Entergy 2008 Annual Report Download - page 75

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Notes to Consolidated Financial Statements continued
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interim order, Entergy Texas implemented interim rates, subject
to refund and surcharge, reflecting the rates established through
the settlement. These rates became effective with bills rendered on
and after January 28, 2009, for usage on and after December 19,
2008. In addition, the existing recovery mechanism for incremental
purchased power capacity costs ceased as of January 28, 2009, with
purchased power capacity costs then subsumed within the base
rates set in this proceeding. The settlement is subject to review and
approval by the PUCT; however, the interim rates will be in effect
until such time as the PUCT acts. Certain Texas municipalities have
exercised their original jurisdiction and taken final action to approve
rates consistent with the interim rates approved by the ALJs.
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 file a general
rate case and to file for recovery of transition to competition costs.
As authorized by the legislation, in August 2005, Entergy Texas
filed 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. The $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. The
$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. The 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. The formal settlement agreement
was approved by the PUCT in June 2006.
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. The 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 filing in June 2005. The formula rate plan was
subsequently extended one year. In addition, there is the potential to
extend the formula rate plan beyond the effective period by mutual
agreement of the LPSC and Entergy Gulf States Louisiana.
Retail Rates – Electric
(Entergy Louisiana)
Entergy Louisiana made a rate filing 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. The 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. The initial formula rate plan filing
was made in May 2006 as discussed below. In addition, there is
the potential to extend the formula rate plan beyond the initial
three-year effective period by mutual agreement of the LPSC and
Entergy Louisiana.
In May 2008, Entergy Louisiana made its formula rate plan
filing with the LPSC for the 2007 test year, seeking an $18.4
million rate increase, comprised of $12.6 million of recovery of
incremental and deferred capacity costs and $5.8 million based
on a cost of service revenue deficiency related to continued lost
contribution to fixed costs associated with the loss of customers
due to Hurricane Katrina. The filing includes two alternative
versions of the calculated revenue requirement, one that reflects
Entergy Louisiana’s full request for recovery of the loss of fixed
cost contribution and the other that reflects the anticipated rate
implementation in September 2008, subject to refund, of only
a portion of the full request, with the remainder deferred, until
the lost fixed cost contribution issue is resolved. Under the first
alternative, Entergy Louisiana’s earned return on common equity
was 9.44%, whereas under the other alternative, its earned return
on common equity was 9.04%. The LPSC staff and intervenors
issued their reports on Entergy Louisiana’s filing on July 31, 2008
and, with minor exceptions, primarily raised proposed disallowance
issues that were previously raised with regard to Entergy Louisiana’s
May 2007 filing and remain at issue in that proceeding. Entergy
Louisiana disagrees with the majority of the proposed adjustments.
In August 2008, Entergy Louisiana implemented a $43.9 million
formula rate plan decrease to remove interim storm cost recovery
and to reduce the storm damage accrual. Entergy Louisiana
then implemented a $16.9 million formula rate plan increase,
subject to refund, effective the first billing cycle in September
2008, comprised of $12.6 million of recovery of incremental and
deferred capacity costs and $4.3 million based on a cost of service
deficiency. A procedural schedule has not been established yet for
further consideration of the issues raised regarding the formula
rate plan filing.
In May 2007, Entergy Louisiana made its formula rate plan filing
with the LPSC for the 2006 test year, indicating a 7.6% earned
return on common equity. That filing included Entergy Louisiana’s
request to recover $39.8 million in unrecovered fixed costs
associated with the loss of customers that resulted from Hurricane
Katrina, a request that was recently reduced to $31.7 million. In
September 2007, Entergy Louisiana modified its formula rate
plan filing to reflect its implementation of certain adjustments
proposed by the LPSC Staff in its review of Entergy Louisiana’s
original filing with which Entergy Louisiana agreed, and to reflect
its implementation of an $18.4 million annual formula rate plan
increase comprised of (1) a $23.8 million increase representing 60%
of Entergy Louisiana’s revenue deficiency, and (2) a $5.4 million
decrease for reduced incremental and deferred capacity costs.
The LPSC authorized Entergy Louisiana to defer for accounting
purposes the difference between its $39.8 million claim, now at
$31.7 million, for unrecovered fixed cost and 60% of the revenue
deficiency 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 was due primarily to the reclassification
of certain franchise fees from base rates to collection via a line
item on customer bills pursuant to an LPSC Order. The LPSC staff
and intervenors have recommended disallowance of certain costs