By Amanda Durish Cook
FERC last week opened settlement proceedings to address a two-state complaint against an Entergy subsidiary’s proposed return on equity for nuclear power sales to four other company affiliates.
Utility commissions in Arkansas and Mississippi earlier this year filed a protest claiming that the ROE used by System Energy Resources Inc. (SERI) in its current formula rate for energy sales from the Grand Gulf nuclear plant is excessive and outdated. They’ve asked FERC to open an investigation to determine the fairness of the return.
SERI owns 90% of the 1,400-MW facility in Port Gibson, Miss., and sells the plant’s output under a FERC-regulated wholesale rate to Entergy Arkansas, Entergy Mississippi, Entergy Louisiana and Entergy New Orleans under a power sales agreement.
The commission said it will forward the matter to a still-unnamed administrative law judge who will oversee settlement discussions and report whether parties can negotiate a fair ROE. Barring a settlement, the issue would move to a trial-type evidentiary hearing (EL17-41).
Regulators from the two states contend that Grand Gulf should sell its energy to Entergy affiliates at cost-based rates “to avoid overcharging retail customers.” They point out that SERI’s current ROE of 10.94% was calculated using an average of three discounted cash flow analyses produced in 1996 and seek to reduce the figure to 8.5%, in part reflecting a reduction in income tax from $125 million to $97 million.
A “re-examination of [the] current cost of equity is more than due,” the two states argued, especially considering that the Nuclear Regulatory Commission last year extended Grand Gulf’s license another 20 years, until 2044.
In opening the proceeding, FERC brushed aside SERI’s argument that its existing ROE falls into the “zone of reasonableness” and does not require adjustment. The commission said it “has repeatedly rejected the assertion that every ROE within the zone of reasonableness must be treated as an equally just and reasonable ROE.”
Depreciation Rates also Under Review
The proceeding will also include an examination of SERI’s depreciation rates for Grand Gulf.
In a separate August FERC filing prompted by the license extension, SERI sought to revise Grand Gulf’s depreciation rates to an average 2.66% under the same power sales agreement for the four Entergy utilities (ER17-2219). The current 2.85% depreciation rate was based on the assumption that plant would operate only until Nov. 1, 2024. The Arkansas and Mississippi commissions, along with 10% plant owner Cooperative Energy, argue that SERI has not provided enough support for the new rates.
While FERC has for now accepted SERI’s proposed rates effective Oct. 1, it said its own review “indicates that a further decrease may be warranted” and consolidated the matter into the larger ROE settlement procedures.