安特吉 (ETR) 2003 Q3 法說會逐字稿

Good day everyone, and welcome to the Entergy Corporation third quarter 2003 earnings conference call. Today's call is being recorded. At this time, for introductions and opening comments, I would like to turn the call over to Ms. Nancy Morovich. Please go ahead, ma'am.

Good morning everyone. In the interest of time today, we'll move straight to prepared remarks and handle legal statements at the end. So I'll turn the call over straight to Wayne Leonard, Entergy's CEO; and then John Wilder, our CFO, will review results for the quarter. Wayne?

Good morning. I know many of you are preparing for the EEI financial conference and we're also aware that a number of others in the sector are releasing earnings today and holding teleconference; and as Nancy said, with this in mind, we will be very brief this morning. I will start with reviewing a few highlights from the quarter. As always, we will be available at EEI to discuss our businesses in more detail. We hope you will join us at our presentation next Tuesday morning, where we plan to complete the Entergy story that we began to tell in stages at various industry conferences in September.

Now for a quick review of the quarter. At the Utility, we took an important step toward retail competition in the Entergy Gulf States Texas service area.

On August 20th, the Public Utility Commission of Texas approved a settlement agreement on market protocols for pricing and solaric services. With the removal of this major hurdle, Entergy Gulf States Texas will move forward toward retail competition. The target access date is January 1st, 2005.

It's important to point out, however, that while the Public Utility Commission approval of market protocols is a strong positive development, the steps ahead, like reinstatement of the pilot, provides the commission additional opportunities to review whether retail open access is in the best interest of Texas customers. If the ultimate resolution is that the retail competition is not in the public's interest, Gulf States Texas will file a rate case demonstrating the need for an increase in rates that have been frozen since 1999 and recovery of approximately $100 million incurred to date in preparing for competition.

At Entergy Nuclear, there are several highlights to report. First, we completed an agreement with the Nebraska Public Power District to provide management support services to operate Cooper nuclear stations for the remaining ten years of the plant's operating license.

We will receive fee-based payments for our services, and we will retain incentives as well if we bring Cooper's safety and regulatory performance in line with if levels we have achieved in our own fleet. Secondly, successfully recover from the August 14th blackout that tripped our units off line in the Northeast.

While the reasons for the large scale nature of that event are still under investigation, it illustrates the need to have plants at a safe, reliable, and as close as possible to the load centers. Also in nuclear this quarter, we took in a very important steps toward achieving performance improvement in our Northeast fleet through a voluntary severance program designed to bring staffing and operating cost levels consistent with our own best practices at other sites.

We strongly believe that nuclear performance improvement have to be incremental and carefully implemented after proven analysis of the training and skill levels of the employees, so as to ensure safety and reliability standards are never compromised. The business processes and skill levels have been thoroughly analyzed, and we're confident the plans are ready to step up to the next level.

Our original goal was to reduce staffing in nuclear by about 700 through the voluntary severance program -- 400 in the Northeast, 300 in the South. Our acceptance level stands today at about 600, with about 300 in the North and 300 in the South. But we are in the process of rolling out the voluntary severance program to a large group of unionized employees in the Northeast, so we still feel very good about achieving our original goal.

Finally, let me mention one highlight from the past quarter at Entergy-Koch -- in addition, of course to Entergy-Koch's continued strong performance. In July, Entergy-Koch Trading signed agreements to provide physical optimization services for over 3300 megawatts of generation opened by new customers. Under the agreement, EKT will provide power, fuel, and other risk management services for plants in New York, Arizona, and Massachusetts.

With this latest addition to EKT's physical optimization of business, Entergy-Koch now manages commodity positions for owners of more than 12,000 megawatts of generation. The agreements with these new customers will allow EKT to increase its owners with similar physical optimization needs; and we still believe that that is a very big market. And with that, let me turn the call over to John Wilder.

