No Entergy Bailout

More proof that Entergy isn’t Halliburton, but wants to be.

President Bush’s hurricane recovery accountant wants Entergy New Orleans, which supplies electricity and natural gas in the city, to pursue one of two options: Tap the financial pockets of its parent, which earned $909 million in profits on $10 billion in revenue in 2004, or ask the utility’s bondholders to write down the value of the subsidiary’s debt.

Personally, I was offended by Entergy’s decision to declare bankruptcy and shuffle its responsibility to restore electical service in New Orleans onto the federal government. The idea that Entergy “New Orleans” exists apart from Entergy “Other Regions” and Entergy “Corporate” is ridiculous. Entergy made $909 million dollars in profit in 2004. Even if it cost Entergy $350 million of that to restore the grid in New Orleans, they’d still be in the black. Given the differences between the 2004 and the 2005 marketplace, I have to wonder if the numbers weren’t looking better for them in pre-K 2005. To then turn around and hold New Orleans hostage when, as a company, they have the necessary resources to repair the grid regardless of what they may or may not receive from the federal government, has got to be ethically wrong.

And they will be holding New Orleans hostage: “Entergy executives and city officials [have warned] that electricity rates in New Orleans could jump more than 140 percent if utility customers are forced to foot the hurricane recovery bill. They said such a rate increase would significantly raise the cost of living in the city and stifle its recovery.” Note the “rates in New Orleans” line. Sure, we should pay our own way. But “we’re” part of a larger Entergy entity that should help insulate us from localized gouging after natural disasters. Just as it should protect Entergy customers in other parts of their network.

Jay Batt can disagree all he wants, but the responsibility of the federal government to restore a division of an otherwise profitable private entity is negligible next to its responsibility to restore a failed levee system for which the federal government was responsible and to further compensate property owners for losses which they would not have incurred had the levee system been properly designed and constructed in the first place. The two situations are fundamentally different. Entergy’s losses were caused by the storm, not the flooding. During the hurricane, even Entergy’s own emergency command post lost power. The timeline is somewhat murky, but it wouldn’t surprise me if 100% of the Entergy grid was offline before the levees broke.

Sure, Mama D is a terrorist, but even she’s on higher moral ground than companies who hide behind phony bankruptcies to protect corporate profits and threaten areas with 140% rate increases (that’s more than double, folks) rather than assume any risk for themselves or their investors.

9 Comments so far

  1. Mike (unregistered) on December 13th, 2005 @ 9:56 am

    So, you don’t think a regulated company should be reimbursed for storm losses/damages by the feds or the ratepayers, just the stockholders? You gotta be kidding. If the feds aren’t going to pay – which I understand there position – than the ratepayers need to pay. Otherwise no company run by anyone in there right mind would take that kind of risk to operate in hurricane alley. Which would mean the city would operate it. Which means inefficieny. But moreover, who do you think would bail out a city run electric company? Yes, the federal government. FYI, Entergy Corporation is a big company and the $900 million in profits comes from worldwide operations.

  2. Joe B. (unregistered) on December 13th, 2005 @ 10:42 am

    “Sure, we should pay our own way. But “we’re” part of a larger Entergy entity that should help insulate us from localized gouging after natural disasters.”

    Yes, the ratepayers do have to pay. I said that. But we shouldn’t be held hostage so that the wider Entergy Corporation can extort money from the federal government when Entergy has the resources to fix the grid. What I’m suggesting is that Entergy is doing exactly that by cutting recovery operations in New Orleans to the bare minimum because “they can’t afford to pay more crews.”

    And thanks, I get that Entergy is a big company, hence my disgust at their choice to hide behind what amounts to a divisional bankruptcy. “The idea that Entergy “New Orleans” exists apart from Entergy “Other Regions” and Entergy “Corporate” is ridiculous.”

    It isn’t as though I don’t expect ANY federal money to go to Entergy, but I object to the notion that businesses should be allowed to operate with the expectation that taxpayers will ultimately assume the burden of any loss incurred due to foreseeable weather events. Or for any other foreseeable event that causes a company to incur a loss in revenue and/or infrastructure.

    If you want to make the case that regulated companies should be bailed out by the government for catastrophic losses incurred during a severe weather event, then make the case. I can think of a couple of reasons for government to contribute. But I’m not going to cede that a full bailout is required simply on the basis that the business is regulated without seeing some analysis.

