Entergy 2007 Annual Report Download - page 31

Entergy Corporation and Subsidiaries 2007
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cross-subsidization by a regulated utility or the pledge or encumbrance
of utility assets for the benet of a non-utility associate company.
Subject to market terms and conditions and pursuant to the plan,
SpinCo is expected to execute approximately $4.5 billion of debt
nancing in connection with the separation. Anticipated uses of the
proceeds are for SpinCo to retain $0.5 billion for working capital and
for Entergy to retain $4 billion. Entergy expects to use $2.5 billion for
share repurchases and $1.5 billion for debt reduction.
Entergy is targeting around the end of the third quarter of 2008 as
the eective date for the spin-o and nuclear services business joint
venture transactions to be completed. Entergy expects the transactions
to qualify for tax-free treatment for U.S. federal income tax purposes
for both Entergy and its shareholders. Final terms of the transactions
and spin-o completion are subject to several conditions including
the nal approval of the Board. As Entergy pursues completion of the
separation and establishment of the nuclear services business joint
venture, Entergy will continue to consider possible modications to
and variations upon the transaction structure, including a sponsored
spin-o, a partial initial public oering preceding the spin-o, or the
addition of a third-party joint venture partner.
HURRICANE KATRINA AND HURRICANE RITA
In August and September 2005, Hurricanes Katrina and Rita
caused catastrophic damage to large portions of the Utility’s
service territory in Louisiana, Mississippi, and Texas, including the
eect of extensive ooding that resulted from levee breaks in and
around the greater New Orleans area. e storms and ooding
resulted in widespread power outages, signicant damage to electric
distribution, transmission, and generation and gas infrastructure,
and the loss of sales and customers due to mandatory evacuations
and the destruction of homes and businesses. Entergy has pursued a
broad range of initiatives to recover storm restoration and business
continuity costs. Initiatives include obtaining reimbursement of
certain costs covered by insurance, obtaining assistance through
federal legislation for damage caused by Hurricanes Katrina and Rita,
and pursuing recovery through existing or new rate mechanisms
regulated by the FERC and local regulatory bodies.
IN S U R A N C E CL A I M S
See Note 8 to the nancial statements for a discussion of Entergy’s
conventional property insurance program. Entergy has received
a total of $134.5 million as of December 31, 2007 on its Hurricane
Katrina and Hurricane Rita insurance claims, including $69.5 million
that Entergy received in the second quarter 2007 in settlement of its
Hurricane Katrina claim with one of its two excess insurers. In the
third quarter 2007, Entergy led a lawsuit in the U.S. District Court for
the Eastern District of Louisiana against its other excess insurer on the
Hurricane Katrina claim. At issue in the lawsuit is whether any policy
exclusions limit the extent of coverage provided by that insurer.
ere was an aggregation limit of $1 billion for all parties insured by
the primary insurer for any one occurrence at the time of the Hurricane
Katrina and Hurricane Rita losses, and the primary insurer notied
Entergy that it expects claims for Hurricane Katrina and Hurricane
Rita to materially exceed this limit. Entergy currently estimates that
its remaining net insurance recoveries for the losses caused by the
hurricanes, including the eects of the primary insurance aggregation
limit being exceeded and the litigation against the excess insurer, will
be approximately $270 million. Entergy currently expects to receive
payment for the majority of its estimated insurance recovery related to
Hurricane Katrina and Hurricane Rita through 2009.
CO M M U N I T Y DE V E LO P M E N T BL O C K GR A N T S (CDBG)
In December 2005, the U.S. Congress passed the Katrina Relief Bill,
a hurricane aid package that includes $11.5 billion in Community
Development Block Grants (CDBG) (for the states aected by
Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders
to fund individual recovery priorities. e bill includes language that
permits funding to be provided for infrastructure restoration.
New Orleans
In March 2006, Entergy New Orleans provided a justication statement
to state and local ocials in connection with its pursuit of CDBG
funds to mitigate Hurricane Katrina restoration costs that otherwise
would be borne by customers. e statement included all the estimated
costs of Hurricane Katrina damage, as well as a lost customer base
component intended to help oset the need for storm-related rate
increases. In October 2006, the Louisiana Recovery Authority 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 eort to provide rate relief for Entergy New Orleans
customers. e 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. Entergy New
Orleans led applications seeking Council of the City of New Orleans,
Louisiana (City Council or Council) or certication of its storm-
related costs incurred through December 2006. Entergy New Orleans
supplemented this request to include the estimated future cost of the
gas system rebuild.
In March 2007, the City Council certied that Entergy New Orleans
incurred $205 million in storm-related costs through December 2006
that are eligible for CDBG funding under the state action plan, and
certied Entergy New Orleans’ estimated costs of $465 million for
its gas system rebuild. In April 2007, Entergy New Orleans executed
an agreement with the Louisiana Oce of Community Development
(OCD) under which $200 million of CDBG funds will be made
available to Entergy New Orleans. Entergy New Orleans submitted the
agreement to the bankruptcy court, which approved it on April 25,
2007. Entergy New Orleans has received $180.8 million of the funds
as of December 31, 2007, and under the agreement with the OCD,
Entergy New Orleans expects to receive the remainder as it incurs and
submits additional eligible costs.
Mississippi
In March 2006, the Governor of Mississippi signed a law that
established a mechanism by which the Mississippi Public Service
Commission (MPSC) could authorize and certify an electric utility
nancing order and the state could issue bonds to nance the costs
of repairing damage caused by Hurricane Katrina to the systems of
investor-owned electric utilities. Because of the passage of this law
and the possibility of Entergy Mississippi obtaining CDBG funds
for Hurricane Katrina storm restoration costs, in March 2006, the
MPSC issued an order approving a Joint Stipulation between Entergy
Mississippi and the Mississippi Public Utilities Sta that provided
for a review of Entergy Mississippi’s total storm restoration costs in
an Application for an Accounting Order proceeding. In June 2006,
the MPSC issued an order certifying Entergy Mississippi’s Hurricane
Katrina restoration costs incurred through March 31, 2006 of $89
million, net of estimated insurance proceeds. Two days later, Entergy
Mississippi led a request with the Mississippi Development Authority
for $89 million of CDBG funding for reimbursement of its Hurricane
Management’s Financial Discussion and Analysis conti nued