Entergy 2012 Annual Report Download - page 75

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
testimony in December 2012. In its testimony the LPSC claims that the
damages that should be paid by Entergy Arkansas to the Utility operat-
ing company’s customers for 2003, 2004, and 2006 are $42 million to
Entergy Gulf States, Inc., $7 million to Entergy Louisiana, $23 million
to Entergy Mississippi, and $4 million to Entergy New Orleans; and
that Entergy Arkansas “shareholders” should pay Entergy Arkansas
customers $34 million. The FERC staff and certain intervenors filed
direct and answering testimony in February 2013. A hearing is sched-
uled for May 2013, and the ALJ’s initial decision on the calculation of
the effects is due by August 28, 2013.
Storm Cost Recovery Filings with Retail Regulators
ENTERGY ARKANSAS
Entergy Arkansas January 2009 Ice Storm
In January 2009 a severe ice storm caused significant damage to
Entergy Arkansas’s transmission and distribution lines, equip-
ment, poles, and other facilities. A law was enacted in April 2009 in
Arkansas that authorizes securitization of storm damage restoration
costs. In June 2010, the APSC issued a financing order authorizing
the issuance of approximately $126.3 million in storm cost recovery
bonds, which includes carrying costs of $11.5 million and $4.6 million
of up-front financing costs. See Note 5 to the financial statements for
a discussion of the August 2010 issuance of the securitization bonds.
Entergy Arkansas December 2012 Winter Storm
In December 2012 a severe winter storm consisting of ice, snow, and
high winds caused significant damage to Entergy Arkansas’s distri-
bution lines, equipment, poles, and other facilities. Total restoration
costs for the repair and/or replacement of Entergy Arkansas’s electri-
cal facilities in areas damaged from the winter storm are estimated
to be in the range of $55 million to $65 million. Entergy Arkansas
recorded accruals for the estimated costs incurred that were necessary
to return customers to service. Entergy Arkansas recorded correspond-
ing regulatory assets of approximately $21 million and construction
work in progress of approximately $37 million. Entergy Arkansas
recorded the regulatory assets in accordance with its accounting poli-
cies and based on the historic treatment of such costs in its service
area because management believes that recovery through some form
of regulatory mechanism is probable. Because Entergy Arkansas has
not gone through the regulatory process regarding these storm costs,
however, there is an element of risk, and Entergy Arkansas is unable
to predict with certainty the degree of success it may have in its recov-
ery initiatives, the amount of restoration costs that it may ultimately
recover, or the timing of such recovery. Entergy Arkansas plans to
present a cost recovery proposal to the APSC in a base rate case filing
in March 2013.
ENTERGY GULF STATES LOUISIANA AND ENTERGY LOUISIANA
Hurricane Gustav and Hurricane Ike
In September 2008, Hurricane Gustav and Hurricane Ike caused cat-
astrophic damage to Entergy’s service territory. Entergy Gulf States
Louisiana and Entergy Louisiana filed their Hurricane Gustav and
Hurricane Ike storm cost recovery case with the LPSC in May 2009.
In September 2009, Entergy Gulf States Louisiana and Entergy Loui-
siana and the Louisiana Utilities Restoration Corporation (LURC),
an instrumentality of the State of Louisiana, filed with the LPSC an
application requesting that the LPSC grant financing orders authoriz-
ing the financing of Entergy Gulf States Louisiana’s and Entergy Louisi-
ana’s storm costs, storm reserves, and issuance costs pursuant to Act 55
of the Louisiana Regular Session of 2007 (Act 55 financings). Entergy
Gulf States Louisiana’s and Entergy Louisiana’s Hurricane Katrina
and Hurricane Rita storm costs were financed primarily by Act 55
financings, as discussed below. Entergy Gulf States Louisiana and
Entergy Louisiana also filed an application requesting LPSC approval
for ancillary issues including the mechanism to flow charges and Act
55 financing savings to customers via a Storm Cost Offset rider.
In December 2009, Entergy Gulf States Louisiana and Entergy Lou-
isiana entered into a stipulation agreement with the LPSC Staff that
provides for total recoverable costs of approximately $234 million for
Entergy Gulf States Louisiana and $394 million for Entergy Louisiana,
including carrying costs. Under this stipulation, Entergy Gulf States
Louisiana agrees not to recover $4.4 million and Entergy Louisiana
agrees not to recover $7.2 million of their storm restoration spending.
The stipulation also permits replenishing Entergy Gulf States Louisi-
ana’s storm reserve in the amount of $90 million and Entergy Loui-
siana’s storm reserve in the amount of $200 million when the Act 55
financings are accomplished. In March and April 2010, Entergy Gulf
States Louisiana, Entergy Louisiana, and other parties to the pro-
ceeding filed with the LPSC an uncontested stipulated settlement that
includes these terms and also includes Entergy Gulf States Louisiana’s
and Entergy Louisiana’s proposals under the Act 55 financings, which
includes a commitment to pass on to customers a minimum of $15.5
million and $27.75 million of customer benefits, respectively, through
prospective annual rate reductions of $3.1 million and $5.55 million
for five years. A stipulation hearing was held before the ALJ on April
13, 2010. On April 21, 2010, the LPSC approved the settlement and
subsequently issued two financing orders and one ratemaking order
intended to facilitate the implementation of the Act 55 financings.
In June 2010 the Louisiana State Bond Commission approved the
Act 55 financings.
In July 2010, the Louisiana Local Government Environmental
Facilities and Community Development Authority (LCDA) issued
$468.9 million in bonds under Act 55. From the $462.4 million of
bond proceeds loaned by the LCDA to the LURC, the LURC depos-
ited $200 million in a restricted escrow account as a storm damage
reserve for Entergy Louisiana and transferred $262.4 million directly
to Entergy Louisiana. From the bond proceeds received by Entergy
Louisiana from the LURC, Entergy Louisiana used $262.4 million
to acquire 2,624,297.11 Class B preferred, non-voting, member-
ship interest units of Entergy Holdings Company LLC, a company
wholly-owned and consolidated by Entergy, that carry a 9% annual
distribution rate. Distributions are payable quarterly commencing on
September 15, 2010, and the membership interests have a liquida-
tion price of $100 per unit. The preferred membership interests are
callable at the option of Entergy Holdings Company LLC after ten
years under the terms of the LLC agreement. The terms of the mem-
bership interests include certain financial covenants to which Entergy
Holdings Company LLC is subject, including the requirement to
maintain a net worth of at least $1 billion.
In July 2010, the LCDA issued another $244.1 million in bonds
under Act 55. From the $240.3 million of bond proceeds loaned
by the LCDA to the LURC, the LURC deposited $90 million in a
restricted escrow account as a storm damage reserve for Entergy
Gulf States Louisiana and transferred $150.3 million directly to
Entergy Gulf States Louisiana. From the bond proceeds received by
Entergy Gulf States Louisiana from the LURC, Entergy Gulf States
Louisiana used $150.3 million to acquire 1,502,643.04 Class B pre-
ferred, non-voting, membership interest units of Entergy Holdings
Company LLC, a company wholly-owned and consolidated by
Entergy, that carry a 9% annual distribution rate. Distributions
are payable quarterly commencing on September 15, 2010, and
the membership interests have a liquidation price of $100 per unit.
The preferred membership interests are callable at the option of
Entergy Holdings Company LLC after ten years under the terms of
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