安特吉 (ETR) 2002 Q4 法說會逐字稿

Good day, everyone and welcome to the Entergy Corporation fourth quarter 2002 Earnings Conference Call. Today's call is being recorded. At this time for opening comments and introductions, I'd like to turn the call over to Ms. Nancy Morovich, Investor Relations. Please go ahead, ma'am.

Good morning, everyone. We hope each of you received our earnings release by now. We know there were printing problems this morning. If you haven't received a printable version, call my assistant, Maureen, at 504-476-4846. We begin with a quick Safe Harbor statements. Investors are cautioned that forward-looking statements made during this with respect to the revenues, earnings strategy or other aspects of the business of Entergy may involve risks and uncertainties. A number of factors could cause our actual results to differ materially so we refer all investors to the full text of our earnings release and SEC filings for additional information. In a moment. I will turn the call over to Wayne Leonard, Entergy's Chief Executive Officer. And then, following Wayne's comments, Donald Hintz, our President, will discuss the nuclear business and John Wilder, our CFO, will review financial results for the quarter. Of course, at the end of the call, our entire senior team will be available to take your questions. Wayne?

Good morning. By now I'm sure you've all read our earnings release for 2002 and we hope you're satisfied with the results. During a very difficult year for the industry, Entergy's earnings growth and our credit and liquidity measures remain on target and we ended 2003 with a strong cash position of commitment to maintain strong credit metrics and a strategy to sustain income growth over the long-term. John Wilder will provide a complete review of the financial performance later in the call, but before that, I want to review the performance highlights from the fourth quarter and the full year as well as some disappointments and challenges we faced.

Now, quickly remind you of some of our goals for 2003. As for the highlights, first in the utility, the Mississippi public service commission approved an increase in Entergy Mississippi's retail rates effective December 31, 2002. During 2003, annual retail revenues in Mississippi will increase $48 million. But with fuel adjustment reductions, Mississippi customers will continue to pay about the same for their electricity as compared to 2002, which is 13% less than they were paying 10 years ago. In the order, Entergy Mississippi's authorized return on equity was increased from 10.07% to 11.75%. With an opportunity to earn up to an additional 100 basis points if we achieve and maintain certain reliability levels and also provide for another 111 basis points above the performance base we turned before any rate sharing mechanisms apply. In Louisiana, during the fourth quarter, Louisiana public service commission approved a settlement with Entergy Gulf States that resolve all outstanding issues for five years that were filed from 1997 to 2001. The ROE was maintained at 11.1%. For the full year, 2002, the utility continued to improve reliability and customer satisfaction. On customer satisfaction, the 2002 JD power residential benchmark study said Entergy is the most improved utility in the south region. Our score jumped 10 points from 93 to 103, placing us in the second quartile in the industry. Last year, Entergy was named one of the top 10 utilities in the world in the Dow Jones sustainability index, even though we received a very, very low score in the customer index, primarily because we serve a lot of very large industrial and very poor residential areas. In other words, folks that tend to be very, very price-conscious. So, getting into the second quartile may not sound particularly great, but we served pretty tough graders and we're continuing to make steady progress. That's what our regulators expect. They're pretty tough graders, also, but they stood thy their word as they will "treat as us well as or poorly" as we treat our customers. ROE at the time was where do we sign. It's all worked out well for everybody.

Turning now to Entergy nuclear, in the fourth quarter, we completed three fuelings in the northeast on or ahead of schedule, averaging 26 days. In addition, our consolidated nuclear unit will address any concerns over the reactor vessel head at Entergy's oldest, most at-risk unit during an extended, at least by Entergy's standards, 39-day refueling outage to examine all 69 nozzles on the reactor head. The good news, as you know, was the ANO unit one reactor vessel head had no material corrosion through ongoing operations. The head was a very normal condition given its age. I remind you as a precautionary measure, given the history in the industry of corrosion and cracking, a new head is already on order to be installed during the scheduled outage in 2005. For all of 2002, Entergy's nuclear plants performed at an average capacity factor of 94% and that's including seven refueling outages Monday were completed in near-record time and everyone, without any lost time access. I should note that in November, Entergy was honored as the global power company of the year at the Platte business week global energy awards,part for our successful "Newsweek"ler goal strategy and commitment to environmental excellence.

Moving to Entergy commodity services, we achieved our G.O.M. of selling our plant by year-end, thus removing $450 million of debt from our balance sheet and exiting a very difficult market in the U.K. Throughout 2002, Entergy continued to deliver solid performance with perhaps the greatest challenge being staying up with the sometimes almost overnight deterioration in the credit worthness of the counter party. Performance for the year benefited from increased profitability in both trading and gas transportation and the down credit rating from Moody's and an A from Standard and Poors.

Now to disappointments in the past year and challenges ahead. The major disappointment of 2002 was in the power development business. We closed the North American operations of Entergy wholesale operations and announced write-offs of up to $1.35 a share. Write-offs that ultimately totaled $1.17 per share net of the litigation efforts throughout the year. This included turbine cancellation costs, write-off of previously capitalized overhead and the payment of severance costs. We strongly believe that it was the right decision to exit this business but for a few attractive opportunities that were still on the table in 2001, consistent our point of view, woe have exited even sooner. In hindsight, of course, we would have done a lot of things differently. Another disappointment has been our lack of success in acquiring properties in this market. I assure you with t was not for lack of trying. Working with Coke Entergy and Entergy Coke, we reviewed dozens of pipelines and other assets and placed numerous bids, some solicited, some not. A number of cases losing was simply a matter of financial discipline. We have a market point much view that we will not stray from, nor will we take positions on unacceptable terms. We have massive [INAUDIBLE] that are highly profitable. We continue to be pesky but patient for the right opportunities. We developed the legal structures to facilitate a wide range of transactions, including a strong relationship with a highly-interested, well capitalized outside party to add enough fire power, if needed, to assure size is not an issue. Third area of disappointment was in the underperforming businesses, particularly Entergy [INAUDIBLE]. There was a loss in 2002 of just over $1 million and faces a potential downgrade from Moody's. The company requested a rate increase to recover the rate of and return on investment that's have been used to sustain and improve customer service.

I think it's fair to say that every other jurisdiction we've served has recognized our improvements customer service and acted fairly and responsibly to reward the company's efforts. The evidence in this case speaks for itself. In fact, Entergy noins has the best reliability measure in our system and the local offices we have opened since 1995 in New Orleans maintains steady customers who want face-to-face service, we expect in order by mid-year. Another challenge for the company in the coming year is to continue to address public concerns, especially the emergency plans for Indian point. A draft report by the James Lee Whit associates released in January has received a lot of attention. And because this is a topic that we know is on many of your minds, Don will give you an update on Indian point and the draft of the Whit report later in the call. With that review of 2002, let me turn to some of our immediate goals. It's been only five years since Entergy adopted a three-focus strategy. Over that period, we've surpassed the goals we've established, improving customer service, safety and reliability by 40 to 60% across the system. Building strong credit, dropping debt to 46% and maintaining consistent growth in operational earnings. In fact, we committed to a goal of 8 to 10% average annual earnings growth and adjusting for weather, we've grown earnings from $1.92 in 1998 to just over $3.80 in 2002. Some of you may remember various presentations we made detailing our "aspirations" of doubling earnings every four to five years. We have clearly beaten our goal of 8 to 10% and right on top of that aspiration. Looking forward, we have to demonstrate that the basics are covered, even during extraordinary events, like a category 5 hurricane or a meltdown or explosion in the commodity markets and at the same time, we need to move to the next level of achievement to near term goals and long-term aspiration that's set us apart from everybody else.

