Entergy 2005 Annual Report Download - page 9

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to afford. We are still working at the federal level to
create additional opportunities to recover our storm
costs so that we can continue to serve our customers in
the manner they deserve and at rate levels that encourage
and promote continued development and restoration.
■At the state level, we have made filings to request interim
recovery of nearly $600 million of storm costs in
Louisiana and Mississippi. And in Texas, the public
utility commission has initiated a project to review
exceptional storm damage costs caused by Hurricane
Rita. We are also working with state regulators to
possibly securitize our restoration costs – essentially
spread the impact on rates over an extended period
by accessing low-cost financing sources. Through
securitization, we could recover our costs on a timely
basis while our customers would benefit by incurring
a smaller rate increase on their utility bills over a
longer timeframe.
While we continue to pursue recovery initiatives, we also
executed a comprehensive financing plan at the end of
2005, consisting of debt and equity units, to restore our
financial flexibility. The plan gives us the financial capacity
to meet current, as well as unexpected calls on our cash
position, solidifies our credit ratings, and provides the
flexibility to get the company back on the path it was on
prior to the storms.
In fourth quarter 2005, we completed a new $1.5 billion
corporate revolver for our parent company, issued $500
million of operating company debt, and marketed $500 million
of equity units. In addition, we infused $300 million of
equity into Entergy Gulf States – our subsidiary with the
highest overall restoration costs – enabling it to maintain
its liquidity and investment grade credit rating in
anticipation of obtaining some form of cost recovery.
As our recovery initiatives progress and liquidity rises,
we believe that unwinding our financing plan could be
effected easily and at a reasonable cost. However, in the
short term, we believe combining our cost recovery
efforts with a comprehensive financing plan is highly
consistent with the aspirations we have previously outlined
– to reliably serve our customers and deliver top-quartile
shareholder returns – while keeping our overall risk
profile on solid footing.
WHAT OF NEW ORLEANS?
While most of our service territory is on the road to
recovery, the city of New Orleans is in a different situation.
Extensive flooding from breaches in the levee system left
much of the city uninhabitable. At the end of 2005, roughly
two-thirds of the city’s population had not yet returned and
when or if they will return is a very open question.
With the reduced population, the load level for Entergy
New Orleans stands at approximately sixty percent of its
pre-Katrina levels – essentially stranding much of the fixed
costs in a system designed to serve a larger load. Even
without the storm restoration costs, rates for this much
reduced customer base would have to substantially increase
to cover the costs of providing power. Add in the storm
costs and customers could, in the absence of outside
assistance, insurance proceeds, and severe cost cuts, face a
roughly 140 percent rate increase – clearly unacceptable.
Given this difficult situation and the extreme liquidity
constraints placed upon it, Entergy New Orleans took a
necessary step on September 23, 2005 of filing a voluntary
petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. To ensure restoration efforts continued
uninterrupted, we also filed a simultaneous motion for
debtor-in-possession financing that would permit Entergy
Corporation making loans of up to $200 million to
Entergy New Orleans. To date, debtor-in-possession loans
of $100 million have been made to Entergy New Orleans.
In a major development, on December 7, 2005, the
bankruptcy judge granted our request that Entergy
Corporation’s debtor-in-possession financing prime all
existing debt, including Entergy New Orleans’ first
mortgage bondholders. In effect, Entergy New Orleans
now has first claim on all property, plant, and equipment
plus post-bankruptcy petition acquired assets, including
insurance proceeds. This action by the bankruptcy court
strengthens Entergy’s hand in trying to rebuild the Entergy
New Orleans system.
by most accounts, exceeded expectations.”
– USA Today