Q3 2011 Earnings Call
November 01, 2011 11:00 am ET
Leo P. Denault - Chief Financial Officer and Executive Vice President
Gary J. Taylor - President of Utility Operations
Paula Waters - Vice President of Investor Relations
J. Wayne Leonard - Chairman, Chief Executive Officer and Chairman of Executive Committee
Neil Mehta - Goldman Sachs
Paul Patterson - Glenrock Associates
Ashar Khan - SAC Capital
Reza Hatefi - Polygon Investment Partners
Steven I. Fleishman - BofA Merrill Lynch, Research Division
Unknown Analyst -
Previous Statements by ETR
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Good morning, and thank you for joining us. We'll begin this morning with comments from Entergy's Chairman and CEO, Wayne Leonard; and then Leo Denault, our CFO, will review results. [Operator Instructions] After the Q&A session, I will close with the applicable legal statements. Wayne?
J. Wayne Leonard
Okay. Thanks, Paula. Good morning, everybody. We know many of you are preparing for the EEI Conference next week. Many other companies in our sector are reporting this week also. With that in mind, our comments will be brief, at least relatively brief for us, and limited to quarterly results and recent events. We will discuss strategic issues with you at the EEI.
Starting at Utility, on October 28, the Arkansas Public Service Commission issued an order in a Show Cause proceeding on post-system agreement transition issues for Entergy Arkansas. In this order, the APSC decided that it is prudent for Entergy Arkansas to join a Regional Transmission Organization. However, the commission did not make a determination on the question of which RTO is in the best interest of Entergy Arkansas and its ratepayers. The Midwest Independent System Operator option or the Southwest Power Pool RTO option. A decision on which RTO to join was not the original subject of this docket, which was opened in February 2010, and as such, the APSC deferred any determination on Entergy Arkansas' proposal to join MISO until the company files an application to transfer operational control of its transmission facilities to MISO. The APSC order provides helpful guidance on the upcoming changes that we're filing that Entergy Arkansas will make in the next 30 days.
Similar changes of control filings will be made in the other retail regulatory jurisdictions by year end, starting with yesterday's filing with the Louisiana Public Service Commission.
Upon its exit on the System Agreement, Entergy Arkansas proposed to join MISO, which would provide it, as well as the other utility operating companies, more benefits from the commitment and dispatch of a larger system that is currently provided by the System Agreement. These interests derived from joining in an RTO with substantial scale and a Day 2 market. As you know, Day 2 refers to an RTO that includes day ahead and realtime energy markets.
MISO has a functioning Day 2 market today that will generate savings for the customers on Day 1, SPP does not. Even though cost benefit analysis completed to date optimistically assumes SPP will have one by December 2013, both schedule and cost are highly uncertain, particularly in light of the challenges other RTOS have experienced in transitioning to Day 2 markets. Even assuming an operational Day 2 market in SPP, MISO is expected to provide 25% greater benefits than SPP.
The System Agreement was the subject of another ruling late last month by the Federal Energy Regulatory Commission related to its 2005 bandwidth decision. FERC's 2005 decision established a requirement that each utility-operating company's production cost be roughly equal within plus or minus 11% of system average production cost, and set 2007 as the first year for payments based upon production costs for calendar year 2006. In its latest order, the FERC rejected our arguments to require a refund for a 20-month period spanning September 2001 through May 2003. However, the FERC concluded the bandwidth remedy should have been implemented sooner by calculating bandwidth remedy payments and receipts for the 7th month period starting June 1, 2005, the date of FERC's initial order rather than January 1, 2006.
We're currently reviewing the order and are in the process of calculating the amount of payments required between utility-operating companies. As is the case with bandwidth remedy receipts, these payment receipts will be calculated based upon the detailed formula prescribed by the FERC staff. It is likely the effect of moving up the implementation date to the bandwidth remedy will result in additional payments from Entergy Arkansas. But as a reminder, Entergy Arkansas has an existing rider approved by the APSC that provides full recovery of costs resulting from the FERC 2005 orders and any subsequent modifications of these orders.
Immediately after the FERC order on rehearing in late 2005, Entergy Arkansas gave the required 96 months notice of its withdrawal from the System Agreement. That exit is now 26 months away, and Entergy Arkansas is actively preparing for this exit.
In another development relating to the proposed move to MISO, a FERC ruling in late September provided important procedural guidance regarding the fast-forward, obtaining certainty on key issues affecting the operating companies' participation in MISO. That issue was a transitional waiver requested by MISO regarding proposed transmission cost allocation provisions associated with Entergy's integration into MISO. The FERC concluded that the waiver request was not the appropriate vehicle for obtaining FERC approval for the proposed provisions. Instead, this type of provisions should be sought through specific tariff changes in a company by additional detail. MISO recently made public to propose tariff changes and is currently working through its states, all the process to finalize and file the appropriate changes. This proposal will provide greater clarity for Entergy's retail regulators and customers with the cost allocation policies that will be in effect, the operating companies' testament as to integrate into MISO.