安特吉 (ETR) 2003 Q2 法說會逐字稿

Good day and welcome to the Entergy Corporation second quarter 2003 earnings conference call. Today's call is being recorded and it's time for introductions. The opening comments, I like to turn the call over to Ms. Nancy Morovich. Please go ahead. madam.

Good morning everyone. We begin this morning by noting that forward-looking statements made during this call may involve risks and uncertainties and a number of factors could cause actual results to differ materially. We refer you to our release and SEC filings for more information. Also, we would use non-GAAP measures this morning. These are reconciled to the comparable GAAP measures in our release and on our Web site.

In a moment, I will turn the call over to Wayne Leonard, Entergy CEO who makes opening comments and then John Wilder, our CFO who will discuss results. Wayne.

Thanks Nancy. Entergy turned another solid quarter generating the $1.17 in operational earnings per share and amount equal to the record selling quarter of 2002. There was a key accomplishment since certainly some things could have gone bad.

So, we need to keep in mind that all of our major businesses are subject to quarter by quarter earnings variances like weather (inaudible), volatility, commodity prices and (inaudible) planned and unplanned outages on our nuclear plant. All those things can perfectly increase a record quarter and they can go the other way and produce disappointment.

Everything didn't go our way this quarter. But none of the things went against us reflects structural weaknesses in any of our businesses. The fact is John Wilder who will report with respect to 2003, another record breaking year in terms of operational earnings and 2004 to be even better.

I am going to spend most of my time this morning discussing the dividend and now very briefly review our business performance for the quarter. John Wilder will review the financial performance in consistent with our usual practice, one of the experts of each business available to answer your questions as for the form of presentation.

Let me begin the review of the quarter with the utility. On May 3rd, the City Council of New Orleans voted to approve $30 million base rate increase for Entergy New Orleans and ROE midpoint of 11.25%. With customers sharing mechanism and performance-based generation, we now have the opportunity to earn up to 13.3% at Entergy New Orleans.

We also made a significant step forward in generation supply plant when we signed letter of intent to acquire the 720 megawatt Prairieville Power Plant from Ceco Corporation. The Ceco plant has (inaudible) in response to our RFP that intent - issed in the fall of 2002.

Sales and plan continued to obtain necessary approvals to state the federal regulator. They submitted a bid that Entergy issued in the fall of 2002. Plans contingent upon obtaining necessary approval, including full cost recovery for Entergy, completion of due diligence review and settlement of various contracts. The sale is expected to be completed by year-end. Entergy is reviewing potential impact of recent Chapter 11 bankruptcy filing by Myriad, which had agreements with Ceco for the plant.

The filling by Myriad potentially impact the opportunity for Ceco and Entergy to close the Prairieville acquisition. If that is the case, we will move on to other alternatives for spring 2003 RFPs. The nuclear things didn't go perfectly. We have come to expect almost perfect performance from the last couple of years. This quarter we had more unplanned outage days than we were used to and had more than we would expect in any event. It didn't keep us from turning in a good quarter as we continue to work for productivity improvement.

Again, keep in mind the capacity factor of northeast plants in second quarter of 2002 was 98%, with no refueling outages whatsoever. This year it was 84% with two refueling outages that account for about 11% of that 14% drop.

As you all know refueling outages are inevitable, it is simply a matter of timing. This is one of reasons why we don't get too excited one way or the other about quarter-on-quarter comparisons in nuclear. But every hour counts, whether its during refueling or unplanned outage. We aggressively focus on root cause of the unplanned short outages we have recently experienced to eliminate them going forward. Some of which are outside the plant in substation or in transition operations.

On the plus side, U.S. Nuclear Regulatory Commission approved safety rating at 88.2 during the quarter. The NRC removed yellow finding that was given to IT2 in the fall of 2001 just a month after we repurchased the plant. NRC says Entergy has substantially corrected trading issues, which were primarily historical in nature.

The NRC has now removed both the red and yellow safety finding since Entergy purchased IT2. Since last Friday, NRC filed action by finding the federal energy management agency by finding as the emergency plans at Indian Point meet the requirement for insurance and adequate protection.

Another positive occurred during this month, Nebraska Public Power District selected Entergy to provide management to Cooper Nuclear Station. We are in the process of negotiating the management services agreement, which will likely include fee-based revenue as well as incentive-based opportunities if we achieve plant performance.

Assuming successful negotiations, we would expect to begin operating the plant before the end of the year. As we have said in the past, providing management services to nuclear owners represents another way to we can utilize, the superior knowledge and best practices we have established to grow revenue and earnings in addition to acquisition.

Turning know to Entergy-Koch. In the first quarter of the year, as you may recall, despite continuing market movement against our point of view, Entergy-Koch stuck to its position based on fundamental analysis of the market and reaped the benefits when the market aligned with physical reality of the shrinking storage.

