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Months after Hurricane Katrina struck New Orleans, the offices of Entergy Corporation in Clinton, Mississippi, still look hastily thrown together. Nameplates are hand-printed on sheets of white typing paper and stuck on door frames; labels are taped to the new legal file cabinets that line the halls. A harried Robert Sloan, general counsel of the New Orleans — based energy company, which has temporarily located to this suburb, works behind a desk in his makeshift rented office, wrestling with a ton of legal issues in the prolonged wake of Katrina, the most devastating storm in U.S. history. Sloan and his 75-person legal department are at the center of efforts to put Entergy, and with it New Orleans, back together again. Katrina, followed closely by Hurricane Rita, hit the regional utility hard: The storm knocked out power to 1.1 million of Entergy’s 2.7 million customers on the Gulf Coast, damaged more than 230 substations, downed hundreds of main transmission lines, and left thousands of power lines and poles scattered amid the debris. In New Orleans, Katrina temporarily drove out the utility’s entire customer base there; at press time more than 100,000 customers remained without power. Katrina heavily damaged the parent company’s corporate offices, and the headquarters of its subsidiary Entergy — New Orleans (ENO). Sloan and his lawyers are deeply involved in figuring out how Entergy will cover an estimated $750 million — $1.1 billion in storm costs. From the immediate aftermath of the storm to the current rebuilding effort, Sloan, 58, and his team have had to maneuver swiftly through a thicket of legal mazes. They initially faced overwhelming employee and human relations issues, such as negotiating lease and rental contracts for temporary housing and offices in a very short time. Entergy lawyers also developed special benefit programs for some 1,500 displaced workers, though they had to find them first. Less than a month after Katrina struck, they filed for bankruptcy on behalf of the New Orleans subsidiary, in an effort to protect it from creditors and shield the parent company from the impact of ENO’s losses. (Sloan is GC of the parent company and the subsidiary.) And the lawyers helped develop a new financing plan to raise over $2.5 billion through a public offering that began December 15. Amid all this, Sloan’s in-house counsel are still grappling with crucial pre-Katrina regulatory issues that could not be pushed aside, such as the distribution of electricity in the national power grid. At some point, they will also have to revise their old disaster plan. “It was a particularly vicious and violent storm, but we’re an energy company so we were ready for that,” Sloan says. Then he adds: “But not for this,” referring to the ongoing upheaval in the business and his employees’ personal lives, as well as his own. Sloan at first evacuated to Houston with his wife and teenage son, who stayed there so his son could attend school. In September, Sloan and other Entergy execs moved to Clinton. Sloan visits his displaced family in Houston on weekends. The GC and his team still don’t know when they’ll be able to go back to their permanent homes and offices. Sloan’s home is habitable, but the neighborhood still lacks such essential services as grocery stores. Entergy has said a decision on when, and whether, to move the corporate headquarters back to the Big Easy probably won’t be made until spring. The parent company is the only Fortune 200 corporation to have its headquarters in New Orleans, so relocating elsewhere would be a major blow to the rebuilding effort and the city’s image. Factoring into the company’s decision about whether to go back is the federal government’s reluctance to offer $450 million in aid that ENO has requested. In a letter to ENO’s chief lobbyist in November, Allan Hubbard, chair of the White House Gulf Coast and Rebuilding Council, wrote that asking taxpayers to give money to a private company would be “inappropriate.” The letter, according to The Times-Picayune newspaper, said that investors typically face the risk of financial loss from a natural disaster, not taxpayers. Hubbard, who did not return calls for comment, made it clear in the letter that the government prefers that the financially healthy parent company absorb ENO’s losses. Entergy earned $909 million in 2004; and despite the storm, it reported third-quarter 2005 earnings of $298.9 million, a 16 percent increase over the same quarter in 2004. Traditionally, the federal government has not bailed out private companies after catastrophes, although the feds gave aid to U.S. airlines and New York utility Con Ed following the September 11, 2001, terrorist attack on the World Trade Center. While Sloan recognizes the impact of that attack, he notes that it “didn’t destroy an entire city or wipe out Con Ed’s entire customer base.” As the breadth of the storm’s damage emerged last August, Entergy moved quickly. Just after Katrina struck, CEO J. Wayne Leonard summoned Sloan and a half-dozen other top Entergy execs to Little Rock. The group met daily for nearly two weeks to hammer out a “continuity of business” strategy. The plan: Move key employees, including Sloan and ten lawyers, into temporary leased offices in Clinton, a Jackson suburb. Before Katrina, 50 of Entergy’s 75 lawyers were based in New Orleans; now 