Entergy New Orleans (ENO) is planning a bond backed by payments it collects from electric customers for “storm recovery” expenses, according to a filing with the U.S. Securities and Exchange Commission.
The utility includes a storm recovery fee in bills to its power transmission and distribution customers. The fee is meant to cover the costs that ENO has incurred or will incur from severe weather.
Citigroup Global Markets is arranging the deal and Sidley Austin is a counsel to the issuer.
The filing does not list the size or ratings of the securitization but ENO does expect to obtain grades from two rating agencies.
A deal of this nature is subject to a variety of risks. Among them is the fact that the amount ENO charges for storm recovery is determined by its forecast of power use. If its customers use less electricity for any reason, then the amount collected for storm recovery would commensurately fall. In addition, a rise in the number of customers unable to pay their bills — a potential outcome of the very sort of weather events the fee is designed to cover — would also eat into collections.
In addition, there is what is known as “commingling” risk. Storm recovery charges are paid by customers as part of their entire bill. This means that in the event of ENO’s bankruptcy the bondholders would have a hard time stripping out this particular payment stream.
New Orleans is vulnerable to hurricanes. ENO’s operations have been pounded by a handful of them in the past decade: Rita and Katrina (2005), Gustave and Ike (2008) and Isaac (2012).
In 2014, ENO delivered roughly 5.2 billion kilowatt hours of electricity with billed revenue totaling $485.8 million. By power usage, some 39% of its customers were commercial, 37% residential, 15% government and municipal, and 9% industrial.