In the second quarter, Entergy-Koch again turned in solid performance, driven by success in both gas and tower trading. Again, this quarter EKT was profitable due to fundamental analysis and having a dynamic point of view, for example EKT was positioned to from retreat in natural gas prices in second quarter just as they were from the run-up in the first quarter.

Before I leave subject to (inaudible), let me up date you on the investigation. As you know, we have been providing information to CFTC and the SEC. The SEC review seems to be quiet at this point. We've responded to all requests to date and haven't heard from them since June. The CFTC investigation is ongoing. This was not unexpected given the breadth of the initial inquiry.

What we have learned so far is that we are less than perfect. This means some of EKT's employees may have misreported prices to industry publication.

On the other hand, EKT is not aware of any instances of actual manipulation or intent to manipulate pricing. Because of this we don't know at this point what the outcome of the CFTC investigation will be. We can assure you, however that we are doing everything humanly possible to bring it to closure and you will know as soon as we know.

Let me turn to the action taken by the Board on the dividend. As you know, the Board acted ahead of usual review at the end of the third quarter and approved step increase from level of $1.40 to $1.80, commencing with the quarterly dividend payment due September 1.

In addition, the board articulated to annually increase dividend consistent with our financial aspiration of achieving annual total shareholder return and maintaining sound financial integrity. Based upon the risk profile of the company, the business risk in our industry, and to ensure capital is available as realistic growth opportunities, we established objective the long term dividend pay-out ratio would not exceed 60% of operational earning.

As you are aware, before the increase the dividend yield was less than 3% and payout in the low 30s. The medium yield is up 4% and the medium pay out ratio just over 50%. Entergy ranked in forth quarter in both metrics. The new annual dividend of $1.80 per share represents 29% increase in the 40 cent increase equates to $90 million on an annual basis.

The increase results in implied pay out ratio of 43% based upon revised '03 guidance. The new dividend level not only aligns pay out ratio with composition of the business but takes advantage of the dividends following the recent tax reduction.

Let me emphasize this is not a knee-jerk reaction to tax cuts, but part of a thorough review of financial performance aspiration in the context of careful consideration of our point of view of the market and subject to stress testing to see that it the increased dividend is sustainable in a wide range of scenarios at the time the dividend was cut in 1998 as stated power to maintain ratio 50 to 60% of earnings. Since then, earnings have grown at average of about 14.5% on operational basis, but the dividend increased by 4% per year on average. The dividends are not the whole story.

We had a substantial stock buyback which made total cash return to shareholders for the 4 years competitive with company that is had comparable growth rates.

The stock buyback program was issued because it was tax efficient for shareholders and offered the most financial flexibility during a period of considerable turmoil and uncertainty in the industry. A lot has changed. The new tax law makes dividends more attractive way to get tax to shareholders and compliments for feel free as a substantial move in our industry for investors to highly value the (inaudible) of the dividend over promise of growth in the future.

Given our new long-term objective the new tax law and dividend action we are seeing today, you can expect more emphasis on growing the dividend going forward. In five years since July 1998 when the dividend was cut, we have far exceeded what we thought was possible, If we see balance sheet it declares motion going around. Our financial goal is to achieve and maintain return to the shareholders that rank in top quartile of the group each year.

We aspire to be number one in our industry in total long term shareholder return. We intend to achieve these goals by increasing the dividend to a level initially below the group medium with consistently strong growth there after and growing ratings at top quartile rate. We have not changed our goal of earnings. The new dividend policy preserves acquisition opportunity for second owners and we have been pursuing that for sometime now.

These opportunities continue to be in the areas we have discussed before, pipeline and storage, nuclear generation and possible generation. They will likely be further out into the future following the recent round of bank refinancing (inaudible) The key metrics of our financial aspirations are first to achieve return on invested capital of 9% in the near term and 10% in the longer term. Second, to maintain near-term earnings growth of 8% to 10%, comprised of 6% intrinsic growth and 2% to 4% of growth of acquisition and long-term growth of 5% to 6% equal to top quartile industry growth in the last third, to earn a rating by maintaining 45% to 50% net debt to net capital ratio.

A critical element in achieving our financial aspirations and achieving significant improvements in productivity. Cost savings totaling $70 million are incorporated into our latest five-year plan. This includes $45 million in utility and $25 million in nuclear. You might recall our nuclear organization ask currently working toward achieving $75 million of savings already identified.

Overall, annual productivity improvements are expected to total $145 million over the next few years. Success in achieving these savings will fund cash cost of the dividend increase. The higher dividend and dividend growth objective are integrated into a financial plan that aligns financial risk of the company with the operational and the business risks.

The robust nature of the plan is supported by (inaudible) probabilistic analysis. For example the probabilistic scenario design the commodity price (inaudible) risk. Discreet scenarios were used to impact the event risk. For example, nuclear event of some kind. The results of our analysis indicate the dividend is highly sustainable and more over Entergy's financial health and not endangered under negative scenarios. Of course, our number one assignment is either to keep bad things from happening or to manage or mitigate the risk through dynamic point of view strategy.

