No White House Bailout for New Orleans Utility

NEW ORLEANS —  The White House has declined to bail out New Orleans’ bankrupt utility company, prompting dismay among local officials who see the decision as an indication that the Bush administration is not committed to rebuilding the city after Hurricane Katrina.

There was still a chance, officials here said, that assistance could come through congressional action or federal grants. But because Entergy Corp. is a regulated monopoly, they said, the decision makes it likely that the utility will be forced to pass on to the public the $350-million bill for its recovery.

Residents could see their bills soar by 140% at a time when few can afford it, said Clint Vince, who advises the City Council on energy matters. He acknowledged that utilities frequently passed natural-disaster losses on to their customers, but said the scope of the calamity in New Orleans made that impossible.

“You can’t place this on their backs,” he said. “We have met with the White House and articulated that. And not only have we not gotten support, we have gotten opposition. It’s inconceivable.”

Allan B. Hubbard, chairman of the White House Gulf Coast Recovery and Rebuilding Council and President Bush’s chief economic advisor, informed Entergy of the decision in a recent letter.

“We believe that transferring federal tax dollars to the bondholders and shareholders of a private firm is inappropriate,” the letter said. “Prudent investors consider the risks inherent in any investment they make, including the risks of a natural disaster.... It would be wrong for the taxpayer to bail out those investors.”

White House officials declined to discuss the issue publicly Tuesday. But a White House economic official, speaking on condition of anonymity, said Hubbard’s letter encompassed the president’s position.

“The company has a responsibility, and that is to supply juice to the people,” the official said. “They need to get about that business. Dragging their feet -- and trying to get the American taxpayers to pay for that business -- is wasting time.”

Louisiana officials point out that the Bush administration delivered a $250-million bailout of New York’s power company, Con Edison, after the Sept. 11 terrorist attacks -- largely so that consumers would not have to cover the cost of rebuilding the company’s infrastructure.

At the time, Con Edison said that the damage was equal to one-quarter of its annual profit. Entergy says the damage to its infrastructure -- caused primarily by flooding when New Orleans’ levee system failed -- is far more extensive.

The cost of restoring power alone represents 68% of Entergy’s net assets, the company has estimated.

In addition, Con Edison still had the vast majority of its customers after the terrorist attack. More than 70% of Entergy’s customer base is missing, reducing its revenue stream to a trickle; many customers will never return.

“Your viewpoint is inconsistent and appears to make a distinction between the needs of the prosperous occupants of lower Manhattan after the tragedy of 9/11 ... and the needs of the displaced and disproportionately poor residents of New Orleans,” Entergy Executive Vice President Curt Hebert Jr. wrote to Hubbard.

The White House official rejected the comparison.

“9/11 was not a foreseeable disaster,” the official said. “Hurricanes have been striking the Southeast part of the United States since the land rose from the sea.”

The issue underscores a fundamental dispute in the effort to rebuild.

In a September speech broadcast from the French Quarter, Bush pledged to rebuild Gulf Coast communities so that they would be “better and stronger” than before hurricanes Katrina and Rita ravaged the region. Bush also said that “federal funds will cover the great majority of the costs of repairing public infrastructure in the disaster zone.”

It has since become clear that the White House plans to rely largely on the free market to determine New Orleans’ future. But even many conservatives who espouse free enterprise say the damage in New Orleans is so sweeping that government programs are the only way to rebuild. And the utility, they say, would be a good place to start.

“There is an issue of equity here,” said Chris Paolino, spokesman for Rep. Bobby Jindal (R-La.), who in most instances is a strong White House ally. “We helped out in New York. We’d like to see a little bit of support as we rebuild New Orleans.”

Hebert also is an outspoken free-enterprise advocate. In 2001, as Bush’s chairman of the Federal Energy Regulatory Commission, he became a central figure in the California energy crisis -- and caused an uproar when he said the state’s effort to buy transmission lines would amount to “nationalization.”

Today, as Entergy’s executive vice president, his correspondence with the White House has amounted to a stern lecture on the free market’s limitations when it comes to saving a staggered city.

“I am gravely disappointed in the administration’s decision to apply narrow, free-market considerations,” Hebert wrote. “The consumers in the city will suffer significantly as a result, and I believe that everyone there has suffered enough.”

The issue has divided energy analysts.

Michelle Michot Foss, chief energy economist at the University of Texas Center for Energy Economics, said the White House position had been consistent and that Entergy needed to demonstrate corporate responsibility before expecting a handout.

“People want to see what is actually going to happen,” she said. And the burden of proving that a bailout would be the wisest use of taxpayer money is on Entergy, Foss said. “What is the quid pro quo in terms of making real improvements in Louisiana? That’s the dilemma here.”

But Daniele M. Seitz, a Maxcor Financial Inc. analyst in New York, called the White House position shortsighted. She said restoring electric and gas service in New Orleans was the linchpin to reconstruction.

“Every other industry is attached to that industry,” she said. “Unless this works, everything else is just not going anywhere. It’s a pity.”

The White House’s rejection of the bailout request could result in a strange twist. The administration, by adhering to conservative principles, could force the city government to take over Entergy New Orleans. Indeed, Hebert’s letter to the White House warned that “without immediate federal assistance, it is unlikely that Entergy New Orleans can continue as a viable commercial entity.”

“That would be a bitter irony,” Vince said. “That’s the last resort. But it could happen.”