65 of them work elsewhere, many from home or rented offices. Sloan, tall and slim, a onetime basketball player at the University of Michigan, has been working hard to maintain the structural integrity of a legal staff that is displaced, scattered, and emotionally battered. He says he wants to maintain a full-fledged legal office, and keep his best lawyers from looking for other jobs. To boost morale, he visits as many of his attorneys as he can each week. “The problems are manifest here,” he says, adding that he is spending more time on human relations questions, among his own lawyers, than ever before. Sloan’s associate general counsel for employment and benefits, Rosemarie Falcone, has been handling Entergy’s Katrina-related employee legal issues for the past few months. Falcone and her team of five lawyers, a legal analyst, and a paralegal saw to the special financial and medical needs of the 1,500 displaced employees, some of whom lost loved ones or friends, as well as their homes. Except for a few employees who are staying with relatives, Entergy is paying for temporary housing for all of those employees who need it (it hopes to recover some of these expenses from insurance proceeds). In September, Entergy signed six-month leases for housing in Clinton; at press time it had not decided whether to extend the leases. Entergy will continue paying salaries for the displaced workers, too, indefinitely. For all the evacuees, Falcone’s lawyers helped to put together employee redeployment packages, which were tailored to personal needs. For example, if a worker had children, the package included lists of day care centers, schools, and pediatricians wherever the person relocated. With courts closed indefinitely, Entergy’s litigation attorneys pitched in with employment and other matters. (Some of the courts have since reopened, at least for a few days a week.) At the same time, Falcone and her team juggled personal problems of their own. Falcone, with Entergy for 11 years, grew up in New Orleans. She had moved into her dream home with her husband and two-and-a-half-year-old daughter the day before the hurricane hit. They slept one night in their new house, and the next day evacuated to her in-laws’ home in Dallas. There, “Bob [Sloan] called me daily with updates and questions,” Falcone recalls, until she moved into the temporary housing and headquarters in Clinton. Falcone’s home remains badly damaged, but she’s lucky by comparison. Her support staff lost their homes entirely. Much of Falcone’s staff is telecommuting from Baton Rouge and other nearby areas, meeting via group phone conferences. “We must be more creative now, and more willing to cross departmental lines,” says Falcone. Other lawyers on Sloan’s team grappled with ENO’s most pressing problem: its very existence. The flood and winds left the subsidiary with damaged electric lines, gas pipes, and equipment, scattered workers, and few paying customers. Literally within 48 hours of assessing the mass destruction, Sloan says his lawyers suggested they file for bankruptcy to protect ENO from creditors. Entergy faced a classic chicken-and-egg paradox: Without the subsidiary, the city could not revive. But without consumers, the subsidiary had no income. Sloan’s team moved rapidly to convince senior executives that the bankruptcy filing was necessary. On September 23 ENO filed for bankruptcy and reorganization, less than a month after the storm. Between the storm and the filing came long hours of crunching numbers, documenting damage, and answering what Sloan politely calls “strong questions” — such as how bankruptcy would affect the parent company and other subsidiaries — from Entergy’s board of directors. “Bankruptcy was something new to me, with tremendous complexities,” says Sloan, who came to Entergy in 2003 from serving as GC at GE Industrial Systems in Plainville, Connecticut. Sloan’s team won a major victory in December, when the bankruptcy judge approved so-called debtor-in-possession financing. The ruling allowed ENO to borrow $200 million from its parent company to pay its employees and begin repairs. The judge also gave ENO, rather than creditors, the first lien on all property, plant, and equipment and on all insurance proceeds. Entergy’s lawyers also had to move quickly to mitigate the effects of the bankruptcy on the parent company and its other subsidiaries in Texas, Mississippi, Arkansas, and Louisiana (a separate subsidiary from ENO). Sloan’s team, along with lawyers from Baton Rouge’s Jones, Walker, Waechter, Poitevent, Carrère & Denègre, quickly negotiated amendments to revolving-credit deals and other financial obligations, so that the bankruptcy would not trigger default under those agreements. Still undecided is when ENO might emerge from the bankruptcy. Sloan says the bankruptcy is only a short-term answer for ENO. Entergy lawyers have prepared and submitted to the Louisiana Public Utilities Commission a rate increase request to cover its estimated $500 million storm losses at two other Louisiana subsidiaries. But any long-term solution for New Orleans will require substantial federal help, say Entergy officials. And federal aid has not come quickly. An early Senate bill that would have provided $2.5 billion to utilities for storm-related costs went nowhere. In September, Congress finally passed $62 billion in aid, but none for Entergy. In November, when about 