With that, over to John Wilder.

Thank you, Wayne. Good morning. I will begin with quarterly highlights on slide two. Our operational earnings were equal to last year's second quarter results with negative weather and lower industrial sales impacting utility results and impacting the quarter's performance.

Another quarter of solid performance in Entergy-Koch overcame these minor shortfalls. We continue to make excellent progress in strengthening our key financial metrics with operational net margin increasing by 19%, return on invested capital on operational basis improving by 6% and return on equity increasing by 14% over second quarter '02. Balance sheet progress continues as well with our net debt ratio lower by nearly 3 percentage points versus 1 year goal and our cash flow interest coverage remaining strong at nearly six times.

We move to slide three, which shows our comparative results quarter to quarter. As reported earnings include impact of our decision to report loss provision of 28 cents at Entergy Gulf States this quarter. This action was in response to (inaudible) regarding certain construction costs of the River Bend Nuclear Plant, which has been contested for an extended period of time. It is important to point out that these costs have never been reflected in our regulated rates and therefore there will be no impact to operating results going forward.

As seen on Slide four, operational earnings in second quarter reflect more than 100% increase in Entergy Commodity services making up for slightly lower contributions at the utility and Entergy Nuclear. Slide five shows lower utility results due to mild weather and industrial office co generation. Three industrial customers moved to co generation since second quarter of '02. Loss margin from these customers is about $30 million and the amount was fully integrated in our original '03 guidance.

Utility OEM was materially lower reflecting absence this quarter of the OEM impact of the '02 Ice Storm settlement at Entergy Arkansas; excluding this impact OEM was essentially flat quarter-to-quarter.

Slide six details Entergy Nuclear contribution, which decreased due primarily to monopoly less generation, higher production cost due to bi-additional amortization of the Q1 expense and inclusion of the relatively higher cost Vermont Yankee plant in '03.

Detailed plan has been developed to achieve cost savings across the northeastern fleet, including Vermont Yankee. On slide 7 you will note that our contracting efforts have been quite successful. This quarter alone we closed seven new contracts covering most all of the remaining '04 capacity and over 400 megawatts of '05 capacity. New contract prices range from $33 to $39.50 per megawatt hour and contract periods extend out as far as 08. Since the beginning of the year we have improved our sold forward position by approximately 20% across all years through '07 and as much as $10 per megawatt hour higher than upon the original contracts.

Entergy Commodity performance is illustrated on slide 8 along with details on Gulf South pipeline. Gulf South achieved results equal to that of second quarter of '02 in spite of lower throughput and higher production cost. The continued high gas price environment creates opportunities for Gulf South to realize higher transportation margins and increased storage revenue.

Turning to slide 9, Entergy-Koch trading business turned in another excellent quarter. Utility was comparable to second quarter '02, earning from point of view trading were significantly higher. In addition EK more than doubled the earnings realized from asset management business and grew by 60%, the earning from this financial optimization activity. EK's average daily earnings at risk was slightly higher in second quarter '03, but earnings productivity relative to risk improved dramatically over 60% quarter-to-quarter.

Finally, we benefited again this quarter from disproportionate shared of income from the venture. As a reminder disproportionate sharing will cease at end of '03 and we will share 50-50 in '04 and beyond.

Before I leave the subject of EK, slide 10 shows that entity received $75 million cash dividend during the second quarter, evidence of the venture's solid financial condition. Since inception in February 2001 through the end of second quarter 2003, EK generated $500 million in OCF exclusive of networking capital needs. We also greatly improved financial flexibility and credit strength of the JB by lowering net debt from 37% to 8% for reduction of 80%, an increase in coverage ratio from 8 times to 23 times for increase of 80%.

These are clear indications of the quality of earnings inside the venture, the speed with which trading profits convert to cash and the financial strength of this business. For the second quarter 2003, OCF was $475 million, up slightly from second quarter 2002. Key drivers including EK dividend offset by cash cost incurred for nuclear outages and utility fuel.

You might recall first quarter OCF was lower than prior year by substantial amount as a result of higher gas prices. During that quarter we incurred $165 million more fuel cost than we collected from utility customers.

In second quarter we began to collect some amounts in jurisdictions that reset fuel rate 60-day delay. It still outpaced collection by $70 million. As of June 30th our deferred fuel balance stands at $294 million with largest contribution from Mississippi and Texas. This is important due to our agreement with the Mississippi Public Service Commission to spread $80 million of fuel cost over six-month period beginning in 2004 and to earn return on this deferred balance.

In Texas, we plan to file a fuel surcharge in September when new rates become effective in 2004.

In short, we expect all deferred fuel amounts to (inaudible) collective without disallowance, consistent with our experience in 2000 when deferred fuel balance was $400 million higher than the highest point we have seen year-to-date. We expect to end 2003 with deferred fuel balance at around $250 million and anticipate OCF for the full year to be consistent with previous projections we provided.