In the utility, to achieve top quartile performance in every single functional process. To gain approval for rate increase at Entergy New Orleans that allows the company to earn a fair return on its investment, time and money and to obtain approval for a generational supply strategy that was filed last Friday at Burke, Louisiana and in New Orleans and introduce performance incentives in all our rate of return formulas by year-end. At Entergy Coke, our goals for 2003 are to work toward doubling the physical optimization business by 2005, to achieve global growth in the business, to continue to improve productivity at the gulf south pipeline and to complete the magnolia storage facility on time and on budget. In the nuclear business, our goals for the year are to continue to reduce our average fleet cost and in particular to improve the productivity at the northeast plant to levels we have achieved in the south. To sell or hedge at least 75% of 2005 output and 50% of 2006 output from our northeast plants by year-end 2003 and to complete upgrades at pilgrim and end.2 scheduled for 2003, again, on time and on budget. At the same time, we will pursue other goals to drive the corporation of long-term ability to produce real value for all of our stake holders. These include the pipeline for Entergy Coke, to build a balance sheet to support expansion of trading and increases already the highly successful business. Acquiring additional capacity for nuclear and agreements to operate capacity for other nuclear owners. Improving our credit rating by continuing to achieve stock financial metrics and by demonstrating our business position is now much stronger than the agency's historical ranking. Improving the cost position of the generation portion of Entergy's regulated utility operations, in particular, by reducing the price volatility that comes with the alliance on natural gas and lastly, playing a major role in shaping the standard market design, particularly for transmission, and creating a highly competitive open market for new resources that can compete for our business as the buyer. Achieving these goals is the necessary first step in creating the opportunity to realize bolder aspirations for Entergy, but that is a conversation for another day. One objective I did not mention was the importance of maintaining or upcontaining, some cases, the public confidence in the safety of our nuclear operations and any emergency evacuation plans, which are part of the deal, regardless of how safe the plan is. It is more than just a matter of convincing ourselves, the regulators, the public official and other experts that the plants are safe and secure. Very to provide the same peace of mind to those who live around the plants. We can do more in that regard and fully intend to. Now Donald Hintz has a few comments that subject. Don?

Good morning. As Wayne mentioned, we know you've seen a good deal of media attention directed at Indian point recently. I'd like to briefly review some of the recent events and then discuss what we're doing to address concerns and strengthen safety and security at the site. To review recent events, on January 10, James Lee Whit Associates issued its draft report on Indian point, which raised questions about the existing emergency plans in light of the events of September 11th. Following the release of the draft, media intention focused on county and state certification processes. All counties based upon our information, have completed the required actions of the certification process. However, none has forward the certification documentation to New York state for subsequent delivery to Fema yet. One county submitted its certification checklist to the state without the signature of the county executive. Two others sent letters to the state, indicating they meet or exceed all requirements to certify. And a fourth county has taken no action. Governor Pataki issued a statement to Fema, which strongly urged Fema and the NRC to consider the [INAUDIBLE] raised by the counties and continue working with the state to ensure that these plants will protect our residents in the event of a nuclear emergency. Let me emphasize several points in response to these events. The Whit report is a draft report. Mr. Whit's firm was hired to conduct an independent study and accordingly his firm obtained virtually no input from Entergy in developing the initial findings. Before the report is final, we will have an opportunity provide input during the public comment period.

On January 28, Fema announced its rejection of a formal petition initiated by assemblyman Richard Brosky on June 17, 2002, to decertify Indian point's emergency plan. Counties and states have no firm deadline to certify. Certification is based on guidance from Fema but is conducted at the discretion at each state. When counties certify, we are only providing a statement of work they completed in accordance with federal emergency planning standards to ensure they are prepared for an emergency. It is not an assessment of what Indian point has done to ensure preparedness or whether the plan is adequate. Governor Pataki said he couldn't issue the state certification because nearby counties had not certified the plan. We should not read more into the governor's statement than there is. Just yesterday, Fema issued a letter to New York state emergency management office, stating that it believes the state is in a position to make a reasonable evaluation of preparedness activities despite the county's failure to provide documentation in such regards. Governor Pataki has not suggested that IP be shut down. Nor has any NRC or FEMA official. No state official or agency has the authority to shut down Indian point. Only the NRC has ha authority, which I will discuss in a moment. No nuclear plant has ever been shut down over any issue regarding its emergency plan. We understand that the events of the past months have generated questions and concerns but let me assure you that the fundamental situation at Indian point has not changed. The plant is safe, since Entergy took over Indian point, the nuclear regulatory commission lifted its red finding, acknowledging the significant improvement in operations and safety achieved under Entergy's management. The emergency plans have already been certified once following September 11th, 2001 and these plants,our view, have only been improved since then. Indian point successfully caughted a full scale emergency exercise in September 2002 with full participation of the state of New York, the four counties and the city of Peakskill. The exercise was evaluated by one of the largest federal teams in FEMA and the NRC in the history of the evaluation process. Both NRC and FEMA representatives stated at the time that they believed the exercise demonstrated the ability of Indian point, the state and county governments to provide reasonable assurance of protection of public health and safety. As with other plants around the country, Indian point's emergency plan has been called into question before but the plant has never been shut down. Even temporarily as a result. In fact, during the 1980s, FEMA decertified the emergency plan on two separate occasions. Both times the owner was given the opportunity to address the problem areas and FEMA subsequently certified. More importantly, the plant ran uninterrupted throughout both processes.

And finally, as I mentioned before, for all the noise being generated right now, only the NRC can shut down the plant and the criteria is pretty straight forward. In the words of Neil Shehan, an NRC spokesman it must present an extreme and uncorrectable danger. Now, let me briefly explain where we are in the process and what you can expect over the next several weeks. Public comments, including ours, are due to James Lee Whit associates on February 7. Comments are also expected from the NRC, NEI and nationally-recognized experts. Based upon these comments, the Whit report will be finalized and issued shortly thereafter, which we expect to be in early March. Obviously we are diligently working to prepare our response, which will highlight a number of improvements which we have already implemented or are in the process of implementing. These improvements, we believe, will provide compelling evidence that Indian point's emergency plan is, indeed, more robust today than it has ever been before. And adequately protects the citizenry of the Indian point area. We will also clarify material factual issues contained in the draft report as well as provide independent third party expert technical information that clearly contradicts some of the fundamental assertions upon which reports' conclusions are based. Armed with both reports, we would then expect the NRC, FEMA and the New York state to complete their individual reviews and conclude in accordance with current regulations that the emergency plans provide reasonable assurance to protect health and safety of the public.

