Entergy
Download the 2009 Annual Report
Download the 2009 Annual Report
Entergy Utilities
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Entergy Utilities

Seizing Opportunities

O

ur utility companies strive to meet the expectations of multiple stakeholders by safely and reliably providing affordable, clean power to customers, working to achieve constructive regulatory outcomes and continually seeking attractive investment opportunities. Our long-term success depends on aligning interests and creating a winning hand for all our stakeholders.

Providing Affordable, Clean Power

A commitment to operational excellence leads to reliable service. In 2009, Waterford 3 exceeded 400 days of continuous operation before shutting down in October for its scheduled refueling outage. This notable accomplishment ranks in the top decile of the industry for forced loss rate. The River Bend Station achieved a record run before shutting down for its scheduled refueling outage last fall, and the Grand Gulf Nuclear Station completed a record run in early 2010. Two projects at Entergy’s nuclear plants were also honored in a group of three finalists for Power Engineering magazine’s 2009 Nuclear Project of the Year, including a predictive analytics tool at Waterford 3 and an innovative wireless technology solution for a water-intake project at River Bend.

In addition to reliable service, each of our utility operating companies is pursuing energy efficiency programs to enable our customers to conserve energy and reduce CO2 emissions. For example, Entergy New Orleans’ energy efficiency program provides rebates to customers who make improvements such as adding insulation, sealing ducts and weatherizing their homes or businesses through a qualified contractor. The program saves customers money while creating a market for energy-efficient products and services and promoting the growth of a “green” workforce of local contractors.

Pursuing a Productive Regulatory Agenda

The objective of our regulatory agenda is to receive and then earn authorized rates of returns sufficient to attract investment capital and maintain a solid investment-grade credit rating. We believe formula rate plans are superior to lengthy rate cases and are an effective means of setting rates that provide for earning acceptable returns, reducing regulatory lag and promoting predictability and stability of rates for our customers. In addition, we believe FRPs should be structured to provide Entergy’s utility operating companies a fair opportunity to actually earn their midpoint or authorized return on equity, with mechanisms for timely recovery of approved expenditures and timely resets to the ROE midpoint as earnings fall outside of the allowed band. { continued | 1 of 5 }

 

Entergy Utilities

Significant opportunity exists to increase our earnings if the utility operating companies earn at their midpoint or authorized ROEs.

At the same time, each of our utility operating companies recognizes the need to maintain affordable rates, and benefited from the chance card dealt in 2009 in the form of falling commodity prices, principally natural gas prices. Residential rates have declined from peak commodity price levels experienced in mid-2008. Further, over the past several years, our rates have increased at a slower rate than our peers in the Southeast.

Summarized below are the actions taken by Entergy’s utility operating companies in 2009 and early 2010 to advance a constructive regulatory agenda:

Entergy Arkansas filed a rate case in September seeking a competitive ROE in order to attract capital and proposed an FRP with mechanisms enabling the utility to earn its allowed return. The proposed FRP also provides mechanisms to align shareholder interests with energy efficiency and conservation objectives. We expect the base rate increase to be offset by a combination of lower fuel costs, continued efficient operation of our power plants, and a sizeable reduction in the amount collected in the line item on customer bills described as “FERC-Imposed Payment.” The procedural schedule calls for a decision on the rate case in mid-2010. Further, as an alternative to base rate recovery, in February 2010 Entergy Arkansas filed for a financing order to issue approximately $127.5 million in storm recovery bonds for the January 2009 ice storm.

Entergy Gulf States Louisiana and Entergy Louisiana received approval from the LPSC in April 2010 of uncontested stipulated settlements in the storm proceedings for hurricanes Gustav and Ike, which deemed nearly $630 million in storm recovery costs to be prudent and recoverable and proposed replenishing the cash storm reserves with $290 million. In a separate settlement approved by the LPSC, FRPs for both companies were extended to cover the 2008 through 2010 test years. The FRPs retain previous ROE ranges and included a one-time midpoint reset while incorporating recovery provisions to address issues such as possible energy efficiency and environmental requirements and capacity additions.

Entergy Mississippi obtained in early 2010 a revised FRP that simplifies setting base rates and stabilizes customer bills. The FRP provides Entergy Mississippi with the same return on capital opportunityas other Mississippi utilities { continued | 2 of 5 }

 

Entergy Utilities

it competes with for capital to serve its customers. Also the results of three separate independent audits commissioned by the Mississippi Public Service Commission over the past two years found no improper charges by Entergy Mississippi to its customers.

Entergy New Orleans obtained a constructive rate case settlement in April 2009 that implemented an FRP beginning with the 2009 test year, with a midpoint reset provision. The settlement also included innovative mechanisms for cost recovery and performance incentives related to energy efficiency initiatives.