As is shown in slide 12, year-to-date OCF plus income and working capital can get us to the $1.9 billion level. Our cash planning assets yielded other benefits, as well. Refinancing initiatives we began in late 2002 have been successful with over 90% of 2003 and 2004 maturities pre-funded or redeemed. As of today, we have only $200 million of maturities remaining to finance for 2003 and 2004 having completed $3.3 billion over the last few months, including revolver renewal.

As a result, average maturity increased from 9.5 to 13 years. More importantly, we issued debt that all-time low spreads that are 100 basis points lower than the past few years and treasury rates were 50-year lows. In addition, our long-term interest expense is expected to decrease by 15 to 20%. The first half of the year we booked 60% of consolidated operational earnings based on original guidance midpoint.

This is the best progress we have achieved against full-year target at midway in five years. As indicated by slide 13, utility is a bit behind, but will benefit from remainder of 2003 from new rates in New Orleans.

We are confidant this benefit, combined with modest sales growth will result in share for the full year. On slide 14, production increases at Entergy Nuclear combined with identified cost savings should clearly get Nuclear to revised earning target.

Looking at Entergy Commodity Services we realize excellent results year-to-date due to outstanding performance at EK. We believe our assumptions for the remainder of the year are conservative. Combining these expectations led us to adjust guidance upward to $4.05 to $4.25 in operational earnings. We are confident we can deliver earnings within this range, which is approximately 8% higher than earlier expectations.

Looking ahead to next year on slide 17, our guidance range for 2004 is $4.10 to $4.30 in operational and as reported earnings.

After removing the impact of 2003 disproportionate sharing 2004 operational guidance reflects 8% growth year-over-year. This range reflects our expectations that utility growth will slow some Entergy Nuclear will enhance contribution and trading and pipeline business will deliver consistent results.

We are now open the call to your questions.

Thank you. Today's Q and A session will be conducted electronically. If you would like to ask a question, press the star key, followed by 1 on your touch-tone telephone. If you are using speakerphone, please make sure the mute function is turned off. We will proceed in the order you signal us and take as many questions as time permits. Star, 1 if you have a question. We will pause for a moment.

Your next question comes from Tom Hamlin (ph) with Wachovia Securities.

Good morning. Looking at slide 15, we talk about expectations for the rest of 2003. The 23 cents that you earned in the second half of 2002, was there anything let's say out of the ordinary in the second half that would lead you to the more conservative outlook for the rest of this year? Would lead to the more conserved evolve look for the rest for this year

No, there's not, Tom.

Thank you.

We will move to Greg Gordon with Goldman Sachs.

Thanks. Can you hear me? Longer term question. You've obviously hung your hat on your ability to continue to optimize cost structure of regulated and nuclear business on go-forward basis as a key underpinning of your growth story. You have been pretty successful in rolling hedges forward at the nuclear side. Can we focus on that on the revenue side of the equation as we look to '05, 6 or 7, the forward curve indicates a robust opportunity to re negotiate expiring contracts at prices that are higher than where the current contracts are.

I know this has been discussed quarter-over-quarter, can you go over what you are seeing as when major contracts expire and what your expectation is for when we will start to see news flow on major renewals and current pricing?

This is John. I will handle the first part and Wayne the second. On the contracts, we made great progress this quarter as I indicated in my script. But, you'll see we hope that you are going to see real progress this fall. We've got a big RFP that we're responding to now with NIPA. We're also in discussions with our other big current customer ConEd about their requirements. We think by third quarter or fourth quarter this year you will see our going forward position for '05, '06 and '07 strengthen on top of the fairly substantial progress we've made so far this year. We'll see structurally about a couple bucks more than our current contract positions, at least that is our current expectation.

Does that answer your question?

The part was restatement. Thank you.

Moving on to Jeff Gildersleeve with Argus Research.

Good morning. I wanted to touch base on Entergy Koch Trading. You mentioned it might be in here, but you mentioned doubling of the contribution from financial optimization and also the higher earnings to the point-of-view trading. Is there anywhere in here or can you give us a rough percentage of how that breaks down?

Kind of crudely one or two crudely but fairly precisely for '03, it's about 10% for our financial sales business. Our asset management business is about 15% to 20%. Then the balance is point-of-view trading for our trading business.

OK. That would be your expectation for the full year?

The full year will not have quite that profile to it. The full year would probably have about 50% point of--view; about 30% or so in asset management; and about 20% on financial sales.

OK. Obviously point of-view will depend on opportunities presented. Can you comment more about the success in the quarter on the point-of-view and what were the opportunities?

Uh, Kyle-

OK. Pretty much the success that we've had this year has been more about using our fundamental analysis to really look at supply demand, weather patterns, switching patterns and things of that nature to kind of determine when it looks like inventories are going to be satisfactory to meet demand or not. Point of view trading is geared around that. Sometimes it is also geared around understanding when volatility will increase or decrease.