Let me close by saying that even though we would prefer to channel all of our energy into running Indian point safely and efficiently, we are optimistic that in the end this process will enhance our ability to effectively manage an emergency at Indian point and ultimately will lead to greater public confidence. While the draft Whit report generated the reaction you'd expect from long time opponents of Indian point and the nuclear power industry in general, it did not recommend shutting down the plant. We believe that the final report, in a month or so, will lead the focus back to ways that we can enhance security and emergency preparedness at a safe and essential facility. I'd now like to turn it over to John Wilder.

Thanks, Don and good morning. In my remarks, I will cover 2002 results, including a review of our improving financial performance and I will finish with a preview of 2003 and beyond. I'd like to start with a score card to show our performance against the major financial objectives we targeted in 2002 as shown on slide 3. We delivered 18% operational earnings growth. We generated more than $2 billion in operating cash flow for the second consecutive year, which is nearly $500 million more than we averaged from 1998 to 2000. We strengthened operational net margin by almost 40% while return on invested capital increased by 4%, marking the fourth consecutive annual improvement and return on equity set a new record high of 11.3%. We lowered our end of the year net debt ratio by 3 percentage points and grew our cash balance to $1.3 billion and prefunded more than $600 million of debt maturities at the utility. Excluding a few outlying years following our $4.5 billion investment program, we ended '02 with the lowest debt level for Entergy in more than a dozen years. In short, we ended the year on n a strong financial position in a market punished many barpants for not exercising financial discipline.

Now I will review our financial results. We move to slide 4, of which shows the fourth quarter earnings rose sharply verify '01 results. Entergy's reported earnings were 33 cents. Operational earnings were 34 cents per share, an 89% improvement. Entergy Coke, with solid improvements in trading, marketing and gas transportation was a major contributor in a quarter that historically had 34i78al impact on the annual results. On slide 5, you will note that full year results far exceeded our long-term growth goal of 8 to 10%. Operational earnings in each 6 our businesses improved year-to-year as reflected in slide 6. On slide 7, sales growth at the utility combined with the change in accounting for goodwill generating higher earnings in that business even though total OEM expenses increased 24% on a per megawatt hour basis due to deferred icestorm costs, which were competenced in the current year as a result of the settlement reach with the Arkansas public commission. Slide 8 reflects Entergy nuclear's contribution, increasing by more than 50% as this business generated 32% more electricity in '02 and realized the benefit of improved electricity contract pricing. Entergy commodity services performance is illustrated on slide 9. This well-positioned business achieved higher earnings due to higher pipeline contract pricing. Increased parking and lending activities. A 25% increase in physical optimization assets under management and a 70% increase in derivative sales.

Turning now to our financial metrics and liquidity, slide 11 shows our continuous improvement operational earnings an 18% increase. Operating cash flow was again, very solid as seen on slide 12, declining only slightly due to customer refunds at the utility and higher consolidated tax payments. We improved return on invested capital and return on equity both on an operational basis as shown on slide 13. Slide 14 shows a significant improvement in operational net margin due to the sales of underperforming businesses and lower fuel revenues in 2002 while slide 15 reflects the strengthening of our credit position and financial flexibility as we worked our net debt ratio down to nearly 46% and improved our FFO interest coverage by 6%. This creates a distinctive advantage for Entergy that's important given the current market environment. Our '03 financial goals, as illustrated on slide 17, will be to continue to perform across the balanced set of financial objectives to generate fundamental economic value for our shareholders and bond holders. We will go earnings and deliver strong operating cash flow and achieve top quartile improvement our net margins. We will emphasize financial flexibility by maintaining $750 million of liquidity, keeping our net debt to total capital below 50% and increasing our FFO cover ratio by 5% or more. Success in he's efforts combined with our investment strategies will drive further improvement in our capital productivity returns, which we believe, in turn, drives superior returns to our shareholders. Slide 18 reflects our path 2003 guidance of $3.75 to $3.95 in earnings per share on an as-reported and operational basis. If the disproportion is excluded from 2002 actual results, this represents an increase of 15 to 35 cents or a 4 to 10% year on year improvement. Slide 19 summarizes three items that have been highlighted in the news recently and I want to clarify their impact on us. First, we will, effective in the first quarter, begin expensing stock options. Second, we will again record expansion expenses in '03 as a result of the declining performance of pinch and investments and updated assumptions. And third, Entergy Coke will implement EITF 02-03 in the first quarter with an effect of $20 million pre-tax. Collectively, these items will have a minimal 87 pact on our in '03 and all three are in our current earns guidance. The implementation of EITF 02-03 will not impact the equity interest in the Entergy Coke venture. Working with our ex-external auditors, we determined that the appropriate accounting, in accordance with the terms of the partnership agreement dated January 31, 2001, requires Entergy to continue to recognize earnings from the venture through the end of 2003 based on market to Mark accounting. There after, Entergy and Entergy Coke will report earnings using the same accounting method. Because the cumulative effect at Entergy Coke is expected to be minimal and because the majority of associated accrual earnings will be realized over the next 12 months, Entergy's earnings in '03 are not expected to differ materially from Entergy Coke's earnings. To the extent they do, however, we will inform you.

To conclude, we completed another solid year and remain highly confident in our ability to execute going forward. Slide 20 shows our long-term focus is to achieve industry-leading financial performance. We will go earnings per share by an average annual rate of 8 to 10% per year, growing cash flows at high levels and achieve and sustain top quartile costs and margin conditions through the downcycle. We will maintain a flexible and competitive capital structure that is appropriately aligned with the risk in our businesses and the cyclical nature of our industry. We will share adequate liquidity at all times by matching financial assets and liabilities. We will secure improved credit ratings and recognize the fundamental strength and competitive position of our businesses with a goal of achieving and maintaining an "A" rating in the long-term. Finally, we will only reinvest free cash flow that's not returned to shareholders in businesses with a competitive advantage. We will strive for above market returns and expect earnings on capital to exceed 10%. We're hopeful that all these efforts will result in a top quartile total shareholder return to a competitive dividend and stock price depreciation. And now, our senior team will answer your questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit 1 on your touch-tone phone. If you're using a speaker phone, be sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order you signal us and take as many questions as time permits. Again, press star 1 now to ask a question. We will pause for just a moment. And our first question comes from Andrea Feinstein.

Hi. Just a couple of quick questions. I missed the beginning of the call. I apologize if you already addressed them. They're somewhat specific. On table 7 in the release, you give some details as to the net option premiums that you received during the year over that $90 million. Can you give me the comparable number for 2001? And can you just -- clarify for me whether or not, you know, I should view the cash received from these option premiums as basically being gross margin that drops directly to the bottom line?

Kyle, do you have that table in front of you?

I do have the table. I've got Dennis, our CFO, to direct that. I'm not sure we will have the answer right here. Let's do it offline.

Okay.

We'll have to follow up on the '01 numbers, we don't have them here. But you can't make the statement that the $90 million just falls to the bottom line. That's just the net proceeds received during the year for option values at the time.

Okay. I guess I'll follow up offline with more questions on that. And then on the '03 earnings guidance that you guys detail on page 14, I just have one question within the context of the utility. It looks like the Mississippi rate increase gives you about 13 cents year-over-year and if you exclude redder and just look at the sales grout '01 remember over '02, you realize 17 cents in utilities sales growth which gives me a minimum of 13 -- I'm sorry, a minimum of 30 cents of year-over-year growth. My first question is what are the potential offsets to that utility growth? And are you backing into the earnings increase range, the potential for some amount of the New Orleans increase request to actually flow through the bottom line?