Thank you, Wayne, and good morning. I will begin with third quarter highlights on slide 2. We achieved a record quarter, with operational earnings increasing 5% compared to prior year results.

We continue to make excellent progress in strengthening our financial and competitive position with operational net margin and operation return on invested capital each, increased by 9%. In addition, operational return on equity improved by 8% over third quarter '02. Our financial condition strengthened, with a net debt ratio of 46.6%, more than 2 percentage points lower than one year ago, and cash flow interest coverage of 4 plus times.

We move to slide 3, which shows our comparative quarterly results. Operational earnings show a solid increase over last year's results, while as reported numbers for '03 are down somewhat due to gain last year on the sale of two development projects in Spain. Looking at slide 4, you will see that both the Utility and Energy Commodity Services contributed to a strong third quarter while, Entergy Nuclear was down on a comparative basis.

Slide 5 shows that the stronger Utility results came from higher revenues, driven by rate increases put into place earlier this year, as well as return to near-normal weather. As we anticipated, Utility sales volume for the quarter was down compared to one year ago. As shown on slide 6, year to date sales volume declined 1.4%, consistent with our projections for the year, given the impact of co-gen [PHONETIC] losses.

Industrial usage declined 6% overall, as we experienced modest growth in [INAUDIBLE], petroleum refining, and specialty chemicals industries; but this growth was partially offset by decreased usage by agricultural chemical customers. Our residential and commercial sales growth on a year-to-date basis performed in line with our '03 expectations of 1.5 to 2%. As we look to '04, no co-gen losses are anticipated, and we expect solid growth in chemical sector, which accounts for about 30% of overall industrial load.

We also expect facility expansions in plastics, petroleum refining, industrial gases, and paper manufacturing to drive above-average growth among our top 25 industrial customers. These expansions should help the industrial sector as a whole achieve about 3% year on year growth. When we combine these industrial projections with forecasts for residential and commercial customers, we anticipate overall '04 sales growth in the range of 1.5 to 2%. Slide 7 details Entergy Nuclear's earnings contributions, which decreased 7 cents due to a combination of factors. First, the August blackout caused lower revenues and additional expenses at our New York plant.

Second, we had lower pricing for Fitzpatrick and Vermont Yankee, which was partially offset by improved pricing for Pilgrim. And third, we recorded additional expenses associated with amortization and refueling outage costs. The combination of these three factors would have driven earnings down by about 11 cents per share, but were offset by the positive effects of additional output at Vermont Yankee [INAUDIBLE] and Pilgrim, for a total of 46 megawatts of power upgrades were completed over the last year.

Before leaving Nuclear, I'd like to update you on our contracting efforts. During the quarter, we signed nine new contracts for energy or installed capacity. These contracts, with terms ranging from 2004 to 2007, represent on average over 150 megawatts and $7 million of revenues per year. Our progress continued after the quarter closed, when we entered into three more contracts covering 310 megawatts in '05 and 250 megawatts in '06.

Slide 8 presents information on the performance of our Energy Commodity Services segment. Results at Gulf South are down from third quarter '02, with both lower through-put and higher production costs contributing to the decrease. We don't expect these two trends to continue. Gulf South's through-put declined, due to higher gas prices causing lower gas demand, industrial power plant customers switching to fuel oil.

Going forward, these effects will be largely offset by increases in storage and long haul transportation revenue that result from recently executed long-term contracts. Further improvement may result if gas prices decline. In addition, Gulf South incurred incremental legal expenses in connection with its defense of a lawsuit which we believe has no merit.

Turning to slide 9, Entergy-Koch's Trading business turned in another excellent quarter. While volatility was down compared to third quarter '02, earnings from point of view trading remained strong. In addition, EK's Asset Management Service business continued to be a key driver of profitability, expanding 27% versus second quarter '02 and 112% year to date.

