Entergy not giving up on 4% rate increase

Entergy Arkansas is again challenging the Public Service Commission over the utility’s bid to add about $68 million to ratepayers’ bills after state regulators quashed the effort.

The electric utility asked for a statewide rate increase of about 4%, or $4 per month to the average residential bill.

In a December ruling, the PSC said no, dropping the requested increase to $916,451. Entergy has filed for a rehearing on the issue and is seeking legislative help to alter the commission’s ruling.

The issue revolves around an annual formula rate plan (FRP) procedure, established by state law, that allows Entergy to submit an annual filing for a base rate increase of no more than 4%, though increases must be weighed against costs, expenses and revenue gains.

State regulatory commissioners ruled that Entergy’s rate tariff didn’t justify the requested rate increase.

The Dec. 15 order said “the Commission continues to be concerned that the operation of the FRP statute could result in continuing year-to-year rate increases approaching or meeting the four-percent cap. The commission expects all utilities to control their costs in a prudent and reasonable manner and not utilize the FRP as an automatic yearly four-percent rate increase.”

Entergy, the state’s largest electric utility with more than 715,000 customers and about $2 billion in operations, has filed for a rehearing. The commission has said it will rule on that request by March 15.

Commission Chairman Ted Thomas declined to comment on the specifics of the commission’s order because of the pending rehearing request.

As the rehearing is being considered, Entergy also is pursuing a legislative solution that has opponents up

in arms, contending that the move is an effort to “make an end run around regulators,” according to Jordan Tinsley, who represented a business consumer group in opposing Entergy’s rate increase.

Not so, Entergy contends. The company is asking legislators to clarify the intent of the legislation that set up the rate plan process, said David Palmer, director of regulatory affairs at the electric provider.

“The issue is out there to determine legislative intent on what has turned into a fairly contentious dispute over $68 million,” he said.

Entergy and the regulatory commission have tangled several times this year over rates, including how the company should reimburse solar customers and involving a company request to raise rates in Arkansas by $135 million to recover payments it was ordered to make to its sister utilities.

Both times the commission ruled against the company, and in the rate filing it ordered a $15 million refund for Entergy’s customers. The company has filed a federal lawsuit over the rate reimbursement decision.

The formula rate plan process involved in the current dispute was established by Act 725 of 2015 to ensure that customers’ rates are no higher than necessary for the utility to recover its costs and to earn a return sufficient to attract capital. The legislation set up a five-year process that ended in 2020, though Entergy has asked for another five-year extension. The commission says it will also rule on that request by March 15.

The regulatory mechanism was established to protect customers from severe rate increases in any one year and give the company assurances that it would be able to recover the expenses and investments related to improve infrastructure in the state.

In the formula rate plan process, every year Entergy provides the commission with expenses and revenue that include two key aspects: a look back at actual costs the previous year and projections for the coming year.

For example, when Entergy submitted the formula rate plan evaluation in July, it included actual costs and expenses called a “netting adjustment” for 2019 and projections for 2021. The projections for this year led the company to ask for the rate increase for 2021.

The netting adjustment for 2019 included revenue that was collected to make up for a shortfall in projections related to 2017, when Entergy’s revenue was down because of a cooler-than-normal summer.

In the current case, the Arkansas Electric Energy Consumers and the PSC staff contend the revenue that Entergy collected in the 2019 adjustment should be applied against the 2021 rate increase.

“By excluding those gains, that basically increased the rate increase amount they were trying to get for 2021,” said Tinsley, who represents the energy consumers, a collection of large industrial customers. “They basically just disregarded the collection of that revenue.”

At the commission, staff Director Donna Gray noted that the staff agreed with the consumer group that the revenue collected in 2019 should offset Entergy’s rate increase request.

“We challenged Entergy’s filing and took the position that they wanted to adjust out revenues and that is inconsistent with the tariff,” Gray said. “We could not reach an agreement on that netting adjustment.”

Entergy, Palmer said, has used the same procedures every year it has filed for recovery under the formula rate plan, and the commission and other parties like the consumers group have agreed to allow for netting adjustments just like the one being used this time around.

“It’s a head-scratcher for us because we thought all this had been settled and approved in prior years,” Palmer said. “All of our prior submissions have been agreed to under a settlement with all the parties involved, including the commission.

“The process was set up to provide financial certainty and stability for ratepayers and for the company,” he added. “It’s not practical to come along and change the rules in year five.”

Entergy says the $916,451 rate increase approved by the commission is a drop in the bucket when considering the investments it makes in Arkansas to provide electric power at an affordable rate.

“There needs to be a common-sense factor in play here,” Palmer said. “We’re going to spend hundreds of millions of dollars investing in the state in 2021, and we’re being asked to support that with a $900,000 increase. It just doesn’t make practical sense.”

The Arkansas Electric Energy Consumers contend the revenue collected in 2019 should be applied to the company’s 2021 revenue-increase request. “That’s more than $67 million in revenues that should be used to keep bills down for ratepayers,” Tinsley said. “Every single ratepayer in the state is affected by this decision.”

As the commission considers Entergy’s reconsideration request, the company has turned to Sen. Terry Rice, R-Waldron, to seek a legislative solution to the dispute.

Rice has submitted a “special language amendment” to the PSC budget appropriation that critics contend would override the commission’s December ruling.

“They’ve recruited Senator Rice to effectively reverse the commission’s ruling in order 40,” Tinsley said, referring to the ruling that reduced Entergy’s rate request. “And it would make the rate request retroactive — which would mean we would get a 3 or 4% rate increase in the middle of a pandemic that we ordinarily wouldn’t get because Entergy’s got some legislators carrying their water in a case that they lost at the commission.”

At the PSC, Thomas and Gray declined to comment on the legislative proposal.

Rice said the amendment would “help add to the process for all parties,” though he declined several requests to be more specific about how his amendment would achieve those goals.

“There has been no action taken on that by the Legislature,” Rice said last week.

Entergy says the amendment would help discern legislative intent on the netting adjustment issue and clarify how it should be interpreted.

As for the potential to increase rates further this year, Palmer said the company’s request would have little effect on overall rates. The formula rate plan rider is one element in a larger billing mechanism that works to keep rates affordable, he said.

“The big picture is that the netting adjustment has allowed us to make significant investments while holding the overall bill to a 1% annual growth rate,” Palmer said.

Entergy says its overall bill has increased only by 1.1% every year from 2015-20. “Rates are not going up 4%; there’s only been a 1% increase on an annual basis, and we’re tracking lower than inflation,” Palmer said.