安特吉 (ETR) 2001 Q1 法說會逐字稿

ENTERGY CORP. CONFERENCE CALL

Good day everyone and welcome to the Entergy Corporation first quarter 2001 earnings conference call. Today's call is being recorded. At this time, for opening comments and introductions, I would like to turn the conference over to the Vice-President of Investor Relations, Nancy Morovich. Ms. Morovich, please go ahead.

Good morning everyone. Thank you for joining Entergy's analyst conference call, as the moderator said, the primary focus of our call this morning is to discuss first quarter earnings results. Each of you should have received our news release this morning via fax or E-mail, if you have not, please call my assistant at 504-576-4846, and we'll get the release to you as quickly as possible. We will begin this morning with the caution statement regarding forward-looking language. The following constitutes the safe harbor statement under the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements made during this teleconference with respect to the revenues, earnings, performance, strategies, prospects, and other aspects of the business of Entergy, may involve risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. For the call this morning, we'll first hear from Wayne Leonard, Entergy's Chief Executive Officer and then Kyle Vann, President and CEO of Entergy-Koch will offer a few comments on the startup of that business. Finally, John C. Wilder, Entergy's Chief Financial Officer will discuss our financial results for the first quarter and then after John's comments, we will open up to questions when Don Heintz, Jerry Jackson, and Jeff Roberts will also be available to answer for you. I will now not turn the call over to Wayne.

Thanks Nancy. We're pleased to report another quarter of record earning. John Wilder will give the details of our financial performance later in the call, but even excluding the impact of a more favorable weather this year, first quarter 2001 operational earnings increased 25% over the record results reported a year ago, and we continue to exceed our commitment to earnings growth of 8% to 10% a year having achieved average annual growth and operational earnings of more than 20% per year since 1998. In fact, given our earnings per share guidance for 2001 and 2002, we expect to deliver actual growth of 15% to 16% per year over the 5-year period since we announced new management and our new strategy. But that isn't to say that we're content with that level of performance. We think we can do even better and we intend to. With the termination of our merger, we spoke to you in some detail earlier this month about our plans and prospects for continued strong performance and growth on a standalone basis. So, I'll keep it brief today and stay focused on some of the things we need to do this year if we're going to produce earnings for 2001 inline with our guidance and also stay on track to the long term. Although I am focusing on the blocking and tackling during the next 8 months, the to-do list reflects some longer term thinking about how we can ramp up our performance and break away from the pack. First at the utility, we must assure recovery of the rising cost of natural gas and purchase power. We are already getting recovery on a fairly timely basis through the mechanisms in our various jurisdictions, but with the rise in the energy prices and increased volatility, we need to consider new solutions. One of the issues we face is the accounting split between the energy and capacity and our power purchase costs. Although prudence of these purchases has not been an issue, the accounting split can have a significant impact on how we recover the money, and from which customers, and with the formula rate plans, we have in various jurisdictions, recovery of capacity charges can get complicated. With the low growth we have experienced, our purchases are up to 3000 MW for this summer. With the movement of competition grinding to a halt, we'll be considering, for example, building resources instead of buying, seeking to recover those charges through base rates and possibly transferring more of the fuel and power purchasing risk to a third party. Like Entergy-Koch where they can better manage it or where we can better balance the risks and rewards. The one jurisdiction that is moving to competition is Texas. More importantly, we expect to receive approval this week from the Texas PUC for the non-unanimous settlement of the unbundled cost of service filings which provided for 20% increase in the distribution rates. Other key events in Texas this year include the resolution of our market power filing. Our filing indicates that we do not have market power in Texas, and under any reasonable scenario, we are arguing over a few 100 MW as the margin. As such, we could voluntarily propose some mitigation plan for a short period of time that will eliminate any concerns as the market develops in Texas. Regardless, we do not expect market power to be a substantial issue for us in Texas. In the nearer term, we expect that Louisiana Commission to rule in the next month on the staff proposal to delay any consideration of competition for residential customers, the right exit fees for large industrial customers and provide certainty with regard to stranded investment recovery. At Transco, our next order business is to resolve the issues raised by FERC on our partnership with the Southwest Power Pool. FERC approved the governing structure of our Transco, but one of their firm commitment from the Southwest Power Pool members on transferring control of their asset to the SPP, which we expect that they will certainly do, and also order us to provide more information that the scope of SPP is sufficient or seek out new members or alliances with other RTO's. We believe our May 25th filing will clarify these issues and still expect in ordering the third quarter from FERC, giving final approval to the scope and configuration of the SPP/Transco Partnership. Other things we are working on to get on Transco up and running include getting a FERC order on our rate filings, getting jurisdictional approval to transfer the transmission assets, and put in place financing mechanism for the Transco. Turning now to EWO, we expect 2001 to be a year of solid executions, 34 turbines we have ordered begin delivery this year, and we expect our Warren Power Project to come online ahead of scheduled this summer. The RS Cogen Project is on track for September 2002, and we expect to make an announcement soon on where a substantial portion of the remaining turbines will go. With the new project announcement, we expect to begin to demonstrate the effectiveness of the Entergy/Shaw venture in utilizing reference plants designs which are already completed in reducing costs and bringing plants online with greater certainty in both costs and schedule. At the same time, we continue to evaluate the value of all of our holding in today's market. That includes Saltend and Damhead Creek in the UK, various investments in Latin America, and our investment in HUBCO in Pakistan. We expect to be able to report more progress on our work later this year as we test the market with various structures. In a few moments Kyle Vann, CEO of Entergy-Koch will report on that business. So I will let Kyle do the talking here. But I will congratulate Kyle and his team for the great start. The challenge, of course, is to build a consistent track record that you all can give an appropriate valuation. Second challenge for Entergy-Koch is to achieve seamless integration with our wholesale and retail operations. We believe that one of the strength of Axia Energy which is a trading business of Entergy-Koch is its close interface between Entergy's upstream supply business and downstream customers on the one hand, and with Koch's industry's energy businesses on the other. This kind of seamless interface provides the market knowledge and point of view that creates real competitive advantage in trading. You may not be able to see or manage with this integration process, but we expect that you will see the results in consistently strong trading and marketing profitability relative to the risk taken. The final imperative for Entergy-Koch this year is to expand its European operations. As you know, this is one of the many opportunities that brought our two companies to together. The chance to use Entergy's foothold in Europe to bring Koch's superior trading operations to that market, for example, we have an outstanding opportunity in Europe's undeveloped market weather derivative. We can apply the pioneering analysis, develop the Koch to Europe's weather data, which is actually deeper and more extensive than the US data on which Koch has developed a highly successful weather derivatives market. In nuclear, there are a number of things we need to do this year to maintain that momentum we have established. First of all, we need to continue to achieve operational improvements in the plants we already own, and primarily that means increasing the capacity factor and reducing production costs. In particular, we need to improve operating results with the most recently acquired plants to realize the substantial upside potential of these assets. The same kind of improvement we made when we acquired Riverband and brought production costs down from $34 a MW hour to $15 a MW hour. Secondly, we must close on our purchase of Indian Point 2, which we expect to do by mid-year. When we do, we'll bring the two operational units at Indian Point under common management for the first time, and we must immediately take advantage of this enormous opportunity. These are two of the highest production cost units in the country, and as twin 1000 MW units on the same site. This should be at the other end of the ranking which is what we intend to achieve. Thirdly, we intend to make aggressive and greater bids for both Vermont Yankee and Seabrook. They are both superior to other bids, and achieve the right economics for Entergy's shareholders. We believe we can do that as a result of the advantages that we have built particularly in the Northeast, advantages in scale, in efficient operations, we have built an outstanding team in the Northeast and also in transaction expertise. As we look beyond these two plants for further expansion of our nuclear fleet, we are well aware that fewer companies are willingly to part with their generation during the current energy crisis, but we believe that there are some 30,000 MW of nuclear capacity in operations that are suboptimal scale. For example, we continue to see a steady pattern of companies with a single nuclear plant losing some of their best personnel to companies like Entergy that can offer the individuals better and more certain career opportunities. We believe that by necessity, a number of these plants will change operating control if not ownership. If the current owners are unwilling or unable due to regulatory restrictions or concerns to sell, we believe we can make a case for operating these plants for them. In short, we have had an aggressive and successful strategy for expansion of our nuclear fleet and our nuclear services business. To stay ahead in the competition, we need to be creative in the solutions we offer to today's changing market. With that, let me turn things over to Kyle Vann, who like I said is the CEO of Entergy-Koch to talk about that business and its recent startup. Kyle?

