Following up on this post from earlier this week, Entergy Corporation‘s New Orleans subsidiary filed a chapter 11 case on Friday in New Orleans (that filing location will certainly cut down on the number of lawyers attending the first round of hearings). Neither the Entergy parent company nor any of its other subsidiaries were included in the bankruptcy filing, which is important because about 250,000 of Entergy’s Gulf Coast unit’s 1.3 million Texas customers are currently without power as a result of Hurricane Rita. The difference between those two units is that those 250,000 customers without power are still Entergy customers. In stark contrast, Entergy’s New Orleans unit has lost a staggering 130,000 customers as a result of Hurricane Katrina, and its unclear how many of those customers will even return to the New Orleans region.
The filing occurred after Entergy concluded that the estimated $750 million to $1.3 billion cost of rebuilding the unit’s electric system from Hurricane Katrina-related damage far exceeds what the utility’s customers can afford to pay. Immediately upon filing, Entergy’s parent corporation requested bankruptcy court authority to advance the New Orleans unit $150 million to head off an emergency liquidity crisis and to provide funds to continue the rebuilding effort. Even that emergency financing was dependent on the parent company obtaining emergency concessions from its lenders to avoid a cross-default on its $2 billion emergency line of credit. Although the New Orleans unit’s reorganization plan is in the infancy stages, Entergy is attempting to arrange a plan that is based on insurance proceeds, federal support and a limited rate increase to cover rebuilding costs.