Entergy faces questions on financial health of spin-off company

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(Host) Federal regulators have told the Entergy Corporation that it can spin off Vermont Yankee and four other nuclear plants to a new company.

But the proposal still needs approval in Vermont.

And the company faced tough questions this week about its financial health.

VPR’s John Dillon reports:

(Dillon) The state Department of Public Service is concerned that Entergy’s plans could leave the new owner of Vermont Yankee with high debt and in weaker financial shape.

The department says the benefits of the corporate restructuring will flow to the company’s shareholders. But Vermont ratepayers, the department says, could be at risk because the company is undercapitalized.

One problem, according to the state, is that the new company won’t have enough money to immediately decommission Vermont Yankee if the plant shuts down when its license expires in 2012.

This week, Entergy and its consultants took the stand at the Public Service Board. Public Advocate Sarah Hofmann asked the company’s financial expert, Susan Abbott, about the credit-worthiness of the new corporation, called Enexus.

(Hofmann) “Would you agree with me that Enexus is not as financially sound as Entergy is today?”

(Abbott) “That’s a very difficult question to answer yes or no.”

(Hofmann) “Well, let me try to break it down for you. Is Enexus going to be rated investment grade?”

(Abbott) “Ah. Probably not.”

(Dillon) Companies with poor credit ratings also get charged higher interest.

In the case of Enexus, it needs to borrow $4.5 billion. It’s rated as "speculative," or below investment grade.

Abbott used to work for credit-rating agencies that dig deep into a company’s books. She explained the system this way.

(Abbot) “The rating agencies’ ratings are meant to indicate what the likelihood is a company will pay back its debt, on a timely basis, which is one indication of financial health.”

(Dillon) The new company would have multiple layers between the corporation that owns Vermont Yankee, and the parent organization.

Disagreements between the corporate cousins would be resolved through a complicated dispute resolution process. The state says there’s a potential for conflicts of interest between the various corporations.

Attorney Hofmann used a not so-hypothetical example to investigate this issue. On the witness stand was Joseph DeRoy, a vice president of Entergy Services Corporation.

Vermont Yankee has twice experienced problems with its cooling towers. Hofmann asked what would happen if a cooling tower collapsed at the plant, and one side of the corporation didn’t want to spend the money to fix the towers unless the plant was allowed to operate for another 20 years.

(Hofmann) “And the owners are saying well, you know we have a commitment to the people of the state of Vermont, let’s fix it now. How long would it take for that dispute to be resolved?”

(DeRoy) “Not to accept that particular hypothetical, I believe it would take months to go through the dispute resolution process.”

(Dillon) And sorting through Entergy’s corporate restructuring could also take months. Besides the Vermont Public Service Board, regulators in New York are reviewing the proposal as well.

For VPR News, I’m John Dillon in Montpelier.

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