Thanks Wayne, let me briefly give you an overview of Entergy-Koch. What are businesses are, few items about our key strategies, and I'll cover a few comments on the first quarter results. First of all, Entergy-Koch is made up of two businesses, the gas transportation business and storage business called Gulf South and our trading business which trades gas, power, weather, emissions, and other cross?commodity items, and it is called Axia. Axia operates both in the United States and in Europe. First of all on Gulf South, Gulf South is an 8800 mile pipeline system that has a large storage system that's got about approximately 60 Bcf of storage to handle about 1 Tcf per year of throughput, which represents about 4% of the US market, it's a pipeline system that's been around a while, but it's one of the leaders in cost efficiency and safety performances in that area. It really serves the area really from Texas all the way over to Florida. If you look at Gulf South, our key vision there is for several things, first of all the demand really looks promising over the next 10 years with the growth in IPP projects particularly those in the Southeast. We are expecting IPP growth to be somewhere in the 8 to 10 Bcf range per year, over the next 10 years. A lot of that will be in the Southeast and that's perfectly suited really for Gulf South to exploit that. Secondly, from a supply position standpoint, most of the forecast shows that majority of the growth to meet demand has actually come out of the Gulf South area and the Gulf of Mexico. Our pipeline is certainly perfectly suited to tie into that. Gulf South has some advantage capacity that can easily be added at pretty low cost. It will help build the necessary infrastructure that's going to be needed to move gas out of that basin into the Southeast and Northeast. So Gulf South is very well positioned for that. In addition, Gulf South wants to increase its storage capability. We are also looking at Salt Dome Project that would really enhance the capability of the system, especially to handle more and more volatility, we think, in supply. As summer peaking comes on, Gulf South will be there to really handle a lot of that new demand, and in addition to this the long-term SP that will go with the [________________] projects. Gulf South also operates a wide range of products and services like parking and lending, storage services that really are very critical. For those of you who are familiar with it, it is more of a series of gathering systems that provides a way to really move gas from one basin into many different pipelines, and so in that regard it's a great header system. Historically, I think the last couple of years the economic environment hasn't been that ideal for a pipeline in that area, because the bases spread and it had been a lot more compressed in that area. That's now starting to change as new supply comes on and people bid for the demand in the Northeast and Southeast, so overall, we think that Gulf South has a very bright future coming up the next couple of years involving probably helping it to become a header system to tie and some of the announced expansions that are going to go into Florida, and also participating in growth into, say, the Southeast and the Northeast. Axia is a trading company. The goal of Axia is to be a really top-tier wholesale provider of risk products both in the United States and in Europe. We would like to really measure our performance by return on capital risk, that's our primary focus. We trade gas, power, weather, and emissions products and cross-commodity products. We rank probably in the top 12, pretty much usually 8 to 12 from a physical standpoint in both gas and power. Usually, we trade somewhere in the league of 6.5 Bcf a day of physical on the gas, and somewhere in the league of 110 to 120 million MW hours on the power side, which usually gets us around the top 10 ranking. We are very strong really in the financial side of the business in the recent rankings. On gas and power we were rated in the top three and the providers of derivative services, derivative products, gas, and power, and we are the leading provider of weather derivative products in United States. Credit rating-wise, we were rewarded an A rating by S&P, and A3 by Moody's, which gives us a very unique advantage and that's especially in the area of risk products it is very critical to have that kind of ratings. Three key strategies that we have, number one, we are a point of view driven trading company and that being the case it's very critical that you have superior analytical systems, we invest heavily in fundamental analysis and people with analytical capability, invest heavily in quantitative analysis both for our modeling and also for product development, invest heavily also in risk systems, and also that includes not only measuring it and monitoring, but also this involves the credit side of the business as well as the legal side. We also invest very heavily in what we call structuring capability in order to structure trade, so that we have an asymmetry to the trades that tends to limit the downside while allowing the upside to flourish. So that's our number one strategy to continue investing in systems that allow us to grow our trading point of view. Second thing that we really focus on is building, we call a national grid of alliance that's one thing I failed to mention. Three things you have to have in trading, you have to have good trading systems, you have to have access to assets, and you also have to have very strong customer business. So the point of view driven strategy really deals a lot more with the trading strategy issue. On the asset side, we are predominantly focused a lot on alliances. Now, the deal we have with Entergy now gives us access to a company with a growing fleet of power generation, which will be our primary alliance, but we also have relationships with midsize utilities and LDC's all over the country especially in areas where Entergy does not operate. This provides real key fingers for two ways, one, it provides service income where we can provide risk management services to those midsize utilities and LDC's. It also provides the opportunity to share risk with them and have trading income from a standpoint of managing their fleet. The other thing it gives is, it gives access to knowledge of operations of assets across the United States, and we hope to ultimately expand this over to Europe. Currently, we work with 7 LDC's who are in the top 20 in United States; we handle about a 185 Bcf of storage that we manage and about 650 million cubic feet a day of deliverability. We are working right now on three specific IOU's, in addition to Entergy, and we are currently managing about 6000 MW of capacity, and we have access to 30,000 MW from a knowledge standpoint. We are also providing some demand management for some municipalities to the league of about 2000 MW. We have plans to really continue to grow this business. We are early into it. The best way, I can describe it is to continue them, and that at the early stages it usually becomes more of a service provider where you really provide risk services and all that for a fee. At the other extreme, you can get to the point that you co-invest, and the answer is usually somewhere in between, you tend to start off small and then as you grow successfully with that company then you get to take on more and more of the position with them. So, we see this is a real critical part of our strategy, and particularly, I think this will be a very viable strategy in Europe. The third phase that deals with customers is the area of product development. We believe that you must continue to be changing and yet marginalize in the trading, and so for that reason we want 50% of our profit to come from products we have developed in the last 5 years. So, we have very strong emphasis on product development such as weather derivatives. Our core business still is providing bread and butter derivatives to both producers, consumers, hedge firms and the like, but what we are also trying to do is continue to develop the new products. As you know, weather derivatives were developed a couple of years ago. We are continuing to expand those not only in United States, but also into Europe. We are also in the process now of trying to find other ways of bundling weather derivatives into other commodity type trades or other kind of cross?commodity trades. We are also investigating precipitation and some of the other offshoots of that as well as BTU swapped derivatives, so that's a big area of growth for us, and it continues to foster our growth plans. Regarding our 2001 performance, we started up EK on February 1st. I think you have seen the earnings numbers that John will talk about. Overall, the startup went extremely smoothly. We had a long time to kind of plan forward. I think from a personal standpoint it went extremely well. It was a hectic period with a lot of things, this was decoupling from the plans that we had and starting a new system with a separate credit rating getting all the financial system that was actually a little bit more hectic than we planned, but overall we thought we came through it very well. The market through February and March was considerably different than what we had experienced in the year 2000. In 2000, we had a very strong bullish sentiment. Gas really went from about $2 to $10 pretty much over the course of the year. Volatility was steadily increasing and we saw some tremendous opportunities to profitability. February and March though was a completely different environment, where you are starting to look at the air being let out of balloon, you are looking at the market that was actually settling down, and it was very choppy, which is much more difficult kind of trading period. So, overall, we felt like our performance, we are very satisfied with our performance for the two months that we were involved here, and a very difficult trading environment. Overall, gas and power were the main contributors from an Axia standpoint, weather pretty much had a lot of its trades monetized prior to really startup of EK, as well as some of the gas and power positions for the winter really monetized before we started out. Overall, though we are setup well, we think the weather both in the summer coming up and in the winter period at the end of the year. Gulf South had a very strong quarter, very good, even though volume was down a little bit, overall margins were up, and we saw a good quarter there. In general, Gulf South will be more, it will be stronger in the first and fourth quarter, and it will be off a little bit this summer, that's normally the way it runs. The other thing, I just want to mention is most of our trading is outside of California, we do have some exposure, but it is very, very minor, and most of our trading tends to be East of Mississippi, so there is really no California exposure in these numbers. John, I will turn it over to you.

