April 9, 2001
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549-0609
RE: File No. S7-05-01 - Notice of Proposed Rules Concerning Registered Holding Company Investments in Foreign Utility Companies
Entergy Corporation ("Entergy"), a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act") is submitting these supplemental comments in response to the Commission's request for comments on proposed Rules 55 and 56. Entergy also joins with Alliant Energy Corporation in filing comments on the remainder of proposed Rules 55 and 56 and proposed amendment to Rule 87. These supplemental comments address proposed Rule 55(b)(1)(v).
Proposed Rule 55(b)(1)(v) is one of two proposed conditions on investment in foreign utility companies ("FUCOs") that are not presently applicable to financing of investments in exempt wholesale generators ("EWGs") in Rule 53. Proposed Rule 55(b)(1)(v) would require a Commission approval for each FUCO investment if any significant subsidiary (as defined) of a holding company that is a public utility has a debt rating from a national recognized statistical rating agency that is below investment grade. This condition has been included in a few Commission Orders approving investments in EWGs and FUCOs above 100% of retained earnings. The Commission however has set forth no persuasive reason for adding this new restriction on the ability of every registered holding company to invest in FUCOs, even those that are within the safe harbor limits of Rule 53(a).
The proposal to require Commission approval for investments in FUCOs if the debt rating of a public utility subsidiary is below investment grade is particularly troubling for Entergy. Unsecured debt of Entergy Gulf States, Inc. is currently rated BB+ by Standard & Poor's and Ba1 by Moody's Investors Service and unsecured debt of System Energy Resources, Inc. is currently rated Ba1 by Moody's Investors Service. (Senior secured debt of both companies, however, has investment grade ratings.) Thus, if the proposed Rule were adopted today, Entergy might be unable to invest in FUCOs without a further Order from the Commission.
The Commission provides scant support for this credit rating requirement. It simply notes that a credit rating has a direct effect of a utility's cost of funds and its rates, and based on that statement, concludes that it may have an adverse impact on the financial integrity of the holding company system. It fails to cite any examples of credit ratings of utilities that have been adversely affected by the relatively small investments in EWGs and FUCOs permitted without Commission approval under the proposed Rule. It also fails to suggest how a simple increase in interest costs may adversely affect the financial integrity of the holding company system. Finally, it fails to explain why the requirements of proposed Rule 55(b)(1)(i), (ii) and (iii) (these have been in effect for 8 years in regard to EWGs in Rule 53(b)) provide insufficient protection for investments in FUCOs. The Rule 55(b)(1)(i), (ii) and (iii) requirements - a material bankruptcy, material decrease on consolidated retained earnings and material losses from investments in EWGs or FUCOs - are adequate to warn the Commission of any possible adverse affect on the financial integrity of a holding company system.
Therefore, Entergy respectfully submits that the conditions set forth in proposed Rule 55(b)(1) (i), (ii) and (iii) are adequate indicia of deteriorating financial integrity of a holding company system. Proposed Rule 55(b)(v) is an unnecessary, additional regulatory constraint and should not be adopted.
John M. Adams, Jr.
Associate General Counsel