Entergy New Orleans Inc., the unit of Entergy Corp. that filed for Chapter 11 bankruptcy protection after Hurricane Katrina destroyed most of its electrical and natural gas systems in the city, submitted a reorganization plan on Oct. 24.
“If the plan is approved, Entergy New Orleans could emerge from bankruptcy by the end of 2007,” Dan Packer, president and chief executive of Entergy New Orleans, said in a statement.
But the insurance company that covers some of Entergy New Orleans’ secured bonds served notice that it would oppose the plan, saying the reorganization proposal would “sacrifice the long-term stability” of Entergy New Orleans “in favor of providing an immediate benefit” to the parent company and its other affiliates.
Federal Guaranty Insurance Co. said that the unit’s bondholders intend to reject the reorganization plan.
The bankruptcy reorganization plan is contingent upon Entergy New Orleans receiving $200 million in federal hurricane relief money and approval of a rate increase plan by the City Council. Although the Louisiana Recovery Authority has recommended Entergy New Orleans get the money, the Louisiana Legislature and federal officials still must approve.
The reorganization plan, filed with U.S. Bankruptcy Judge Jerry A. Brown in New Orleans, also says customers must cover any storm recovery shortfall if Entergy New Orleans receives less than $250 million in insurance payments.
The proposal calls for paying all creditors in full and retains all employee and retiree benefit programs. No reduction in the unit’s 400 employees is contemplated.
“I think that’s critical, particularly for the people of New Orleans. So many are employed here,” Entergy New Orleans spokesman Morgan Stewart said.
Clinton Vince, a Washington, D.C. lawyer and chief adviser to the city on the case, said the plan would be reviewed and presented to the City Council on Friday. Vince said lawyers working for the city were “extremely encouraged” after initial estimates that Entergy New Orleans would not emerge from bankruptcy until perhaps 2009.
But the plan did not sit well with some.
Virginia Boulet, head of Mayor Ray Nagin’s energy task force, said her monthly utility bill is now around $1,400. She questioned whether many New Orleans residents and businesses can stand a large rate hike while the parent corporation benefits.
“They don’t give up any share of the ownership, they come out owning 100 percent of a company that rate payers and taxpayers have paid to rebuild,” Boulet said of Entergy Corp. “That’s amazing.”
In its own filing, Financial Guaranty Insurance, said the reorganization plan will leave Entergy New Orleans “with inadequate capital to operate its business and provide uninterrupted and continuous service to New Orleans in the future.” The filing asked the bankruptcy court to terminate Entergy New Orleans’ time to file an exclusive reorganization plan. FCIC said it intends to file its own reorganization plan and have creditors choose it or the Entergy New Orleans plan.
Entergy New Orleans, which serves only the city, filed for bankruptcy protection in October 2005, less than two months after Katrina struck on Aug. 29, saying its sustained $620 million in damage due to high winds and flooding generated by the hurricane.
The prospects of Entergy New Orleans returning to its previous service level in the foreseeable future are grim. A study by the think-tank Rand Corp. predicts the city’s population – 454,000 before Katrina- will be about 272,000 by September 2008.
The Louisiana Recovery Authority and Gov. Kathleen Blanco have recommended that Entergy New Orleans get the federal relief money. Without it, Entergy New Orleans said customers faced a 64 percent increase in their monthly electric and gas cost, $45 for each $70 of a combined power and gas bill. With the LRA money, the projected increase was cut to 50 percent.
However, Entergy New Orleans is in negotiations with the city over a rate increase plan. Packer said the final rate increase could be much lower. A decision by the City Council is due by Nov. 1.
Entergy New Orleans is only a small part of Entergy Corp., which has two other regulated power units serving Louisiana, as well as units in Arkansas, Mississippi and Texas. The company’s Entergy Nuclear subsidiary, which owns and operates nuclear power plants in the South and Northeast, has been expanding rapidly. In 2005, Entergy Corp. reported $10.11 billion in revenue. Only $673.3 million of that revenue came from Entergy New Orleans.
In trading on the New York Stock Exchange, shares of Entergy Corp. fell 25 cents to close Oct. 24 at $85.21. The stock has traded in a 52-week range of $66.78 to $85.84.
AP reporters Janet McConnaughey and Cain Burdeau in New Orleans contributed to this report.
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