A day after state utility regulators approved the idea, a $1 billion storm recovery borrowing plan from two units of Entergy Corp. was stalled by the State Bond Commission amid questions about state liabilities in the arrangement.
Rather than vote on the plan, the Bond Commission instead approved a two-week delay and asked the Legislative Auditor’s Office to review whether the state could be on the hook for any financial problems with the deal.
An Entergy official said if the Bond Commission doesn’t make a decision on the company’s request soon — after several months of discussion — the financing plan will fall apart and will leave customers with higher utility bills.
“If the Bond Commission does not act soon, it’s the same as saying no,” said Michael Twomey, Entergy’s vice president in charge of Louisiana regulatory affairs. “What I don’t know is how soon.”
Entergy Louisiana and Entergy Gulf States-Louisiana want to borrow the money through a quasi-state government agency that the company believes may shield it from some tax payments on the bond sale. The company says the money saved in taxes will result in at least $40 million in lower rate hikes for utility customers and as much as $268 million less.
The money generated by the bond sale will be used to pay for repair costs from hurricanes Katrina and Rita and to set up a reserve fund to help cover damage costs in a future storm.
“It is a new thing, and it is a unique proposal, at least for the state. We need to do our due diligence,” said Rep. Hunter Greene, R-Baton Rouge, a member of the Bond Commission who made the motion Thursday to delay approval while Legislative Auditor Steve Theriot looks at the plan.
The Public Service Commission approved the proposal. Agreement from the Bond Commission is the last piece needed before the bonds can be sold. No one on the Bond Commission objected to the delay when Greene proposed it.
It’s unclear when the Bond Commission again will consider Entergy’s proposal. Greene said he didn’t ask for the delay to kill the proposal by deferral.
If the Bond Commission rejects the company’s request, the company would borrow the money without any chance of a tax shelter.
However the borrowing is done, Entergy Louisiana and Entergy Gulf States-Louisiana have received permission from the PSC to pass along the costs to their customers. Since 2006, the two utilities have been charging customers an interim rate increase that is covering part of the costs of storm damage.
Entergy Louisiana has 650,000 customers, and Entergy Gulf States-Louisiana has 355,000 customers.
If the borrowing is done through the specially created corporation and the Internal Revenue Service deems the surcharges paid by customers to cover the debt payment as tax-exempt, that would lessen the costs passed along to customers. But Twomey 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 to gain any tax exemptions.
The company has guaranteed at least $40 million less in surcharges for customers whether the IRS ruling is favorable or not.
“They’ll be no worse off if we lose. In fact, they’ll be $40 million better off,” Twomey said of Entergy customers.
Greene questioned whether the state would be held liable by the IRS if Entergy is deemed to owe back taxes on the financing arrangement.
Twomey said the plan approved by the PSC includes language that ensure any tax liability rests with Entergy, not the state. “We will pay any tax liability. Period,” he said.
But the language isn’t the blanket indemnification clause sought by Treasurer John Kennedy, chairman of the Bond Commission and an outspoken critic of Entergy’s proposal.
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