Entergy 2008 Annual Report Download - page 32

30
ENTERGY CORPORATION AND SUBSIDIARIES 2008
Management’s Financial Discussion and Analysis continued
other general corporate purposes. All of the remaining proceeds
are expected to be transferred to Entergy to settle Enexus’ inter-
company indebtedness owed to Entergy, including indebtedness
that Entergy will transfer to Enexus in the separation. Enexus will
not receive any proceeds from either the issuance of the up to
$3.0 billion of its debt securities or the exchange of its debt
securities for Entergy debt securities. Entergy expects to use the
proceeds that it receives from the issuance of its debt securities
to reduce outstanding Entergy debt, repurchase Entergy common
shares, or for other corporate purposes. The amount to be paid
to Entergy, the amount and term of the debt Enexus would incur,
and the type of debt and entity that would incur the debt have
not been finally determined, but would be determined prior
to the separation. A number of factors could affect this final
determination, and the amount of debt ultimately incurred could
be different from the amount disclosed.
Enexus executed a $1.175 billion credit facility in December
2008. Enexus is not permitted to draw on the $1.175 billion
facility unless certain conditions are met on or prior to October 1,
2009, including consummation of the spin-off. Enexus may enter
into other financing arrangements meant to support Enexus’
working capital and general corporate needs and credit support
obligations arising from hedging and normal course of business
requirements.
Due to the condition of the financial markets, it is uncertain
whether financing fundamental to the spin-off transaction can be
effected in the near-term. Entergy and Enexus intend to launch
the financing after requisite regulatory approvals are received
and when market conditions are favorable for such an issuance.
Entergy expects the transaction to qualify for tax-free treatment
for U.S. federal income tax purposes for both Entergy and its
shareholders, and Entergy has received a private letter ruling
from the Internal Revenue Service (IRS) regarding the tax free
treatment. Final terms of the transactions and spin-off completion
are subject to several conditions, including the final approval of
the Board.
HURRICANE GUSTAV AND HURRICANE IKE
In September 2008, Hurricane Gustav and Hurricane Ike caused
catastrophic damage to portions of Entergy’s service territories
in Louisiana and Texas, and to a lesser extent in Arkansas and
Mississippi. The storms resulted in widespread power outages,
significant damage to distribution, transmission, and generation
infrastructure, and the loss of sales during the power outages. Total
restoration costs for the repair and/or replacement of Entergy’s
electric facilities damaged by Hurricane Gustav and Hurricane Ike
are estimated to be in the range of $1.295 billion to $1.360 billion,
as follows (in millions):
Hurricane Gustav Hurricane Ike
Restoration Costs Restoration Costs
Entergy Arkansas $ 17 – $ 20 $ 14 – $ 15
Entergy Gulf States Louisiana $220 – $230 $ 20 – $ 25
Entergy Louisiana $370 – $380 $ 20 – $ 25
Entergy Mississippi $ 18 – $ 20 $ 3 – $ 5
Entergy New Orleans $ 25 – $ 30 $ 3 – $ 5
Entergy Texas $ 15 $570 – $590
Total $665 – $695 $630 – $665
The Utility operating companies are considering all reasonable
avenues to recover storm-related costs from Hurricane Gustav and
Hurricane Ike, including, but not limited to, accessing funded
storm reserves; federal and local cost recovery mechanisms, includ-
ing requests for Community Development Block Grant (CDBG)
funding; securitization; and insurance, to the extent deductibles
are met. In October 2008, Entergy Gulf States Louisiana, Entergy
Louisiana, and Entergy New Orleans drew a total of $229 million
from their funded storm reserves. Entergy Arkansas requested
and has received APSC approval for a surcharge to recover $22
million of its 2008 storm restoration costs, as discussed in Note 2 to
the financial statements, and the other affected Utility operating
companies expect to file for recovery of their storm restoration
costs no later than the spring 2009. Entergy is currently evaluating
the amount of the losses covered by insurance for Entergy and
each of the affected Utility operating companies. Because most of
the Hurricane Gustav damage was to distribution and transmission
facilities that are generally not covered by property insurance,
Entergy does not expect to meet its deductibles for that storm.
Because Hurricane Ike caused more damage by flooding and
also caused more damage to generation facilities as compared
to Hurricane Gustav, it is more likely that Entergy will meet its
deductibles for that storm.
Entergy has recorded the estimated costs incurred, including
payments already made, that were necessary to return customers to
service. Entergy has recorded approximately $746 million against its
storm damage provisions or as regulatory assets and approximately
$484 million in construction expenditures. Entergy recorded the
regulatory assets in accordance with its accounting policies and
based on the historic treatment of such costs in its service territories
(except for Entergy Arkansas, which deferred $19 million of its
costs pursuant to an APSC order, because it discontinued regulatory
storm reserve accounting in July 2007 as a result of an earlier APSC
order), because management believes that recovery through some
form of regulatory mechanism is probable. Because Entergy has
not gone through the regulatory process regarding these storm
costs, however, there is an element of risk, and Entergy is unable
to predict with certainty the degree of success it may have in its
recovery initiatives, the amount of restoration costs that it may
ultimately recover, or the timing of such recovery.
ENTERGY ARKANSAS JANUARY 2009 ICE STORM
In January 2009 a severe ice storm caused significant damage to
Entergy Arkansas’ transmission and distribution lines, equipment,
poles, and other facilities. The preliminary cost estimate for the
damage caused by the ice storm is approximately $165 million to
$200 million, of which approximately $80 million to $100 million
is estimated to be operating and maintenance type costs and
the remainder is estimated to be capital investment. On January
30, 2009, the APSC issued an order inviting and encouraging
electric public utilities to file specific proposals for the recovery of
extraordinary storm restoration expenses associated with the ice
storm. Although Entergy Arkansas has not yet filed a proposal for
the recovery of its costs, on February 16, 2009, it did file a request
with the APSC requesting an accounting order authorizing
deferral of the operating and maintenance cost portion of Entergy
Arkansas’ ice storm restoration costs pending their recovery.
ENTERGY NEW ORLEANS BANKRUPTCY
As a result of the effects of Hurricane Katrina and the effect of
extensive flooding that resulted from levee breaks in and around
the New Orleans area, on September 23, 2005, Entergy New Orleans
filed a voluntary petition in bankruptcy court seeking reorganization
relief under Chapter 11 of the U.S. Bankruptcy Code. On May 7,
2007, the bankruptcy judge entered an order confirming Entergy
New Orleans’ plan of reorganization. With the receipt of CDBG
funds, and the agreement on insurance recovery with one of its excess
insurers, Entergy New Orleans waived the conditions precedent
in its plan of reorganization, and the plan became effective on
May 8, 2007. See Note 18 to the financial statements for additional
discussion of Entergy New Orleans’ bankruptcy proceedings.
30