  3. Skeeter88 (unregistered) on December 13th, 2005 @ 11:20 am

    Will it be more expensive to pay for the repairs or to install solar cells on your own roof?

  4. dan frazier (unregistered) on December 13th, 2005 @ 11:45 am

    “Entergy’s losses were caused by the storm, not the flooding.”

    While I agree with you Joe about the Feds needing to restore the levee system more than helping out a publiclly regulated corporation, I disagree that the majority of Entergy’s issues were caused by the storm. The majority of their losses were caused by the flooding. Grids, etc were ruined by being underwater for 3 weeks. If no flooding had occurred, grids would not have been completly ruined.

    Also, this is not the last chance for Entergy New Orleans. There is money sitting in Congress for Entergy New Orleans, it will just be dispensed to the state first, the state would then “pass-on” to Entergy for their recovery efforts. So the feds are not ignoring Entergy’s issues all together, just going about assistance in a different way. January should be the month when many of these things move forward. So take Entergy’s moaning with a grain of salt. They know they’ll get some cash, but like most big corporations, they want it now and in 20 dollar bills please.

  5. Jack Ware (unregistered) on December 13th, 2005 @ 12:57 pm

    Entergy is a bunch of bastards. Raise the rates 140% – it’s just one more point on my list of reasons to get the fuck out of here.

    It’s a close race at this point for those keeping score at home.

  6. Mike (unregistered) on December 13th, 2005 @ 1:33 pm

    I agree with you that the federal government shouldn’t pay. But for crying out loud, the ratepayers should be expected to pay. I know you said we should pay our own way, but it sounds like your definition of “our own way” is different than mine or different from business reality. If we want to live here in such a hurricane prone area, you have to expect a company to recover the cost of getting service back and running. And I don’t think just because that company is large and profitable elsewhere it is morally obligated to stick the stockholders with the bailout. I would agree with your reasoning that the stockholders should pay part of the costs only if Entergy New Orleans was not regulated. If we deregulated those bastards rates would have to go up to reflect the weather risk associated with operation of such an entity on the gulf coast.

  7. Chris (unregistered) on December 15th, 2005 @ 10:41 am

    The reason for the rate hike in New Orleans is because New Orleans elected to have its own Public Service Commission run by the City Council. Entergy has mentioned that it could look at spreading its rate base which would mean abolishing Entergy New Orleans and having Entergy Louisiana (or one of the other PSCs) cover the New Orleans geography. All electric companies are authorizied to pass on costs associated with emergency and disaster restorations to the rate payers because of the regulation of the cost of electricity. As someone mentioned, if they deregulated the rates, you will see them go up not just because of the insurance cost for their equipment but also because of electrical distribution limitiations to the area.

    Entergy is trying to get the same funding that was allocated to ComEd post-9/11 which received only a small fraction of the loss that Entergy received. Additionally, how much money was tossed at the airline industry which are all privately run? Image a federal airline company instead. It would be as bad as a New Orleans run electric compnay.

  8. Joe B. (unregistered) on December 15th, 2005 @ 11:53 am

    Thanks, Chris. That post very nicely fills in a couple gaps I had about why certain things were happening.

    I understand the reason for the comparison with ConEd and 9/11, but I think the payment to them was a mistake, too. Same with the airlines. It isn’t as though airlines can’t make money. Several do that very consistently.

    For the record, I also object to the notion that local taxpayers should be allowed to operate with the expectation that the federal govenment will ultimately assume the burden of any loss incurred due to foreseeable weather events. If it’s New Orleans that has limited Entergy’s rate base and New Orleans is also forcing Entergy to operate at a profitability margin below average than New Orleans needs to share the blame that I previously placed on Entergy.

  9. roux (unregistered) on December 15th, 2005 @ 11:14 pm

    From what I understand only the old NOPS or Nopsee is what was declared bankrupt. Not all of Entergy that operates in NOLA. That part was never profitable.

    Difficult to explain but it was just the billing/collections part of Entergy in NOLA.

    Of course Entergy is a horribly run company that cares about today and not the future. As the CEO, etal only have 5 years to get the stock price up then vamoose to the next big paying CEO job.

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