In general, those are the things that we do day-to-day and this particular quarter there was kind of a trend that started developing and we just happened to be on it a little early. That is really just like the trend we caught early in the first quarter, we tended to catch the sell-off a little bit early in the second quarter.

Appreciate that. Thank you.

Moving on to Kit Konolige with Morgan Stanley.

Hi, its actually Carrie Stevens. I wanted to ask a question longer term about redeployment of free cash flow. I was just curious when the Board was considering the increase in dividend if there were other alternatives discussed? If by increasing the dividend if that is an indication of less acquisition opportunities or -- also, how that is being considered versus a stock buyback potential kind of on a going forward basis?

Carrie, let me take a shot at that. As far as the dividend level we've set. As I said, we were clearly in the fourth Quartile and not where we needed to be at this time or where we wanted to be at this point in time. The $1.80 level was subject, like I mentioned, pretty rigorous stress testing as far as risk management. $1.80 passed quite well virtually all of those Tests, it took a number of combined scenarios for the $1.80 to fail. We looked at other levels higher and lower than that where differences might not be that substantial. But a $1.80 allows the room we were looking for the opportunities going forward and fit well into longer-term plan and total shareholder return being able to stay at that top Quartile every year and hopefully and number one long-term wise while making sure we had plenty of head room to get the A credit quality we were looking for.

The thing that made the decision on the $1.80 relatively easy is the fact the productivity improvement was from that. So, it provides shareholder with immediate cash return combined with tax law that was a pretty easy decision. As far as going forward, we will continue, obviously to look at buybacks in connection with other alternatives, such as acquisition opportunities or increases in the dividend.

In any event, we expect the dividend, as I said to play a more substantial roll in the total shareholder return and it probably has over the last four years because of the change in tax law and because of the substantial cash that we have. That does not rule out the possibility of buyback or something else. At the same time -- should that fit into our plan.

I just have a follow-up on that. So, I guess you guys have been pretty vocal about pursuing acquisition opportunities and maybe you could just give a brief comment on has anything changed since last quarter in terms of them looking more inducive (ph) environment from a buyer's perspective or what is the recent thinking?

I don't think much has changed. Some of the refinancing the companies have gotten has somewhat lifted their spirit, I think and maybe slowed the process down. Myriad's bankruptcy filing may have put a chill over some of that. So, we've been as active, probably more active I would guess than we were last year in terms of identifying specific types of assets that we are interested in and proactively going after those. But, as long as many of these companies continue to remain solvent, they don't appear to be too interested at the moment in letting go of the things we are interested in.

Like I said, we are not just interested in deploying cash, but specific types of assets with specific locations that fit into our overall plans and that we can enhance the value of. We just haven't came to a meeting of the minds with the potential sellers on that at this point. John, do you want to add anything?

The only thing I would add to Wayne's comments. One thing you were starting to see as a number of the companies that have filed for protection are coming out with their restructuring plans and I think you will see some of these companies and maybe perhaps even some companies that were initially thinking they would come out as an ongoing concern, readjusting their strategy to include divesting all or part of their businesses and not actually trying to keep the business together.

We are starting to see some really meaningful signs around that. We've participating in a discussion with those restructuring advisors in those kind of settings. I think that's going to open up potential, it will probably take couple quarters or a year or so for us to really start picking up the trend. I believe as the bondholders get control of these companies and they really start analyzing that company's ability to manage that business and get value out of the business on an ongoing entity basis, they will start concluding auctioning off chunking of the business or maybe all of the business is the best way for them to get value.

Great. Just two real quick questions. On the cost savings that you guys detailed. Do you have any timeframe as to when they would be realized, more front-end or back-end loaded?

It kicks in pretty quickly, just $25 million or so this year. Then, we step up in the following year and beyond to almost the full amount. So, they're going to come pretty quickly.

OK. Then I think you noted at one point, based on long-term interest expense to decline 15% to 20%?

Uh-huh.

Again, timing on how you see that coming in?

Most of that will come in -- it is already starting to come in. That scientific was derived off of 2006, but it feathers in pretty rapidly. So, you'll see as we look at our forward plan, 2005, 2006, 2007, we have hundred million less in interest expense than we had in 2002 kind of timeframe. So, it starts coming in really quickly, too.

OK. Great. Thanks a lot.

Jeff Dietert with Simmons.

Hi, Jeff Dietert. I appreciate the additional disclosure you added this time. Could you talk about nuclear contracts and how they are evolving? The unite-contingent contracts and LDs, are those being driven by the market or are premiums driving you to certain types of contracts?

Jeff, we have just a small portion of LD's that we've entered into that is mainly around our Pilgrim Plant. We think the market has developed it in a way to enable us to achieve not only higher pricing for those contracts, but enable us to hedge out the LD risk on the back of it. It is still a real small portion of our overall contracting strategy and we would anticipate that going forward, particularly with our big incumbent customers in fact, our incumbent customers have indicated interest in continuing with unit contingent contracting features work very low for them.

