Entergy 2009 Annual Report Download - page 48

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Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
44
reforms or alternatives for the ICT arrangement that could take effect following the initial term. The Utility
operating companies' comments also recognize that NERC is in the process of amending certain of its transmission
reliability planning standards and that the amended standards, if approved by the FERC, will result in more stringent
transmission planning criteria being applicable in the future. The FERC may also make other changes to
transmission reliability standards. These changes to the reliability standards would result in increased capital
expenditures by the Utility operating companies.
The Entergy Regional State Committee (E-RSC), which is comprised of representatives from all of the
Utility operating companies' retail regulators, has been formed to consider several of these issues related to Entergy's
transmission system. Among other things, the E-RSC in concert with the FERC plan to conduct a cost/benefits
analysis comparing the ICT arrangement and a proposal under which Entergy would join the SPP RTO.
FERC Audits
The Division of Audits in the Office of Enforcement and the Division of Compliance in the Office of
Reliability of the FERC jointly commenced an audit of Entergy Services, Inc. on October 1, 2009. The audit will
evaluate Entergy Services': (1) practices related to Bulk Electric System planning and operations; (2) compliance
with the requirements contained within its Open Access Transmission Tariff; and (3) other obligations and
responsibilities as approved by the FERC. The audit will cover the period from April 1, 2006 to the present. The
Energy Policy Act of 2005 provides the FERC with authority to impose civil penalties for violations of the Federal
Power Act and FERC regulations.
SERC Reliability Corporation Reliability Standards
Entergy has notified the SERC Reliability Corporation (SERC) of potential violations of certain FERC
reliability standards, including certain Critical Infrastructure Protection standards. Entergy is working with the
SERC to provide information concerning these potential violations. The Energy Policy Act of 2005 provides
authority to impose civil penalties for violations of the Federal Power Act and FERC regulations.
Market and Credit Risk Sensitive Instruments
Market risk is the risk of changes in the value of commodity and financial instruments, or in future operating
results or cash flows, in response to changing market conditions. Entergy holds commodity and financial instruments
that are exposed to the following significant market risks:
The commodity price risk associated with the sale of electricity by Entergy's Non-Utility Nuclear business
and with the purchase of gas by the Utility.
The interest rate and equity price risk associated with Entergy's investments in pension and other
postretirement benefit trust funds. See Note 11 to the financial statements for details regarding Entergy's
pension and other postretirement benefit trust funds.
The interest rate and equity price risk associated with Entergy's investments in decommissioning trust funds,
particularly in the Non-Utility Nuclear business. See Note 17 to the financial statements for details regarding
Entergy's decommissioning trust funds.
The interest rate risk associated with changes in interest rates as a result of Entergy's issuances of debt.
Entergy manages its interest rate exposure by monitoring current interest rates and its debt outstanding in
relation to total capitalization. See Notes 4 and 5 to the financial statements for the details of Entergy's debt
outstanding.
Entergy's commodity and financial instruments are also exposed to credit risk. Credit risk is the risk of loss from
nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. Credit risk also
includes potential demand on liquidity due to credit support requirements within supply or sales agreements.
46