Friday, November 18, 2005

Double Whammy In Dark New Orleans

Most of us have the impression that the tragedy of New Orleans is primarily due to accidents of fate combined with the negligence of hapless incompetents. But deliberate, unconscionable Bush administration policies which were adopted well before Hurricane Katrina also are significantly slowing the post-storm recovery effort.

The Seattle Times earlier this week published a truncated version of Los Angeles Times reporter Ellen Barry's dispatch a day earlier from New Orleans. The bottom line is that as of today "forty percent of the homes in New Orleans, most of them lying east of the Industrial Canal, do not have electricity."

Although some structures were effectively destroyed, Barry writes, "in other areas, residents say, rebuilding could start immediately if basic services were turned on." Chief among these needed services is electric power.

Citizen anger spilled over at a Town Hall meeting last week. Symptomatic was this comment, from homeowner Dennis Scott:

"Entergy needs to be placed on the carpet here. I know you have financial problems, but whatever happened to contingency planning? We're talking about a Fortune 500 company here…. Entergy, you need to be — I hate to say it — shot."
The Seattle paper's foreshortened version of Barry's article may puzzle some readers because it omits key facts that help to explain why residents are so spitting mad. To figure out what's really going on, you need to read the full story as it was originally published in the Los Angeles paper (free subscription required).

A utility company called "Entergy New Orleans" is the area's dominant power company. But it "filed for bankruptcy protection Sept. 23," three weeks after Hurricane Katrina made landfall.

"Entergy New Orleans" is a wholly-owned subsidiary of Entergy Corporation. The parent corporation describes itself as an "integrated energy company" that provides primarily electric power. In fact, it is a giant on the corporate landscape -- the second largest nuclear plant power producer in the nation.

The parent company's stock price dropped only slightly when its New Orleans subsidiary took bankruptcy. The price has since recovered to near historic highs. Why the rebound? A month ago Entergy Corporation reported higher third quarter "consolidated earnings" of $1.64 per share, compared with $1.22 a share the year before.

Almost simultaneously, however, the parent corporation announced that henceforth it will be reporting its New Orleans subsidiary's earnings separately, as if it were entirely independent. By separately reporting the subsidiary's financials, the parent's financial skirts look cleaner than they really are. (Sound familiar, Enron fans?)

Entergy also elected to adopt what it calls "ring fencing" around the New Orleans subsidiary. This effectively means the New Orleans subsidiary will no longer receive funds from the parent corporation.

Immediately afterwards, Entergy New Orleans sent away the repair crews that had come in from outside the area. Cut off by the parent, the New Orleans subsidiary could no longer afford to pay out-of-state utility crews. Efforts to restore power slowed to a trickle.

So, even as the parent corporation was enjoying record profits it was busily shoving its New Orleans subsidiary out of the house. And here's the kicker: Entergy New Orleans now is seeking a subsidy from U.S. taxpayers!

According to the Los Angeles Times, "Its chief executive has said the company needs $450 million in federal assistance to survive in the face of restoration costs and the sudden drop in revenue." This, even though the most recent consolidated balance sheet for the parent corporation shows it has over $28.5 billion in assets and only about $2 billion in short and longterm liabilities.

As Floridians know only too well, the restoration of power after a hurricane is absolutely essential to economic recovery. If New Orleans and suburbs are to have any kind of an economic future, they need power restored as quickly as possible and the people there don't much care where the money comes from.

From safely outside the darkened city, though, one can't escape deploring Entergy's despicable corporate game of "heads we win, tails you lose." The parent corporation was happy enough to call its New Orleans subsidiary 'family' as long as profits from Entergy New Orleans kept flowing upwards to the parent and its shareholders, who are dominated by banks and institutional investors. The moment the subsidary needed help, however, Entergy cut it loose, pretended it didn't even know the beggar at the door, and packed it off to beg from Uncle Sam.

There is another aspect to the story that goes beyond Ellen Barry's immediate purposes. The same month Entergy-the-parent turned its back on its subsidiary, the so-called Consumer Bankruptcy Reform Act went into effect. That odious statute was promoted by the Bush administration and supported by congressman and senators of both political parties who are in the pay of credit card companies. The law makes it significantly tougher and more expensive for individuals, families, and small businesses to get a fresh start in life once they are faced with back-breaking debt.

Recent studies of individual bankruptcies show that at least half of all individual bankruptcies are triggered by unavoidable medical emergencies. Other dominant causes are sudden job loss and catastrophic property losses. That's a pretty good summary of the kinds of damage Hurricane Katrina has caused throughout New Orleans and much of the Gulf Coast.

Those individuals and small businesses least able to shoulder the burden of debt, thanks to this year's 'reform' of bankruptcy law, face the biggest obstacles to discharging their debts and getting a fresh start. At the same time, those corporations like Entergy which are most able to afford Katrina reconstruction expenses are finding it easy to take bankruptcy and escape their responsibilities.

It's this double whammy that is keeping New Orleans dark. As one business blog put it yesterday, in an excellent summary of the negative economic effects of the Bush administration's bankruptcy law policies, "the bankruptcy regulations that apply to big businesses were left pretty much the same" while the Bush administration's new consumer bankruptcy bill is making the lives of individuals and small businesses "far worse."

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