Thanks Kyle and good morning. I am very excited to review the quarterly results with you. It's interesting that the financial performance continues to reflect solid execution of our strategy. After my remarks, we will, as always, open the discussion to take your questions. We achieved very strong results at the start of the year with operational earnings per share increasing 56% to 75 cents compared to 48 cents the same period in 2000. We have now rung up our 12th consecutive quarter of topping Wall Street consensus estimates and our fifth consecutive quarter of record earnings. With utility, quarterly operational earnings per share in 2001 was 52 cents up 33% from the same period last year. This improved level of earnings reflects an operationally strong utility that contributed solid financial results and a traditionally sluggish quarter for our company. For the competitive businesses, operational earnings per share totaled 22 cents for the quarter, compared to 9 cents in 2000, or an increase at 244%. The increased earnings resulted primarily from the two New York Nuclear Plants added to our portfolio late in 2000, both of which ran at capacity factors of about 100%. In addition, Entergy-Koch Venture made a very solid contribution to this quarter's results, even though it did not operate until February. You may have noticed in our release, our reference to liquidity damages for the Damhead Creek Project. Entergy wholesale operation's earnings for the quarter included 4 cents of liquidity damages paid by Arabian, as a result of construction delays. Damhead Creek became operational in early February, so we do not expect to receive any additional payments in the future. Entergy's as reported earnings for the first quarter was 69 cents per share before adjusting for the facts of special items. Special item of 6 cents per share are first quarter merger related expenses. I know you are anxious to get an update on share repurchase program. We did not repurchase any Entergy shares during the first quarter of this year. Early in the quarter, we were effectively blocked out of the market as a result of the pending closer of the Entergy-Koch Transaction. Later in the quarter, issues developed in connection with the merger, therefore we continued the suspension of any repurchases. This initiation of the share repurchase program in 1999 to the first quarter of 2001, we have invested $779 million and have repurchased 28.9 million shares at an average investment of less than $27 per share. Going forward, we will apply the same strategies and principals we put in place in 1999, to future buyback decisions. As we said then, and still believe today, we view the investment in Entergy Stock, as one that must continually compete with the other opportunities available to us. As Leonard Wayne laid out today includes a number of growth opportunities like investing in Seabrook, which we plan to actively pursue this year. We anticipate very limited repurchasing activity until the outcome of these opportunities are known. As a result, our current estimates of average shares outstanding for the year 2001 now stands at approximately 224 million shares, on a fully diluted basis. Moving on, we now have one quarter behind us and we are quite pleased that the strength our performance is evident in a number of additional financial measures. For example, return on equity for the 12-month period ended March 2001, improved to 10.9%. This is the fifth consecutive quarterly ROE improvement for us, and the highest for our company in over the last five years. In addition, return on investor capital has improved to 7.2% marking 6 continuous quarters of improvement which is the highest we have seen over the last 21 quarters. Net operation margins grew to 7.1%, an improvement of 7% compared to a year ago, and a 36% improvement compared to our net operational margin before our new strategy was announced in 1998. Finally, net interest coverage moved up to 5.7 times, the highest level we have experienced since 1996. We believe these objective measures of performance affirmed the success and discipline of the reinvestment plan we initiated three years ago. From a financial flexibility standpoint, we have remained strong. Even though, we pursued strategic growth initiatives like our Entergy-Koch business and the purchase of the two nuclear plants in New York, these investments reduced our cash position from its recent high of 1.8 billion to 1 billion, by maintaining a comfortable net debt to total capital ratio of 51%. Perhaps the most important statistics to know is our quarter-ended share price of $38 was 88% higher than 1 year ago. Obviously, we are proud of these results, but we know our efforts much intensify in order to continue progressing to the next level. Turning out on earnings guidance, our overall plan to achieve $3 to $3 and 20 cents per share in operational earnings is at full throttle and our confidence level is high. We are momentum going for a great year, and we were more enthusiastic than ever about Entergy's financial opportunities for the future. Now Wayne, Don, Jeff, Jerry, Kyle, and I are available to answer your questions.

