Entergy 2012 Annual Report Download - page 37

Entergy Corporation and Subsidiaries 2012
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
sources, could result in increases or decreases in the capital expen-
diture 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, mar-
ket volatility, economic trends, changes in project plans, and the ability
to access capital.
NINEMILE POINT UNIT 6 SELF-BUILD PROJECT
In June 2011, Entergy Louisiana filed with the LPSC an application
seeking certification that the public necessity and convenience would
be served by Entergy Louisiana’s construction of a combined-cycle
gas turbine generating facility (Ninemile 6) at its existing Ninemile
Point electric generating station. Ninemile 6 will be a nominally-sized
550 MW unit that is estimated to cost approximately $721 million
to construct, excluding interconnection and transmission upgrades.
Entergy Gulf States Louisiana joined in the application, seeking certi-
fication of its purchase under a life-of-unit power purchase agreement
of up to 35% of the capacity and energy generated by Ninemile 6.
The Ninemile 6 capacity and energy is proposed to be allocated 55%
to Entergy Louisiana, 25% to Entergy Gulf States Louisiana, and
20% to Entergy New Orleans. In February 2012 the City Council
passed a resolution authorizing Entergy New Orleans to purchase
20% of the Ninemile 6 energy and capacity. In March 2012 the LPSC
unanimously voted to grant the certifications requested by Entergy
Gulf States Louisiana and Entergy Louisiana. Following approval
by the LPSC, Entergy Louisiana issued full notice to proceed to the
project’s engineering, procurement, and construction contractor. All
major permits and approvals required to begin construction have
been obtained and construction is in progress.
Under the terms approved by the LPSC, costs may be recovered
through Entergy Louisiana’s and Entergy Gulf States Louisiana’s for-
mula rate plans, if one is in effect when the project is placed in service;
alternatively, Entergy Gulf States Louisiana and Entergy Louisiana
must file rate cases approximately 12 months prior to the expected
in-service date. Entergy New Orleans is expected to file a full rate case
12 months prior to the expected in-service date.
WATERFORD 3 STEAM GENERATOR REPLACEMENT PROJECT
Entergy Louisiana planned to replace the Waterford 3 steam gen-
erators, along with the reactor vessel closure head and control ele-
ment 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 would 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 manufac-
turing 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 manu-
facturer was unable to meet the contractual delivery deadlines, and
the RSGs were not installed in the spring 2011. Waterford 3 resumed
operations with the original steam generators upon completion of the
spring 2011 refueling outage, which included inspection and mainte-
nance of the original steam generators.
Entergy Louisiana worked with the RSG manufacturer to fully
develop, evaluate, and implement repair options, and the RSGs were
delivered in time for Waterford 3’s fall 2012 refueling outage, which
began in October 2012. During the fall 2012 refueling outage Entergy
Louisiana replaced the RSGs, reactor vessel head, and control element
drive mechanisms. Those components, which together comprised the
replacement project, were placed in-service in December 2012.
In June 2008, Entergy Louisiana filed with the LPSC for approval
of the replacement project, including full cost recovery. Following dis-
covery and the filing of testimony by the LPSC staff and an interve-
nor, 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 deg-
radation 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 is in the public inter-
est, 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
pro forma adjustments.
In November 2011 the LPSC approved a one-year extension of
Entergy Louisiana’s formula rate plan and provided a mechanism to
begin recovering the costs of the replacement project in the first bill-
ing cycle after it is placed in service. On December 21, 2012, Entergy
Louisiana provided notice of the first year revenue requirement asso-
ciated with the replacement project that would be placed into rates
in the January 2013 billing cycle. The estimated revenue requirement
included the LPSC-jurisdictional share of the replacement project
costs, less (i) a credit for earnings above a 10.25% return on com-
mon equity (based on the 2011 test year) for the period following the
in-service date, and (ii) a credit for operation and maintenance sav-
ings expected from the RSGs. These rates are anticipated to remain
in effect until Entergy Louisiana’s rate case filed in February 2013 is
resolved. See Note 2 to the financial statements for additional dis-
cussion of the formula rate plan and rate case filings. With comple-
tion of the replacement project, the LPSC will undertake a prudence
review in connection with a filing to be made by Entergy Louisiana
on or before April 30, 2013 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.
DIVIDENDS AND STOCK REPURCHASES
Declarations of dividends on Entergy’s common stock are made at
the discretion of the Board. Among other things, the Board evaluates
the level of Entergy’s common stock dividends based upon Entergy’s
earnings, financial strength, and future investment opportunities. At
its January 2013 meeting, the Board declared a dividend of $0.83 per
share, which is the same quarterly dividend per share that Entergy has
paid since the second quarter 2010. The prior quarterly dividend per
share was $0.75. Entergy paid $589 million in 2012, $590 million in
2011, and $604 million in 2010 in cash dividends on its common stock.
In accordance with Entergy’s stock-based compensation plans,
Entergy periodically grants stock options, restricted stock, perfor-
mance units, and restricted unit awards to key employees, which may
be exercised to obtain shares of Entergy’s common stock. According
to the plans, these shares can be newly issued shares, treasury stock,
or shares purchased on the open market. Entergy’s management has
been authorized by the Board to repurchase on the open market
shares up to an amount sufficient to fund the exercise of grants under
the plans.
In addition to the authority to fund grant exercises, the Board has
authorized share repurchase programs to enable opportunistic pur-
chases in response to market conditions. In October 2009 the Board
granted authority for a $750 million share repurchase program
which was completed in the fourth quarter 2010. In October 2010
the Board granted authority for an additional $500 million share
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