Entergy 2011 Annual Report Download - page 49

Entergy Corporation and Subsidiaries 2011
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
eroded, in December 2005, Entergy Arkansas submitted its notice
that it will terminate its participation in the current System
Agreement effective ninety-six (96) months from the date of the
notice or such earlier date as authorized by the FERC.
In October 2007 the MPSC issued a letter confirming its belief that
Entergy Mississippi should exit the System Agreement in light of the
recent developments involving the System Agreement. In November
2007, Entergy Mississippi provided its written notice to terminate
its participation in the System Agreement effective ninety-six (96)
months from the date of the notice or such earlier date as authorized
by the FERC.
On February 2, 2009, Entergy Arkansas and Entergy Mississippi
filed with the FERC their notices of cancellation to terminate
their participation in the Entergy System Agreement, effective
December 18, 2013 and November 7, 2015, respectively. While the
FERC had indicated previously that the notices should be filed 18
months prior to Entergy Arkansas’s termination (approximately
mid-2012), the filing explains that resolving this issue now, rather
than later, is important to ensure that informed long-term resource
planning decisions can be made during the years leading up to
Entergy Arkansas’s withdrawal and that all of the Utility operating
companies are properly positioned to continue to operate reliably
following Entergy Arkansas’s and, eventually, Entergy Mississippi’s,
departure from the System Agreement.
In November 2009 the FERC accepted the notices of cancellation
and determined that Entergy Arkansas and Entergy Mississippi are
permitted to withdraw from the System Agreement following the 96
month notice period without payment of a fee or the requirement to
otherwise compensate the remaining Utility operating companies as
a result of withdrawal. In February 2011 the FERC denied the LPSC’s
and the City Council’s rehearing requests. The LPSC has appealed
the FERC’s decision to the U.S. Court of Appeals for the District of
Columbia and oral argument was held January 13, 2012.
Arkansas Public Service Commission System
Agreement Investigation
The APSC had previously commenced an investigation, in 2004, into
whether Entergy Arkansas’s continued participation in the System
Agreement is in the best interests of its customers. In February
2010 the APSC issued a show cause order opening an investigation
regarding the prudence of Entergy Arkansas’s entering a successor
pooling agreement with the other Entergy Utility operating
companies, as opposed to becoming a standalone entity upon exit
from the System Agreement in December 2013, and whether Entergy
Arkansas, as a standalone utility, should join the SPP RTO. The
APSC subsequently added evaluation of Entergy Arkansas joining
the Midwest Independent Transmission System Operator (MISO)
RTO on a standalone basis as an alternative to be considered. In
August 2010, the APSC directed Entergy Arkansas and all parties
to compare five strategic options at the same time as follows:
(1) Entergy Arkansas Self-Provide; (2) Entergy Arkansas with
3rd party coordination agreements; (3) Successor Arrangements;
(4) Entergy Arkansas as a standalone member of SPP RTO; and
(5) Entergy Arkansas as a standalone member of the MISO RTO.
LPSC and City Council Action Related to the Entergy
Arkansas and Entergy Mississippi Notices of Termination
In light of the notices of Entergy Arkansas and Entergy Mississippi
to terminate participation in the current System Agreement, in
January 2008 the LPSC unanimously voted to direct the LPSC Staff
to begin evaluating the potential for a successor arrangement. The
New Orleans City Council opened a docket to gather information on
progress towards a successor arrangement. The LPSC subsequently
passed a resolution stating that it cannot evaluate successor
arrangements without having certainty about System Agreement
exit obligations.
ENTERGY’S PROPOSAL TO JOIN THE MISO RTO
On April 25, 2011, Entergy announced that each of the Utility
operating companies propose joining the MISO RTO, which is
expected to provide long-term benefits for the customers of each
of the Utility operating companies. MISO is a regional transmission
organization that operates in 12 U.S. states (Illinois, Indiana, Iowa,
Kentucky, Michigan, Minnesota, Missouri, Montana, North Dakota,
Ohio, South Dakota, and Wisconsin) and also in Canada. The Utility
operating companies provided analysis in May 2011 to their retail
regulators supporting this decision. The APSC received additional
information from Entergy, MISO, and other parties and held an
evidentiary hearing in September 2011. The APSC issued an order
in the proceeding in October 2011 finding that it is prudent for
Entergy Arkansas to join an RTO but deferred a decision on Entergy
Arkansas’s plan to join the MISO RTO until Entergy Arkansas files
an application to transfer control of its transmission assets to the
MISO RTO.
Entergy’s May 2011 filings estimate that the transition and
implementation costs of joining the MISO RTO could be up to $105
million if all of the Utility operating companies join the MISO RTO,
most of which will be spent in late 2012 and 2013. Maintaining the
viability of the alternatives of Entergy Arkansas joining the MISO
RTO alone or standing alone within an ICT arrangement is expected
to result in an additional cost of approximately $35 million, for a
total estimated cost of up to $140 million. This amount could
increase with extended litigation in various regulatory proceedings.
It is expected that costs will be incurred to obtain regulatory
approvals, to revise or implement commercial and legal agreements,
to integrate transmission and generation facilities, to develop
back-office accounting and settlement systems, and to build out
communications infrastructure.
In the fourth quarter 2011, Entergy Arkansas, Entergy Gulf States
Louisiana, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans filed applications with their local regulators concerning
their proposal to join the MISO RTO and transfer control of each
company’s transmission assets to the MISO RTO. Entergy Texas
expects to submit its filing in 2012. The applications to join the MISO
RTO seek a finding that membership in the MISO RTO is in the public
interest. Becoming a member of the MISO RTO will not affect the
ownership by the Utility operating companies of their generation
and transmission facilities or the responsibility for maintaining those
facilities. Once the Utility operating companies are fully integrated as
members, however, the MISO RTO will assume control of transmission
planning and congestion management and, through its Day 2 market,
the commitment and dispatch of generation that is bid into the MISO
RTO’s markets. The APSC, the LPSC, and the MPSC have established
procedural schedules with hearings scheduled in May/June 2012. The
FERC filings related to integrating the Utility operating companies
into the MISO RTO are planned for late 2012 or early 2013. The target
implementation date for joining the MISO RTO is December 2013.
Entergy believes that the decision to join the MISO RTO should be
evaluated separately from and independent of the decision regarding
the ownership of Entergy’s transmission system, and Entergy plans to
pursue the MISO RTO proposal and the planned spin-off and merger
of the transmission business on parallel regulatory paths. In December
2011, however, the LPSC ALJ in the MISO RTO proceeding ordered
Entergy Gulf States Louisiana and Entergy Louisiana to file testimony
regarding the impact of the proposed spin-off and merger of Entergy’s
transmission business on the application to join the MISO RTO.
47