Also EK's European business is contributing more this year, as trading activities continue to expand outside of the U.K.. EK's average tier was slightly higher in the third quarter '03 compared to prior years, and its gain/loss trade ratio improved for the third consecutive quarter. Further, EK's earnings productivity relative to risk improved dramatically, by over 43% when compared to prior years. Two final notes on EK: First, Entergy benefited again this quarter from disproportion sharing of taxable income. As a reminder, this arrangement will cease at the end of '03 and will be shared 50/50 in '04 in beyond.

And second, EK continued to demonstrate noteworthy financial strength in the third quarter. As shown on slide 10, EK generated more than $670 million in OCF since inception, and at quarter's end net debt, net capital ratio stood at 10%, with an exceptionally strong coverage ratio of 17 times. For the third quarter, OCF was $651 million, demonstrating the continuation of the cash recovery that began last quarter.

Looking to fourth quarter, net income plus depreciation plus recovery of deferred fuel will get us to approximately $1.7 billion in OCF for the year. With another $200 million coming from working capital shifts that we typically see each fourth quarter, we expect the full year OCF to be at our previously projected level of $1.9 billion. Looking ahead to '04, we expect solid cash contribution from the Utility and Entergy Nuclear.

In addition, EK will likely distribute additional cash dividends, all of which we estimate will produce '04 OCF in the $2 billion range. As we detailed on slide 12, we are tightening our '03 guidance to $4.15 to $4.25 per share, in the upper end of our previous range.

In the fourth quarter, we look for continued solid performance at the Utility and EK; in addition, Entergy Nuclear should benefit from having no planned fueling outages compared to three outages last year. We will record a special charge in the fourth quarter estimated to be between 35 and 45 cents per share for costs related to our voluntary severance program.

As a result, our as-reported full year guidance range is revised to a range of $4.02 to $4.22 per share. Moving finally to slide 13, our guidance range for '04 remains at $4.10 to $4.30 in operational and as-reported earnings.

You'll notice that we've refind the categories a bit to reflect stronger Utility, contribution, and lower income from our non-Nuclear wholesale assets, due to weaker power price expectation. We're confident in our ability to continue to deliver earnings growth going forward and to achieve continuing improvements in our competitive position. We will now open the call to your questions.

Thank you, sir. Today's question-and-answer session will be held electronically. We would like to signal to ask a question, please do so by pressing the star key followed by 1 on your touch-tone phone. Once again, that is star 1 to signal to ask a question.

If you do find that your question has been answered and would like to remove yourself from the queue at any time, please feel free to do so by pressing the pound key. Also, please ensure that your mute button is not activated to ensure that your signal may reach our equipment. We'll go first to Carrie Stevens with Morgan Stanley.

Hi, good morning.

Just wanted to check on a few things. If I look at LTM numbers, it looks like you guys would be running closer to $4.20, and I just wanted to get an idea quarter over quarter, if you guys are expecting some up side this fourth quarter from like rate release that may push you up to that higher end of your new band?

Higher up to the '03 number, Carrie?

If I add in like the 31 cents from the fourth quarter of last year, it would only kind of get you to the midpoint of your band, and I was just trying to think through what would be the items that would push you up towards the higher end of it, and the first thinking I had was that you have rate relief this year versus last year -- but I was just seeing if there were any other items that could drive a higher fourth quarter in '03 versus '02?

No, that's a good insight. We feel good about the range that we've given, but, you know, it's possible that we could be on the upper end of it.

Okay. And then I just got real quickly Wayne's comments on Texas, and I kind of wanted to walk through that and how we can be thinking about maybe where the profitability stands currently at Texas and where it could go under open access or with the rate -- extra rate relief. Maybe you could walk through like how much rate base you have in Texas and kind of what you're currently earning there, and then where we could expect you to end up.

Carrie, this is a real rough estimate, because there's a lot of moving parts, particularly with gas prices as it would impact PDB business; but you can roughly think of it as, when we go to -- if we go to retail open access, we would expect to achieve the equivalent of 11% ROE in that business, which would be about $75 million a year. We're currently making about $55 million a year in that business.

