Entergy 2012 Annual Report Download - page 67

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
States Louisiana and the LPSC staff subsequently submitted a joint
report on the 2009 test year filing consistent with these terms and the
LPSC approved the joint report in January 2011.
In May 2011, Entergy Gulf States Louisiana made a special for-
mula rate plan rate implementation filing with the LPSC that imple-
ments effective with the May 2011 billing cycle a $5.1 million rate
decrease to reflect adjustments in accordance with a previous LPSC
order relating to the acquisition of Unit 2 of the Acadia Energy Center
by Entergy Louisiana. As a result of the closing of the acquisition and
termination of the pre-acquisition power purchase agreement with
Acadia, Entergy Gulf States Louisiana’s allocation of capacity related
to this unit ended, resulting in a reduction in the additional capacity
revenue requirement.
In May 2011, Entergy Gulf States Louisiana made its formula rate
plan filing with the LPSC for the 2010 test year. The filing reflects an
11.11% earned return on common equity, which is within the allowed
earnings bandwidth, indicating no cost of service rate change is neces-
sary under the formula rate plan. The filing also reflects a $22.8 mil-
lion rate decrease for incremental capacity costs. Entergy Gulf States
Louisiana and the LPSC Staff subsequently filed a joint report that
also stated that no cost of service rate change is necessary under the
formula rate plan, and the LPSC approved it in October 2011.
In November 2011 the LPSC approved a one-year extension of
Entergy Gulf States Louisiana’s formula rate plan. In May 2012,
Entergy Gulf States Louisiana made its formula rate plan fil-
ing with the LPSC for the 2011 test year. The filing reflected an
11.94% earned return on common equity, which is above the earn-
ings bandwidth and would indicate a $6.5 million cost of service
rate change was necessary under the formula rate plan. The filing
also reflected a $22.9 million rate decrease for incremental capacity
costs. Subsequently, in August 2012, Entergy Gulf States Louisiana
submitted a revised filing that reflected an earned return on com-
mon equity of 11.86% indicating a $5.7 million cost of service rate
decrease is necessary under the formula rate plan. The revised filing
also indicates that a reduction of $20.3 million should be reflected
in the incremental capacity rider. The rate reductions were imple-
mented, subject to refund, effective for bills rendered the first billing
cycle of September 2012. The September 2012 rate change reduced
Entergy Gulf States Louisiana’s revenues by approximately $8.7 mil-
lion in 2012. Subsequently, in December 2012, Entergy Gulf States
Louisiana submitted a revised evaluation report that reflects expected
retail jurisdictional cost of $16.9 million for the first-year capacity
charges for the purchase from Entergy Louisiana of one-third of
Acadia Unit 2 capacity and energy. This rate change was implemented
effective with the first billing cycle of January 2013. The 2011 test
year filings remain subject to LPSC review.
In connection with its decision to extend the formula rate plan to
the 2011 test year, the LPSC required that a base rate case be filed by
Entergy Gulf States Louisiana, and the required filing was made on
February 15, 2013. Recognizing that the final structure of Entergy
Gulf States Louisiana’s transmission business has not been determined,
the filing presents two alternative scenarios for the LPSC to establish
the appropriate level of rates for Entergy Gulf States Louisiana.
Under its primary request, Entergy Gulf States Louisiana assumes
that it has completed integration into MISO and that the spin-off
and merger of its transmission business with a subsidiary of ITC
Holdings has occurred (the MISO/ITC Scenario). Under the MISO/
ITC Scenario, Entergy Gulf States Louisiana requests:
n authorization to increase the revenue it collects from customers
by approximately $28 million;
n an authorized return on common equity of 10.4%;
n authorization to increase depreciation rates embedded in the
proposed revenue requirement;
n authorization to implement a transmission cost recovery rider with
a forward-looking test year and an annual true-up component; and,
n authorization to implement a three-year formula rate plan with a
midpoint return on common equity of 10.4%, plus or minus 75
basis points (the deadband), that would provide a means for the
annual re-setting of rates (commencing with calendar year 2013 as
its first test year), that would retain the primary aspects of the prior
formula rate plan, including a 60% to customers/40% to Entergy
Gulf States Louisiana sharing mechanism for earnings outside
the deadband, and a capacity rider mechanism that would permit
recovery of incremental capacity additions approved by the LPSC.
Under the alternative request contained in its filing, Entergy Gulf
States Louisiana assumes that it has completed integration into
MISO, but that the spin-off and merger of its transmission business
with a subsidiary of ITC Holdings has not occurred (the MISO-
Only Scenario). Under the MISO-Only Scenario, Entergy Gulf States
Louisiana requests:
n authorization to increase the revenue it collects from customers by
approximately $24 million;
n an authorized return on common equity of 10.4%;
n authorization to increase depreciation rates embedded in the
proposed revenue requirement; and,
n authorization to implement a three-year formula rate plan with a
midpoint return on common equity of 10.4%, plus or minus 75
basis points (the deadband), that would provide a means for the
annual re-setting of rates (commencing with calendar year 2013
as its first test year), that would include a mechanism to recover
incremental transmission revenue requirement on the basis of a
forward-looking test year as compared to the initial base year
of 2014 with an annual true-up, that would retain the primary
aspects of the prior formula rate plan, including a 60% to custom-
ers/40% to Entergy Gulf States Louisiana sharing mechanism for
earnings outside the deadband, and a capacity rider mechanism
that would permit recovery of incremental capacity additions
approved by the LPSC.
(Entergy Louisiana)
In October 2009 the LPSC approved a settlement that resolved Entergy
Louisiana’s 2006 and 2007 test year filings and provided for a new
formula rate plan for the 2008, 2009, and 2010 test years. 10.25% is
the target midpoint return on equity for the formula rate plan, with an
earnings bandwidth of +/- 80 basis points (9.45% - 11.05%).
Entergy Louisiana was permitted, effective with the November 2009
billing cycle, to reset its rates to achieve a 10.25% return on equity for
the 2008 test year. The rate reset, a $2.5 million increase that included a
$16.3 million cost of service adjustment less a $13.8 million net reduc-
tion for decreased capacity costs and a base rate reclassification, was
implemented for the November 2009 billing cycle, and the rate reset
was subject to refund pending review of the 2008 test year filing that
was made in October 2009. In April 2010, Entergy Louisiana and the
LPSC staff submitted a joint report on the 2008 test year filing and
requested that the LPSC accept the report, which resulted in a $0.1 mil-
lion reduction in rates effective in the May 2010 billing cycle and a
$0.1 million refund. In addition, Entergy Louisiana moved the recovery
of approximately $12.5 million of capacity costs from fuel adjustment
clause recovery to base rate recovery. At its April 21, 2010 meeting, the
LPSC accepted the joint report.
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