Andrea, this is John. That's an excellent question. We have about 18 cents for rate increases, which, for the most part, is our Mississippi and our New Orleans rate increases. 18 cents for normalized growth, that's 2% growth residential, commercial and governmental and we have a coaching losses that we did mention in the call, about 9 cents and that gives total growth of about 9 cents. So, your specific question was what are the offsets? And the offset was industrial sale declines.

Okay. Great. And then my last question and I'm sure you probably did talk about this, so, I apologize if I make you repeat yourself. Within the context of the improvement in parent and other, you talk about the change in consolidated tax benefits and the impact that that had, the positive impact it had on earnings. Can you go into more detail to explain that positive impact to us and how we should be thinking about that in 2003?

Every year we're required by the SEC, the 35 companies, to basically distribute any tax benefits that the parent company receives from a dededuction because the parent company only can achieve that dededuction through the taxable income of the subsidiaries. So, every December our number bounces around, but really the way to think about it is to look at the utility for the most part and parent together and that will normalize that number.

Okay.

So, for '03, we assume no material allocation differences, but always at the end of the year there's something. But there's a positive at the parent, there's a negative at the utility. If there's a positive at the utility, there's a negative at the parent. So, it always washes out.

Great. I appreciate it.

You're welcome.

And moving on, we'll take our next question come Raymond Niles of Salomon Smith Barney.

Good morning, thank you. I have a couple of questions. The first is -- I believe there's mentioned here a contribution in 2004 to Entergy Coke, $72 million. I wonder if you could just explain that or tell me what it's for?

Ray, when we negotiated Entergy Coke, we had a delayed contribution payment from Entergy to Coke industries as part of the arrangement and that's what that is. It's simply part of the investment in the business.

Was that a predetermined dollar amount? Or, you know, was the dollar amount contingent on some aspects of performance of the JV?

Predetermined dollar amount.

Are there further contributions?

No, that's it.

Okay. And then, the second thing, I noticed in the disclosures which I will have to say were excellent in terms of the contracting for the nuclear and the gas generation, but the market spark spread assumption, the gas spark spread assumption is listed as zero and I think in '04 and '05. You know, I guess, first question is are you assuming a 7,000 heat rate for purposes of describing the spark spread? And maybe can you explain the 0 dollar assumption Ray, the 0 dollar assumption isn't our --

Ray, the 0 dollar assumption isn't our forecast of what we think the market will be. It's our contribution that we have built into guidance for that. So that table is slightly misleading from that perspective. It means what we're assuming for our open positions in terms of our forward guidance.

So, you're being conservative, basically.

You could say that.

Okay. And then, I guess the last question, just in terms of -- well, maybe if I could ask two more, if not, I will just ask one more. But in terms of the trading business, you know, this is accounted for some of the -- some of the earnings strength in the fourth quarter. Can you just describe -- I notice that the win/loss days ratio has declined. The bar has gone up a little bit. Can you just describe, you know, what's going on there? You know, why profitability has gone up a little bit in your outlook and whether, you know, power is contributing at all to that or is it solely gas-related.

Don, you want to handle this one?

Ah, yes. First of all, all of the different aspects of our book are contributing, Ray, both gas power and weather. So, it is across-the-board. Secondly, you had a real unusual quarter where you had a very flat kind of October/November and then a very strong December, which kind of skews some of the statistics, Ute basically our batting average area less than it normally is, but we had more capital employed, which is about three times as much capital employed during that quarter as we had the previous quarter and also predominantly in the December timeframe, we were particularly let's say active and correct. So, in general, a lot of the money in the quarter was skewed toward December, but most of it was that we just had more capital employed.

Can you just say which bucket benefited the most of those three?

Probably gas would certainly be the most. You know? It's the predominant -- from a Dickly stand point and size standpoint, it's the key, but power is contributing, too.

Do you think generating asset values have bottomed yet? When do you guys want to get in the market?

I can't give you all -- this is for me or for John?

Whoever's going to be writing the check. [ Laughter ]

Probably nobody! Okay, I guess that's your answer.

Okay, seriously, we will see if Don or John wants to add something, but I think it's difficult to say this one time, we've seen the bottom. You know, we've still -- right now we're looking at maybe '04 as maybe being the bottom but, you know, we remiss this market and we missed it big. The two big things that we missed was the amount of turbines that tha could be delivered during this timeframe, the GEs, the Westinghouses, their ability to deliver the volume that they did. And secondly, in our gain theory that we went through with regard to competitive behavior, we missed that also. And some some cases we felt that the plants that we had, because of the low heat rates and locations and others that even in an overbuilt market, if people continued to buy plants, they would stop at some point in time and still allow to us make money because of the cost acquisition or the location of our plant. That didn't turn out to be true.

For example, with the warm plant we built in Mississippi, there was some 10,000 megawatts that continue to be sized and built in the same rage after the region got into supply and demand balance. So, when we look at the market today, we can make a lot of projections when regard to when we think the bottom will hit. But the key open item is if you take all the announced turbine purchases and you subtract out the cancellations and subtract out the turbine I knows that have been planted, there's a whole lot of turbines someplace, leftover. Is the competitor going to be rational with what they do with it? The turbines are sitting somewhere, in our minds, rather than being canceled because I think companies are trying to avoid write-offs. Not because the think the market is going to necessarily bounce back in two years, three years or four years. If they continue down that path of trying to avoid write-offs, ultimately we may see more of the turbines start to get sided in markets that don't need them and may not have seen the bottom of the market yet. So, in terms of prices, you know, we said 125 to 200, sitting here today, we'd be a lot closer to 125 until we figure out what's going to happen with these turbines, and there's a whole lot of them, like I said that, are sitting someplace. Okay. Thank you. That's very informative.

And our next question comes from Paul Patterson of Glenn Rock Associates.

Good morning. A lot of my questions were asked. But let me ask you perhaps how you look at gas assets in terms of pipelines that are coming out in the market? I was wondering what your feeling was with that and how it might fit with the Entergy strategy? And my second question was, with respect to nuclear it looked like the dollar cost per megawatt hour rose a bit even as the capacity the factor was flat. Is that because of security or insurance or what actually caused that?

Okay, Kyle, do you want to address the pipeline issue? And then John will take the cost issue on the nuclear side. You ready, Kyle or want John to go first?

I will do it. Paul, on gas, you said what are we looking at? I didn't quite catch the question.

We're seeing a bunch of gas pipeline assets that apparently are going to be sold. How might that fit in with the Entergy Coke strategy? I mean what you're looking at that, sort of the same question about generation which was answered? What's your feelings that the pipeline might be? And then my nuclear question.

Okay. Certainly, we are on the lookout as Wayne mentioned earlier for assets that would fit us and certainly pipelines are something that's in our sights. You know, at this point in time, we have participated in some of the either auctions or even on an unsolicited basis, we're still looking for those. This is also an issue of price and also probably the right locales for us. If the right assets come in, we will certainly participate in the activity. It is something that fits us if we get the right terms and conditions.

