A bid by two units of Entergy Corp. to finance their hurricane-damage repair costs through a quasi-government agency were again delayed amid questions about the state’s liabilities in the arrangement.
Entergy Louisiana and Entergy Gulf States-Louisiana requested approval for a $1 billion borrowing plan to cover the hurricanes Katrina and Rita repair costs and to create a storm reserve fund to pay for possible future storm damage.
The borrowing would be done through a quasi-government corporation that lets the Entergy units sell bonds, an arrangement the company believes may shield them from some tax payments.
The State Bond Commission has talked about the idea for three months, but again put the plans on hold because members said they still had unanswered questions. Instead, the commission, without objection, agreed to hold a special meeting on Entergy’s proposal in the next few weeks. An exact date for the meeting was not immediately set.
Entergy officials said the arrangement could save customers money by lowering planned electric rate hikes to cover the costs of damage from Katrina and Rita. Entergy Louisiana has 650,000 customers, and Entergy Gulf States-Louisiana has 355,000 customers around the state.
Michael Twomey, Entergy’s vice president in charge of Louisiana regulatory affairs, said ratepayers would pay less if the bond financing deal is approved.
However the borrowing is done, Entergy Louisiana and Entergy Gulf States-Louisiana have received permission from state utility regulators to pass along the costs to their customers.
If the borrowing is done through the specially created corporation and the IRS deems the surcharges paid by customers to cover the debt payment as tax-exempt, that would lessen the costs passed along to customers, Twomey said. The company has guaranteed at least $40 million less in surcharges for customers whether the IRS ruling is favorable or not, he said.
“The worst thing that can happen to the customers is that they save $40 million,” Twomey said.
But he acknowledged the IRS didn’t agree that a similar financing arrangement in another state was tax-exempt and Entergy would have to fight the tax collection agency in the auditing process to gain any tax exemptions.
“We won’t know the taxable status of this for probably several years,” Twomey said.
Treasurer John Kennedy, chairman of the Bond Commission, questioned whether the state would be held liable by the IRS if Entergy is deemed to owe back taxes on the financing arrangement — and what the implications could be for the state in such a situation.
“They can collect money from the state of Louisiana more easily than they can from Entergy,” Kennedy said, noting the federal government could withhold aid to the state.
Twomey said the state wouldn’t be on the hook for any tax payments, but Kennedy said that should be clear in writing.
Lt. Gov. Mitch Landrieu, a member of the Bond Commission, said he didn’t want ratepayers to lose out on potential savings and pushed Kennedy to hold a special meeting on the matter within weeks.
“At some point, unless there’s new information, we have to make a decision,” Landrieu said.
Since 2006, the two utilities have been charging customers an interim rate increase that is covering part of the costs of the storm damage.
Was this article valuable?
Here are more articles you may enjoy.