Entergy 2006 Annual Report Download - page 43

ENTERGY CORPORATION AND SUBSIDIARIES 2
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Entergy Mississippi filed a request with the Mississippi
Development Authority for CDBG funding for reimbursement of
its Hurricane Katrina infrastructure restoration costs and received
$81 million in October 2006.
Entergy New Orleans, Entergy Louisiana, and Entergy Gulf States-
Louisiana provided justification statements to state and local officials
in March 2006 and presented revised justification statements to the
Louisiana Recovery Authority (LRA) in September 2006. The state-
ments include the estimated costs of Hurricanes Katrina and Rita
damage, as well as for Entergy New Orleans a lost customer base com-
ponent intended to help offset the need for storm-related rate
increases. The statements include justification for CDBG funding of
$592 million for Entergy New Orleans, $539 million for Entergy
Louisiana, and $183 million for Entergy Gulf States-Louisiana.
In October 2006, the LRA Board endorsed a resolution proposing
to allocate $200 million in CDBG funds to Entergy New Orleans to
defray gas and electric utility system repair costs in an effort to pro-
vide rate relief for Entergy New Orleans customers. The proposal was
developed as an action plan amendment and published for public
comment. State lawmakers approved the action plan in December
2006, and the U.S. Department of Housing and Urban Development
approved it in February 2007. In addition, the City Council must
review and certify the amount of Entergy New Orleans’ eligible storm
costs before an application can be filed with the LRA and CDBG
funding can be released to Entergy New Orleans. Entergy New
Orleans filed applications seeking City Council certification of $210
million in storm-related costs incurred through December 2006.
Entergy New Orleans has supplemented this request to include the
estimated future cost of the gas system rebuild. In January 2007, the
City Council passed a resolution in which it stated its intent to ren-
der a decision in the certification proceeding by March 2007.
ENTERGY NEW ORLEANS BANKRUPTCY
Because of the effects of Hurricane Katrina, on September 23, 2005,
Entergy New Orleans filed a voluntary petition in the United States
Bankruptcy Court for the Eastern District of Louisiana seeking reor-
ganization relief under the provisions of Chapter 11 of the United
States Bankruptcy Code (Case No. 05-17697). Entergy Corporation
owns 100 percent of the common stock of Entergy New Orleans, has
continued to supply general and administrative services through
Entergy Services, and has provided debtor-in-possession financing to
Entergy New Orleans. Uncertainties surrounding the nature, timing,
and specifics of the bankruptcy proceedings, however, caused Entergy
to deconsolidate Entergy New Orleans and reflect Entergy New
Orleans’ financial results under the equity method of accounting
retroactive to January 1, 2005. Because Entergy owns all of the com-
mon stock of Entergy New Orleans, this change did not affect the
amount of net income Entergy records from Entergy New Orleans’
operations for any current or prior period, but did result in Entergy
New Orleans’ net income for 2005 and 2006 being presented as
“Equity in earnings (loss) of unconsolidated equity affiliates” rather than
its results being included in each individual income statement line item,
as is the case for periods prior to 2005. Entergy has reviewed the carry-
ing value of its equity investment in Entergy New Orleans to determine
if an impairment has occurred as a result of the storm, the flood, the
power outages, restoration costs, and changes in customer load. Entergy
determined that no impairment has occurred because management
believes that cost recovery is probable. Entergy will continue to assess the
carrying value of its investment in Entergy New Orleans as develop-
ments occur in Entergy New Orleans’ recovery efforts.
On February 5, 2007, Entergy New Orleans filed an amended plan
of reorganization and a disclosure statement with the bankruptcy
court. The bankruptcy court entered an order on February 13, 2007
that approves the adequacy of Entergy New Orleans’ disclosure state-
ment. The Unsecured Creditors’ Committee also filed a plan of
reorganization on February 5, 2007. The Unsecured Creditors’
Committee’s plan is similar in some respects to Entergy New Orleans’
plan, but contains several differences. The significant differences
are noted below. A hearing regarding confirmation for both plans of
reorganization is scheduled for May 3 and 4, 2007.
Entergy New Orleans’ plan of reorganization reflects its continuing
effort to work with federal, state, and local authorities to resolve the
bankruptcy in a manner that allows Entergy New Orleans’ customers
to be served by a financially viable entity as required by law. The plan
of reorganization provides full compensation to Entergy New Orleans’
creditors whose claims are allowed by the bankruptcy court.
Conditions precedent proposed in Entergy New Orleans’ plan of reor-
ganization before it can become effective include:
■A final confirmation order from the bankruptcy court approving
the plan of reorganization;
■Receipt by Entergy New Orleans of insurance proceeds of at least
$50 million;
■Receipt by Entergy New Orleans of $200 million in CDBG
funding; and
■No material adverse change shall have occurred from and after the
confirmation date of the plan of reorganization.
In addition, key factors that will continue to influence the timing and
outcome of Entergy New Orleans’ recovery efforts include the level of
economic recovery of New Orleans and the number of customers that
return to New Orleans, including the timing of their return. Entergy
New Orleans currently estimates that approximately 95,000 electric cus-
tomers and 65,000 gas customers have returned and are taking service.
Prior to Hurricane Katrina, Entergy New Orleans had approximately
190,000 electric customers and 144,000 gas customers.
The Unsecured Creditors’ Committee’s plan does not contain the
conditions precedent regarding receipt by Entergy New Orleans of
insurance proceeds and CDBG funds. Instead, the Unsecured
Creditors’ Committee’s plan proposes exit financing of up to $150
million, with a maturity of up to 5 years, and with an estimated inter-
est rate of 10.5%, increasing by 1% per year. Obtaining this exit
financing is a condition precedent to the Unsecured Creditors’
Committee’s plan.
The bankruptcy judge set a date of April 19, 2006 by which credi-
tors with prepetition claims against Entergy New Orleans, with
certain exceptions, had to file their proofs of claim in the bankruptcy
case. Approximately 560 claims, including amending claims, have
been filed thus far in Entergy New Orleans’ bankruptcy proceeding.
Entergy New Orleans is currently analyzing the accuracy and validity
of the claims filed, and is seeking withdrawal or modification of
claims or objecting to claims with which it disagrees. Several of the
filed claims have been withdrawn or disallowed by the bankruptcy
court. Entergy New Orleans currently estimates that the prepetition
claims that will be allowed in the bankruptcy case will approximate
the prepetition liabilities currently recorded by Entergy New Orleans.
Entergy New Orleans’ plan of reorganization proposes to pay the
third-party prepetition accounts payable in full in cash and to issue
three-year notes in satisfaction of the affiliate prepetition accounts
payable, and proposes that its first mortgage bonds will remain out-
standing with their current maturity dates and interest terms. The
plan of reorganization proposes that Entergy New Orleans’ preferred
stock will also remain outstanding on its current dividend terms, with
payment of unpaid preferred dividends in arrears. The Unsecured
Creditors’ Committee’s plan is similar, but would pay the affiliate
prepetition accounts payable in cash.
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
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