What kind of prices and what kind of location or geographic location are you looking for?

I prefer not to say. But it would be, you know, we would only be interested in the things to the extent that we could add value to them from the standpoint of our operating cost or they would add as far as growing oar exposure across the U.S. We're looking for a good competitive position mainly.

Okay.

Paul, this is John. On the nuclear question, our cost per megawatt hour did increase 13%. That was due to bringing in higher per unit costs from our Yankee plant and also beginning to amortize our outage expenses that we've never had to amortize. That was about $8 million. And in '03, in fact, it will be pretty substantial, about $58 million. So, you will start to see some productivity improvements flow through nuclear in '03, even offsetting that $58 million out of amortization.

You think it would fully offset the $58 million?

It will fully offset the $58 million and then some.

Okay. Great. Thank you very much.

You're welcome.

And Jeff of Vargas Research has our next question.

Thank you, good morning.

Morning.

I just wondered -- looking, comparing your guidance, your '03 guidance with the end of third quarter and the guidelines you released today, the bottom line is the same, but it seems that interest expense has crept up quite a bit but offsetting that is expected better performance at nuclear and the utility. I'm wondering if you could just comment on -- I guess specifically on what's changing at Tarrant and other from 5 to 10 cent loss to 15 to 20 cent?

Jeff, our categories always move around slightly quarter-to-quarter, but in general to your comment, we have lengthened the duration of our liability portfolio fairly substantially over the last six months. We've actually have some structural seven-year debt at the parent now that we've never had before. So, we're not riding the short end of the curve. That's increased the interest expense a bit, both at parent and in the utility. So, that's for the most part I think responsive to your question.

Okay. And moving on to Entergy Coke. The mark-to-market was 21% of fourth quarter. How much for the full year was mark-to-market earnings a percentage of consolidated?

About 10 or 12%.

Okay. And then it seems you're having quite a bit of success down at Entergy Coke trading. You mentioned the fiscal optimization business and then the modest -- or the increase in daily earnings at risk and I wonder if you could just walk through, you know, the increased risks being taken on there and it being rate with increased returns.

2078, you and Dennis want to answer this one.

It sounds like a two part question. Physical optimization is a business it's an area that we've been participating in and also see great opportunities to grow, particularly because a lot of our competition has dropped out of that area and because of our AA-3 rating we've been a good candidate to help people manage their assets. So, that's number one, one reason why that business has grown. As far as the capital at risk, the way we employ it, we're well within our authorities. What we generally do, we pending on your point of view, if you have a very strong point 67 view, at those points in time, you toned exercise more of the capital you've been given at risk. And there are times let's just say when you don't have that strong a point of view, you employ less. So, I want to say the stronger our point of view, the more we're likely to employ the magnitude of our capacity. When we don't have a strong point of view, we won't. That's really, pretty simply, what happened. We had a pretty strong point of view.

Okay. I'm just trying to compare -- you know, looking at the gain loss states as far as the amount of earnings at risk and, you know, have seen the gain loss delays decline, obviously the market's deteriorated but also the average earnings at risk have increased. Is this indicative of any shift in strategy or is it more just in the fourth quarter you were taking certain points of view?

That's an excellent question. First of all, I think our shift this year downward in gain loss days with because there was tremendous noise in this system. You had the implosion of our whole sector. A lot of counterparty risk, a lot of other regulatory risk, you had confusion about the EIAGA inventory switch, all of these things basically threw a big cloud over the area and so let's just say that the signals weren't as clear. You've also got a lot of players in the market. So, the market kind of changed its behavior. I think we're at a point now where, you know, we at least have a little clear feeling about point of view and also the way the market is behaving this new environment. So, I mean I would hope you would see our batting average go back up. Whether it goes back to where it was before, I don't know, we're happy with it. But I think you will ski go back, maybe where we used to hit a lot of singles. Maybe we had a couple of doubles this year and maybe a triple. We don't plan to change the strategy. We will stay with kind of a broad portfolio where we trade over a wide range of books and then we're going stay within, let's just say our time hoRidzon hasn't changed that much. The majority of our trades will be within two years in a highly liquid area. None of that has changed.

Thank you and good job.

Thanks.

Moving on, next we have Greg Gordon of Goldman Sachs.

Thanks, I apologize in the question was answered, I had to get off for a minute. On table 4 in the hand-out, you do, again, have excellent disclosure, stating you have not rolled contracts forward into '05 for a large portion of the nuclear fleet. But saying that, we have a robust pricing environment given that you're in a region with gases on the margin, we have high gas prices. What are you seeing as far as your opportunity roll those contracts? And what your alternative strategies might be?

Well, let me just open it up. I will let John and maybe Don talk about it. What we're obviously seeing is a lot of interest. We -- and particularly in New York State. Despite all of the noise around the draft of the Whit report, maybe in point, out buyers know the supply and demand situation in New York and know what the rules of the game are in terms of the viability of these plants and who makes the rules and makes the decisions. So, there's a lot of, you know, interest in the output from the plants. The current pricing environment in the marketplace for those New York plants is -- is in general higher than the PPAs we entered into and much higher than the base case that we gave our board of plants. Association it's a very favorable environment -- so, it's a very favorable environment right now to enter into these reacts contracts. As interested as we are in getting the contracts done, the other side is just as interested or more so as they continue to see gas prices continue to rise, they continue to see the supply and demand get tighter and tighter in this area. Don, do you want to add anything?

I think you pretty much covered it, Wayne. You know, we are in discussion and there is a lot of interest and we fully expect to be able to extend those PPAs.

Now, the other question you had, and Kyle might be able to add some color here, because we have turned over the assignment to Kyle looking for alternative ways to hedge this out with more derivative-type contracts, using the gas market and that's pretty complex. Kyle, you have anything to add in terms of options that are available to do that outside of the PPAs?

Not really, Wayne. I guess other than, you know, we are working with Entergy on this and there are -- you know, certainly you're in a certainly constructive market right now gas-wise, making opportunities for us to do something creative. I wouldn't say we've penned anything down right now, clearly the Bess way is always to work through your PPAs, but there are things we can do to help. I don't have anything specifically to discuss.

Okay. When's the first major contract expiration or what's the first major you would anticipate having an opportunity to roll? Just so we get a sense of when we're going get data points on the clarity of the '05 outlook?

Greg, this is John. The real events happen in '05. I mean fits start rolling off a little bit in '04, but IP 2, IP 3, pilgrim and Vermont Yankee are all sold out in '04. Then, '05, IP 2 is 5% sold-out. IP 3 is 50% sold out and pilgrim is 35% sold out. So, '05 is the big year, but I think several people mentioned, we're in very constructive discussions with some very strong credit customers and this gas market is highly constructive to us for these advantaged nuclear plants now and we are exercising our contracting strategy very consistent with our overview of gas, which, in the last six months or so, has been increasingly bullish.

So, is it fair to say we're not going to have to wait until '04 -- hopefully not wait until '04 to see you execute contract extensions, there is a hope for this year?

That's our open and that's what the customers would like as well.

Thanks a lot, guys.

You're welcome, Greg.

Next is Amaro.