Today's question and answer session will be conducted electronically. If you would like to ask a question you may do so by pressing the * key followed by the digit 1 on your touch-tone telephone. Once again, that is * 1 for a question, we will pause a moment to assemble the roster. Our first question comes from Terry [________________], JP Morgan.

Hi Wayne, in your beginning comments you talked about the need to recover a higher energy cost versus power cost construction capacity charges. You mentioned a number the 3000 MW of purchase power can you elaborate on that point? And you also talked about going forward, possibly transferring the risks to a third party and you mentioned Koch, can you just elaborate on those particular points?

Okay, Terry let me ask Jerry Jackson to do that. This is an issue that Jerry has been actively managing along with our jurisdictional president's, and so I will let Jerry give you the straight story there.

Good morning. Terry how are you?

How are you?

Wayne indicated like a lot of utility companies across the country, our prices have increased significantly to reflect increases in the cost of natural gas to fuel our generating units, and also to recover the cost of purchase power. I think as Wayne indicated, we have got mechanisms in place in all of our jurisdictions that have enabled us to not only to give us the right to recover these costs, but we have actually implemented price increases that reflect recovery of these additional cost, and we've seen prices for our customers increase significantly. Generally, our base rates are on an average about 5 cents. Our fuel and purchase power component rates are increasing roughly 2.5 cents to about 4 cents. I think what Wayne indicates is that, I think this presents an opportunity to us in the past as we were to favor deregulation, obviously, we were not building new generation and relying on purchase power since the last 3 summers to supplement our existing resources. To meet the opportunity, we are focusing on is that with our rates at fairly high levels now reflecting both the ongoing cost of fuel and purchase power, but also amortizing through a surcharge mechanism recovery of past under recovered cost, I think this presents an opportunity to us to not just simply be the pass through agent for recovery of those revenues, but to actually look at options to where we might convert some portions of those revenues to float the earnings to our bottom line, and I think that obviously means, as opposed to the purchasing power you can increase your own generating resources, we have a number of re-powering options, for example, in our system, but also I think with respect to the fuel piece, the natural gas piece, there I think there are opportunities since our rates are already at a fairly higher level that go to our regulators. We talk about ways that we might kind of deal with, either reduce those over time or reduce the volatility in those prices over time by working through entities such as Koch that brings a great of expertise, which I would admit that we don't have in our regulate operations in terms of how to manage fuel and purchase power increases over time and convert that in some way that we do produce additional earnings for our shareholders.

The 3000 MW, has that been sure position?

That is the additional purchases that we plan to make this summer to supplement our existing resources, and as you recall, we added about 1900 MW last summer so that which included, to some extent, bringing some units out of extended reserve shutdown, but this summer we are planning on incremental additional 3000 MW purchases.

Which are hedged currently in terms of prices or not yet clear on prices, the details?

The prices that will pay are already essentially locked in by contract.

With respect to the uncollected fuel balances in the various jurisdictions, you have an updated number, I know you have automatic mechanisms in some jurisdictions, for instance, in Louisiana with almost immediate pass through, but then other jurisdictions with a lag?