40 percent of New Orleans was still without power, President George Bush submitted to Congress a proposal for $17 billion in aid, but nothing for the utility. In December, Congress passed a law giving tax breaks to all businesses damaged by the storms, but Sloan says the help it offers is minor. Also in December, Louisiana governor Kathleen Blanco, testifying before the U.S. House Select Committee on Katrina, said no U.S. utility had ever before lost every single customer and had its infrastructure destroyed. She pleaded for federal aid for the utility because “high electric rates will compromise our ability to recover.” The company even enlisted Sloan’s help, hoping to use his contacts as a former lawyer in the U.S. Department of State and a former general counsel for the Senate permanent subcommittee on investigations, but his efforts so far haven’t paid off. “It has not been a pleasant experience,” Sloan says, sighing, “but we are still hopeful.” One of Sloan’s key deputies is Kim Despeaux, associate GC for federal regulation and policy, who has been with Entergy for 20 years. Despeaux commutes to Clinton weekly from her home in a northern suburb of New Orleans, which escaped damage. But Katrina didn’t totally miss her family; it destroyed her husband’s marine business, consisting of a service dock and marina. Now she kisses her husband and three daughters goodbye on Monday and returns home Friday night. “Leaving my daughters crying on Monday morning is the hardest thing I have to do,” Despeaux says. At least she has plenty to keep her busy. She’s involved in planning for ENO’s postbankruptcy future, and, as part of that, Despeaux is making sure that Entergy meets the conditions of a federal pilot program overseen by the Federal Energy Regulatory Commission (FERC) that will decide how competing utilities can transmit power over the national grid. This task involves creating a regional independent coordinator of transmission entity that will control how utilities share and transmit electricity. In March 2005 FERC accepted a first-of-its-kind proposal from Entergy to hire an independent group to administer its power transmissions. It’s a two-year experimental plan, with extensive federal oversight and conditions. FERC’s goal is to create a seamless electrical grid that will make the nation’s power systems more efficient and competitive. Sloan calls Entergy’s plan a compromise; if it fails, Entergy and other utilities will have to hand over the distribution of power to third parties not necessarily of their choosing. Another of Despeaux’s projects in-volves FERC’s February 2006 deadline for adopting new rules implementing the Energy Policy Act of 2005, passed in August. The new rules allow parent companies of utilities to tap new sources of investment and reduce regulatory filings. Sloan says that the rules are critical to any public utility’s future, and they couldn’t let the hurricane interfere with filing reports, making recommendations, and preparing for public hearings. “We only get to do this [revise the law] once every 70 years,” he quips. How does the legal group handle the workload under such onerous conditions? “Prioritize,” Despeaux says. “All of a sudden you’ve got all these issues, and you can’t do them all. You have to figure out what is most critical.” Despeaux and others downplay their personal problems and the long hours they are putting in, knowing there are many others in New Orleans with worse problems. She is grateful to be working, especially on ENO’s survival. First and foremost, Despeaux says, is the restoration effort in New Orleans, a city she loves and wants to always call home. More hurdles lie ahead for Sloan and his team. One of the biggest legal battles looming for Entergy and all of New Orleans will be over insurance coverage, according to Charles Landry, managing partner of Entergy bankruptcy counsel Jones, Walker. Landry says Entergy exemplifies all the ways a disaster can hurt a company. Most hurricane policies cover wind damage and exclude flood-related losses, but Landry argues that the failing of the levees was part of one continual event — the hurricane and its storm surge. The attorney general of Mississippi agrees, and has filed a class action suit against all major insurance companies involved. Was New Orleans’s damage the direct result of “storm-driven water,” or caused by a flood? “It’s a perfect law school exam question,” Landry says. That’s unfortunate for Entergy and others, because, Landry says, it means “there will be huge litigation over it for years.” Also in the coming months, Sloan and Entergy must decide the extent of the duty the company owes the city, its customers, its shareholders, its mortgage bond holders, and its employees. It is exploring how much it can and should rebuild in a place that is still struggling to lure back business. “The heart of our company is in New Orleans,” Sloan says, “but it is probably not prudent to have all our people headquartered in one city prone to hurricanes.” Sloan remains hopeful about the future. But he’s also cautious — more than three months after the storm, only one-fourth of the city’s population had returned, only 10 percent of buses were running, and only one public school was open. “At the end of the day,” Sloan says, “Entergy — New Orleans will succeed only if New Orleans comes back.”

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