Entergy Texas filed a rate case in December seeking to recover investments in transmission, distribution and generation infrastructure and a competitive ROE. With the investment projects planned for the next three years, Entergy Texas will have made a total of $1.6 billion in infrastructure investments since 1999. The rate case also seeks to streamline the traditional ratemaking approach with an FRP approach and other cost recovery riders. A unanimous settlement agreement reached in February 2010 provided for an interim increase of $17.5 million effective May 1 and sets a schedule for an order by November of this year. Also, in late 2009, Entergy Texas issued $545.9 million in storm securitization bonds to close out its regulatory recovery efforts for the 2008 storms.

We continue to work with federal, state and local regulators to develop the appropriate structure and direction for Entergy’s utility operating companies’ transmission operations. Several anticipated events make this an ideal time to address the future of our transmission operations. First, the current Independent Coordinator of Transmission arrangement expires in November 2010. Second, amendments are being proposed to reliability requirements that would drive increased investment in transmission infrastructure. Third, a potential renewable energy build-out could require significant investment in new transmission infrastructure.

All state and local regulators of Entergy’s utility operating companies are participating in an Entergy Regional State Committee to jointly consider these matters. Regulators and other market participants have expressed interest in transmission investments to improve reliability, allow greater power movement from independent providers, and enable potential renewable build-out. The companies are committed to working with FERC and the E-RSC to educate and inform all stakeholders on issues related to transmission operations, with the goal to reach timely consensus on the appropriate operation, structure and direction for transmission assets. { continued | 3 of 5 }

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Our performance on key customer service metrics, which improved dramatically from 1998 to 2009, also improved year over year from 2008 to 2009. In fact 2009 was our second best year for our outage frequency reliability measure since 1998.

Entergy Utilities

The utility operating companies also continued efforts in 2009 to find an acceptable alternative to the existing System Agreement. In November, FERC accepted notices of cancellation from Entergy Arkansas and Entergy Mississippi and determined withdrawal is permitted without payment of exit fees or other compensation to the remaining operating companies. The order removes uncertainties resulting from differences of opinion on the issue of continuing obligations under the System Agreement. Rehearing requests from the LPSC and New Orleans City Council are pending.

During 2009, we further demonstrated our ability to work with regulators to respond quickly and effectively as circumstances evolve. For example, due to changing market and regulatory conditions, Entergy Louisiana filed an application in October 2009 seeking LPSC authorization to cancel the Little Gypsy Unit 3 repowering project, eliminating monitoring costs associated with temporary suspension. Also, the Arkansas Pollution Control and Ecology Commission agreed with Entergy Arkansas’ request for a variance from the previously required October 2013 compliance date for installation of SO2 scrubbers and NOX controls at the White Bluff plant.

Seeking Attractive Growth Opportunities

Even as we strive to reliably deliver clean, affordable power to our customers, we relentlessly seek attractive growth opportunities. We expect baseload demand to grow 1 to 2 percent per year over the long term. In 2010, we expect stronger demand growth due to economic recovery and industrial expansion in our service territory.

Beyond load growth, we believe we can identify through our portfolio transformation strategy attractive opportunities that benefit customers. This strategy enables us to evaluate build versus buy options to close our capacity shortfall of about 1.6 GW. Since 2005, we acquired 2,309 MW of efficient, gas-fired capacity at an average cost of $261 per kW, roughly 50 percent lower than projected new-build costs. We use a transparent process to ensure fair and independent evaluation of purchase and acquisition opportunities. We diligently assess each opportunity, and consider factors, such as fuel supply and operating efficiency, fit with our transmission system and seller motivation.

We temporarily suspended our Request for Proposal process in late 2008 in response to the commodity and financial markets, and the economic outlook. We re-engaged in early 2009 as markets stabilized. In October, Entergy Louisiana announced an agreement to purchase Acadia Unit 2, a 580-MW, highly efficient generating unit in southern Louisiana. Plans for a major upgrade to the Grand Gulf Nuclear Station in Port Gibson, Miss., { continued | 4 of 5 }

Utility Capital Plan

We have a track record of prudent reinvestment in our utility business and we relentlessly seek attractive investment opportunities that benefit our customers.

Entergy Utilities

were also announced. In 2010, Entergy Louisiana and Entergy Gulf States Louisiana sought approval to preserve new nuclear development options for their customers. We will continue to seek attractive investment opportunities to expand our capacity and grow our utility business.

Achieving Our Earnings Growth Potential in the Utility

Going forward, Entergy’s utility operating companies remain committed to reliable service, customer satisfaction, operational excellence, safety and constructive relationships with all stakeholders. Achieving these objectives, combined with organic and portfolio management growth opportunities, can help us realize the utility’s net income average growth potential of 5 to 6 percent compounded annually over the 2010 to 2014 horizon. { 5 of 5 }