Entergy 2009 Annual Report Download - page 93

Entergy Corporation and Subsidiaries
Notes to Financial Statements
89
from fuel to electric base rates, and a $4.95 million gas base rate increase, both effective June 1, 2009, with
adjustment of the customer charges for all rate classes. A new three-year formula rate plan was also adopted, with
terms including an 11.1% benchmark electric return on common equity (ROE) with a +/- 40 basis point bandwidth
and a 10.75% benchmark gas ROE with a +/- 50 basis point bandwidth. Earnings outside the bandwidth reset to the
midpoint benchmark ROE, with rates changing on a prospective basis depending on whether Entergy New Orleans is
over- or under-earning. The formula rate plan also includes a recovery mechanism for City Council-approved
capacity additions, plus provisions for extraordinary cost changes and force majeure events.
The rate case settlement also included $3.1 million per year in electric rates to fund the Energy Smart energy
efficiency programs. In September 2009 the City Council approved the energy efficiency programs filed by Entergy
New Orleans. The rate settlement provides an incentive for Entergy New Orleans to meet or exceed energy savings
targets set by the City Council and provides a mechanism for Entergy New Orleans to recover lost contribution to
fixed costs associated with the energy savings generated from the energy efficiency programs. The programs are
expected to begin in 2010.
In June 2006, Entergy New Orleans made its annual formula rate plan filings with the City Council. The
filings presented various alternatives to reflect the effect of Entergy New Orleans' lost customers and decreased
revenue following Hurricane Katrina. The alternative that Entergy New Orleans recommended adjusts for lost
customers and assumes that the City Council's June 2006 decision to allow recovery of all Grand Gulf costs through
the fuel adjustment clause stays in place during the rate-effective period (a significant portion of Grand Gulf costs
was previously recovered through base rates).
At the same time as it made its formula rate plan filings, Entergy New Orleans also filed with the City
Council a request to implement two storm-related riders. With the first rider, Entergy New Orleans sought to recover
the electric and gas restoration costs that it had actually spent through March 31, 2006. Entergy New Orleans also
proposed semiannual filings 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 resolved Entergy New Orleans' rate
and storm-related rider filings 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. The settlement provided 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
was continued. 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. The settlement called for Entergy New
Orleans to file a base rate case by July 31, 2008, which it did as discussed above. The settlement agreement
discontinued the formula rate plan and the generation performance-based plan but permitted Entergy New Orleans to
file an application to seek authority to implement formula rate plan mechanisms no sooner than six months following
the effective date of the implementation of the base rates resulting from the July 31, 2008 base rate case. The
settlement also authorized 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. These 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 (the recovery
credit) for electric customers, which returned approximately $11.3 million to electric customers in 2008. Entergy
New Orleans was able to implement this credit because during 2007 the recovery of New Orleans after Hurricane
Katrina was occurring faster than expected in 2006 projections. In addition, Entergy New Orleans committed to set
aside $2.5 million for an energy efficiency program focused on community education and outreach and
weatherization of homes.
Fuel Adjustment Clause Litigation
In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation,
91