We have been a reliable supplier to them. They get a slight discount with that structure and it works well for them. You will see a real small proportion of our contract portfolio being LD. As the market presents opportunities we will execute those from time to time.

Very good. Secondly, could you talk about industrial demand both within the utility segment and at the pipeline? And how that evolved during the quarter? It was down 7% for the quarter. Was it weakening or strengthening as the quarter went through and what are you anticipating for August?

Do you want to answer that?

First of all, the pipeline volumes tended to climb a bit in the summer months anyway. Some of that is a little bit natural. We still saw switching away from natural gas and some reductions relative to a year ago. Year-ago prices were a lot lower. We saw it in our chemical area, we saw it in the fertilizer area and sometimes just in general industrial we saw general reduction even in the utility side I believe we saw some small reductions. I think we have kind of hit we are at a stable point right now, especially now with prices moderating we should get a chance to hold on to what we've got and regain the volume going forward.

How about at the utility?

This is Rick. First half year we would seen a rebound from last year industrial customer We like Kyle, have seen softening with some of the chemical companies and mid-sized industrial. It hasn't been too bad. The other customers are still growing. So, we've got a couple of months we are monitoring it real closely to see if the economy is rebounding like everybody says it is going to by the end of the year.

Thank you for your comments.

David Dickens with Deep Haven Capital Management. Have next question

Couple questions. The first in on the nuclear business. Is there -- can you tell us how much of the increment in nuclear '04 over '03 comes from potential contract you mentioned with the Nebraska Public Power District? Does that have potential to be re material to earnings?

David, we don't have anything built into '04 guidance for that in the scheme of Entergy it won't be material. But, for the Entergy Nuclear business it could add couple cents of contribution. But, the important feature as Wayne mentioned, we think it is a real hallmark to start wrapping service and fee-based income around the acquisitions we've entered into and building that business up over time like we have the asset management business at Entergy-Koch can be a real nice contribution over the next couple of years. It might be able to grow up to 5 or 10 cent business. In '04 we have not penciled in anything in guidance for that contract.

OK. My other question is if -- I'm trying to do apples to apples comparison this year compare to next year in tour guidance. Year-to-date is splitting the Entergy-Koch 56-cent contribution in half, the appropriate number to look at?

Yes, it is about 27 cents.

Great. Thank you very much.

Moving on to Steve Fleishman with Merrill Lynch.

Hi, gentlemen, congratulations on the dividend boost. Your earnings release is now too thick to put a staple in.

We will get a new staple gun.

Couple questions. First on the unplanned nuclear outages, any kind of trends you are seeing either for you guys or industry-wide there? Is it just kind of things that came up, no real trend?

Don.

We didn't see a trend. We had a couple transmission disturbances that took the units down for a couple of days. Coming down for those short outages really does make a change in the generation out put. But, we don't really see any major industry issues and I don't think we see a trend on the performance. I think we will see the trend continue to improve because we are getting the material condition of some of the plants we acquired in better shape.

OK.

We will be running shorter outages. We had fewer refueling outages than we did at this time last year. Forced outages should be less.

OK. Wayne, maybe you can comment on the issues on Louisiana RFPs and I guess FERC is reviewing last round of RFPs over long period of time. Is it changing any dynamics on the RFPs that are coming up? What does it financially mean to you guys? The only assets that matters here are the affiliate assets owned in the area.

Yeah, Steve, I will let Rick Smith comment on this because the way we've actually divided up around here, I'm on the affiliate side, not the utility side. Under the code of conduct we have to keep those strict. I will let Rick comment. You are really talking about where this fits into utility's overall plan and their ability to hit some of the generations that are going to be built in the various jurisdictions. I will let Rick do that.

Steve, it is slowing us down a little bit. We've been through two RFPs now all of last year and spring of this year. And we haven't been through the FERC approval and will not be through the FERC approval still February of next year on the fall of 2002 RFP. So, you can just start to see that start slowing down the approval process on the regulatory side. So, I think it is going to have an affect on how quickly we get through all of the acquisitions that we've looking at in the utility.

OK. In the mean time, you continue to do your RFPs and procure power?

Yes, but I think for the fall this year we'll be looking at short-term RFPs, not longer term because spring RFP will still be in the queue. We won't be through that approval process. So, we're at a point where we need to see what we're buying long term and fit it in the portfolio before we go back out.

OK.

Steve, one of the things I don't think we talked about on the call and I can't remember if we talked about it last time. We did file at FERC this quarter to move our weekly auction process from the generation side of our business to the transmission side and then bring in an independent monitor for that process, also. So, that is we're hopeful, we call FERC for decelerator order they want hope that will satisfy the requirement for an independent monitor to be eligible for funding of upgrade versus rolling them into rates. We're also hopeful from discussions that we've had with some of the potential bidders that moving that process to transmission where there is a firewall with our own unit that would encourage bidding into the weekly process from them. So, we've gotten good feedback from the states that are supportive of that, also. That's another way the utility will be able to meet some cost objectives.

