Entergy Arkansas Wants Rate Hike

Entergy Corporation’s (ETR - Analyst Report) utility subsidiary Entergy Arkansas has requested from the Arkansas Public Service Commission a $223 million hike in the base rate late last week.

Entergy Arkansas supplies electricity to 684,000 customers spread across 63 counties in the state of Arkansas. The requested hike was to cover the cost of purchase of the Ouachita plant and restoration costs associated with the January 2009 ice storm in northern Arkansas. As per company estimations, this would raise the bill of an average residential customer with a monthly consumption of 1,000 kilowatt-hours by $7.86.

Entergy Arkansas officials, however, feel that the actual burden would be much less. The improvement is expected to stem from lower fuel costs, which would improve on account of a decrease in natural gas prices.

New Orleans-based Entergy is primarily engaged in electric power production and retail distribution of power. With 30,000MW of generating capacity, it distributes electricity to 2.6 million customers in Arkansas, Louisiana, Mississippi and Texas. Of this, 14,631MW are gas/oil based, 2,259MW coal based, 70MW hydro-based and the rest nuclear based. With around 13,000MW of nuclear-based energy, the company is the second largest nuclear power generator in the U.S. The company also distributes natural gas to 240,000 customers in Louisiana.

Entergy is focusing on its traditional electric utility business with a planned separation of its nuclear business. The company has shown strong resilience during two back-to-back destructive hurricanes in 2008. Going forward, stable earnings from regulated utilities and significant free cash flow available for share repurchases, dividend hikes and/or debt retirement collectively support management’s focus on creating shareholder value.

However, higher outages, an expected slide in power prices and pending regulatory approvals in New York and Vermont for the proposed spin-off of its nuclear business are areas of concern. We maintain our Neutral recommendation on the shares.