DALLAS - The Louisiana State Bond Commission voted yesterday to involve its staff in the process of selecting underwriters for more than $1 billion in taxable utility hurricane recovery bonds to be issued by the Louisiana Public Finance Authority.

The authority will issue $721 million of bonds on behalf of Entergy Louisiana and $291 million for Entergy Gulf States by mid-year. The proceeds are to be used by the utilities to repair damages to the electric transmission and distribution systems in Louisiana from hurricanes Katrina and Rita in 2005, and to provide a reserve fund of $250 million to cover damages from future storms.

The commission's staff will be part of the committee that grades the bids that the LPFA receives from prospective bond underwriters responding to a request for proposals due out soon.

Donnie Cunningham of Crawford Lewis PLLC, special counsel for the Louisiana Public Service Commission on securitization matters, said the commission's action means the final selection of the underwriters will be a combination decision by the PSC, the LPFA, and the Louisiana Utility Restoration Corp., a nonprofit entity established by the Legislature in 2007 to provide low-interest financing for hurricane recovery efforts.

Commissioners approved the underwriter review plan after state Treasurer John Kennedy, chairman of the Bond Commission, expressed outrage over the process used by the PSC to select the bond counsel for the Entergy bonds.

Adams and Reese LLP was selected as bond counsel on the issues after a review of responses to a request for proposals sent out in mid-December.

Commissioners did not revoke the selection of bond counsel, but stipulated they want to negotiate with the firm in hopes of obtaining a lower fee.

"My personal opinion is that this is a mistake," Kennedy said of the bond counsel selection decision. "It's no reflection on Adams and Reese, which is a fine law firm, but this is highly unusual."

Kennedy said the commission should be involved in the process of selecting professionals on large state bond issues. Those decisions should be made in open meetings after public hearings, he said, and professional fees should be negotiated with the winning bidder.

"The fees are going to be huge in this case, maybe larger than in the tobacco settlement," Kennedy said, referring to the state's sale of tobacco bonds. "When we went through that selection process we did it in front of God and country. In this case we don't even know who the graders were."

James W. Parks 2d, director of the LPFA, said solicitations for bond counsel were sent to "every Louisiana firm in the Red Book," with the Adams and Reese firm submitting the lowest qualified bid. Parks said the winning bid was for a fee of $408,384, consisting of a $281,592 fee on the $721 million bond issue and a fee of $126,792 on the $291 million issue.

"If we had used this process in the tobacco settlement, the fees could have been twice what we wound up paying," Kennedy said. "A legal fee of more than $400,000 to lawyers not picked in a public, open meeting? That's not the way we do it. Adams and Reese is a great law firm, but that decision should be made in public meeting and the fees should be negotiated."

The energy bonds will be supported by a state-approved 10-year surcharge on customer bills that is already being collected. Entergy Louisiana supplies power to 640,000 customers in much of south Louisiana, including suburban New Orleans, and most of northern Louisiana. Entergy Gulf States has 350,000 customers in a service area that stretches from the Baton Rouge area to the Texas border.

An analysis of the bond proposal by the Bond Commission staff said the bonds would reduce the cost of borrowing, saving Entergy Louisiana customers about $61.3 million and Entergy Gulf States customers some $3.8 million.

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