Entergy's Service Area Affected by Hurricane Ida

We are maintaining our $110 per share fair value estimate and stable, narrow moat ratings after Category 4 Hurricane Ida impacted significant portions of Entergy's service area, including the New Orleans area. On Aug. 29, Entergy disclosed that Hurricane Ida caused all eight transmission lines that provide power to New Orleans to fail. This subsequently caused a load imbalance causing all generation to cease operations. As of midday Monday, Aug. 30, Entergy said it is assessing the damage and did not have an estimate for when power would be restored to the area. While it is too early to estimate any financial impact from Hurricane Ida, the storm has drawn comparisons to Hurricane Katrina, the last Category 4 hurricane to impact the area. The combination of damage from Hurricane Katrina and Hurricane Rita, which struck the region shortly after Katrina, led to $1.5 billion total restoration costs for the repair of Entergy's electric and gas facilities. This excluded lost revenue due to customer outages and Entergy's inability to recover fixed costs through base rates. Near-term liquidity constraints following Katrina and Rita led Entergy's subsidiary, Entergy New Orleans, to file voluntary Chapter 11 bankruptcy. The subsidiary exited bankruptcy in May 2007 and eventually recovered most of the restoration costs through insurance proceeds and regulatory approval of storm restoration cost securitization, which was authorized by state law. Entergy New Orleans had roughly $1 billion in total rate base at year-end 2020, representing approximately 3.5% of Entergy's $28 billion rate base. Hurricane Ida increases Entergy's regulatory risk as regulators likely will scrutinize the company's storm response and restoration costs. Entergy New Orleans contributed $49 million of Entergy's $1.1 billion consolidated net income in 2020. We estimate every $250 million of disallowed restoration costs reduces our fair value estimate $1 per share.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.