NEW YORK, Sept 20 (Reuters) - Entergy Corp. (ETR.N: Quote, Profile, Research) on Tuesday said its New Orleans unit might file for bankruptcy as the utility estimated that costs from damage caused by Hurricane Katrina could exceed $1 billion.

Entergy, which provides electricity to much of the Gulf Coast, estimated restoration and business continuity costs at $750 million to $1.1 billion. But it said that figure could change because flooding continues to hamper its ability to fully assess the extent of the damage to its infrastructure.

The utility has been one of the companies most dramatically affected by the hurricane that tore through Louisiana and Mississippi in late August. It withdrew its earnings forecast for this year and 2006 earlier this month due to widespread damage to its service area.

The company expects revenue to be lower at its Entergy New Orleans and Entergy Louisiana units because of the 150,000 to 170,000 customers that will be unable to receive electric and gas service for some time. Most of those customers are in Entergy New Orleans' service territory.

Average annual nonfuel revenue from these customers is estimated at $160 million to $190 million for Entergy New Orleans and $50 million to $60 million for Entergy Louisiana.

The company said it expects the lower revenue and storm restoration costs at Entergy New Orleans to hurt liquidity at the unit. It is considering several options for the unit to maintain acceptable liquidity, including seeking protection under bankruptcy law, the company said.

Entergy is also considering are advancing cash to the unit, issuing it new debt, expanding its short-term borrowing capacity, providing it with equity and assigning its purchased power contracts to other subsidiaries.

Entergy New Orleans accounted for less than 5 percent of the company's revenue in 2004.

Natexis Bleichroeder analyst Paul Clegg said he suspects that the company's suggestion that Entergy New Orleans might need to file for bankruptcy might be a ploy to force creditors and regulators to the table.

"They're going to require some flexibility on the part of their counterparts, whether it's purchased power contracts or whether it's their creditors," Clegg said. "They just want to remind everybody that could be on the table should anybody not be willing to play ball with them."   

The company had said it believed it had sufficient liquidity to meet obligations and fund restoration efforts through a combination of cash on hand and its $2 billion revolving line of credit.

Entergy plans to pursue several methods to recover damages and costs caused by the hurricane, including assistance under federal legislation, reimbursement of some costs covered by insurance, and rate increases.

The U.S. government has set aside more than $60 billion in funds to help along the recovery of the Gulf Coast region in the aftermath of the storm.

Federal aid to restore electricity is currently available only to municipal and cooperatively owned utilities, power companies have said, but investor-owned utilities are lobbying for a share of the money as well.

Entergy said it believes Congress will consider amending or enacting legislation to provide direct assistance to privately owned utilities hurt by the storm.

As of Monday, the company had restored power to about 874,000 of its customers after Katrina left about 1.1 million of its customers in the dark last month.

It has set up temporary headquarters in Clinton, Mississippi, as it is unable to operate out of its main offices in New Orleans.

Entergy shares fell 51 cents to $74.73 in late New York Stock Exchange trading. (Additional reporting by Deepa Babington)    
 

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