Good morning.

Hi.

Hi. I've got a few scattered questions here. First of all, are you already talking with the rating agencies about possibly upgrading your rating?

Well, we stay in constant discussions with the agencies. We're going to go see them within the next quarter or so. We have tonight have very constructive discussions with them about the rating of all of our operating companies as well as the parent. The majority of our discussions now are centered around the business position of Entergy and we hope to have a real positive and open discussion with them this year on that topic.

Okay, where is your business position right now? And where would you like see it?

We just moved from a 7 to a 6 and we believe very strongly that we are positioned as a 5. And if you look at our neighboring utilities, that tends to be the business position that they have. So, but we have to prove it through performance. You don't -- that's what the business position is all about. As everyone on the call knows and as Wayne mentioned in his opening remarks, you know, we have improved the fundamental position of these operating companies and we believe the agencies are fair and impartial and they will recognize that.

Okay. My second question is about the $265 million you raised in a 144-A offering. What is that being used for?

Well, we use that to pay down our corporate revolver and to start layering in some structural debt to fundamentally pay off a few of our nuclear acquisitions. We've always matched our investment portfolio against our short-term liability portfolio so we've really don't carry any interest rate risk to speak of. But we've never termed out the short-term debt for the short-term debt that we've used for our most recent nuclear acquisitions and that is basically what we assign that piece of debt to, is our BY acquisition.

Okay. So you were paying down short-term debt?

Right.

Okay. And then this year, how much would you like to prefund in '04 debt? If any?

In '04? We're still analyzing that. I mean we have over 60% of '03 prefunded and -- and we have the remaining 40%, about half of that, we're going to fund with current cash that we have. So, we have '03 fairly complete and we're continuing to analyze the best liability strategy for our operating companies in '04 and beyond.

Okay. And then my next question, could you break out the sources and uses for 2003 and 2004?

Break them out in what sense?

Well, I guess in your press release you have it shown kind of aggregate for '03 through '05 and I just wanted to know if you could break it out by year? I can follow up offline if it will take too long.

We can, but let me give you the punch line, which is they're basically even per year.

Okay.

I mean there's perhaps 100 to 150 million swing year by year, but for the most part, you can about take that number, divide it by 3 and that's the year by year number.

Okay. And my last question is the Entergy Gulf States. Do we have any update on if Texas is going to be unbundled soon?

Let me have Rick Smith, the president overall of all of the jurisdictions address where we're at with Entergy Gulf States Texas.

We filed on January 24 a plan with the Texas commission to go to an interim solution, not waiting on a full RTO in Texas. Different parties have filed comments related to that and we've set up a -- a date with the commission for them to rule on that on March 21 and we'll have to wait and see when we get to March 21, but the target date would be January '04.

Okay. So, you would like to see a January '04 unbundling of our portion in Texas?

Yes.

Okay. Thanks very much.

Thank you.

Moving on, we will tea your next question from Michael Worms.

Thank you, my questions is been answered. Thank you.

Moving on, we will take our next question from Paul Ridzon of McDonald Investments.

Good morning. I had had a handful of quick questions. Your debt to capital being at 43%, but one of your goals is to maintain it in the 45 to 50%. Firstly, what's driving that? Secondly, just some detail, you've got a net 1 cent of nonrecurring items in the fourth quarter. Could you give us flavor, you know, as to the three components there and how big they are relatively? I'd like to get your view ease what you're seeing in the best value type assets on the acquisition front? And then I think you touched on this briefly, but you've termed out your debt more. That's part of your rising interest costs. Is that what Don touched on on taking short-term debt from Vermont Yankee or is there a view driving that decision? And lastly, the Entergy Koch payment of $72 million, when that hits and what you've reserved for that?

Okay, Paul, I will try attacking most of these things. Let me start with -- I'm going to have to ask you to help me because you were machine gunning those questions out, but the net debt ratio is 46. I think you quoted 43. So, it's a bit higher than what you quoted and we have as our long-term goal to deep under 50/50 and our forward liquidity not guidance, but in our forward liquidity view that we presented, we modeled that at about 47% so we model it out at about the same net debt ratio that we have today. We have termed out some of our debt. We don't take traditional bets on the interest rates. We work in consultation with our regulatory affairs people and examine the duration of our asset liability portfolio operating company by operating company. And make our determination of the duration on the basis of that. We do think these are good, in fact very favorable structural rates for our operating companies and that, for the most part; what drove our decision. On the EK fund that, will be a capital contribution. The $72 billion payment that we make at the end of the year and so we have -- we haven't accrued for it from an expense standpoint, but we have certainly built that into our forward capital commitment schedule and forecast from a liquidity and cash usage standpoint. On acquisitions, I think that Wayne answered that question fairly fully with the combination of response but on balance, we look at the three asset classes in which we have clear operating and commercial advantages, that's nuclear assets, fossil assets and grass transportation assets. The fossil assets, we believe, continue to be a bit spread, continues to be too wide. The nuclear assets we think over the next two years will continue to be a real opportunity for us, particularly to apply our differential operating capability and on the gas transportation assets, we also think there's going to be some good opportunities for us to apply our differential operating commercial capabilities. On the one question you had on this net specials of 1 cent. That was a combination of some charges for impaired assets in our U.S. merchant portfolio and a slight gain generated from the sale and restructuring of our 3 QK asset. So, for the most part, it's the net upcharges from the continual wind down of our of our power development business.

Thank you very much.

Thank you.

And Vic of Deutsche Asset Management has our next question.

Yes. Thank you. A couple of questions. One, when you talk about competitive dividend returns to shareholders, what's your dividend policy on that one?

Well, we've stated we intend to publicly grow the dividend about twice the rate that I think we originally projected that the industry would, or about equal to inflation. The board, we just finished the board meeting last week. The board asked for a comprehensive review of that policy relative to our investment opportunities that we have, our cap structure goals and potential changes in the the taxabilities, the dividends. Association right now that's our policy and we're doing some work right now to try and refine that in the market we're in today.

Okay. And the second question is when you talk about your balance sheet's strength in terms of I believe you will acquire some attractive assets, what's the balance sheet capacity right now without issuing new equity or what would cause you to issue new equity?

Well, this is John. We have about $3 billion of capacity verify the next three years and that includes $750 million liquidity reserve. Right now we have about $2 billion in liquidity. So, we would be very comfortable working within those limits. They still keep us 50% total capital below, industrial strong ratios. So, I -- we just -- it's hard for to us contemplate a investment in today's market that would require material amount of equity. But, if, for the right investment with the right kind of returns, that's something, you know, we think we can make the case for. But in all of our forward planning, we don't have any equity issuances built into it.

Okay. Thank you.

Moving on, we will take our next question come Fulton Holmes of Merrill Lynch.

Good morning. -- good afternoon. I would like to ask two questions. One, with all this cash accumulation, what if you cannot find something to purchase? Either because the distressed assets don't come on the markets for fear of earnings cuts or if things are too expensive? And secondly, regarding the IPP market, given the cutbacks in numerous utilities' operations, are we headed for something like a California-type situation where there's no long-term contracts really being undertaken and therefore we could get jam-ups in the system?

Yeah, John will take the first part of that question.

