Entergy 2012 Annual Report Download - page 76

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
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 terri-
tories 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 wide-
spread 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 destruc-
tion of homes and businesses.
In March 2008, Entergy Gulf States Louisiana, Entergy Louisi-
ana, and the Louisiana Utilities Restoration Corporation (LURC), an
instrumentality of the State of Louisiana, filed at the LPSC an appli-
cation 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 sav-
ings 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 custom-
ers 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 call-
able 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 August 2008, the LPFA issued $278.4 million in bonds under
the aforementioned Act 55. From the $274.7 million of bond pro-
ceeds 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 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 include certain financial cov-
enants to which Entergy Holdings Company LLC is subject, includ-
ing the requirement to maintain a net worth of at least $1 billion. In
February 2012, Entergy Gulf States Louisiana sold 500,000 of its
Class A preferred membership units in Entergy Holdings Company
LLC, a wholly-owned Entergy subsidiary, to a third party in exchange
for $51 million plus accrued but unpaid distributions on the units.
The 500,000 preferred membership units are mandatorily redeem-
able in January 2112.
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. 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, Entergy Gulf States Louisiana, and Entergy Louisiana do not
report the collections as revenue because they are merely acting as the
billing and collection agent for the state.
ENTERGY NEW ORLEANS
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a
hurricane aid package that included Community Development Block
Grant (CDBG) funding (for the states affected by Hurricanes Katrina,
Rita, and Wilma) that allowed state and local leaders to fund individ-
ual recovery priorities. 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. Entergy New Orleans received $180.8 million
of CDBG funds in 2007 and $19.2 million in 2010.
In October 2006, the City Council approved a rate filing settlement
agreement that, among other things, authorized a $75 million storm
reserve for damage from future storms, which will be created over a
ten-year period through a storm reserve rider that began in March
2007. These storm reserve funds are held in a restricted escrow account
until needed in response to a storm. In November 2012, Entergy New
Orleans withdrew $10 million from the storm reserve escrow account
to partially offset the costs associated with Hurricane Isaac.
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