OK.

Steve, this is Curt. If I can support one thing Wayne said. The fundamental issue in the PPA is whether or not the affiliates comply with FERC requirements regarding those transactions and whether or not they are just and reasonable. As Wayne said, in looking at what we've done with third-party monitor of the RFP process itself, we have everybody reason to believe we will be in good shape at FERC.

OK. One other unrelated question. I see you guys competing in the Texas market and I'm curious is that just kind of a GSU-based strategy to sell power into Texas or is it more of kind of unregulated strategy?

Steve, it is a small market entry approach we have been working on for the last couple of quarter to make sure we have all of our systems and all of our marketing processes working. Should we go to open access in Texas in '04 and that is looking very possible now. In fact, our point of view is we will go to retail open access. We haven't always had that point of view. In fact, we probably few would ask us that question last quarter we would have said we thought it would be unlikely. We have had real positive developments; not only with the commission, but also with the key retail providers that we will be competing against in our territory and right now we think we are probably going to open up. So, that was to kind of sharpen our saw in that market and in that business. It looks like that is going to turn out to be a pretty smart move. We will have all our system and people ready to go.

OK. Great. Thank you.

Zach Schreiber (ph) with Dukane Capital has our next question.

Could you update us on the process with the Ceco Prairieville situation? At what point in the process is it not worth moving forward? How will that process unfold? When will you get clarity from the Myriad bankruptcy process as to whether or not it makes sense to continue to move forward? Can you negotiate with Ceco directly and sort of bypass Myriad? If you were to go back to the whole spring 2003 RFP process, I mean, are there other options that you had evaluated in that process that were short listed or would you restart the whole process from the get go?

I'm not sure I got all those questions. Let me take a shot at what is going on with Ceco right now. They were short listed in the fall 2002 RFP. We've been negotiating with them and have done significant due diligence all the way up -- I mean it goes on currently. So, we'll keep trying to accomplish that with them and everyday we're working on some additional issues with Ceco. As it relates to the Myriad bankruptcy, that is really in their court. We're looking for assurances from them that they'll be able to get out of that cleanly. But, we'll continue our due diligence with them and see how what assurances they can give us coming out of the Myriad bankruptcy.

Is there any timeframe to give you the assurances or can this process sort of continue indefinitely?

It can't continue indefinitely. We had another RFP this spring. And we have short-listed about 10 projects. So, we'll reach a point here with Myriad if they can't clean it up probably close to the end of the year, we need to move on.

OK. Great. Thank you so much. Congratulations on a great quarter with dividend increase.

Thanks.

Our next question comes from Andrea Feinstein (ph) with Annual Gordon

Asked and answered. Thanks.

Thanks Andrea

Paul Ridzon with McDonald Investment has a next question.

Can you give a sense how much in the quarter and year-to-date of the earnings is from disproportionate sharing?

For the quarter, about half of EK's contribution and for the year, about 30%.

OK. Are you seeing any other opportunities on the nuclear management front? Is this something you are actively pursuing and are you getting close to any others?

Don. You want to take that.

We are actively pursuing it as a result of the slowdown in deregulation. A number of these utility that we were talking to were not in a position to go ahead and divest to the plant. Those discussions are ongoing. I think if we can make one of them more, I think there's going to be a lot of other opportunities because everybody we talked to that owns one or two nuclear plants really hasn't changed their position that they have no business being in that business.

Hopefully, if we can put one of these together that will be the example other people can follow and ultimately, I think, when they are in a better position to divest, we will be in a much much better position to acquire those plants. In some cases hopefully we can get rights, refusals and whatever. I think it will not only fill in short term, but long term I think it plays very well with our acquisition strategy.

Is that the sense you get as you go through negotiations a lot of people want kind of existence model that works first and then they will be more open?

I think the bigger issue is when we thought deregulation was going to roll across the country, I think most utilities felt that would be the opportune time to get rid of their nuclear plants. Because generally public service commission wanted them to divest and as a result of that if they had stranded cost that was generally given to the utilities.

I think utilities right now are concerned with going to their public service commissions and saying we want to do this. Public Service Commission may say what are you going to give me for. I think it just intermediate position, which ultimately will still lead to the divestiture. Because I think at least everybody we talked to, has one or two nuclear plants almost everybody at some point of time believe they should be out of nuclear.

Thank you very much.

Don, let me piggy-back on that. What we have clearly seen for Cooper, credit rating have issued favor comments with regard to Entergy operating that plant for them. One of the prime impediments has in the past as Don mentioned it regulatory side, if you are paying somebody else fees to run the plants for you, how do you argue they are staying whole because you have the investment which you earn return off of and then you are paying a fee. We argue you are coming out ahead because we will reduce the operating cost of the plant and keep it online more often and as prices go up, the plants are worth more.

