Entergy 2010 Annual Report Download - page 42

Management’s Financial Discussion and Analysis continued
n
Environmental compliance spending. Entergy continues
to review potential environmental spending needs and
financing alternatives for any such spending, and future
spending estimates could change based on the results of this
continuing analysis.
n Continued rebuilding of the Entergy New Orleans gas system
damaged during Hurricane Katrina.
The Utility’s owned generating capacity remains short of
customer demand, and its supply plan initiative will continue to
seek to transform its generation portfolio with new or repowered
generation resources. Opportunities resulting from the supply
plan initiative, including new projects or the exploration of
alternative financing sources, could result in increases or
decreases in the capital expenditure estimates given above.
Estimated capital expenditures are also subject to periodic review
and modification and may vary based on the ongoing effects of
business restructuring, regulatory constraints and requirements,
environmental regulations, business opportunities, market
volatility, economic trends, changes in project plans, and the
ability to access capital.
ACADIA UNIT 2 PURCHASE AGREEMENT
In October 2009, Entergy Louisiana announced that it has signed
an agreement to acquire Unit 2 of the Acadia Energy Center, a 580
MW generating unit located near Eunice, La., from Acadia Power
Partners, LLC, an independent power producer. The Acadia Energy
Center, which entered commercial service in 2002, consists of two
combined-cycle gas-fired generating units, each nominally rated
at 580 MW. Entergy Louisiana proposes to acquire 100 percent of
Acadia Unit 2 and a 50 percent ownership interest in the facility’s
common assets for approximately $300 million. In a separate
transaction, Cleco Power acquired Acadia Unit 1 and the other
50 percent interest in the facility’s common assets. Upon closing
the transaction, Cleco Power will serve as operator for the entire
facility. Entergy Louisiana has committed to sell one-third of the
output of Unit 2 to Entergy Gulf States Louisiana in accordance
with terms and conditions detailed under the existing Entergy
System Agreement. Entergy Louisiana’s purchase of the plant
is contingent upon, among other things, obtaining necessary
approvals, including full cost recovery, from various federal and
state regulatory and permitting agencies.
Entergy Louisiana and Acadia Power Partners also have entered
into two purchase power agreements that are intended to provide
access to the capacity and energy output of the unit during the
period before the acquisition closes. The initial purchase power
agreement was a call option agreement that commenced on June
1, 2010 and terminated on September 30, 2010. Beginning October
1, 2010, Entergy Louisiana began purchasing 100 percent of the
output of Acadia Unit 2 under a tolling agreement. The LPSC has
approved both purchase power agreements.
In December 2010, Entergy Louisiana and Entergy Gulf States
Louisiana filed an executed uncontested settlement term sheet,
which was approved by the LPSC in January 2011. The term sheet
provides for three scenarios allowing the transaction to proceed,
depending upon the outcome of a FERC ruling on modifications to
a System Agreement schedule to include acquisition adjustments.
If the FERC approves the modifications to the System Agreement
schedule prior to closing, Entergy Louisiana will purchase 100
percent of the plant and sell one-third of the output to Entergy Gulf
States Louisiana as proposed. In the other two scenarios, Entergy
Louisiana will retain and include in rates 100 percent of the unit
for a period of up to one year, at which time Entergy Louisiana
must file either to permanently retain 100 percent ownership of
the unit or enter into a joint ownership arrangement with Entergy
Gulf States Louisiana pursuant to which Entergy Gulf States
Louisiana would purchase one-third of the unit. The commercial
issues associated with joint ownership of a single generation unit
are being evaluated, and it is possible Entergy Louisiana may seek
approvals to purchase the full output of the unit permanently.
Closing of the sale to Entergy Louisiana is expected to occur by
the end of the first quarter 2011.
WATERFORD 3 STEAM GENERATOR REPLACEMENT PROJECT
Entergy Louisiana planned to replace the Waterford 3 steam
generators, along with the reactor vessel closure head and control
element drive mechanisms, in the spring 2011. Replacement of
these components is common to pressurized water reactors
throughout the nuclear industry. In December 2010, Entergy
Louisiana advised the LPSC that the replacement generators
will not be completed and delivered by the manufacturer in time
to install them during the spring 2011 refueling outage. During
the final steps in the manufacturing process, the manufacturer
discovered separation of stainless steel cladding from the carbon
steel base metal in the channel head of both replacement steam
generators (RSGs), in areas beneath and adjacent to the divider
plate. As a result of this damage, the manufacturer will be unable
to meet the contractual delivery deadlines, and the RSGs cannot
be installed in the spring 2011. After the manufacturer completes
its analysis of the cause of the failure and repair options, Entergy
Louisiana will work with the manufacturer to fully develop and
evaluate repair options and to revise the project schedule. In the
interim, the spring 2011 outage has been converted to a normal
refueling outage and inspection. Prior to the delay, Entergy
Louisiana estimated that it would spend approximately $511
million on this project, and the planned construction expenditures
estimate given above includes approximately $190 million in 2011
for the completion of this project. A revised estimate will be made
after the development of the new project schedule, although it is
likely that the estimated cost will increase, including increased
carrying cost due to the delayed construction period.
In June 2008, Entergy Louisiana filed with the LPSC for approval
of the replacement project, including full cost recovery. Following
discovery and the filing of testimony by the LPSC staff and an
intervenor, the parties entered into a stipulated settlement of the
proceeding. The LPSC unanimously approved the settlement in
November 2008. The settlement resolved the following issues:
1) the accelerated degradation of the steam generators is not
the result of any imprudence on the part of Entergy Louisiana;
2) the decision to undertake the replacement project at the
then-estimated cost of $511 million is in the public interest, is
prudent, and would serve the public convenience and necessity;
3) the scope of the replacement project is in the public interest;
4) undertaking the replacement project at the target installation
date during the 2011 refueling outage is in the public interest;
and 5) the jurisdictional costs determined to be prudent in a
future prudence review are eligible for cost recovery, either in an
extension or renewal of the formula rate plan or in a full base rate
case including necessary proforma adjustments. Upon completion
of the replacement project, the LPSC will undertake a prudence
review with regard to the following aspects of the replacement
project: 1) project management; 2) cost controls; 3) success
in achieving stated objectives; 4) the costs of the replacement
project; and 5) the outage length and replacement power costs.
In June 2010, Entergy Louisiana filed an application at the LPSC to
certify the estimated first year revenue requirement associated
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