Entergy 2012 Annual Report Download - page 74

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
FERC issued an order granting rehearing in part and denying rehear-
ing in part, in which the FERC determined to invoke its discretion to
deny refunds. The FERC held that in this case where “the Entergy sys-
tem as a whole collected the proper level of revenue, but, as was later
established, incorrectly allocated peak load responsibility among the
various Entergy operating companies….the Commission will apply
here our usual practice in such cases, invoking our equitable discre-
tion to not order refunds, notwithstanding our authority to do so.”
The LPSC has requested rehearing of the FERC’s June 2011 decision.
On October 6, 2011 the FERC issued an “Order Establishing Paper
Hearing” inviting parties that oppose refunds to file briefs within 30
days addressing the LPSC’s argument that FERC precedent supports
refunds under the circumstances present in this proceeding. Parties
that favor refunds were then invited to file reply briefs within 21 days
of the date that the initial briefs are due. Briefs were submitted and
the matter is pending.
In September 2010, the FERC had issued an order setting the
refund report filed in the proceeding in November 2007 for hear-
ing and settlement judge procedures. In May 2011, Entergy filed a
settlement agreement that resolved all issues relating to the refund
report set for hearing. In June 2011 the settlement judge certified the
settlement as uncontested and the settlement agreement is currently
pending before the FERC. In July 2011, Entergy filed an amended/
corrected refund report and a motion to defer action on the settle-
ment agreement until after the FERC rules on the LPSC’s rehearing
request regarding the June 2011 decision denying refunds.
Prior to the FERC’s June 2011 order on rehearing, Entergy
Arkansas filed an application in November 2010 with the APSC
for recovery of the refund that it paid. The APSC denied Entergy
Arkansas’s application, and also denied Entergy Arkansas’s petition
for rehearing. If the FERC were to order Entergy Arkansas to pay
refunds on rehearing in the interruptible load proceeding the APSC’s
decision would trap FERC-approved costs at Entergy Arkansas with
no regulatory-approved mechanism to recover them. In August 2011,
Entergy Arkansas filed a complaint in the United States District Court
for the Eastern District of Arkansas asking for a declaratory judgment
that the rejection of Entergy Arkansas’s application by the APSC is
preempted by the Federal Power Act. The APSC filed a motion to dis-
miss the complaint. In April 2012 the United States district court dis-
missed Entergy Arkansas’s complaint without prejudice stating that
Entergy Arkansas’s claim is not ripe for adjudication and that Entergy
Arkansas did not have standing to bring suit at this time.
Entergy Arkansas Opportunity Sales Proceeding
In June 2009, the LPSC filed a complaint requesting that the FERC
determine that certain of Entergy Arkansas’s sales of electric energy
to third parties: (a) violated the provisions of the System Agreement
that allocate the energy generated by Entergy System resources,
(b) imprudently denied the Entergy System and its ultimate consum-
ers the benefits of low-cost Entergy System generating capacity, and
(c) violated the provision of the System Agreement that prohibits sales
to third parties by individual companies absent an offer of a right-of-
first-refusal to other Utility operating companies. The LPSC’s com-
plaint challenges sales made beginning in 2002 and requests refunds.
On July 20, 2009, the Utility operating companies filed a response to
the complaint requesting that the FERC dismiss the complaint on the
merits without hearing because the LPSC has failed to meet its burden
of showing any violation of the System Agreement and failed to pro-
duce any evidence of imprudent action by the Entergy System. In their
response, the Utility operating companies explained that the System
Agreement clearly contemplates that the Utility operating compa-
nies may make sales to third parties for their own account, subject
to the requirement that those sales be included in the load (or load
shape) for the applicable Utility operating company. The response
further explains that the FERC already has determined that Entergy
Arkansas’s short-term wholesale sales did not trigger the “right-of-
first-refusal” provision of the System Agreement. While the D.C. Cir-
cuit recently determined that the “right-of-first-refusal” issue was not
properly before the FERC at the time of its earlier decision on the
issue, the LPSC has raised no additional claims or facts that would
warrant the FERC reaching a different conclusion.
The LPSC filed direct testimony in the proceeding alleging, among
other things, (1) that Entergy violated the System Agreement by per-
mitting Entergy Arkansas to make non-requirements sales to non-
affiliated third parties rather than making such energy available to the
other Utility operating companies’ customers; and (2) that over the
period 2000 - 2009, these non-requirements sales caused harm to the
Utility operating companies’ customers and these customers should
be compensated for this harm by Entergy. In subsequent testimony,
the LPSC modified its original damages claim in favor of quantifying
damages by re-running intra-system bills. The Utility operating com-
panies believe the LPSC’s allegations are without merit. A hearing in
the matter was held in August 2010.
In December 2010, the ALJ issued an initial decision. The ALJ
found that the System Agreement allowed for Entergy Arkansas to
make the sales to third parties but concluded that the sales should
be accounted for in the same manner as joint account sales. The ALJ
concluded that “shareholders” should make refunds of the damages
to the Utility operating companies, along with interest. Entergy dis-
agreed with several aspects of the ALJ’s initial decision and in January
2011 filed with the FERC exceptions to the decision.
The FERC issued a decision in June 2012 and held that, while
the System Agreement is ambiguous, it does provide authority for
individual Utility operating companies to make opportunity sales for
their own account and Entergy Arkansas made and priced these sales
in good faith. The FERC found, however, that the System Agreement
does not provide authority for an individual Utility operating com-
pany to allocate the energy associated with such opportunity sales
as part of its load, but provides a different allocation authority. The
FERC further found that the after-the-fact accounting methodology
used to allocate the energy used to supply the sales was inconsistent
with the System Agreement. Quantifying the effect of the FERC’s deci-
sion will require re-running intra-system bills for a ten-year period,
and the FERC in its decision established further hearing procedures
to determine the calculation of the effects. In July 2012, Entergy and
the LPSC filed requests for rehearing of the FERC’s June 2012 deci-
sion, which are pending with the FERC.
As required by the procedural schedule established in the calcu-
lation proceeding, Entergy filed its direct testimony that included a
proposed illustrative re-run, consistent with the directives in FERC’s
order, of intra-system bills for 2003, 2004, and 2006, the three years
with the highest volume of opportunity sales. Entergy’s proposed
illustrative re-run of intra-system bills shows that the potential cost
for Entergy Arkansas would be up to $12 million for the years 2003,
2004, and 2006, and the potential benefit would be significantly less
than that for each of the other Utility operating companies. Entergy’s
proposed illustrative rerun of the intra-system bills also shows an off-
setting potential benefit to Entergy Arkansas for the years 2003, 2004,
and 2006 resulting from the effects of the FERC’s order on System
Agreement Service Schedules MSS-1, MSS-2, and MSS-3, and the
potential offsetting cost would be significantly less than that for each
of the other Utility operating companies. Entergy provided to the LPSC
an illustrative intra-system bill recalculation as specified by the LPSC
for the years 2003, 2004, and 2006, and the LPSC then filed answering
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