Martin Rosenberg Guest Editor

When hurricanes Katrina and Rita swept ashore in the Gulf Coast region, a large swath of Entergy's service territory went dark in one of the most calamitous events ever to hit a utility. In an exclusive interview with EnergyBiz, Wayne Leonard, 54, the company's chief executive officer, reflects on the deeper implications of the crisis and the profound challenge of overseeing Entergy's business continuity and service restoration. His commentary, edited for style, follows.

EnergyBiz: How does a utility prepare for a catastrophic outage like a Category 5 hurricane?

LEONARD: First and foremost, you design a culture and organizational structure that can respond to change rapidly. Our matrix structure with decision making at the customer level facilitates real-time decisions based upon ground-level conditions. Secondly, we have emergency and crisis management task forces that are immediately placed into service to plan, secure resources, provide support and guidance, etc., but don't impede the necessary real-time decisions on-site.

Well ahead of time, you prepare by having an extremely professional and well-trained staff, and a dynamic emergency plan that includes various scenarios that gets reviewed and updated after every storm. In addition to performing regular drills, you also have a pre-positioned, fully equipped command center. You have mutual assistance agreements in place with other utilities so you can get the manpower you need. A fully stocked inventory of spare parts, including options to secure almost unlimited amounts from suppliers within hours, is also necessary. Obviously, when your utility territory stretches along the Louisiana and Texas coasts, you also get plenty of opportunities to hone your power restoration skills.

EnergyBiz: Are any innovative approaches to service restoration being pioneered at Entergy after Katrina and Rita?

LEONARD: Certainly some things are being done differently because of the enormity of these storms. We had 1.1 million outages with Hurricane Katrina and another 766,000 with Hurricane Rita. In 92 years of operation, the most this company had ever faced was 270,000. But the fundamentals remain the same -- be prepared, drill your crisis plan thoroughly so everyone knows where to go and what to do, act quickly, and, above all, work safely.

EnergyBiz: What lessons are being learned that other utilities need to include in their disaster planning efforts and responses to major system failure?

LEONARD: We're coping with some circumstances we haven't had previously, and I don't just mean the size of these catastrophes. With so many refineries damaged and out of service after Katrina, we had a tough time obtaining enough gasoline for our service trucks. No one expected the civil and social breakdown that occurred for several crucial days in the New Orleans area (although in any disaster some level of civil disobedience is to be anticipated). Obviously, that slowed us down because you can't send employees into harm's way. There have been problems when corrosive, brackish water got into substation equipment. Then think about the enormous logistics of housing and feeding two armies of recovery workers -- 10,000 deployed for Katrina and 10,000 for Rita -- when whole cities had been evacuated. It's staggering. So there will be lots of new lessons learned from this experience.

EnergyBiz: What are the over-arching business challenges that will confront Entergy as it emerges from the effects of Katrina in the next 12 months and beyond?

LEONARD: Our over-arching challenge is the flip side of what makes this company great. Our employees are truly professional -- our line workers, in particular, are what we refer to as the last great American cowboys. They are working in extremely dangerous conditions 16 hours a day, 7 days a week. Safety is always our biggest challenge. Under these conditions, it's magnified many times over when you have people that have been going at it this long and this hard.

From a business continuity standpoint, our local utility in New Orleans, Entergy New Orleans, has lost virtually its whole customer base with no certainty about when -- and, for some people, if -- it will return. The same thing has happened in the Beaumont-Port Arthur-Orange area served by Entergy Texas, but we expect customers there to be able to return much more quickly. Under the unprecedented circumstances in New Orleans, regaining and sustaining a financially viable utility will be a special challenge, requiring the commitment of our regulators, direct assistance from the federal government, and, of course, insurance companies.

We've also had to temporarily shift our corporate headquarters from New Orleans to Clinton, Miss., redeploy our corporate staff and find interim housing for hundreds of employees who lost their homes. We've redeployed some people from New Orleans to Houston and Beaumont and then had to evacuate them a second time. There is no shortage of challenges.

EnergyBiz: Entergy had to move its headquarters operations out of New Orleans. Do you think all utilities should have backup headquarters ready to go in the event of a natural or manmade disaster?

LEONARD: A complete backup headquarters might not be necessary, but your emergency plans certainly should contemplate what you would do if you lost your headquarters. After we had to leave New Orleans, we had overtures from a number of places about where we might temporarily set up shop, but the Jackson area made the most sense. Our storm command center was already located here. Our nuclear subsidiary is headquartered here.

EnergyBiz: What kind of communications have you been having with your peers, utility executives around the industry?

LEONARD: The company has regularly been in touch with the Edison Electric Institute and its other member companies. We've made reports on our progress to a number of their committees and to the Nuclear Energy Institute as well. We've had invaluable assistance on the restoration from lots of other utility companies not just from the South, but all around the country. I've had phone conversations with a number of CEOs. The message is always the same: "Whatever you need."

EnergyBiz: You will be rebuilding large segments of the transmission grid in your service territory. What opportunities does that give you to deal with regional transmission problems and enhance reliability?