So we think we'll get about a $20 million pickup from retail open access, but if we -- for whatever set of circumstances, don't go to ROA, we would expect to achieve that same level of pickup through a rate filing.

And this is kind of the beginning in like the 105 time frame?

Yes.

Okay. And then maybe, lastly, if you could kind of give us an update on where things may stand with Perryville, and kind of broader picture with how you're thinking about approaching like the Louisiana rate case.

We'll let Rick -- there's not a whole lot, I think, to talk about on Perryville, but we'll let Rick Smith kind of bring you up to date. Rick?

Okay. Carrie, on Perryville we're still in discussions with them and we hope to get to a purchase sales agreement soon. We have a few outstanding items to resolve, but possibly within the next month we would get that accomplished with [INAUDIBLE].

Then we're looking at a mid-year -- so we would file for approval with the Commission right after that, probably take us six to nine months to get through that process with the Louisiana Commission. And we're looking at a mid-year next year rate filing with the Louisiana Commission, which would include the Perryville project, if we get there.

Okay. And just roughly, when going in for the rate filing, maybe you could talk through like where you're currently earning at that business, and then as you go in for this filing, from what I understand, it's maybe more of a filing regarding like higher costs incurred at the business and expansion of rate base, and trying to kind of like move up your ROE, but if you could kind of touch on that.

Most of it will be rate-base driven, a combination of what we've invested in the T&D business and the generation supply plant. We have in front of the commission right now generating resources for their approval, and we'd add to that the Perryville project. So it would be rate-base increases and then we'd be looking at a generation incentive plan around ROE, and probably a form of a rate plan. So those combination of things, we would hope, create an up side opportunity on ROE there.

And then lastly, are you guys seeing any new opportunities to essentially pursue other fuel procurement saving initiatives in terms of maybe other jurisdictions or other assets available? I guess I ask because there's been some mention of some players talking about lessening their exposure to merchant generation, and I'm just curious if you're finding that maybe there's more assets available at prices that kind of fit your appetite.

We have short listed a group through our spring RFP that we did earlier this year, so we are seeing a few opportunities. I don't know where they'll sort out. It will probably take us three to six months to get through those negotiations, and those would be in other jurisdictions.

Okay. Great. Thank you.

Moving next to Shara Chon with Foresight Investments.

Good morning. Just wanted to ask, just going through the cash numbers, Wayne, any expectations -- I know you've been reducing leverage as we go along. Any expectations of share buybacks as part of the plan going forward, in terms of utilization of the excess cash as we go forward from here?

Well, as we've said before it's always an option. What we're focused on is total shareholder return and keeping the credit metrics within the acceptable range, which is today as we break it down by business unit and then aggregate it back up, it's about 50%, I think, for the total company. So that gives us quite a bit of head room to make investments or buy back shares or increase the dividend.

So, you know, we'lll look at the earnings productivity, the cash productivity of additional investments, compare that to other alternatives. We're going to be, like we said, patient somewhat in this regard, because our sense is that when this market ultimately falls apart, it could fall pretty hard, pretty fast, so we would want to get left out of that if that happens, but we're not going to sit on something south of 40% debt, which would be a possible scenario if we just do nothing.

So -- which could happen over the next couple of years. So I can't give you an answer that -- exactly what we're going to do, but as we get closer to that kind of tipping point, then we'll be able to be more clear with regard to where we are among those three real possibilities of investment, increasing the dividend and buyback.

Again, as we have said, increasing the dividend is the one thing that we feel probably the strongest about. As we sit here today, we'd very much like to deliver top quartile dividend growth regardless of what happens in the other area. So that part we're still very focused on.

And just going back in terms of what you're seeing out there in terms of acquisition or, you know, opportunities, are you finding them more or less or in terms of, you know, more fossil or pipelines or things like that? Where's the focus, if you can -- what have you been looking at, if you can share with us, lately what has been the focus towards looking at some of the things which would you like to add to the system?

