Entergy’s shares slump after Ida as regulators circle and climate risks spook investors | Business News

Entergy Corp. shares have fallen sharply in the aftermath of Hurricane Ida, a signal that investors are concerned about recent scrutiny from regulators and the possibility that much larger infrastructure investments will be needed to fix damage and harden the local grid.

The stock slump and recent warnings from bond-ratings agencies threaten to raise borrowing costs for the New Orleans-based company. That in turn would likely translate into higher post-Ida repair costs that Louisiana ratepayers may have to eventually bear.

Entergy has seen its stock price tumble from a high of $114.83 a share about a week after the storm to $100.74 a share on Wednesday, a slump of more than 12%.

093021 Entergy stock prices chart

The broader stock market and other utilities have seen far smaller declines, suggesting that investors who watch Entergy closely see a greater chance that regulators will force the company to shoulder more repair costs themselves instead of passing them along.

And analysts said this week that Ida appeared to be another wake-up call to the market that stronger, more frequent storms brought on by a warming climate would require more costly infrastructure upgrades to keep the lights on in the future.

Travis Miller, a utilities-sector strategist at investment-research firm Morningstar Inc., said it was inevitable that Entergy’s stockholders would be shaken by recent events.

“The primary concern is what is going on with the New Orleans City Council,” said Miller, and whether that will put pressure on Entergy to spend more than anticipated to harden its infrastructure.

“There was so much damage [from the storms] that whatever the outcome, it is going to have an impact on shareholders, bondholders, and customers. There’s no escaping the fact that destruction of that magnitude is going to impact all stakeholders,” Miller added.

Entergy New Orleans CEO Deanna Rodriguez

Entergy New Orleans CEO Deanna Rodriguez, center, addresses the City Council’s Utility Committee at City Hall on Wednesday, Sept. 22, 2021.

Ida knocked out power to more than 1 million Entergy customers when it came ashore Aug. 29 and tore a path of destruction through southeast Louisiana. Power was completely out in New Orleans and Jefferson Parish for two days after the storm, after all eight of Entergy’s transmission lines into the city were knocked out of service.

It took more than a week for most customers in the city to be restored to service, and power is still out in harder-hit areas.

Initially after the storm, Entergy’s shares rose to their highest level since the start of the pandemic as it appeared the damage would not be catastrophic. However, the widespread blackout forced investors to re-assess, particularly after Entergy said the estimated cost of the damage could be as high as $2.6 billion.

Entergy's finances could be threatened by Hurricane Ida costs and political push back, Moody's warns

The investment rating agency Moody’s has changed its outlook for Entergy Corp. and its two Louisiana subsidiaries to “negative” after the comp…

Last week, Moody’s Investors Service changed its outlook for Entergy’s credit rating from “stable” to “negative”, citing both the storm costs as well as the probe launched by the New Orleans City Council, which regulates Entergy New Orleans. The City Council has said it will investigate whether the utility had invested enough in its infrastructure and been honest in previous testimony about its ability to keep the lights on in the event of such a storm.

It is the second time this year that Entergy has faced a regulatory investigation. After winter storms in February, the City Council also launched a probe into load-shedding that left three times more New Orleans customers than had been required in the freezing cold for hours. Entergy’s share price also fell sharply after that event.

S&P Global, another rating agency, downgraded Entergy New Orleans’ debt rating last week for the second time this month. The agency cut ENO’s rating to BB, a rating is considered below investment grade with a higher risk of default. It had been BB+ before the latest downgrade and BBB at the start of the month.


Linemen from south Florida make repairs as the Bridge City Fire Department gives out ice in Bridge City, La. Thursday, Sept. 9, 2021, in the aftermath of Hurricane Ida. (Staff photo by David Grunfeld, NOLA.com | The Times-Picayune | The New Orleans Advocate)

S&P analyst Gerrit Jepsen said the second downgrade was in reaction to parent Entergy Corp.’s statement that it was prepared to walk away from Entergy New Orleans if the City Council decided to seek some kind of independence for the municipal utility.

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Earlier this month, S&P also downgraded Entergy Louisiana, Entergy Corp.’s largest operating unit, from A- to BBB+, because of the storm costs. Entergy Louisiana’s customers will have to bear not only most of Hurricane Ida’s costs but also those from Hurricanes Laura, Delta, Zeta and the winter ice storm, which altogether will come in at about $4 billion.

Entergy has $25 billion in outstanding debt, and the higher ratings could increase borrowing costs in the future. The stock slump, if it persists, would make it more expensive to raise $1.23 billion from the sale of shares that Entergy has planned through 2024.

When Hurricane Ida’s winds knocked down transmission lines and plunged the New Orleans area into darkness Sunday night, many residents turned …

Typically, Entergy is able to pass on the costs of storm damage to ratepayers, and may be able to do so after Ida as well. But with mounting pushback from the public and politicians, the company has also been forced to consider alternative ways to meet the cost.

At a private investor conference on Wednesday, Entergy executives sought to reassure investors that there is the potential for federal funding.

“Louisiana’s governor is seeking federal support for recovery, including amounts to defray restoration costs and resiliency improvements for critical national infrastructure,” they told investors attending the virtual Wolfe Utilities, Midstream & Clean Energy Conference, according to presentation slides the company provided.

Entergy New Orleans drains storm fund to cover some of Hurricane Ida's $150M cost

Entergy New Orleans has told the City Council that it drained the storm recovery account this week to cover some of the estimated costs of Hur…

Still, the amount being sought from federal sources — including the Community Development Block Grant disaster relief funds from the Department of Housing and Urban Development — is only about $1.3 billion, which would leave Louisiana customers with most of the $4.7 billion storm costs to pay.

Entergy CEO Leo Denault, who has headed the company since 2013, has promised shareholders that dividends will continue to increase in line with profits.

Entergy chief executive, Leo Denault

Leo Denault, Chairman and Chief Executive of Entergy since 2013. Louisiana Public Service Commissioner Foster Campbell Denault for his $16 million-a-year compensation and for passing over $1.5 billion in dividends in the past two years, while customers have seen soaring bills.

And though Enterprise’s regulators are pushing the company to bear additional costs, executives indicated Wednesday that they still expect they can raise profits and dividends at a rate of 5%-to-7% annually over the next several years.

Entergy has increased profit more than threefold since 2017 to a record $1.4 billion in 2020. It has also been steadily increasing shareholder dividends.

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Still, some financial analysts are starting to grow concerned about the strains that climate change may place on utilities. A report by S&P earlier this month argued that US utilities are facing unprecedented risks from climate-driven events, such as wildfires in the West and hurricanes and floods in the South. They will be under increasing pressure to invest billions of dollars in coming years to harden infrastructure and to facilitate a transition to renewable sources of generation, the report said.

Miller, the utilities strategist at Morningstar, said that another risk Entergy faces is falling behind competitors because of a lack of investment in infrastructure and renewable-energy generating capacity. Historically, he said, this has been because there has been little pressure to do so froms in the states in which it operates regulators: Louisiana, Texas, Mississippi, and Arkansas.

“It’ll be interesting to see where that goes over the next two years,” said Miller. “You have to have an alignment between policymakers, regulators, and utilities to get anything done by investing in the energy transition.”

During the past month, Entergy has pointed out that it spent $12.6 billion in transmission and distribution construction since 2016, including about $1 billion systemwide to upgrade plants and substations so they can better withstand hurricanes.

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