Entergy 2010 Annual Report Download - page 77

ENTERGY CORPORATION AND SUBSIDIARIES 2010
Notes to Consolidated Financial Statements continued
FILINGS WITH THE MPSC (ENTERGY MISSISSIPPI)
Formula Rate Plan Filings
In September 2009, Entergy Mississippi filed with the MPSC
proposed modifications to its formula rate plan rider. In March 2010
the MPSC issued an order: (1) providing the opportunity for a
reset of Entergy Mississippi’s return on common equity to a point
within the formula rate plan bandwidth and eliminating the 50/50
sharing that had been in the plan, (2) modifying the performance
measurement process, and (3) replacing the revenue change limit
of two percent of revenues, which was subject to a $14.5 million
revenue adjustment cap, with a limit of four percent of revenues,
although any adjustment above two percent requires a hearing
before the MPSC. The MPSC did not approve Entergy Mississippi’s
request to use a projected test year for its annual scheduled
formula rate plan filing and, therefore, Entergy Mississippi will
continue to use a historical test year for its annual evaluation
reports under the plan.
In March 2010, Entergy Mississippi submitted its 2009 test
year filing, its first annual filing under the new formula rate plan
rider. In June 2010 the MPSC approved a joint stipulation between
Entergy Mississippi and the Mississippi Public Utilities Staff that
provides for no change in rates, but does provide for the deferral
as a regulatory asset of $3.9 million of legal expenses associated
with certain litigation involving the Mississippi Attorney General,
as well as ongoing legal expenses in that litigation until the
litigation is resolved.
FILINGS WITH THE CITY COUNCIL (ENTERGY NEW ORLEANS)
Formula Rate Plans and Storm-Related Riders
On July 31, 2008, Entergy New Orleans filed an electric and gas
base rate case with the City Council. On April 2, 2009, the City
Council approved a comprehensive settlement. The settlement
provided for a net $35.3 million reduction in combined fuel and
non-fuel electric revenue requirement, including conversion of a
$10.6 million voluntary recovery credit, implemented in January
2008, to a permanent reduction and substantial realignment of
Grand Gulf cost recovery 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.
In May 2010, Entergy New Orleans filed its electric and gas
formula rate plan evaluation reports. The filings requested a
$12.8 million electric base revenue decrease and a $2.4 million
gas base revenue increase. Entergy New Orleans and the City
Council’s Advisors have reached a settlement that would result in
an $18.0 million electric base revenue decrease and zero gas base
revenue change effective with the October 2010 billing cycle. The
City Council approved the settlement in November 2010.
The 2008 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.
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’s 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’s 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 an 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.
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