Entergy Arkansas tied to parent for last day

Electric bills predicted to fall 3.62% for residential ratepayers in state

It has been eight years since Entergy Arkansas gave its parent company, Entergy Corp., the required 96-month notice to withdraw from its system agreement, a pact that includes Entergy Corp.’s subsidiaries and has cost Entergy Arkansas ratepayers more than $4.5 billion.

Today is Entergy Arkansas’ last day of participation in the system agreement.

“It’s the end of the eight year journey that we’ve been working on for quite some time,” Hugh McDonald, Entergy Arkansas’ chief executive officer, said Tuesday. “And it’s finally here before us.”

The agreement let Entergy Corp.’s six utilities in four states - Arkansas, Louisiana, Mississippi and Texas - share relatively equal costs of production and generation capacity.

The current version of the agreement, instituted in 1982, has cost Arkansas ratepayers more than $4.5 billion in additional expenses over more than 30 years of federally mandated charges - more than $3.5 billion for costs associated with the Grand Gulf Nuclear Station in Port Gibson, Miss., and more than $1 billion to subsidize Entergy Corp.’s customers in Louisiana.

Entergy Arkansas’ “participation in the system agreement has embroiled it, and[the Arkansas Public Service Commission], in protracted litigation for over 30 years,” the commission said in a statement Tuesday. Arkansas’ move to exit the system agreement means “ratepayers will no longer be required to subsidize the other states’ ratepayers.”

Entergy Arkansas estimates that the charge to its customers to assist Louisiana has equaled an extra $6.19 per customer per month.

Earlier this year, Entergy Arkansas filed for a rate increase that, if approved by the state commission, will partially offset the reduction in rates brought by withdrawal from the system agreement.

But taking into account the end of the system agreement and the proposed rate increase, residential customers in the state would see a 3.62 percent drop in their monthly bills, according to an analysis by the commission’s general staff. Therefore, a customer with a $100 electric bill would see a bill of $96.38 if the commission approves the rate increase.

The motivation for Entergy Arkansas to give the required notice to exit the agreement was a Dec. 19, 2005, decision by federal regulators declaring that production costs between Entergy Corp. plants in Arkansas and Louisiana weren’t fairly distributed and that Arkansas customers had to make up the difference.

The same day, Entergy Arkansas notified Entergy Corp. that it would leave the system agreement.

McDonald said Entergy Arkansas had been preparing for the possibility of dropping out of the agreement.

“If a bad order came out, Entergy Arkansas was going to be in the position where it gave its notice at the earliest possible time,” McDonald said Tuesday. “It was a difficult day.”

In 2005, McDonald acknowledged the continued legal battles involved in the system agreement and the costly burden for Entergy Arkansas customers.

“There’s been a long history of significant litigation with this agreement that hopefully will end once we come out of it,” McDonald said on Dec. 19, 2005.

The dispute, initiated by Louisiana regulators in 2001, stemmed from the reliance of Entergy’s Louisiana plants on mostly natural gas to generate electricity - expensive at the time - while most of its Arkansas plants relied on less expensive coal and nuclear power.

So Louisiana regulators sued Entergy Arkansas, demanding that it make up the difference in costs.

In 2010, the Arkansas Public Service Commission filed a case to determine whether Entergy Arkansas was investigating all its options before the system agreement expired.

The case had a “huge impact” on Entergy Arkansas, said David Cruthirds, a Houston regulatory lawyer and publisher of an energy newsletter, The Cruthirds Report.

“It drove Entergy Arkansas to join [Midcontinent Independent Transmission Operator],” Cruthirds said. “I think it was a good move and a pretty decisive move [by the commission] that changed the dynamics. It also pushed [Entergy Arkansas] out of the system agreement.”

Entergy Arkansas officially will become a member of Midcontinent today, giving it oversight over the utility’s electricity grid in Arkansas. Midcontinent is a regional transmission organization that coordinates the grid in 15 states and the Canadian province of Manitoba.

“[Midcontinent] will be the balancing authority for Entergy, so it must be a member of [Midcontinent] when the system agreement expires,” said Colette Honorable, chairman of the Arkansas commission.

The other Entergy Corp. utilities also will join Midcontinent.

“As the commission found, granting Entergy [Arkansas]the authority to join [Midcontinent], there are opportunities and benefits available to Arkansas ratepayers that weren’t available under the Entergy system,” said John Bethel, executive director of the commission’s general staff.

One benefit is that Entergy Arkansas has more opportunities to sell its excess electricity on a large regional grid, Bethel said.

Entergy Mississippi will withdraw from the system agreement next year.

Entergy Texas also is considering withdrawing from the agreement, Cruthirds said.

The three Louisiana Entergy utilities still are involved in the agreement, Cruthirds said.

The departure from the system agreement could have a negative effect on Entergy Arkansas, Cruthirds said.

For example, if coal becomes an expensive fuel, Entergy Arkansas might have to close or upgrade its coal plants in Jefferson and Independence counties or build new plants.

If the system agreement were still in effect, the other Entergy subsidiaries might have had to help cover those costs, Cruthirds said.

“Now [Entergy Arkansas] won’t have the ability to lay off their costs on the other Entergy operating companies,” Cruthirds said.

McDonald disagreed.

“What I’ve learned in this business is that as soon as I think I know exactly what might happen in the next five years, it changes dramatically,” McDonald said.

Front Section, Pages 1 on 12/18/2013

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