The Louisiana Public Service Commission (LPSC) last week appointed a roster of financial advisors, energy consultants and legal counsel to structure a deal that would allow Entergy Corp. to raise $690 million in securitization debt. The New Orleans-based electrical power company is looking to recoup costs it incurred after Hurricanes Katrina and Rita. If given final approval, Entergy could come to market with the transaction in early 2007.
Word has it that Morgan Stanley was tapped as financial advisor to Entergy, and that Charlotte, N.C.-based Pathfinder Capital Advisors will represent the LPSC. Before the particulars of the deal are finalized, including the amount approved for securitization, Atlanta-based Henderson Ridge Consulting and Columbia, Md.-based Exeter Associates will do an audit of storm-related costs, "so that the amount that Entergy wants to finance with securitization is appropriate," said someone familiar with the situation. New Orleans-based law firm Stone Pigman will act as outside counsel for the LPSC.
The commission heard proposals from three advisors, but ultimately selected Pathfinder Capital Advisors because the firm submitted the lowest bid at $400,000. Pathfinder's other competitors, New York City-based Saber Partners, and Bear Stearns, submitted bids of $700,000 and $600,000, respectively, said a source familiar with the deal.
Hurricanes Katrina and Rita inflicted about $250 billion in damages in the Gulf Coast region, with most of it incurred after the storms flooded the City of New Orleans, according to the Insurance Information Institute. For its part, Entergy estimates that Hurricanes Katrina and Rita incurred $700 million in damages, which included 28,892 destroyed utility poles, 5,799 destroyed transformers and 53,172 spans of wire that needed to be replaced. The proceeds from the deal will benefit two of the company's divisions, Entergy Louisiana and Entergy Gulf States.
In December, Entergy filed an interim cost recovery plan with the LPSC, which, it said would have resulted in a small surcharge on customer's bills. In February, the LPSC allowed Entergy to recovery up to $20 million from March through September, through its fuel adjustment clause. The company said that 12 months of collection from customers brought together less than 10% of total storm damage costs.
Although the main parties are in place to structure the deal, some say that the transaction might not price by early 2007, for several reasons. The ramp-up time has been broken up into three phases. During the first two phases, Exeter Associates and Henderson Ridge will analyze volumes of data on storm-related damages and costs. Pathfinder Capital will begin its work during phase III.
Additionally, the LPSC's unique structure presents another potential obstacle to the deal. Unlike most states, where the public service commission is a creation of the state legislature, the LPSC is a completely separate entity. It resembles a separate branch of government, said one source. Only Arizona's public service commission is similarly structured. At any rate, other state public service commissions enjoy the state legislature's full backing to issue irrevocable and unconditional financing orders. It is not clear whether the LPSC will have a special statute providing the guarantees for the bonds, as in other states aside from Arizona. Without that state backing, its final financing order might potentially be open to a never-ending string of legal challenges, said one source.
"In all other jurisdictions, the state legislature can create legal protections," said one source. "These have all been tested. The whole process is so new to New Orleans ... that nobody knows."
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