Entergy 2010 Annual Report Download - page 74

Notes to Consolidated Financial Statements continued
Gulf States Louisiana invested $189.4 million, including $1.7
million that was withdrawn from the restricted escrow account
as approved by the April 16, 2008 LPSC orders, in exchange for
1,893,918.39 Class A preferred, non-voting, membership interest
units of Entergy Holdings Company LLC that carry a 10% annual
distribution rate. Distributions are payable quarterly commencing
on September 15, 2008 and have a liquidation price of $100 per
unit. The preferred membership interests are callable at the
option of Entergy Holdings Company LLC after ten years under
the terms of the LLC agreement. The terms of the membership
interests include certain financial covenants to which Entergy
Holdings Company LLC is subject, including the requirement to
maintain a net worth of at least $1 billion.
Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana do
not report the bonds on their balance sheets because the bonds
are the obligation of the LPFA, and there is no recourse against
Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the
event of a bond default. To service the bonds, Entergy Gulf States
Louisiana and Entergy Louisiana collect a system restoration
charge on behalf of the LURC, and remit the collections to the
bond indenture trustee. Entergy, Entergy Gulf States Louisiana,
and Entergy Louisiana do not report the collections as revenue
because they are merely acting as the billing and collection agent
for the state.
ENTERGY NEW ORLEANS
In December 2005 the U.S. Congress passed the Katrina Relief Bill,
a hurricane aid package that included Community Development
Block Grant (CDBG) funding (for the states affected by Hurricanes
Katrina, Rita, and Wilma) that allowed state and local leaders
to fund individual recovery priorities. In March 2007 the City
Council certified that Entergy New Orleans incurred $205 million
in storm-related costs through December 2006 that are eligible for
CDBG funding under the state action plan. Entergy New Orleans
received $180.8 million of CDBG funds in 2007 and $19.2 million
in 2010.
ENTERGY TEXAS
Hurricane Ike and Hurricane Gustav
Entergy Texas filed an application in April 2009 seeking a
determination that $577.5 million of Hurricane Ike and Hurricane
Gustav restoration costs are recoverable, including estimated
costs for work to be completed. On August 5, 2009, Entergy
Texas submitted to the ALJ an unopposed settlement agreement
intended to resolve all issues in the storm cost recovery
case. Under the terms of the agreement $566.4 million, plus
carrying costs, are eligible for recovery. Insurance proceeds
will be credited as an offset to the securitized amount. Of the
$11.1 million difference between Entergy Texas’s request and the
amount agreed to, which is part of the black box agreement and
not directly attributable to any specific individual issues raised,
$6.8 million is operation and maintenance expense for which
Entergy Texas recorded a charge in the second quarter 2009.
The remaining $4.3 million was recorded as utility plant. The
PUCT approved the settlement in August 2009, and in September
2009 the PUCT approved recovery of the costs, plus carrying
costs, by securitization. See Note 5 to the financial statements
for a discussion of the November 2009 issuance of the securitiza-
tion bonds.
Little Gypsy Repowering Project (Entergy and
Entergy Louisiana)
In April 2007, Entergy Louisiana announced that it intended to
pursue the solid fuel repowering of a 538 MW unit at its Little Gypsy
plant. In March 2009 the LPSC voted in favor of a motion directing
Entergy Louisiana to temporarily suspend the repowering project
and, based upon an analysis of the project’s economic viability, to
make a recommendation regarding whether to proceed with the
project. This action was based upon a number of factors including
the recent decline in natural gas prices, as well as environmental
concerns, the unknown costs of carbon legislation and changes
in the capital/financial markets. In April 2009, Entergy Louisiana
complied with the LPSC’s directive and recommended that the
project be suspended for an extended period of time of three
years or more. In May 2009 the LPSC issued an order declaring
that Entergy Louisiana’s decision to place the Little Gypsy project
into a longer-term suspension of three years or more is in the
public interest and prudent.
In October 2009, Entergy Louisiana made a filing with the LPSC
seeking permission to cancel the Little Gypsy repowering project
and seeking project cost recovery over a five-year period. In
June 2010 and August 2010, the LPSC Staff and Intervenors filed
testimony. The LPSC Staff (1) agreed that it was prudent to move
the project from long-term suspension to cancellation and that
the timing of the decision to suspend on a longer-term basis
was not imprudent; (2) indicated that, except for $0.8 million
in compensation-related costs, the costs incurred should be
deemed prudent; (3) recommended recovery from customers
over ten years but stated that the LPSC may want to consider
15 years; (4) allowed for recovery of carrying costs and earning
a return on project costs, but at a reduced rate approximating
the cost of debt, while also acknowledging that the LPSC may
consider ordering no return; and (5) indicated that Entergy
Louisiana should be directed to securitize project costs, if legally
feasible and in the public interest. In the third quarter 2010,
in accordance with accounting standards, Entergy Louisiana
determined that it is probable that the Little Gypsy repowering
project will be abandoned and accordingly reclassified the
project costs from construction work in progress to a regulatory
asset. This accounting reclassification does not modify Entergy
Louisiana’s requested relief pending before the LPSC. A hearing
on the issues, except for cost allocation among customer classes,
was held before the ALJ in November 2010. In January 2011 all
parties conducted a mediation on the disputed issues, resulting
in a settlement of all disputed issues, including cost recovery and
cost allocation. The settlement is expected to be presented to the
LPSC for approval in the first quarter 2011.
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