Fulton, this is John Wilder. Since our refocused strategy, we've distributed over 60% of our earnings while growing those earnings at very strong rates, back to the shareholder through a combination of dividends and share repurchase. Or about over $2 billion. So, we like to think we've got a very good track record for investing with discipline and if we don't have investment opportunities that meet some fairly stringent risk adjust return standards, we get the money back to the shareholders as tax efficiently as we can.

Okay, on the second point about the market with the cutbacks, you know, we're -- almost every region of the country, if you just look at it broadly and reserve margins, capacity margins, however you want to look at it, are well in excess of what's required to maintain reliable operations. The issues start to become in some of the tighter markets, like New York, where we've seen stock spreads really start to expand, we're not seeing a lot of new generation built, just stricter environmental regulations and getting the rules straight at Burke with regard to an understanding of what location marginal prices mean and what participant funding means. So, the transmission grade can start to expand in a way that promotes the regional flow of electricity like I think everybody would like to see. In our particular case, and I don't think we're a lot different than maybe a lot of the other potential buyers,, you know, we're out there in the marketplace, we have a -- a well thought out plan to meet the needs of our utility. We've said many times we're 3,000 megawatts short during the summertime. Up until now, we've been buying most of that on a seasonal basis.

As I mentioned, in my comments, and I mentioned it before, over the last few months we went through a very rigid RSP process with an independent monitor who basically took us out of the selection process but our goal was to firm up the overall needs of the system by providing more baseload resources, by equalizing -- hoping to equalize the cost between the north and the south in our system with more solid resources and lower the overall price of our customers that are in the marketplace to be sure we have provided for their needs while allowing the seasonal needs to continue to be met in the least tall yes way a six-month RSP-type process, to take advantage of the stock market prices and other things. We went through that process with the independent monitor, the selections were made, the filings were made in Burke at Louisiana and in New Orleans last Friday. It's under a confidentiality agreement, we can't comment on who was selected, who was not or what the prices were, but nonetheless, the outcome for our customers is extremely favorable and provides for their needs at prices that will actually be lower than what they've experienced in the past.

Thank you.

And in the long-term contracts in many cases.

Thank you.

Thank you.

And we'll take our next question from Steve of Merrill Lynch.

Hey, guys.

Good morning, Steve.

All right, two questions. First, this may have been addressed, but could you give us any flavor on some of the regulatory issues you've been trying to do in Louisiana, if you're making progress on more incentive-type regulation there?

Okay. I'll let Rick Smith address this one. Rick?

Yeah, Steve. And as Wayne just mentioned, we filed a generation plan in Louisiana last Friday. And we've had conversations with the commission staff about formula rate plans and incentive plans. Association- we'll continue to work on those through the first half of this year and I think by mid-year we'll know something definitive.

Could you give us some sense of whether there's been progress made or...

I think we're --

Or is it too early to say?

I think there's been progress made, but, you know, we've just started those recently and the generation proposals we've made will be a key element of that.

Okay. And then one other question, I guess, for Kyle, just generally with respect to the trading markets, particularly in power, do you believe what's your viewpoint on whether liquidity has come back to the market at all, you know, what, you know, just kind of what are you seeing on the overall business?

Okay, um, well, liquidity, Steve; certainly not where it was, but we've -- we have found it adequate, at least to express our points of view. Because of the volatility of the gas market, that has found its way over into the power market, even though the spark spreads are awfully low. It works in concert with gas and from our standpoint, especially with all the weather, the weather patterns and the changes natures we've had here, we really have found power to be a profitable area. It's just not as -- liquidity is not as much as it used to be, but for our means, it's adequate.

What's your view on kind of looking out the next 12 to 24 months? Just on that point.

On power or...

Yeah, power. Not pricing, but the health of the markets, do you feel like it's kind of hit bottom? And there's pace to see if better?

Yeah, I guess first of all, as I mentioned, the liquidity really suffered there for a while, but is coming back. There is new people coming in and I think -- so, first of all, we see power still being a very good dynamic market long-term. Certainly we're going to have an overhang of the merchant capacity for a while, but that being the case, we still see a lot of opportunities because of like we said, gas being on the margin. So, we still see power being a good business and hopefully there will be good opportunities for us asset-wise, too. The other thing is with the number of people that used to be competitors are no longer there. There are pretty good opportunities, we think, for asset optimization, for people that have these plants and really don't know how to really optimize them from a commodity risk standpoint, we feel that will create new opportunities for us, Steve that, will help our business. Our goal, as Wayne said, is to kind of double our asset op business over the next couple of years, and that's including power. Not just gas, but also power.

Okay. Thank you.

And we'll take our next question from David Pickens of Deep Haven Capital Management.

Hi. Most of my questions have been answered, but can you maybe step back and just talk a little bit more about growth longer term, kind of outside the explicit forecast period? Obviously if the utilities -- you've done a great job of getting operational improvements and the rate increases and we're really getting to the point where we're bumping up against the ROEs if we include a reasonable expectation for New Orleans. On the nuclear side, you've had really good performance there. You don't leave a whole lot of room for upside and OMR capacity and we've talked about pricing pressures as some of these contracts rolloff, particular in '05. Can you give us a sense a little bit more perhaps on the opportunities for growth longer term without what we've talked about in terms of acquisitions?

Well, I think we've said 8 to 10% is our target. Of that 8 to 10%, about 6% we think we can get from things we've already got. That includes improving the operations in the northeast, you know, as you know, we started out -- we acquired like Indian point 2 and 3. I think the average cost from megawatt hour was $36. For megawatt hour. So, between the two plants -- and that's a -- that's a twin -- sizeable twin unit which has a lot of cost evaporations or should have a cost advantage associated with them. The average cost in the southern part of our system, which is single units, in some cases relatively small units, averaged around $16 and trended downwards. So, there's tremendous opportunity that Indian point and other plants in the northeast to move the productivity levels down to what we have in the south. At the same time, you know, we are very concerned, obviously, about pricing pressures as the contracts roll over and right now it's going the opposite direction. We also have thing like pow uprates are also available to us. We have a number of those on the board that we're completing. Association on the nuclear side, there's a number of opportunities in utility, like you said, we're moving ROEs up considerably, now moving toward more performance incentives. There is a lot of opportunities in that area. Particularly like Rick mentioned on the generation side, we can do the customers -- we can do a lot of good for the customers in terms of the way we contract for our resources, the way we dispatch our system, integrating all of that together. That's the kind of plan we're looking for. So, we still think we can get along with the opportunities that Kyle is looking at with the storage projects and increasing its own business. There is about 6% growth that we feel very comfortable with.

The other 4% has to come, at this point, at least, and I wouldn't shut off the opportunity for more, we continue to try to squeeze everything we can out of existing business. As we said the other day, the GAAP between 6 and 10% has to come from additional investments in the marketplace. And sitting here today, I mean, you know, it's very difficult to say exactly where that's going to be. But the numbers are fairly overwhelming if you look at the amount of debt that the assets that are currently in the fold, if you look at 9 debt that comes due this year, if you look at the offbalance sheet debt that the company has, something's got to give. And we're positioned for that in a variety of different ways. But, I mean I would be kidding you to say right now we're counting on that, but we're going to be patient. If it doesn't happen this year, it's going to happen next year, but it's going to happen. I mean we feel very comfortable about that. That's about the best I can tell you right now.