Yeah, I'll let -- I don't think the answer has probably changed since we last talked to you, but I'll let John kind of update you on where we're at.

This is John Wilder. It really hasn't changed.

We're continuing to spend our time on pursuing gas transportation and nuclear opportunities with a little bit of a twinkle in our eye on the fossil opportunities outside the Utility, although we think that market is going to be a little slower to develop. Rick briefed everyone on the call of our acquisition opportunity in the utility on the fossil side that we're real encouraged by, and we'll just keep hammering away at those areas.

Okay. I appreciate it.

Thank you.

You're welcome.

Moving next to Debra Bramburg with Jeffries.

Hi, good morning. Just a couple of questions on Entergy Nuclear. Could you quantify the impact of the blackout on the quarter? And then you had also, I think, mentioned lower pricing in the quarter at Vermont Yankee and perhaps one of the other plants, and I was wondering if you could give a little bit more detail on that.

Debbie, I heard the first part of your question but the second I missed. The first is 5 cents. What was your second part?

I think you said earlier that there was lower pricing at Vermont Yankee, and maybe one of the other plants. I may have missed that.

Right.

I was just wondering if you could go into a little bit more detail there.

I'm trying to find my quantification here.

I could follow up off line.

Yeah, would you? That would probably be the most efficient way to do it.

Okay. Thank you.

Thank you, Debbie.

We'll go next to Brian Olson with Luminous Management.

Hi guys. I have two questions. First, I was actually wondering if you could talk a little bit more about the Texas de-regulation and what other steps are necessary there, also with respect to splitting Louisiana portion out of Gulf States separate from Texas.

We'll let Rick Smith, who is the group president of our Utility operations, respond to that one. Rick?

Brian, we filed on October 9th with the FERK approval for our wholesale market protocols that we achieved agreement with, with the Texas parties and the Utilities Commission there. So that's a key item there that we would expect an order within three to six months, really depends on how much intervention there might be in that, and how quick they'll get through that.

With approval of that, we'll initiate a pilot in Texas, and we're looking in the next couple of months to reinstitute our discussions with the Louisiana Commission on the business separation. We already have agreement on certain elements of that business separation -- the transmission business, and distribution business, how we separate that -- and we need to follow up with them on the generation split of Entergy Gulf States. We reached a settlement on those items with those.

We feel that we can probably achieve the same result with advisors to the staff of the Louisiana Commission. So that, though, will probably take us about nine months to get through, and then once we get through all that and we run a pilot for probably about six months, we'll go back to the Texas Commission sometime in the third or fourth quarter next year to get their approval to say the market's ready to be opened. And we target that around January 2005.

Okay, and you expect about a $20 million net income benefit, whether it's through a price to beat or through a rate filing in Texas?

Yeah, and, I mean, if it's a rate filing in Texas -- I mean, if we open through the price to beat, it will be sooner than a rate filing because we have to get through -- whether we go to open access first, then we'd have to file. If we don't, then we'd have to file for rate increase.

Okay. What about rates for the Louisiana side of Gulf States? Would there be any change to those?

We're in the process currently with Louisiana Commission reviewing rates that are coming out of the merger, and we have an opportunity to update our test period through the end of the year, so we're in that work with them right now.

Okay. My other question, I was wondering if you could just give us an update on contracting with the Nuclear fleet and if you could could give us what price that's being done at for '05.

We had a good quarter, mainly in our capacity contracts, and as I mentioned in my remarks, we'd added a couple hundred, about 250 megs in '05 and '06, both at the beginning of this quarter. Pricing continues to be kind of structurally, a dollar to two dollars higher than our embedded contract amount.

And as we look to the big year of rolloff, which is '05, we'll have about 15 kerawatt hours to sell Ford. We'll still confident there's about $2 per megawatt hour up side versus our '04 contract amount, or about $30 to $40 million pretax.

Okay. And what percent of '05 is currently contracted?

About 38 or 40%.

