Entergy Arkansas Pursues Ways to Reduce Ice Storm Costs
Securitization Initiative Saves Customers $32 Million
Entergy Arkansas, Inc. will be the first utility in the state to help customers save money by using a newly available financial tool called securitization. The company projects it will save customers $32 million in the recovery of costs associated with the devastating ice storm of January 2009.
“Entergy Arkansas is pursuing every avenue to reduce the costs of storm restoration to customers,” said Entergy Arkansas President and Chief Executive Officer Hugh McDonald. “Our company put forth a monumental effort to restore power promptly following the storm, and we are just as determined to keep restoration costs for our customers as low as possible.”
Securitization became available in Arkansas after Entergy Arkansas proposed the option to state legislators in 2009. As a result, the legislature passed the Arkansas Electric Utility Storm Recovery Securitization Act. The act created the option for a utility company to recover storm costs by selling bonds, then paying back the investors over several years. The bonds can be issued at an interest rate less than the cost for a utility to raise money, which creates the opportunity for savings. In the case of the 2009 ice storm, the company sold $124.1 million of storm cost recovery bonds Aug. 18 at a remarkably low interest rate of 2.3 percent, which was the lowest rate for utility securitization bonds since the tool first came into use in 1997.
This was the first time an Arkansas utility company has used securitization, although Entergy Arkansas’ sister companies have used the tool in their states to pay for hurricane damage.
The investors in the bonds will be repaid with money collected through a new line item on customer bills beginning in October labeled, “Ice Storm Recovery Charge.” For a typical customer using 1,000 kWh of electricity in a month, the line item will be $0.87.
The company filed a tariff today with the Arkansas Public Service Commission, formalizing the amount and start date of the addition of the line item to customer bills.
“We applaud the foresight and wisdom of the Arkansas Legislature for passing this law,” said McDonald. “Securitization is a smart financial tool, and we are pleased that our customers will realize over $32 million of savings in its first application.”
Securitization is an alternative to the conventional method of cost recovery. Under the conventional method, the company would finance the repairs like any other cost, then include that cost in base rates. Securitization saves customers money through lower cost financing of the debt needed to rebuild the system after a major storm.
Entergy Arkansas, Inc. provides electricity to 687,000 customers in 63 counties. Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, and it is the second-largest nuclear generator in the United States. Entergy delivers electricity to 2.7 million utility customers in Arkansas, Louisiana, Mississippi and Texas.
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