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<title>Arkansas: Public Service Commission Approves First Step Towards Retail Competition</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<p><b><u>January 1998<br>
</u>
</b><big><big><strong><font face="Arial"><big>Arkansas: Public Service
Commission Approves First Step Towards Retail Competition<br>
</big></font></strong></big></big><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
05/98</em>)</font></p><font FACE="Palatino" SIZE="1"><p ALIGN="JUSTIFY"></font><font face="Arial">On
December 12, 1997, the Arkansas Public Service Commission (PSC) approved a stipulation
entered into by Entergy Arkansas, Inc. (EAI), the PSC staff, and several other parties,
which enables EAI to collect funds for future stranded costs through a transition cost
account (TCA). The PSC also authorized EAI to request the Federal Energy Regulatory
Commission (FERC) to permit EAI to accelerate the amortization of EAI’s portion of
the costs of the Grand Gulf facility in order to reduce possible future stranded costs
attributable to asset.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">EAI is a subsidiary of Entergy Corp., a registered
holding company under the Public Utility Holding Company Act. In addition to EAI, Entergy
owns four other regulated electric utilities and a wholesale generating subsidiary whose
sole asset is the Grand Gulf Nuclear Station. On October 24, 1996, EAI filed an
application with the PSC to estructure its retail rates in anticipation of the
introduction of retail competition in Arkansas. To facilitate the transition to
competition, EAI proposed a seven-year rate freeze, with any excess revenues earned by EAI
to be used to accelerate the amortization of the Arkansas Nuclear One Facility. In
addition, EAI proposed to accelerate the amortization of its portion of the Grand Gulf
facility. Under the EAI proposal, all pre-1996 embedded investments in nuclear plants
would be paid at the end of the seven-year period. The staff objected to the EAI proposal
and noted that there was little reason to recover all potential stranded costs prior to
the time the costs are actually stranded. In addition, the staff stated that EAI has not
established a legal entitlement to the recovery of stranded costs. However, the staff
stated that it was likely that some portion of EAI’s costs may become stranded.
Therefore, the staff proposed the creation of the TCA which would receive funds from
certain of EAI’s earnings. These funds would not be used until the PSC determined
EAI’s stranded costs. Subsequently, most of the parties to the proceeding entered
into a stipulation which contained the staff’s TCA proposal.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Under the stipulation, EAI will reduce retail rates
by approximately $155 million in 1998 and $62 million in 1999. After 1999, EAI’s base
rates will be frozen until July 1, 2001. The rate freeze will give EAI the opportunity to
earn more revenue than it would under traditional ratemaking because, under traditional
rate making, EAI’s retail rates would be lower during this period. EAI’s excess
earnings from this period will be placed in the TCA and will be subject to the PSC’s
future rulings on EAI’s stranded costs. The stipulation states that EAI can only
utilize the TCA funds if the PSC makes all of the following determinations: EAI has taken
all necessary steps for the commencement of retail competition; EAI has taken all
reasonable stranded cost mitigation measures; EAI has verified and quantified its stranded
costs; EAI is entitled to recover some or all of its stranded costs and this recovery is
in the public interest; and retail competition is available in EAI’s service
territory.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The stipulation also provides that if no date has
been established for commencement of retail competition by December 31, 2001, funds will
no longer be placed in the TCA. In addition, if by December 31, 2003, no date for retail
competition has been established, the ratepayers will receive the monies in the TCA.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The stipulation states that EAI will request FERC to
permit it to accelerate the amortization of EAI’s portion of the Grand Gulf facility.
This acceleration of amortization is intended to address the potential stranded costs
resulting from this facility. The monies necessary to fund this acceleration will come
from two sources: rates from the Grand Gulf facility will be frozen at 1998 levels and $21
million in previously scheduled rate reductions will be deferred. Currently, the rates
charged to EAI for the Grand Gulf facility decline each year as the book value of the
plant is reduced.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In its December 12, 1997 order, the PSC approved the
proposed stipulation but noted that the stipulation gives the PSC control over the TCA but
does not limit EAI’s ability to recover additional stranded costs from Arkansas
ratepayers through a subsequent application to the FERC. Secondly, the PSC noted that,
under the FERC approved Entergy System Operation Agreement, costs of the Entergy System
shift among Entergy’s operating utilities based on the utility’s load. The PSC
stated it was concerned that, if a state served by another Entergy company instituted
retail competition prior to Arkansas and that operating company lost load as a result of
retail competition, Arkansas ratepayers could be responsible for more costs of the Entergy
System pursuant to the Entergy System Agreement. Under such a scenario, EAI would be
responsible for increased costs and, therefore, EAI may not earn the additional revenues
needed to offset its future stranded costs. The PSC stated that, if either of these events
occurs and the benefit of the stipulation to the Arkansas ratepayers is diminished, the
PSC reserves the right to terminate the TCA or to take other actions, including lowering
EAI’s retail rates to provide redress for EAI’s ratepayers.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Pursuant to the stipulation, the PSC also stated
that it would open four generic proceedings to investigate retail competition and that it
would submit a report to the Arkansas General Assembly by October 1, 1998. </font><font FACE="Palatino" SIZE="1"></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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