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FERC Adopts Remedy to Deal with Production Cost Disparity on Entergy System

FERC last Wednesday agreed with an administrative law judge's (ALJ) February 2004 finding that the allocation of production costs among the Entergy System operating companies is no longer just and reasonable, and requires the use of a bandwdith remedy to bring the costs into alignment.

"The Commission acts...to prospectively revise the [existing] Entergy System Agreement to make sure that all of the Entergy companies' customers are treated in a non-discriminatory fashion. While the Commission properly rejected full production cost equalization, we adopt a bandwidth remedy to ensure the system returns to its historic rough production cost equalization," Chairman Pat Wood said.

Although the Federal Energy Regulatory Commission's accepted the ALJ's recommendation of a bandwidth remedy, it reversed the judge's determination on the appropriate bandwidth in favor of a broader bandwidth that eases the severity of the remedy's impact. The ALJ defined production cost equalization as within a numerical bandwidth of 7.5% annually from the system average and 5% over a rolling three-year average (2004-2006). These are the outside bounds by which production costs may deviate from the system average. But FERC's order adopts a broader bandwidth of plus or minus 11% with no rolling annual average

"While history shows that production cost disparities have always existed, large disparities among the Operating Companies started to rise in 2000 and appear likely to continue into the future," the agency said. Only if the deviation becomes particularly severe -- greater than +/- 11% -- will the bandwidth remedy take effect. FERC called the bandwidth remedy "an insurance policy."

The Commission said the remedy was consistent with agency precedent and would mitigate massive cost shifts among the Entergy operating companies, which include Entergy Arkansas Inc., Entergy Louisiana Inc., Entergy Mississippi, Entergy Gulf States Inc. and Entergy New Orleans Inc.

The proceeding began in June 2001 when the Louisiana Public Service Commission and the city of New Orleans, LA, brought a complaint against Entergy Corp. and affiliates, claiming that the cost allocation of the operating companies was unduly preferential.

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