Entergy 2011 Annual Report Download - page 79

Entergy Corporation and Subsidiaries 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
In December 2009, Entergy Gulf States Louisiana and Entergy
Louisiana entered into a stipulation agreement with the LPSC Staff
that provides for total recoverable costs of approximately $234
million for Entergy Gulf States Louisiana and $394 million for Entergy
Louisiana, including carrying costs. Under this stipulation, Entergy
Gulf States Louisiana agrees not to recover $4.4 million and Entergy
Louisiana agrees not to recover $7.2 million of their storm restoration
spending. The stipulation also permits replenishing Entergy Gulf
States Louisiana’s storm reserve in the amount of $90 million and
Entergy Louisiana’s storm reserve in the amount of $200 million when
the Act 55 financings are accomplished. In March and April 2010,
Entergy Gulf States Louisiana, Entergy Louisiana, and other parties
to the proceeding filed with the LPSC an uncontested stipulated
settlement that includes these terms and also includes Entergy
Gulf States Louisiana’s and Entergy Louisiana’s proposals under the
Act 55 financings, which includes a commitment to pass on to
customers a minimum of $15.5 million and $27.75 million of customer
benefits, respectively, through prospective annual rate reductions of
$3.1 million and $5.55 million for five years. A stipulation hearing was
held before the ALJ on April 13, 2010. On April 21, 2010, the LPSC
approved the settlement and subsequently issued two financing orders
and one ratemaking order intended to facilitate the implementation
of the Act 55 financings. In June 2010 the Louisiana State Bond
Commission approved the Act 55 financings.
In July 2010 the Louisiana Local Government Environmental
Facilities and Community Development Authority (LCDA) issued
$468.9 million in bonds under Act 55. From the $462.4 million of bond
proceeds loaned by the LCDA to the LURC, the LURC deposited $200
million in a restricted escrow account as a storm damage reserve for
Entergy Louisiana and transferred $262.4 million directly to Entergy
Louisiana. From the bond proceeds received by Entergy Louisiana
from the LURC, Entergy Louisiana used $262.4 million to acquire
2,624,297.11 Class B preferred, non-voting, membership interest units
of Entergy Holdings Company LLC, a company wholly-owned and
consolidated by Entergy, that carry a 9% annual distribution rate.
Distributions are payable quarterly commencing on September 15,
2010, and the membership interests 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 under the terms of
the LLC agreement. 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.
In July 2010 the LCDA issued another $244.1 million in bonds under
Act 55. From the $240.3 million of bond proceeds loaned by the LCDA
to the LURC, the LURC deposited $90 million in a restricted escrow
account as a storm damage reserve for Entergy Gulf States Louisiana
and transferred $150.3 million directly to Entergy Gulf States Louisiana.
From the bond proceeds received by Entergy Gulf States Louisiana
from the LURC, Entergy Gulf States Louisiana used $150.3 million
to acquire 1,502,643.04 Class B preferred, non-voting, membership
interest units of Entergy Holdings Company LLC, a company wholly-
owned and consolidated by Entergy, that carry a 9% annual distribution
rate. Distributions are payable quarterly commencing on September
15, 2010, and the membership interests 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 under the terms of
the LLC agreement. 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 LCDA, and there is no recourse against Entergy,
Entergy Gulf States Louisiana or Entergy Louisiana in the event of
a bond default. To service the bonds, Entergy Gulf States Louisiana
and Entergy Louisiana collect a system restoration charge on behalf
of the LURC, and remit the collections to the bond indenture trustee.
Entergy Gulf States Louisiana and Entergy Louisiana do not report the
collections as revenue because they are merely acting as the billing
and collection agents for the state.
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 territories
in Louisiana, Mississippi, and Texas, including the effect of extensive
flooding that resulted from levee breaks in and around the greater New
Orleans area. The storms and flooding resulted in widespread power
outages, significant 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.
In March 2008, Entergy Gulf States Louisiana, Entergy Louisiana,
and the Louisiana Utilities Restoration Corporation (LURC),
an instrumentality of the State of Louisiana, filed at the LPSC
an application requesting that the LPSC grant financing orders
authorizing the financing of Entergy Gulf States Louisiana and
Entergy Louisiana storm costs, storm reserves, and issuance costs
pursuant to Act 55 of the Louisiana Legislature (Act 55 financings).
The Act 55 financings are expected to produce additional customer
benefits as compared to traditional securitization. Entergy Gulf States
Louisiana and Entergy Louisiana also filed an application requesting
LPSC approval for ancillary issues including the mechanism to flow
charges and savings to customers via a Storm Cost Offset rider. 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.
In July 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 under
the terms of the LLC agreement. The terms of the membership interests
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