Fitch Rts Entergy New Orleans' FMB's, 'BBB', On Neg Watch

Business Wire, Sept 12, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 12, 2002

Fitch Ratings has assigned a 'BBB' rating to Entergy New Orleans, Inc.'s (ENOI) expected issuance of $25 million general and refunding mortgage bonds. At the same time, Fitch has placed all of the company's ratings on Rating Watch Negative. Proceeds from the issuance will be used to call the outstanding series 1993 general and refunding bonds due March 2003.

The Rating Watch Negative reflects the decline in financial measures since year-end 2000 and the uncertainty associated with the company's pending rate case. The decline in ENOI's earnings and cash flow metrics is due to a combination of factors, including increases in operations and maintenance and interest expenses, the effects of a $2.7 million rate refund, higher capital expenditures related to the utility's focus on improving reliability, and weather-related declines in sales. Revenues were also negatively impacted by a $12.2 million rate reduction that became effective in October 2000 in the final phase of a 1998 settlement agreement. In May of this year, ENOI filed for $28.9 million electric and $15.3 million gas base rate increases, which are needed to restore the company's financial measures to levels consistent with the rating category.

ENOI's ratings consider the utility's access to equity capital from its parent, Entergy Corp., significant obligations related to the Grand Gulf I nuclear facility, the uncertain regulatory environment in New Orleans, and the interrelationships with affiliated companies that result from three system-wide operating agreements. ENOI participates in a system agreement that allocates power and associated costs related to Grand Gulf I to each of the retail electric companies. Therefore, to the extent any one entity is unable to meet its obligations it could impact the financial health of the other companies.

ENOI, a wholly owned subsidiary of the Entergy Corporation, is a vertically integrated electric and gas utility serving the city of New Orleans, except for Algiers. Electric industry restructuring appears to be unlikely in ENOI's service territory as the New Orleans City Council has yet to take action on the company's initial proposal filed in 1997.