If you don't mind I will take you through those, but then our deferred fuel balance as of the end of the quarter total systems about $612 million. That is down about $50 million from the end of the year number. Entergy Arkansas is about $100 million for that deferred fuel balance, and as you know under our Arkansas structure is that we don't have a monthly fuel adjustment clause, we have an annual mechanism where we adjust our rates annually, and we just implemented it in April, 33% increase in the fuel portion of our rights in our Arkansas that permits us to increase obviously the ongoing levels of our fuel recovery, but also to amortize the unrecovered portion last year, and we expect, obviously, to recover that additional dollars through that annual mechanism. In Mississippi, we also had an annual mechanism, but at the end of the year that deferred fuel balance had grown to $161 million in Mississippi, $173 million as of the end of the quarter. Mississippi Commission did a couple of things, one, to avoid building up that amount, they allowed us to go to a quarterly adjustment mechanism and they also implemented a surcharge which allows us to amortize and recover $137 million of that outstanding balance over the next 24 months. We expect to reduce the Mississippi deferred fuel balance down to about $90 million at the end of the year, and by the end of next year get that back to zero. Texas has a mechanism where you can do a couple of things, one, semi-annually or every 6 months, you can increase your fuel factor based on increases in the gas price index, and we have been doing that on a fairly regular basis. In addition, like Arkansas and like Mississippi, you can file for and implement a surcharge on top of the fuel factor to recover any deferred fuel balances. We implemented a $79 million surcharge with commission approval in February. We also had filed for an additional $86 million surcharge which followed in March, which we propose to implement in July. We believe in this mechanism, we will essentially reduce the outstanding deferred fuel balance in Texas down to more normal bases by the end of the year. As you mentioned, the Entergy Louisiana, Entergy Gulf States Louisiana, Entergy New Orleans had monthly fuel adjustment mechanisms with a 60-day lag and they have fairly small deferred fuel balances for that reason. ELI, Entergy Louisiana, is $21 million, Entergy Gulf States Louisiana is $91 million, and Entergy New Orleans is $18 million. When you add all that up, we expect to reduce the $612 million in the quarter around roughly about a $200 million level by the end of the year which is more typical of what we had in the past year. I'd also point out that in all cases the commissions allow us to earn a carrying charge on those deferred fuel balances, the only exception is Entergy New Orleans, but that is a very small piece of deferred fuel balance, only $18 million.

In order to make these forecasts, for instance, on where you expect the balances to be, certainly you do have to have some assumptions about gas prices as well, even though you can look at it on the forward curve since now you have Koch joint venture, maybe Koch can comment on the outlook for gas prices based on your views seeing the whole market and power prices and spark spreads just a general view of how you see things playing out?

Wilder, you want to answer that?

As Entergy-Koch of course?

Right as Entergy-Koch.

That's right. Well, overall, I think the outlook is a little bit cloudy right now on where it certainly was very bullish last year, and this year we are, kind of, I would say we are little bit in a trading range, but overall we are probably seeing a little bit more downside than upside, so we are probably playing a little bit on the beary side. The wildcard of course is going to be, temperatures this summer, that's one, and the other one is switching. Switching has been a little bit greater than probably lot of us anticipated, so we will be watching that very closely, some of that is probably driven by the economy and some of it is driven by switching probably from gas to wood and other fuels away from gas, but overall, I would have to say that our best guess is that we don't see gas [________________] or anything, but we do see it probably being a little soft.

From what level. Let's say where we are going into the later summer month, whether we are talking about roughly?

Well, I guess if you take a look, the floor we think would probably be somewhere in the 4 bucks range plus or minus a quarter, and that's probably not going to go lower than it did. It's probably going to be bouncing around between a reserve breakeven and a distal breakeven, because that will also depend little bit on what happens to crude oil, but assuming that crude gets changed, you are probably looking at the same trade between 4 and 5 bucks, which you could also spike up to depending on what happens this summer.

And how about power prices in Spark Spread because sometimes the focus is just on the electric prices, but if you then look at the fuel component, what is your general view there?

Well, as you know lot of that will tend to be regional. Certainly, we are not that big a player in the west, so I will keep my comments really related a lot more probably to east.

Okay.

Just a couple of things you'll have to look at, one, once again gets back to weather and what fuel is actually going to be on the margins. If we really get, I think, some hot weather in certain regions then it is possible that we could see some spikes. I think, overall, we are looking for power to probably not be, or rather we really see it blowing out that much this summer. Once again, we don't think that the weather forecast right now looks like it's going to be particularly hot, that could change. Overall, we think power will be pretty moderate. You are going to see some of the new supply come on reducing gas supplies at least moderating. We are seeing people doing switching, so overall we think that it should be probably a more manageable summer than we probably have.

So prices, this summer versus last summer could be down?

Could be, yeah. I would say at least certainly a raw material is doing adequate, compared to last summer gas is still trading in the high 3s, and right now we are starting with it up around 5, so that even though I think some of the pressure may be off a little bit on the spike spreads, the base prices of fuels are still higher, and its probably, we don't see something happening like that happened a couple of years ago in 1998.

Thank-you.

As a reminder, if you do have a question * 1. We will next go to [_______________] Chen with Credit Suisse First Boston.

Hi, it is Paul Paterson, how are you?

Hi Paul.

Lot of my questions have been answered, but what I wanted to ask you was, the size of the weather derivative market in value, I guess dollar value, what are you looking at there and what's the marketshare that Entergy is looking at?

What the market share.

And how big a market is it I guess and what are your goals in terms of, and who are your competitors, and if you could shape up that a little more because you guys talked about it in the morning.

Sure, getting a real good handle on the notional value of the market is kind of tough, we have seen it probably somewhere in the league of, what, $1.5 billion. Notional values at least as far as kind of amount that you can write. Typically, our companies had somewhere between, say, 20% to 30% of what have been issued we have probably handled that. Big competitor is obviously Enron and Aquila those are two big competitors. There are also other reinsurance companies that have come in and have also participated at times. What we see and what we're excited about on weather is a couple of things. First of all, weather is the one common factor to all of our trading, and it's the one risk that is the one thing that can either blow you out of the water or make your day in a tray to the extent that you can hedge a lot of that risk sometimes in your own commodity trading that lets you really have a much better risk reward to trade. So we use weather also not just as a stand-alone product, but as a way of helping us better manage our trade structure. The other thing that we see weather still is a new product, it is complicated, it has been very difficult for some people to really even want to educate them on weather derivatives they don't know what to do with it. We do think that over the next couple of years, you are going to see some new products may come out, it maybe the weather products may even be bundled into an insurance product or whatever that will actually make it, I think it more usable, which is actually going to continue to grow the market even more, and so we want to participate in that, we think that's got a lot of upside. The other thing that is a big upside for us as we predominantly just been in the United States and that's where we are ranked #1, but we are now, particularly with our new office in London, we are really trying to grow now our weather trading over Europe, Japan, and other areas, and we think that will be another source of growth for us.