In addition to that, we reduce overall risk of the company with our expertise and operating needs. Now, again with credit rating agencies issuing favorable opinions I think we will be easily able to convince there are buckets that allow for a company like Entergy to be paid fees and incentive to operate the plant for them.

It is easy to show companies even paying the fee after you add in fees overall production costs would be significantly less which ultimately would be a savings to the customer. So, I think all they have to do is look across the industry and look where their plants are operating and their production costs and take a look at Entergy's production costs. You can pay a lot of fees and still return substantial savings to the customer. Would you venture a guess as to the timeframe we could see momentum?

You mean back to divestiture of the plants versus management contract?

More management contracts as you convince regulators you can still pay fees and get savings to customers?

I think this is going to be key because no one wants to be first on this. I think once that can be shown and in this case, it will probably be shown publicly because it's municipal. I think there are other people that are quite interested in it because as IEs, they don't think they should be in the business of owning and operating nuclear plants and if they can't divest, this would be the next best thing for them to do. I think it is a trend and I think you could see more of that taking place in 2004 and 2005.

Thank you, again.

Our next question comes from Jessica Rutledge with Lazard.

Quick question. Could you talk briefly about what you're expectations are for pulling dividend out of Entergy-Koch going forward? How consistently will you pull them out or what is going to drive when you do so?

Jessica, this is John. We will have another dividend this fall from EK. It will be smaller than the $75 million. It will probably be in the $25 to $35 million range. But, we'll continue to pull cash out of that business consistent with its earnings growth going forward. We've got the balance sheet in just pristine condition, as I mentioned in my remarks. Net debt to net capital is below double digits, the coverage ratios are over 20 times. So, they're in great position from a financial flexibility stand point. We've got it designed well from not only credit strength, but also just in the from an overall utilization of cash as well as the returns that we're working on with the management in that business. I think we'll keep getting dividends consistent with the earnings.

Is the thinking that you have a targeted pay out ratio in Entergy-Koch or that as you generate cash you don't need Entergy-Koch you just dividend it out equally to those partners as it is available?

It is more the latter. What we end up looking at within every quarter, we look at our alternative cost of investing versus the venture's alternative cost of returns through their inventory strategies and almost -- I can speak for us, not Entergy-Koch, their ability to earn double-digit returns on working capital through their inventory strategies versus our ability to earn very low single digits on our incremental investment income is just always so much better for them to keep the cash.

So, we've been a real advocate of keeping cash in the venture because of the inventory strategies we've been able to afford. We are getting to the point where there is so much cash it is not productive for the business from a return standpoint to just keep sitting on it.

Is it fair to assume whatever you pull dividends out so does Koch and vice versa?

We will do it in equal proportions. We talked about doing it in non-equal proportions and our partnership agreement allows for that easily. To keep things simple, we will probably get equal.

Excellent. Thank you.

Devin Golgagen (ph) (inaudible) with Zimmer Lucas has our next question.

Hi, guys. Quick question about the Entergy-Koch ownership. Is the 50/50 structure for '04, is that set yet or up for negotiation?

That is set.

It is 50/50 going forward?

Correct.

Thank you very much.

Our next question comes from Asher Khan (ph) with Foresight (ph)

I want to follow-up on, Wayne mentioned the Texas market might be opening up and I guess you being the low-cost operator over there, I guess it will be enhancing your profitability in that part of the business. So, how is that profitability structuring up and which stream of the businesses if it does open up, which stream of the businesses will that profitably start showing up or how will you account for it?

Asher, this is John. It will start showing up if we go to open access in late '04, which is our current thinking. You will see a little bit in '04, which frankly we haven't built into '04 guidance. You will see majority of that or the full year effect in '05. We haven't really segmentized that business yet, but likely we will have a separate segment called retail. We just haven't felt that through all the way. You will see it as separate segment. You will likely see it as separate segment because it is separate line of business.

Second question, if I can ask John, if you look at your nuclear assets currently and your showing in '04 that you pick up from decreased OEM from productivity improvements. What is the maximum debt number can increase over '05 '06 timeframe where you can get more money out of OEM and productivity improvements to what extent can the number increase to?

Another 20 or so cents structurally in the current configuration of assets we have. As Don mentioned several times on the call, our goal is to continue to not only acquire assets from others, but to yield productivity improvements for others accounts. We would share some of that benefit through fees. So, directly from the current assets we own, probably up to 30 or 35 cents of structural benefits and we would like to achieve maybe not quite that much, but half that amount through our other strategies.

OK. Appreciate it.

There are no more questions in the queue. Over to Nancy Morovich for closing remarks.

Thank you, operator and thanks to all for participating this morning. Replay can be accessed for the next seven days by dialing 719-457-0820, code 445025. Of course, it is available on our Web site. This concludes our call. Thank you.

That concludes today's conference call. We thank you for your participation. Have a nice day.