Entergy Gets Rate-Hike Approval

Entergy Corporation ( ETR - Analyst Report ) has received approval from the Mississippi Public Service Commission (“MPSC”) to increase monthly rates of the residential electricity customers. The revised rate is expected to be applicable from February 2013.

Currently, the average residential electricity customer, using 1,000 kilowatt-hours (“kWh”) per month, pays $96.93 per month. Per the rate revision, the average residential customers will pay $99.71, up 4.9% year over year.

Entergy Corporation intends to increase its residential electricity bill in order to fund the costs incurred while purchasing a share of Entergy Arkansas’ Grand Gulf nuclear plant by its unit Entergy Mississippi.

Grand Gulf Nuclear plant is located in Port Gibson and is the only nuclear power plant to produce electricity in Mississippi. The deal of this property among two sister concerns will allow Entergy Corporation to save fuel costs in the long term. The company anticipates saving of $346 million in the time span of 2013 to 2042.

The company files for rate hike to recoup the investment made to develop infrastructure or to recover cost incurred to make new purchases. In December 2012, the MPSC approved Entergy Corporation’s appeal to increase the electricity rate for recovering investments made by the company to purchase Jackson power plant from KGen Hinds LLC. Jackson power plant, being a new one, will enable Entergy Corporation to generate power with using lesser amount of natural gas than its old plants. This will subsequently decrease the company’s operating costs, resulting in lower rates when fuel savings are passed on to the customers.

Entergy Corporation always tries to provide uninterrupted services to its customers. Over the last couple of years, the company has made considerable investments for the construction of high-efficiency, natural gas-fired energy power plants, and acquisition and development of nuclear power plants.

In November last year, Entergy Corporation had received approval from the U.S. Department of Justice for the acquisition of Hot Spring and Hinds power plants from the units of KGen Power Corporation. Simultaneously, the company is also in the process of divesting its electric transmission business to ITC Holdings Corporation ( ITC - Snapshot Report ) .

However, we are skeptical about continued weak economic environment in the U.S., which will challenge the company’s power sales. Entergy Corporation currently has a short-term Zacks Rank #3 (Hold).

New Orleans, Louisiana-based Entergy Corporation and its subsidiaries are engaged in the electric production and retail distribution operations. It operates in two segments, Utility and Entergy Wholesale Commodities.