Okay, I wanted to ask you about the UK, you guys mentioned Damhead. Could you give us an update on what you seeing there in pricing and also any amounts you might have hedged just going forward?

I think you met Jeff Robert; he is a CEO of our wholesale power development business.

Right.

So I'll let Jeff answer that question.

Well, let me guess first what we are seeing in the marketplace over there under NEDA, obviously with the introduction of NEDA that's has some fundamental changes in the way the market works. It's evolved from a centralized financial pool structure to a bilateral physical structure. Result of that is that we have seen a substantial increase in the volatility in both gas and power. We have also seen some fundamental strengthening in prices, some of that has been driven by weather in particular unit outages, but some has also been driven fundamentally by the change in the market structure. We are also seeing, for the first time, some increasing liquidity in the market place for the first time in over two years. We have also seen some increasing opportunities from our perspective because of the increased capabilities that Axia provides us in that marketplace. And we have been certainly aggressively trading around those assets and extracting additional value from these positions. As you may be aware in the marketplace, we have solicited and received a number of bids under a variety of different structures ranging from outright purchases to joint ventures etcetera. While we are pleased with the interest levels, we are also in the process of evaluating each one of these proposals and all other options to create the best solution for Entergy. As to the particular level of hedging that we have in a particular marketplace our general approach to date has been to be very restrictive on that and not want to do project what our position is in the marketplace.

Yeah, Paul let me just add to what Jeff said, we built these assets. They are I guess by the most efficient state of the art assets in that marketplace. Under the new rule, there is great value placed on reliability on the location and how quickly you can ramp up a unit, and these two units are, I think, the most reliable units in the market. They also have the second and third, I think, ramping times in the marketplace in terms of quickness second only to the pump storage unit, Saltend is really three separate units. It is one plant, but three separate units, so you got, what you've got 3 shafts to that plant, so you get shaft diversity at that one plant, which you don't normally see. So it ramps at 50 MW a minute, which is really exceptional for a plant, and then Damhead is at 25 MW a minute. So with their reliability and their efficiency levels and their ramping times, these are valuable assets in the market. Like Jeff said, we have been out testing the marketplace. No body came in with low-ball bids thinking we're going to steal these plants. The interest that we got has been very high, and it may take, it's a bitter time to work through with the different bidders know exactly where the value is and whether or not we decide to keep them or sell down or what we do, but nonetheless, these plants, I think there is a lot of discussion that plants in the UK has diminished in value and that's absolutely true with regard to some plants. And other plants like the pump storage unit, for example, it goes to 0 to 1700 MW in 12 seconds or something is an asset we would love to have, anybody would love to have, and the two plants we have there also are right up there at the top in terms of plants that will probably increase in value.

Great, thanks a lot.

And we do have a follow up from Terry [_______________] of JP Morgan.

When you talked about the nuclear plant opportunities, specifically Seabrook and Vermont Yankee, can you maybe describe what you think the environment would be, will there be many other bidders, you are fairly confident, I think you did express confidence that you have a good shot at it, perhaps elaborate a bit more on that.

Okay, Terry. Obviously, Don Heintz here talking about that one for you.

Terry, I think we will see probably the same bidders that we have seen in the recent plants that have been put on the market. I think most of the players probably have been identified now. So I think the competition probably will be very similar, and as we mentioned the other day, we think that Vermont Yankee, it will be July timeframe when bids will go in and probably close around the end of the year in Seabrook sometime maybe in the fall and close again in 2002. We think we can be real competitive on those units. We have got other units in the area, we understand the market, I think we have got some portfolio affect. We have a central office now that we have set up in New York, and so I think we should be real competitive to anybody buying assets in that area.

But if you look at the Millstone plant, it did go at a much higher price than anticipated.

There is a possibility, someone will bid more for those units than we think they would, but we are confident we are going to get our fair share of these units.

But in fact, the environment is such that people may bid even more because I believe the owner of Millstone has opted the contribution estimate from Millstone. Wouldn't that encourage even higher bid, yes or no?

No Terry, but we are going to take a very disciplined approach to it, and we think that we can extract the maximum value out of those units. We think we can put in a very attractive bid.

Back to the Entergy-Koch joint venture, as far as growth opportunities, if one looked at the overall venture earnings, what kind of growth rates, and you talked about the weather derivatives. I gather one of the growth engines would be new products along those lines, international expansion as you talked about, and then the pipeline, I gather there is just throughput because you talked about all the opportunities there, and as far as gas and electric trading volumes when you hear Enron talk about it that the growth is going to be explosive here everywhere forever kind of thing, are you much different from them in terms of gas and electric trading operations this is the character of it and would you agree that it is just continued very high growth in volumes going forward?

Couple of things. First of all from our growth standpoint for EK, we would like to at least target for a 13% to 15% annualized growth, so that's number one. In a variety of ways, first of all, in some regards, we would share some of Enron's encouragement. I would probably have to say that on gas, I don't know how much more growth there is going to be there, I mean, I think, right now there is, the main way we're drawing gas is not so much from the physical side, it's more, finding more creative ways to increase the financial side of the trading. You really look at it, there is any evolving in any commodity market, it first starts off with physical, then you really get to the point where the financial trade with multiples. So gas is pretty well along. Power, I think where power goes, it's really going to depend a lot on what happens to deregulation. Clearly, the wholesale side is growing, and we are seeing more wholesale finance trading, financial opportunities with power, but whether they will really explodes a lot is going to depend on what happens [_______________].

You are international there as well, right?

