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Entergy seeks rate increase; PSC seeks fed scrutiny.

Entergy Arkansas filed notice last week that it would seek an increase in its base electric rates--the first since 1985--and filed an appeal of the Arkansas Public Service Commission's March 31 decision not to let the utility up its rates in response to higher fuel prices.

Meanwhile, the PSC filed a complaint asking the Federal Energy Regulatory Commission to make sure that Entergy Corp. keeps its production costs as low as possible, especially in Louisiana.

Entergy did not specify the size of the base rate it would seek in a filing it expects to make in August, but Steve Strickland, Entergy Arkansas' vice president of regulatory affairs, said a somewhat dated cost study submitted to the PSC "shows that current base rates produce annual revenues approximately $148 million less than our cost and our projected costs going forward."

A new cost of service study will be part of the rate request, he said in a news release.

A separate filing asks the Arkansas Court of Appeals to overturn the PSC's refusal to approve Entergy's plan to increase its rates by almost 10 percent to recoup the cost of fuel and energy purchased from other companies in 2005. Entergy argues that it is entitled to recover its fuel costs and that delays in approving the related rate increase will end up costing Arkansas rate-payers millions of dollars in interest.

The PSC's complaint addresses what it views as practical problems with FERC's 2005 decision concerning the difference in electric rates charged by Entergy Arkansas and Entergy Louisiana--a decision that is likely to cost Arkansas ratepayers $150 million-$358 million a year and could create, according to the PSC, "perverse economic incentives" to increase the cost of generating electricity.

On Thursday, Entergy issued the following statement in response to the PSC's FERC filing:

"The Entergy Operating Companies believe that their conduct with respect to these issues has been prudent and will vigorously defend such conduct. Entergy believes that this Complaint is a reiteration of arguments that the APSC previously had made in the System Agreement proceeding, and which the FERC previously had rejected. The FERC's decision in the System Agreement proceeding is currently pending before the DC Circuit Court of Appeals."

FERC's decision requires Entergy to limit the variation in production costs passed on to customers to a "bandwidth" of plus or minus 11 percent of the system's average production cost. Entergy's production costs in Arkansas have been below the bandwidth, while Entergy Louisiana costs have been above.

"The operation of the FERC bandwidth also creates perverse economic incentives that will result in higher overall system costs unless the FERC closely scrutinizes those costs," something state regulators aren't able to do under the "bandwidth remedy."

If Entergy Arkansas--which the PSC calls EAI--reduces its production costs, the PSC said, the primary beneficiaries would be Louisiana ratepayers "because any decrease in EAI's production costs will bring it further below the bandwidth and thus increase EAI's bandwidth payments to the higher-cost Louisiana utilities."

And if Entergy Louisiana were to reduce its production costs, the primary beneficiaries would be Arkansas ratepayers "because the reduction would bring (Louisiana's) costs closer to the system average and thus decrease their revenues from EAI."

"Thus," the PSC concluded, "the Louisiana utilities have no real incentive to reduce their production costs. Unchecked, the Louisiana utilities and regulators can just sit on their hands and continue to pass along to Arkansas ratepayers their higher production COSTS."

The PSC specifically asked the FERC to investigate a number of Entergy business decisions, including whether Entergy had failed to make upgrades to its transmission system that would have reduced production costs and whether it had "imprudently" failed to build or buy lower-cost coal-fired generating plants for Louisiana.
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Title Annotation:ENERGY
Author:Moritz, Gwen
Publication:Arkansas Business
Geographic Code:1USA
Date:Jun 12, 2006
Words:621
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