Court Upholds Entergy’s Cost-Allocation Structure

WASHINGTON (CN) - The D.C. Circuit upheld a pair of orders by the Federal Energy Regulatory Commission aimed at evenly distributing the production costs of electricity generation among the five operating companies in the Entergy System.

The power company sells wholesale and retail electricity in Arkansas, Louisiana, Mississippi and Texas through its five operating companies.

In the 1960s and 1970s, the operating committee decided to switch from oil and gas generation to nuclear and coal. The committee tried to keep the costs "roughly equal" by allocating extra energy payments among the five companies.

But a spike in the price of natural gas in 2000 "had a dramatically disproportionate effect on (Entergy Louisiana's) relatively large amount of gas-fired generation, as compared to (Entergy Arkansas') relatively large amount of cheaper coal base load capacity."

At the same time, Entergy Louisiana had to absorb the costs of a highly inefficient hydropower dam in Vidalia, La.

The strain of allocation has caused Entergy Arkansas - whose customers are paying about $230 million per year to help cover the costs of power-generation plants in Louisiana - to consider withdrawing from the Entergy agreement.

FERC issued two orders to remedy the situation. The appeals court upheld the establishment of a "numerical bandwidth" limiting the annual amount of production costs. It also ruled that Entergy Louisiana customers are to pay for all costs associated with operating the hydropower dam in Vidalia.

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