We have not been, as Koch we are not now, but as Entergy-Koch we do have a position now in London, and it's small, I mean, obviously its centered around the assets that are there, but we're in the process now, really taking this strategy that's working in the United States, and started doing that in the mainland, so will give us new opportunities to grow there. One area, I really do think that has got a lot of opportunities is weather. I think, weather is just something that affects every business.

Who else does that aside from you?

Enron is probably our primary competition there. In the area of weather, offering weather derivatives, and so we think that's a lot of growth there, but we just think our general power and gas trading will grow.

Right.

We also think that as now gas comes on and grows and it's going to be on the margin. It gives a lot more opportunities also to trade gas versus distillate gas versus residual gas and power versus weather, I mean, there is a lot of combinations here that really open up a lot of new trading opportunities for us. The other thing is the big growth area for us will really be as Entergy grows their unregulated fleet. That's going to continue to give us more assets to work with and trade around, and once again, we are continue grow this alliance strategy. There is a lot of, if you want to call it energy majors out there, and we've found out that a lot of these midsize utilities and certainly these LDC's need to have some kind of a partnering arrangement, and right now they seem to have a lot of trust in us and our ability to create value farms. So, we think that's some competitive space that we've got that a lot of other people don't really utilize and may not be able to.

Then on the pipeline?

Pipe, okay I'm sorry. On the pipe we certainly see some, the number one thing is just to fill up the capacity we have got, and we see some great opportunities there. We are seeing margin start to increase for foreign transportation. There's a lot of these new power plants come on, that's good. We also see some opportunities for expansion. First of all on storage, to build, we need think there is more Salt Dome storage needed. That's a good opportunity for Gulf South. We also see the chance to actually expand the pipeline to the Southeast or the Northeast, whether we do it or if we partner with somebody, we feel like Gulf South has one of the best header systems in the industry, and since Gulf South, kind of gathers gas out of 4 or 5 major basins, it could really provide a lot of good header systems to bolt on to some other big pipes. So we think there is some good opportunities for growth there, not only incremental but also maybe some big pipeline projects.

Thank-you.

And our next question will come from Andy Levi, Wagner Stott Bear.

Hi, what's the opportunity in Louisiana in particular. Do they have some type of, I don't know if I want to call global, but some type of large settlement that kind of takes care of the outstanding issues in Louisiana regarding various filings that you've made down there?

I will ask Jerry Jackson to address that.

Thank you, Kyle. The opportunities that you probably referred to is that in the Gulf States Company, we have our annual earnings review that we file each year. Last year, we settled from earnings review that dated some years back, there are still two outstanding earnings reviews, we refer to them as the sixth and seventh earnings review that dealt with, I think, the 1998 and 1999 test years. In those cases, I think, our filings indicated that we did not believe that we had any excess earnings in those particular periods. I think the commission staff has argued. I think in each case roughly $14 to $15 million refunds for those two cases. Obviously, if there is an opportunity to resolve those cases, we would like to settle those and we have continued negotiations with the staff, and hopefully we can deal with those two cases as we did with the earlier round of cases we settled last year, which were all settled within the reserves that we had established for those cases. With respect to Entergy Louisiana, I think the outstanding case we settled last year, so I think it's the two Gulf States' past earnings reviews that are the opportunities to essentially resolve those and get those both out.

Thank you very much.

Our next question will come from Zach Schreiber with [________________].

Hi! guys. It is Zach Schreiber. Congratulations on the quarter. Just a real quick question. I was just wondering if you could refresh us on what kind of assumptions for future nuclear plant acquisition, opportunities is embedded in the Entergy Wholesale Operations on earnings projections for our 2002 and beyond?

You break out a little bit on that back.

I'm sorry.

I'll repeat the question; tell me if we got it right. You asked about acquisition opportunities in just business Entergy Wholesale Operations or combination of nuclear and powerful type plants.

Actually the first question was more heavily weighted to the nuclear side just..

Nuclear?

Yeah, if there as a specific nuclear acquisition embedded in your projections and how would you, sort of, think about that in terms of Seabrook and from Vermont Yankee?

John, you want to talk about what's so actual in the guidance?

Oh, I see. Zach, the only thing we don't have anything new for '01. For '02, wave one new project for 7 cents, so it would be either one of the projects that Don just talked about from Vermont Yankee or Seabrook, or combination of service offerings we could give to customers or a bundled set of decommissioning projects. We're not specific on it. We just believe we can between now and 2002, we can raft together either one project or a set of service offerings to make up that 7 cents.

Great. Followup question is, you mentioned sort of finding a home for these 34 turbines, which have boating around, and we just wanted to Wayne or Jeff or John if you could shed a little bit more light on what we should be expecting regarding these turbines, and as far as upcoming announcements, what sort of portion or percentage of these turbines are going to sort of find a home and so then sort of parlay that into giving a little bit more clarity on earnings growth and projections beyond '02?

Zach, I am going to turn this over to Jeff directly, but just from a high level standpoint, one of the reasons you haven't seen an announcement on these turbines yet or these projects is because we actually have more, these turbines are competing, the projects are competing for the turbines. We said many times we tried to make sure we had at least three projects for every turbine that we've ordered, and when we have a project now down, when we get down to the point where we have less than what we think are five very strong bidders for the output, we tend to walk away from those projects and like for example, Freestone was one of those things where we identified some issues with transmission as we went along and then as some of the potential bidders for the power dropped off for other reasons, they bought power from other plants or they built their own or whatever, and we got down about five bidders we sold the site to Calpine because it was just not enough competition for us on that particular site. Internally, what's going on in Jeff's operation and actually we are going to meet on it this afternoon, is they're competing, the various developers are competing with each other over a limited group of turbines, 34 turbines right now, and that's a pretty intense, I think competition that's rapidly coming to a close because we've got to make some decisions, but there are some very good opportunities, I've already been through the portfolio that Jeff's noted down to and there are some really excellent projects in there, and I'll let Jeff talk about the process exactly.

Right.

