by Adam Tempkin

NEW YORK, June 28 (IFR) - Entergy Louisiana, LLC is the first utility to be approved to use a securitization to recover costs from a canceled power-plant project, and will issue US$200m in so-called senior secured investment recovery bonds, according to an S-3 filed Friday by the company with the SEC.

While the utility, which is a unit of Entergy Corp , has previously issued ABS to recover costs related to hurricane and storm damage, this is the first time that Entergy Louisiana (ELL) - or any utility - has used securitization to recoup costs on a terminated power-plant transition plan.

On June 24, the Louisiana Public Service Commission (LPSC) approved an uncontested settlement which allows ELL to recover costs related to the cancellation of a repowering project at its 538 Megawatt Little Gypsy steam generating station.

In 2007, Entergy, with the approval of the LPSC, laid the groundwork to convert its Little Gypsy natural gas power plant in St. Charles Parish to a petroleum coke plant. However, the plan was delayed numerous times because of lower natural gas prices and environmental concerns, and was finally scuttled in May.

In answer to ELL's request to recover stranded costs from the terminated project, the LPSC ordered ELL to pursue a securitization under the Louisiana Electric Utility Investment Recovery Securitization Act (known as the 'Securitization Law'), which was passed by the Louisiana legislature in 2010.

The Securitization Law permits an electric utility to transfer its rights and interests under a financing order, including the right to impose, bill, collect, and receive investment recovery charges, to a special purpose entity (SPE) formed by the utility. The SPE can then issue debt securities secured by the right to receive revenues arising from the investment recovery charges.

The securitization financing of ELL's investment recovery costs and financing costs is expected to lower the financing costs and mitigate the impact on rates in comparison with conventional utility financing methods or alternative methods of recovery, thereby benefiting ratepayers, according to the


ELL last tapped the ABS market in July, 2010. At that time, Citigroup and JP Morgan priced two ABS deals for the Louisiana Utilities Restoration; the US$468.9m Entergy Louisiana and the US$244.1m Entergy Gulf States Louisiana (EGSL) Utilities Restoration Corporation Projects.

The two deals were related to the utilities' storm costs from Hurricanes Gustav and Ike, two costly and damaging storms from the 2008 hurricane season, according to officials at the Louisiana Public Facilities Authority (LPFA).

Since both Entergy utilities are for-profit companies, the bond payments were passed through a tax-exempt, state entity, called the Louisiana Utilities Restoration Corporation (LURC).

LURC, as a component unit of the state, can borrow tax-exempt, so monthly payments from electricity customers first go to LURC, and those funds are passed through to pay off the bonds.

(Adam Tempkin is a senior IFR analyst)