Entergy 2012 Annual Report Download - page 68

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
In May 2010, Entergy Louisiana made its formula rate plan filing
with the LPSC for the 2009 test year. The filing reflected a 10.82%
return on common equity, which is within the allowed earnings band-
width, indicating no cost of service rate change is necessary under the
formula rate plan. The filing does reflect, however, a revenue require-
ment increase to provide supplemental funding for the decommission-
ing trust maintained for Waterford 3, in response to a NRC notifica-
tion of a projected shortfall of decommissioning funding assurance.
The filing also reflected a rate change for incremental capacity costs. In
July 2010 the LPSC approved a $3.5 million increase in the retail rev-
enue requirement for decommissioning, effective September 2010. In
August 2010, Entergy Louisiana made a revised 2009 test year formula
rate plan filing. The revised filing reflected a 10.82% earned return
on common equity, which is within the allowed earnings bandwidth
resulting in no cost of service adjustment. The filing also reflected two
increases outside of the formula rate plan sharing mechanism: (1) the
previously-approved decommissioning revenue requirement, and (2)
$2.2 million for capacity costs. The rates reflected in the revised filing
became effective beginning with the first billing cycle of September
2010. Entergy 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 December 2010.
In May 2011, Entergy Louisiana made a special formula rate plan
rate implementation filing with the LPSC that implements effective
with the May 2011 billing cycle a $43.1 million net rate increase to
reflect adjustments in accordance with a previous LPSC order relating
to the acquisition of Unit 2 of the Acadia Energy Center. The net rate
increase represents the decrease in the additional capacity revenue
requirement resulting from the termination of the power purchase
agreement with Acadia and the increase in the revenue requirement
resulting from the ownership of the Acadia facility. In August 2011,
Entergy Louisiana made a filing to correct the May 2011 filing and
decrease the rate by $1.1 million.
In May 2011, Entergy Louisiana made its formula rate plan filing
with the LPSC for the 2010 test year. The filing reflects an 11.07%
earned return on common equity, which is just outside of the allowed
earnings bandwidth and results in no cost of service rate change under
the formula rate plan. The filing also reflects a very slight ($9 thou-
sand) rate increase for incremental capacity costs. Entergy Louisiana
and the LPSC Staff subsequently filed a joint report that reflects an
11.07% earned return and results in no cost of service rate change
under the formula rate plan, and the LPSC approved the joint report
in October 2011.
In November 2011 the LPSC approved a one-year extension
of Entergy Louisiana’s formula rate plan. In May 2012, Entergy
Louisiana made its formula rate plan filing with the LPSC for the
2011 test year. The filing reflected a 9.63% earned return on com-
mon equity, which is within the earnings bandwidth and results in
no cost of service rate change under the formula rate plan. The filing
also reflected an $18.1 million rate increase for incremental capac-
ity costs. In August 2012, Entergy Louisiana submitted a revised
filing that reflects an earned return on common equity of 10.38%,
which is still within the earnings bandwidth, resulting in no cost of
service rate change. The revised filing also indicates that an increase
of $15.9 million should be reflected in the incremental capacity
rider. The rate change was implemented, subject to refund, effec-
tive for bills rendered the first billing cycle of September 2012. The
September 2012 rate change contributed approximately $5.3 million
to Entergy Louisiana’s revenues in 2012. Subsequently, in December
2012, Entergy Louisiana submitted a revised evaluation report
that reflects two items: 1) a $17 million reduction for the first-year
capacity charges for the purchase by Entergy Gulf States Louisiana
from Entergy Louisiana of one-third of Acadia Unit 2 capacity and
energy, and 2) an $88 million increase for the first-year retail revenue
requirement associated with the Waterford 3 replacement steam gen-
erator project, which was in-service in December 2012. These rate
changes were implemented, subject to refund, effective with the first
billing cycle of January 2013. The 2011 test year filings remain sub-
ject to LPSC review. With completion of the Waterford 3 replace-
ment steam generator 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.
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 Louisiana, and the required filing was made on February
15, 2013. Recognizing that the final structure of Entergy 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 Louisiana.
Under its primary request, Entergy 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 Louisiana requests:
n authorization to increase the revenue it collects from customers
by approximately $169 million (which does not take into account
a revenue offset of approximately $1 million resulting from a
proposed increase for those customers taking service under the
Qualifying Facility Standby Service);
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 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
Louisiana assumes that it has completed integration into MISO, but
that the spin-off and merger of its transmission business with a sub-
sidiary of ITC Holdings has not occurred (the MISO-Only Scenario).
Under the MISO-Only Scenario, Entergy Louisiana requests:
n authorization to increase the revenue it collects from customers
by approximately $145 million (which does not take into account
a revenue offset of approximately $2 million resulting from a
proposed increase for those customers taking service under the
Qualifying Facility Standby Service);
n an authorized return on common equity of 10.4%;
n authorization to increase depreciation rates embedded in the pro-
posed 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
66