Just kind of walk through the approach we use on the development side. One was, our view was that we want to take a very disciplined approach. Actually using a very similar approach to what EK has been using on the trading side, a very disciplined analytical approach. We've also taken a look at really being driven by the market. What's the market telling us about where do we want to be placed down to the substation level, but also what's the type of project etc. The result of that effort and the effort that the development team has put in is that we have in excess of three projects competing for each set of turbines. We could actually, if you wanted to stack up all the potential demand that we have right now, in addition to the 34 turbines that we already have, we have sufficient projects behind that to take as many as 80 additional turbines. This just kind of gives you a little bit of a sense of the depth of portfolio, but the advantage that it provides us, quite frankly, is that we can continually optimize a process portfolio to see which one, both on an individual project basis, but also on an integrated system basis, creates the greatest value for Entergy. We're in the process of coming to that point where the first set of announcements on a number of projects we'll be prepared to make, and we're in the process of finalizing that over the next several weeks or so.

And how many turbines would sort of be accounted for in the first set of announcements?

I prefer to wait until that announcement, a high percentage.

Okay. Great, and then as far as sort of taking that back to the regulatory side and Terry [________________] earlier question, you guys talked about purchasing an additional 3000 MW, which you are getting recovery of the regulatory mechanisms the summer of 2000, and kind of into that potential investment opportunities in generation on a regulated side in the absence of deregulation in certain regulatory jurisdictions. Should we think about some of these turbines sort of finding a home in regulated or quasi-regulated projects or should we, sort of, look at those two things separately? Hello.

Yes, Zach right now the project, you know, I talked a bit about, earlier on trying to coming up with maybe a different mechanism for these power purchase costs that it provides more assurance that we were balancing the risks and the rewards because, when you have a [_______________] rate plans, when you have a cost, like your capacity charge, it can push you down in the sharing mechanism, which can be a bad thing versus setting rates, resetting rates with an investment. When you have revenue and it tends to push you up into it then you tend to want to use the mechanism instead of resetting rates and build the revenue into base rates. So in this particular case since we're dealing with the cost, one of our primary considerations is building something that can be actually rebuilt in the rate base or on a return on commensurate with the risk and reset the rate. So just from an accounting standpoint makes sense to us. From the business standpoint, we have some re-powering opportunities, couple of stations that are just economic to do and better than any other power project in the marketplace. What we don't want to do, what Jeff does not want to do, is take his 34 turbines frankly and stick them into rate base and earn 10% on them when he's got a stack of projects that's he's rejecting much better than that. So those projects I mean, those are really Jeff's turbines and the regulated people have to convince Jeff that they can provide him that same kind of risk reward that he can get in the market place, and Jeff doesn't always take obviously the highest reward on some of the plants he is looking at collate arrangements where he shipped all the risks to somebody else and is producing a pretty good return for taking virtually no risk at all once he gets to the construction phase. So you will be looking at those opportunities. We may have to go out frankly in the marketplace and buy turbines on the secondary market to fund those kinds of investments in the utility because Jeff's projects, right now, [_______________] on competing for those turbines.

Right, great, and just one final question. You guys spoke about the two New York State plants, and how high costs they are and how they are most expensive on a per unit basis end of the spectrum, and having them on the same side, could you feel that they should be on the opposite end of the spectrum. Can you just refresh us as to what the cost structure is of those plants, what your assumptions were with on and whether cost structure would get embedded in your, sort of, guidance on the contribution, and in fact guidance is still appropriate, or if we think we can do a little better or lets hope for, sort of, getting the cost down to where it originally was?

Yeah, we feel good about our guidance Zach, we've tended to assume fairly conservative assumptions from an operational standpoint because you take these plants over and Don's much more experienced to talk about this than me, but you take them over and you've got to think of all the issues with the labor pretty much and everything else, but we're comfortable with we've got operation improvements built into all those plants, into the '01 and '02 guidance. We are comfortable with that right now, but there is probably a chance that there could be some improvement on that.

I mean, there is no doubt that over time those should be some of our lowest cost plants because by design they are big, and in the case of, in your point, its identical unit. On the other hand, for our models, we used pretty conservative assumptions on the treated time that we get down to those levels. So its not a question that we can't get down there, it's a question of how fast can you get down there and in the models they are pretty conservative. So there is a chance that we could increase the capacity factor and reduce cost faster than we have in our models.

And your assumptions assume that you get down to what per unit cost by when and what capacity factor by when?

Basically, on all the units originally when we looked at them, we assumed about an 85% capacity factor over a period and expense on the unit, the ones that had more problems we had that over a 4 or 5 year period, some of them with less problems, we thought that we could do it in 2 to 3 years, but we think in all cases they are real conservative and on the other hand, assuming 85% capacity factors, our units are running pretty close to 90% capacity factors and there is no reason over time that we probably can't get them up there too, but I think in all our analysis we are pretty conservative.

Great, I'll follow up offline. Thanks so much.

Our next question comes from Danielle M. Seitz with Salomon Smith Barney. Ms. Seitz your line is open.

Thank-you. I just was wondering if you could break the contributions from EK into weather versus power and gas, and also, if you have qualitative or quantitative profitability trends as far as gas and power trading?

Danielle, this is John. For the quarter, the pipeline contributed about a third to a half of our net income and the balance was split evenly between power and gas. Weather doesn't contribute much in the first quarter. So on an ongoing basis it would tend to be about a third of our contribution will come from the pipe, and then the balance of the two thirds would be shared about equally between gas and power and weather, and beyond that we really aren't going to disclose much more than that.

Okay.

or it puts [_______________] and his team at a bit of a disadvantage in the marketplace.

Yeah, no, I realize that sometimes you get some statistics that help on that, but I appreciate that. Thank you very much.

Thank-you.

There are no further questions at this time; therefore, I'll turn the call back to Nancy Morovich for closing remarks.

Thank you operator, and thanks to everyone for participating in our call this morning. The conference call was taped and can be accessed for the next seven days. The dial-in number for the tape replay is 719-457-0820, and the confirmation number for that replay is 712-190. This concludes our call. Thanks to everyone.