All right. Thank you.

We will take our next question from Lemar Richardson of PEG Capital Management.

Okay. I have two questions unrelated. Did you folks take a good, hard look at the last big pipeline sale, panhandle?

Lemar, we take a good, hard look at every pipeline sale. So, we can't comment on specific opportunities as I know you can appreciate that, but we have an advantage, gas transportation business, it's vantage from a cost and a return standpoint. We've taken 40% real cost out of that operation over the last five years and we can run them as high performance levels and so every sale that comes up, we look at. Some we pass on sooner than others, but we certainly think we have advantages in that business.

Okay. The next question is where do you gentlemen see the Firks push toward standard market design ending up?

I'll let -- you know, as you know, current A. Bear is the executive Vice President of external affairs and Kurt Hebert is the former Chairman of the Federal Regulatory Commission. Now that he's been gone for more than a year, we will let him comment on that. Kurt?

Good morning, Lemar. You know, there are a lot of different pressures right now being pressed on Firk. They really have everything to do with SMD. You know, if the congressional pressures, the retail pressures from retail regulators, a lot of that has to do with the kind of direction that the commission is moving in, not only with SMD, but everything that's rolled into SMD, which means the regional transmission organizations themselves. The commission has pretty much delayed its action on SMD. As a matter of fact, the white paper is to be issued later this year. Some are thinks it's going to come out even later than has been spoken for at this point because of some of the things that are happening. Things that are important that SMD process, like participant funding to many players in the industry. Again, questions are being called in from retail regulators, from congressional members, especially when you see orders coming out of the commission like we've seen in the last couple of weeks dealing with the interconnection issues and those transmission credits and interests ha are being charged back. And the reason that I bring that up and say that I think that's going to have huge effect in the ultimate outcome of SMD is that as you know, the commission has taken a policy position that we will fund these calls on a going-forward basis.

If you look at how these arrangements were set up previously, the ones that we even had set up at duke and riotsville, which had twice been passed on by the FARC, they had really been set up in agreement with the IPPs themselves that they would be participantly funded. That's how the contracts were arranged and that's how the agreement was and as I said it was passed on twice by the FARC. I think there's becoming a lot of speculation in that whether or not the commission is actually going to move toward participant funding when, in fact, what they've done through these recent orders is they've rolled in these costs. They are re-assigning them and basically taking anything from the interconnection forward and they're saying it is a system upgrade. As you know, this company has been involved in litigation in that regard for years and the assurances I think that the industry needs on a going-forward basis are not shored up when you look at cases like this. Specifically when they've been set up participant funding in the beginning and now it looks like they will be rolling them in. So, I think whereas this is a big part of whether or not they move forward with the SMD process or get slowed down by regulators and congressional members, I think cases like this are, in fact, going to slow the process down even further.

Okay. Thank you.

And our last question today comes from Devon with Luminous Management.

Hi, guys. Congratulations on the fabulous year.

Thank you.

I just wanted to ask a couple of questions about Entergy Coke and some of the statistics you discuss here. And one, on the daily VAR or earnings at risk, if you will, what's the forward-looking number? Do you guys have a forward VAR that you use?

Kyle, you want to address that statistically, how we do that?

As far as a forward-looking, we don't really have a forward-looking VAR other than we've got our authorities that we know we're going to stay within. As far as forward-looking, I would say no. It depends on what the market presents and what our point of view is.

I guess one of the things I'm trying to gauge is you guys have been quite good at this, you know, for a long time and this is kind of the first quarter where I've seen it. I guess the VAR jump and the gain loss days decline. I'm trying to get a handle on sort of where in the curve or the distribution this quarter would have fallen. Can you just tell me, I guess, what confidence level the 13.1 is at? And, you know, just some statistics about the curve? Such as, you know; it based on a standard deviation of one or two?

Well, the confidence level we use is 97.5%.

Okay.

As far as -- I guess let's put it this way, we have a daily earnings at risk number, which is what we reported. Our VAR, other people call it CAR, depends in on holding period I would say in general our holding period has been a little longer say in the last quarter or so because there's been some liquidity issues on the power side which says in general for the same level 6 daily earnings at risk, you may have to hold a position a little longer to get out of. It in that regard, in our VAR numbers, they would be a little higher than normal. That will just be a function of how liquid the market is. In general, you know, we try to stay in the liquid parts of the curve and even in the places, let's say it is a little less liquid, if you have a strong point of view about direction or whatever, you don't mind wearing the additional liquidity risk if you have a high percentage of being correct. Association it's a moving game. The win loss percentage, once again, we're down. It is interesting they were down really more in October and November which was a flat, choppy month and started improving pretty significantly I think in December, which is a very trended month. So, a lot of it has to do with the most important thing, are you profitable? And the other thing we work on, which sometimes that statistic doesn't really show is it shows wins and losses. What it doesn't really also reflect is how little did you lose when you lost and how much did you when you won.

Absolutely.

And in general, our win tended to be at least double to triple what our losses are. So, there's a skew there that isn't reported here.

Okay, so it seems like it is a positive skew.

It is. And the other thing I would tell you, I can't remember how different books we have, maybe 25, 30, we have a lot of different strategies it's not just one or two or three. And so we really believe in having a very diverse point 67 view across a broad spectrum of points and that also tries to keep not only our batting average good, but it also helps, you know, keep our earnings volatility a little more stable. And every once in a while, you get a very strong point of view. If your signals all point in one direction, you know, most of the times it's once every year or a couple of times a year, you may get a strong point of view where you may put more capital at risk. In our particular case, we're always trying to do it in a very responsible way.

That makes a lot of sense. And just to follow on there. You know, in terms of if you -- I guess I could use the balance book or not. Can you give me sort of if you breakdown the -- sort of your forward-outlook into deciles or qint aisles of I don't know, say something, but how long are you waiting before you take the extra risk position? Does that make sense? I'm having a difficult time asking the question?

I'm not sure I -- I guess the way we employee the capital is we do a risk reward analysis on each bet or each position and then we also try to look at structuring it in a way that it has a very favorable risk reward. One against, two to three upside to downside type numbers.

Absolutely.

And then to the extent that let's just say when I say our point of view is informed by a lot of things, our quantitative analysis, our weather analysis, all of those things. When they align in a certain position, we have a higher kifrs level to put 340r at risk. That's kind -- if the indicators are neutral, we probably won't be trading at all. If suddenly there's strong signals sa tha seem to align and confirm och other, then we will raise the level of cash that we're willing to bet. So, that's the organic way we do it. It's hard to describe --

It makes sense to me. I can identify with that. Again, I appreciate your answers very much and congratulations on a great year again. Thanks.

And that concludes our question and answer session for today. And Nancy Morovich, I will turn it back to you for additional or closing remarks.

Thank you, operator and thanks to everyone for participating this morning. Our call was recorded and can be accessed for seven days at 719-457-0820. The confirmation number for the replay is 629149. This concludes our call. Thank you, everyone.

That concludes today's conference. We thank you for your participation.