional deadline to render a decision.
On December 16, 2008, Entergy Texas filed a term sheet that
reflected a settlement agreement that included the PUCT Staff and
the other active participants in the rate case. On December 19, 2008,
the ALJs approved Entergy Texas’ request to implement interim
rates reflecting the agreement. The agreement includes a $46.7
million base rate increase, among other provisions. Under the ALJs’