Sandy Cohen

Sandy Cohen
Contributor since: 2005
Dr. Feelgood,
There is a long term risk ... anytime any utility seeks regulatory assistance, no matter how justified, there is always a hit.
I am certain that ETR will get full, or nearly full, recovery of its costs to make any necessary repairs and rebuilds. But there is certainly a reasonable question as to the time frame over which ETR can recieve such recovery.
Here are some questions to ask:
1) How many people will move back to New Orleans or the Gulf Coast of Mississippi and rebuild?
2) WHEN will those people move back to rebuild?
3) How many companies will move back to rebuild?
4) When will those companies move back?
5) How much does insurance cover?
6) Exactly how and when will Federal ro State money flow directly to ETR, as opposed to ETR funding the costs out of its own pocket initially?
If you do not know the answers to those questions, and maybe many others, then there is real risk over the next 6-18 months.
Also, if there is no electric service being provided for the next ... I dunno, 2-3 months ... then ETR and its shareholders are losing not just the profits from those sales, but also the revenues that cover ETR's already sunk capital costs. And ETR is likely going to continue to pay its employees wages and benefits as well. Those are likely NEVER going to be recovered (not sure any regulator will allow recovery of lost revenues due to business interruptions).
Finally, if ETR permanently loses 1/3 of its customers in New Orleans, let's say, then the customer base over which the revenues needed to cover ETR's base costs, plus its restoration costs, is WAY smaller. Why does this matter? because politcally, the cost of electricity would rise 50% for each customer BEFORE ETR's storm costs, just to allow recovery of the already sunk costs, and then even more for recovery of any additional costs ETR is likely to incur to make repairs. For persepctive, Progress Energy just got recovery of about $237 million for its storm costs from last year (and they were just ONE utility affected). I would say the Florida utilities conservatively spent $600 million to $700 million due to the hurricanes of last year. This disaster will dwarf the costs of last seasons several hurricanes, in my opinion ... and the costs will mainly be on just ONE company, not 4, and will have to be spread over MANY fewer customers. That creates a real politcal issue.
The risks are real, and until the costs of the storm are understood, and until the number of customers there will be are known, and until ETR actually asks for recovery, there could be an overhang on the stock.
And by the way, where do you think the Federal monies go first? To ETR, with all that cash, and cashflow? Or to people and businesses that are REALLY wiped out?
The cash flow from the synfuel tax credits starts to come to the companies that have recorded these credits AFTER the credits expire ... after 2007.
So ... until 2007, EARNINSG are created, in the form of tax credits (non-cash) that reduce a company's tax bill through 2007. Then, after 2007, the EARNINGS benefit goes away, but cash flow starts to be reported (do not ask me how or why, it is an acounting thing, not my strength).