Commissioners with the Arkansas Public Service Commission raised dozens of questions Tuesday about the return on equity allowed for Entergy Arkansas in its case to raise rates.
Entergy, the largest utility in the state with about 700,000 customers, first sought a $167 million rate increase in April.
A proposed settlement among the parties to the case would allow Entergy to receive an increase of $133.6 million. That equates to an 8.3 percent increase over what Entergy's residential customers are now paying.
Under the proposed settlement, a customer with a $100 monthly bill would see it increase to $108.30 a month. The proposed rate increase would take effect in April.
Improvements in Entergy's electrical infrastructure and a $237 million purchase of one-fourth of the Union Power Station natural gas plant near El Dorado were among reasons given by the utility for the rate increase. Entergy also expects to spend $1.7 billion on infrastructure improvements through 2018.
Entergy, the general staff of the Public Service Commission, the state attorney general's office and several of Entergy's major commercial customers agreed to the settlement.
Among those customers who intervened in the case and supported the agreement are the Arkansas Advanced Energy Association, Arkansas Electric Energy Consumers, Federal Executive Agencies, the Hospitals and Higher Education Group and the Kroger Co. Five other parties to the case said they did not oppose the agreement.
The commissioners questioned Kim Davis, director of the financial analysis section of the general staff of the commission, on how the staff and the settling parties decided to allow Entergy a 9.75 percent return on equity.
Return on equity is a company's net income as a percentage of shareholder equity.
A return on equity of 9.3 percent to 10 percent was considered to be fair and reasonable, Davis said.
Davis was asked why the settlement allows a return on equity of 9.75 percent, which is greater than the 9.65 percent midpoint of that range.
Davis said 9.75 percent was within the range and was considered to be fair by the parties. A rate of return of 9.13 percent, which also was considered, was deemed too low to give Entergy a sufficient return, Davis said.
The commissioners wanted to understand the reasoning for conclusions reached in the settlement, John Bethel, executive director of the general staff, said in an interview after the hearing.
The commissioners didn't seem to be saying that the 9.75 percent return on equity was too high, Bethel said.
"I can't speak for them," Bethel said. "But I thought they were just trying to understand how [the general] staff went about in setting its range and determining the reasonableness of those numbers."
The commission is expected to make a decision on the rate request sometime next month.
Before the commission questioned witnesses about the settlement Tuesday, three residents of Hot Springs Village commented on the poor electric service Entergy has provided the city.
Entergy's service in the area has not been reliable, said Bob Hebert, a former owner of a yogurt shop.
Hebert, who spent much of his life in Arizona and California, moved to Hot Springs Village and later opened the yogurt shop. He said there had been dozens of power failures, from short brownouts, which knocked out his yogurt machines, to whole days without power.
The failures "cost me thousands of dollars," Hebert said. "I would have never opened up if I'd known that reliability was as bad as it was."
Hebert acknowledged that his business eventually failed because he was unable to make enough of a profit. But the electricity problems didn't help, he said.
Entergy President and CEO Hugh McDonald admitted to the commissioners that Entergy's southwest region in Arkansas has problems. Entergy serves about 6,000 customers in Hot Springs Village with about 350 miles of underground cable, McDonald said.
McDonald and Rick Riley, who will replace McDonald as chief executive officer when McDonald retires later this year, talked with the Hot Springs Village residents during a break in the hearing.
"We know that your reliability is not where it needs to be," Riley said.
Riley and McDonald said Entergy is working to fix the problems.
"We're on it," McDonald said. "Just give us some time."
Business on 01/20/2016