Entergy 2008 Annual Report Download - page 43

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Management’s Financial Discussion and Analysis continued Management’s Financial Discussion and Analysis continued
ENTERGY CORPORATION AND SUBSIDIARIES 2008
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including the mechanism to flow charges and savings to customers
via a Storm Cost Offset rider. On April 3, 2008, the Louisiana
State Bond Commission granted preliminary approval for the Act
55 financings. On April 8, 2008, the Louisiana Public Facilities
Authority (LPFA), which is the issuer of the bonds pursuant to the
Act 55 financings, approved requests for the Act 55 financings.
On April 10, 2008, Entergy Gulf States Louisiana and Entergy
Louisiana and the LPSC Staff filed with the LPSC an uncontested
stipulated settlement that includes Entergy Gulf States Louisiana
and Entergy Louisiana’s proposals under the Act 55 financings,
which includes a commitment to pass on to customers a minimum
of $10 million and $30 million of customer benefits, respectively,
through prospective annual rate reductions of $2 million and $6
million for five years. On April 16, 2008, the LPSC approved the
settlement and issued two financing orders and one ratemaking
order intended to facilitate implementation of the Act 55
financings. In May 2008, the Louisiana State Bond Commission
granted final approval of the Act 55 financings.
On July 29, 2008, the LPFA issued $687.7 million in bonds under
the aforementioned Act 55. From the $679 million of bond proceeds
loaned by the LPFA to the LURC, the LURC deposited $152 million
in a restricted escrow account as a storm damage reserve for Entergy
Louisiana and transferred $527 million directly to Entergy Louisiana.
From the bond proceeds received by Entergy Louisiana from the LURC,
Entergy Louisiana invested $545 million, including $17.8 million
that was withdrawn from the restricted escrow account as approved
by the April 16, 2008 LPSC orders, in exchange for 5,449,861.85
Class A preferred, non-voting, membership interest units of Entergy
Holdings Company LLC, a company wholly-owned and consolidated
by Entergy, that carry a 10% annual distribution rate. Distributions
are payable quarterly commencing on September 15, 2008 and have
a liquidation price of $100 per unit. The preferred membership
interests are callable at the option of Entergy Holdings Company LLC
after ten years. The terms of the membership interests include certain
financial covenants to which Entergy Holdings Company LLC is
subject, including the requirement to maintain a net worth of at least
$1 billion.
On August 26, 2008, the LPFA issued $278.4 million in bonds
under the aforementioned Act 55. From the $274.7 million of bond
proceeds loaned by the LPFA to the LURC, the LURC deposited
$87 million in a restricted escrow account as a storm damage reserve
for Entergy Gulf States Louisiana and transferred $187.7 million
directly to Entergy Gulf States Louisiana. From the bond proceeds
received by Entergy Gulf States Louisiana from the LURC, Entergy
Gulf States Louisiana invested $189.4 million, including $1.7 million
that was withdrawn from the restricted escrow account as approved
by the April 16, 2008 LPSC orders, in exchange for 1,893,918.39
Class A preferred, non-voting, membership interest units of Entergy
Holdings Company LLC, a company wholly-owned and consolidated
by Entergy, that carry a 10% annual distribution rate. Distributions
are payable quarterly commencing on September 15, 2008 and have
a liquidation price of $100 per unit. The preferred membership
interests are callable at the option of Entergy Holdings Company
LLC after ten years. The terms of the membership interests include
certain financial covenants to which Entergy Holdings Company LLC
is subject, including the requirement to maintain a net worth of at least
$1 billion.
Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana
do not report the bonds on their balance sheets because the bonds
are the obligation of the LPFA, and there is no recourse against
Entergy, Entergy Gulf States Louisiana or Entergy Louisiana in the
event of a bond default.
Insurance Claims
See Note 8 to the financial statements for a discussion of Entergy’s
conventional property insurance program. Entergy has received
a total of $277 million as of December 31, 2008 on its Hurricane
Katrina and Hurricane Rita insurance claims, including the
settlements of its Hurricane Katrina claims with each of its two
excess insurers. Entergy currently expects to receive payment for
any remaining insurance recovery related to Hurricane Katrina
and Hurricane Rita in 2009.
CO M M U N I T Y DE V E L O P M E N T BL O C K GR A N T S
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 affected by
Hurricanes Katrina, Rita, and Wilma) that allows state and local
leaders to fund individual recovery priorities. The bill includes
language that permits funding to be provided for infrastructure
restoration.
New Orleans
In March 2006, Entergy New Orleans provided a justification
statement to state and local officials in connection with its pursuit
of CDBG funds to mitigate Hurricane Katrina restoration costs
that otherwise would be borne by customers. The statement
included all the estimated costs of Hurricane Katrina damage, as
well as a lost customer base component intended to help offset
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
effort to provide 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.
Entergy New Orleans filed applications seeking City Council
certification 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 certified 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 certified 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 Office
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,
2008. Entergy New Orleans has submitted additional costs and
awaits reimbursement in accordance with the contract covering
disbursement of the funds.
Mississippi
In March 2006, the Governor of Mississippi signed a law that
established a mechanism by which the MPSC could authorize and
certify an electric utility financing order and the state could issue
bonds to finance 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