UPDATED: Entergy's McDonald Promises More Litigation After FERC Order

The Federal Energy Regulatory Commission ruling that looked like a victory in June looks far more ominous in light of record-high natural gas prices, Entergy Arkansas CEO Hugh McDonald said Tuesday.

"The big change between now and then is you couple the order with the change in natural gas prices that have occurred since summer," he said. "Natural gas prices have more than doubled."

The order that FERC reaffirmed Monday calls for Entergy Corp. to roughly equalize rates between Louisiana, where Entergy mainly generates electricity with high-cost gas-fired plants, and Arkansas, which depends on cheaper coal-fired and nuclear plants. The result will be lower electric rates in Louisiana and higher rates in Arkansas beginning in 2007 and based on actual costs in 2006.

The full text of the FERC's order is available here.

In response, Entergy Arkansas filed notice that it will be withdrawing from the intercompany agreement that calls for cost sharing - a process that could take as long as eight years.

News stories quoted an attorney for the Louisiana Public Service Commission as saying that an "exit fee" would have to be paid for the privilege of leaving the system agreement, but McDonald questioned that statement.

"Nowhere in the agreement does there say there will be an exit fee, but the only thing I can guarantee is there will be more litigation," he said.

McDonald pointed to "some positive aspects" of the order. FERC affirmed that Louisiana could not export costs associated with a buying power from an aging hydroelectric facility at Vidalia, La., and that there would not be any retroactive cost-shifting to Arkansas ratepayers.

It was also good news that the equalization would not start until 2007, he said.

PSC General Counsel Mary Cochran said she wouldn't dispute PSC Chairman Sandra Hochstetter's statement in June that the FERC ruling was "about a 75 percent victory" for Arkansas ratepayers.

"It's the 25 percent that continues to be the problem," Cochran said. "And given today's natural gas prices, it's a bigger problem than it would have been if natural gas prices were the same as they were in June."

Louisiana immediately appealed Monday's ruling to the U.S. Circuit Court of Appeals at Washington, D.C. Cochran said the Arkansas PSC would also be filing an appeal within the next 60 days -- possibly in the same court, although a venue has not been settled on.

"We're going to be appealing the FERC's finding that the cost allocations on the Entergy system are no longer just and reasonable because the costs are no longer equal," she said.

The PSC will also challenge the "bandwidth remedy" dictated by FERC. That refers to FERC's order that rates be equalized to within 11 percent above and below the system's average cost, a "bandwidth" far more lenient than Louisiana officials hoped for.

McDonald said Entergy will continue short- and long-term efforts to reduce production costs systemwide to the benefit of all ratepayers. That includes selling some lower priced, Arkansas-generated power to Entergy in Louisiana, something Entergy Arkansas had been unable to do until the recent expiration of other wholesale contracts.

UPDATED: Entergy Customers May See Rate Hike After FERC Ruling