LEONARD: The Entergy Prioritization Team assesses and prioritizes the restoration of the Entergy transmission system and has representation from both operations and transmission planning. This team analyzes each damaged transmission element (substation and line) to determine if we should replace in-kind or upgrade. The decision to upgrade is based on transmission planning analysis or known transmission constraints as well as the speed of restoration. In most cases, the damage to the transmission system is random and widespread. We have very limited opportunities to upgrade facilities during storm restoration. Entergy will construct a new 115-kilovolt transmission line on the west side of the Mississippi River to provide more load serving capacity and more reliable service to residential and industrial customers in this area in lieu of repairing a heavily damaged 115-kilovolt line on the east side of the river, which is accessible only through deep marsh. One of the lessons everyone should take from Katrina is not to rely too heavily on transmission as opposed to having local generation near the load centers. Transmission has its limits, particularly if we're counting on being able to move large blocks of power long distances.

EnergyBiz: How will you be able to make massive infrastructure investments without causing your rates to go through the roof -- particularly for indigent customers who may have been hardest hit by the hurricane?

LEONARD: As the City Council of New Orleans stated in a letter of support to Entergy, any long-term solution that provides for a financially viable utility at Entergy New Orleans and protects customers from the massive restoration costs they can't afford to pay, must involve a substantial federal financial commitment. Options being pursued for storm restoration costs include a variety of mechanisms, such as insurance, federal government storm-related assistance and both traditional and more innovative regulatory mechanisms.

EnergyBiz: What share of your workforce was lost as a result of the hurricane?

LEONARD: I'm happy to report that every single one of the 1,900 employees and contractors evacuated from New Orleans has been accounted for. That speaks very well for our emergency plans. During this long and exhausting restoration period, I'm not aware of a single lineman or vegetation worker who has turned in his helmet and quit. We had some employees evacuate out of the state who might decide to stay there and start over, of course. But that number so far has been quite small and not an impediment to our getting back on our feet.

EnergyBiz: What are the largest employee-related issues you now face?

LEONARD: Other than real-time safety concerns, displacement of employees is a substantial issue. When Katrina hit, we immediately assured everyone they still had jobs and paychecks and that the company would provide temporary housing for relocated employees and other necessities for those whose homes were not inhabitable. That was the right thing to do, but at the time the business case was equally clear. We needed to erase any uncertainty in people's mind so they could concentrate on the task at hand. That definitely lifted people's morale, but we can't forget they're living in new places, working in new surroundings, worrying about their families' futures. The prolonged power restoration period, with Rita slamming into us as we were still grappling with the aftermath of Katrina, is a major complication. So was our decision to take Entergy New Orleans into Chapter 11 even though that ultimately protects employees and ensures that the restoration process keeps going.

Although anxiety remains, we have to get out of the crisis or "temporary" mode of doing business as soon as possible and get back to a sense of workplace normalcy.

EnergyBiz: What do you think will be shareholders' largest concern, and how will you address that?

LEONARD: Shareholders appear to be viewing the hurricanes as a temporary setback. Analyst reports indicate they believe Entergy's long-term outlook remains intact; and they anticipate it will be able to fund the storm related-costs and other potential losses through a combination of insurance, federal assistance and/or local regulatory recovery.

The increasing contribution from the Northeast Nuclear fleet is also viewed very favorably. In the event that funding sources for the storm-related costs and other potential losses do not materialize as anticipated, this result would create a great concern for the capital markets and their willingness to put many at risk without getting returns that are commensurate with "speculative" investments. Financial markets are efficient. It's "pay me now, or pay me later."

EnergyBiz: Entergy has embarked on a path toward becoming one of this country's pre-eminent nuclear utilities. How will your long-term strategic plans of expanding your nuclear holdings be affected by the service restoration challenges you now face?

LEONARD: It shouldn't have any effect. Entergy Corporation is very successful and has maintained strong liquidity and resources. While we were dealing with these storms, our Grand Gulf nuclear plant in Port Gibson, Miss., was selected as one of two potential sites for building the first new nuclear power plant in the United States in more than a quarter century. And we've decided on our own to go through the preparation for potentially building a new reactor at another of our sites -- River Bend outside St. Francisville, La. Entergy is now the nation's second largest nuclear company -- we own or manage 11 reactors. We think there are powerful economic, environmental and energy security issues, and that nuclear power has a great future.

EnergyBiz: How would you describe the morale at Entergy today, and how is its corporate culture changing?

LEONARD: People have been wearing buttons at our emergency command center that read "Bruised But Not Broken." I think that sums it up. Our employees have been through just about everything -- some have lost relatives and friends, many have lost all their possessions. But they're models of courage and resilience. They're amazing people, doing an incredible job.

EnergyBiz: What would be the most surprising insight that you have had into your company and the power industry in the last few weeks?

LEONARD: From a company or industry perspective, it's simply how much better prepared or organized we are than some others to deal with crisis and work in very uncertain conditions, making the necessary decisions and anticipating the next potential problem. This industry is 24/7, instantaneous service. That's not a goal or an objective, it's part of our culture, our values. It's how we define success or failure. People criticize utilities as being "old economy," "old school," staid and too conservative. But people work here because we make something very valuable. A product or service that changes people's lives, that fuels the economy, makes every other business that sounds "sexy" possible.

There is no turf, no blame throwing, no "not my job" in this business. A business model driven by sound values works even in the most adverse scenarios. In a crisis, you can't build on sand. Our culture, our values are the bedrock of everything we do.

Martin Rosenberg is editor-in-chief of EnergyBiz magazine, a bimonthly energy industry print magazine that circulates to more than 20,000 senior executives and managers. EnergyBiz, in its first year of publication, was recently awarded a gold medal in the "energy/utilities/engineering" category in the prestigious Folio magazine competition. Subscribe online now.