Entergy 2012 Annual Report Download - page 41

Entergy Corporation and Subsidiaries 2012
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS continued
and that the amended standards, if approved by the FERC, will result
in more stringent transmission planning criteria being applicable in
the future. The FERC may also make other changes to transmission
reliability standards. Changes to the reliability standards could result
in increased capital expenditures by the Utility operating companies.
In 2009 the Entergy Regional State Committee (E-RSC), which is
comprised of representatives from all of the Utility operating com-
panies’ retail regulators, was formed to consider issues related to
the ICT and Entergy’s transmission system. Among other things, the
E-RSC in concert with the FERC conducted a cost/benefit analysis
comparing the ICT arrangement to other transmission proposals,
including participation in an RTO.
In November 2010 the FERC issued an order accepting the Utility
operating companies’ proposal to extend the ICT arrangement with
SPP until November 2012. In addition, in December 2010 the FERC
issued an order that granted the E-RSC additional authority over
transmission upgrades and cost allocation. In July 2012 the LPSC
approved, subject to conditions, Entergy Gulf States Louisiana’s and
Entergy Louisiana’s request to extend the ICT arrangement and to
transition to MISO as the provider of ICT services effective as of
November 2012 and continuing until the Utility operating companies
join the MISO RTO, or December 31, 2013, whichever occurs first.
In January 2013 the LPSC approved the use of a market monitor as
part of the ICT services to be provided by MISO.
In October 2012 the FERC accepted the Utility operating compa-
nies’ proposal for (a) an interim extension of the ICT arrangement
through and until the earlier of December 31, 2014 or the date the
proposed transfer of functional control of the Utility operating com-
panies’ transmission assets to the MISO RTO is completed and (b)
the transfer from SPP to MISO as the provider of ICT services, effec-
tive December 1, 2012. In December 2012 the FERC issued an order
accepting further revisions to the Utility operating companies’ OATT,
including a Monitoring Plan and Retention Agreement, to establish
Potomac Economics Ltd., MISO’s current market monitor, as an
independent Transmission Service Monitor for the Entergy transmis-
sion system, effective as of December 1, 2012. Potomac will monitor
actions of Entergy and transmission customers within the Entergy
region as related to systems operations, reliability coordination,
transmission planning, and transmission reservations and scheduling.
SYSTEM AGREEMENT
The FERC regulates wholesale rates (including Entergy Utility intra-
system energy allocations pursuant to the System Agreement) and
interstate transmission of electricity, as well as rates for System
Energy’s sales of capacity and energy from Grand Gulf to Entergy
Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New
Orleans pursuant to the Unit Power Sales Agreement. The Utility
operating companies historically have engaged in the coordinated
planning, construction, and operation of generating and bulk trans-
mission facilities under the terms of the System Agreement, which is
a rate schedule that has been approved by the FERC. Certain of the
Utility operating companies’ retail regulators and other parties are
pursuing litigation involving the System Agreement at the FERC. The
proceedings include challenges to the allocation of costs as defined by
the System Agreement and allegations of imprudence by the Utility
operating companies in their execution of their obligations under the
System Agreement. See Note 2 to the financial statements for discus-
sions of this litigation.
Utility Operating Company Notices of Termination of
System Agreement Participation
Citing its concerns that the benefits of its continued participation in
the current form of the System Agreement have been seriously 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.
In February 2009, Entergy Arkansas and Entergy Mississippi filed
with the FERC their notices of cancellation to terminate their par-
ticipation in the System Agreement, effective December 18, 2013 and
November 7, 2015, respectively. While the FERC had indicated pre-
viously 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, even-
tually, 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. In September and
October 2012, the U.S. Court of Appeals for the D.C. Circuit denied
the LPSC’s and the City Council’s appeals of the FERC decisions. In
January 2013, the LPSC and the City Council filed a petition for a
writ of certiorari with the U.S. Supreme Court.
In November 2012 the Utility operating companies filed amend-
ments to the System Agreement with the FERC pursuant to section
205 of the Federal Power Act. The amendments consist primarily of
the technical revisions needed to the System Agreement to (i) allo-
cate certain charges and credits from the MISO settlement statements
to the participating Utility operating companies; and (ii) address
Entergy Arkansas’s withdrawal from the System Agreement. As noted
in the filing, the Utility operating companies’ plan to integrate into
MISO and the revisions to the System Agreement are the main feature
of the Utility operating companies’ future operating arrangements,
including the successor arrangements with respect to the departure
of Entergy Arkansas from the System Agreement. Additional aspects
of the Utility operating companies’ future operating arrangements
will be addressed in other FERC dockets related to the allocation
of the Ouachita plant transmission upgrade costs and the upcoming
filings at the FERC related to the rates, terms, and conditions under
which the Utility operating companies will join MISO. The LPSC,
MPSC, PUCT, and City Council filed protests at the FERC regarding
the amendments filed in November 2012 and other aspects of the
Utility operating companies’ future operating arrangements, includ-
ing requests that the continued viability of the System Agreement in
MISO (among other issues) be set for hearing by the FERC.
See also the discussion of the order of the PUCT concerning Entergy
Texas’s proposal to join MISO discussed further in the “Federal
Regulation – Entergy’s Proposal to Join MISO” section below.
ENTERGY’S PROPOSAL TO JOIN MISO
On April 25, 2011, Entergy announced that each of the Utility oper-
ating companies propose joining MISO, which is expected to provide
long-term benefits for the customers of each of the Utility operat-
ing companies. MISO is an RTO that operates in eleven U.S. states
39