Monday, May 15, 2006

Today's Picayune

If you missed them, be sure to read today's articles on the proposed Entergy bailout and the timeline of the city's flooding. Seems like there might be a slight connection between the two, but I'll get to that.

Not much to add to what other bloggers have already said about the first article, I'm inclined to agree with Seymour D. at Third Battle that the timeline makes you why it took until late Monday/early Tuesday for news of the flooding to reach the national media--I know that communications had broken down, but floodwaters would have been within walking distance of the French Quarter and CBD long before noon. I don't want to engage in any wild speculation before I go back and reread old accounts.

More importantly, the article doesn't actually state that the levee breaches caused the flooding, it just strongly implies it. The ACoE could, and almost certainly will, argue that breaches and flooding were inevitable, it just happenned earlier than the models would have predicted. That argument's getting thinner and thinner.

The article on the proposed entergy bailout is a lengthy one, a reader might well have missed the following:

Jim Owen, a spokesman for the Edison Electric Institute, said Entergy shareholders shouldn't be asked to cover rebuilding costs because utilities have always been able to pass along the costs of restoring service to customers after a big storm.

Owen said it's part of the compact that local governments created when they granted monopoly status to utilities in exchange for heavy regulation of their operations, including sharp limits on profitability.

"It's just a cost of doing business," Owen said. "People might not want to invest in utilities if they have to shoulder the burden of rebuilding from hurricanes and ice storms and tornadoes."

I won't map out the connection between the two articles, interesting that the article didn't mention that the damage to Entergy New Orleans wasn't entirely force majeur.

Though the aricle was lengthy, it was not without comic relief:

But Packer said Entergy Corp. already is bearing its share of the burden. In December, he noted, the parent company agreed to provide as much as $200 million in low-interest loans to the local utility while it remains in bankruptcy. So far, the company has borrowed $90 million and paid back about $20 million, Packer said.

"They are taking a haircut on that, because they are not using their capital to the best interests of their owners," Packer said. "We are getting that $200 million at 4.5 percent interest, and that is way below anything they could earn if they invested that money somewhere else."

Presumably, he said that with a straight face. Despite the impressive sounding numbers, the parent company is out not $200M, not $90M, but $70M. Oops, it's actually out the interest on $70M. No, that's not quite right, its the difference between 4.5% interest (on $70M) and what it might possibly earn in interest. Quite a haircut. There is some loss in earnings potential involved, the earnings yield for S&P 500 companies averages 6.1%, but don't be fooled.

Can we all agree that the business model for large corporations with near monopolies in a highly regulated industry, is nothing like the traditional business model for small businesses? Can we also agree that the job description for the head of the local subsidiary of such a corporation has very little to do with making payroll.

Note: I was interrupted before posting yesterday, sorry for any confusion caused by the reference to today's Picayune. I also could not vote for any candidate who agrees with the use of CDBG money to compensate Entergy N.O. for lost revenue, every utility in the state would demand equal treatment, and there'd be no CDBG left for anything else.

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