Okay. Great. Thank you very much, guys.

You're welcome.

Moving next to Jonathan Arnold with Merrill Lynch.

Again, on the nuclear contracting, can you give us an update on the NIPA proposed process?

We're actively involved.

We can't say much about it, frankly, Jonathan. We're not technically precluded from doing that with the terms of the agreement, but we've taken an internal position that we just don't think it's appropriate to share information as we're in the middle of discussions with them. But we're encouraged by them. We're having good discussion with NIPA, and we hope to have something completed in the next quarter or two.

Thank you.

Moving next to Lee Anderson with Alliance Capital.

Good morning. Couple of questions. First, on the Nuc contracting, could we just drill down a little more and give me some -- the pricing in your Ne-pool [PHONETIC] Nuc versus the New York Nuc as we kind of look for '04,'05?

John is looking for detail right now. I think he has it right now.

Kind of generally, Lee, the '04 contracting for the New York power pool is about 38, 39, and the Ne-pool is in the 40 range, and in '05 we would anticipate around 39 to 41 for New York and 36 to 38 in Ne-pool.

Just to follow up, could you just comment on the direction New York is going up and Ne-pool is going down, what's the driver there?

Two things, one, Ne-pool is going down mainly because the contracts that we entered into with Pilgrim specifically were -- are good contracts for today's market. And New York, with the capacity strength in the region has just continued to show fairly strong pricing, particularly as the generation is become more and more dependent marginally on gas-fired generation.

Lee, these are -- as you know this scenario, this adopting location margin prices, 18 points is in a good spot, and some of our plants in Ne-pool is not in a good spot in terms of congestion.

Okay, interesting. Okay, also -- staying on the Nucs -- the voluntary severance program, in what year do you expect to see the full positive impact from that?

John?

Well, most of the people will be taken out of the organization by the end of the year, but as part of that program, we do have the opportunity to keep some of the people through 2004, but most of them will be gone at the end of 2003 or very early 2004.

Rick, in Utility?

I think it's a similar schedule. Don's organization on Nuclear South would be similar time frame that he went through, and then we've got a couple hundred additional FPE's that would come out of the Utility by midyear.

On the Nuc, you're showing improvement in O&M yer over year, '03 versus '04, in your guidance of about 10 to 13 cents. Does that capture all the severance?

Yes, it does, Lee.

Are there more productivity programs that will come after this one?

Yes.

Okay. And then finally, on the fossil acquisition opportunities you've been talking about, are these mainly gas, or do these also include coal?

All gas so far, Lee.

Okay.

Great. Thanks, guys.

Moving next to Sean Feally with Babson.

Hi. Can you give a little more color as to the Gulf States Louisiana rate situation? Seems to be a pretty big gap between your position and the LPSC staff. Also give a little color as to how they come up with their position.

I got the first question. This is Rick again. On the rate gap between what they've proposed and what we have, it's really going back to, it was the end of earnings review process coming out of the Gulf States merger, and as you look at that, that was a test period of 2001, and if you bring that forward through '03, you have substantial increases in rate base and those type things.

So we have got the Commission staff to agree to update that test period as they review those numbers, so I think their numbers will come down substantially for that. I didn't catch the second question.

I just want to add to that. When Rick's numbers -- now that you mentioned it -- he's taking power purchases that we used to make that may have ran through the fuel clause, and he's moving those through the base rate with asset purchases like Perryville.

So depending upon how the staff looks at it, and they have -- like Perryville, for example, still in the fuel component of your rate-making, not in base rates, then you would have a very large difference right off the bat, but it's the same number at the end of the day that the customer is going to pay, it's just where it's at in the rate structure. And that is a big component.

And the other thing going on in that test period was pretty high market prices for purchases that we were making, and they know as we've moved along those numbers have come down substantially over the last couple of years. So they pro forma that decrease in, like Wayne said, we will be substituting that with asset purchases.

Okay. Great. Thanks.

Once again, that is star 1 to signal if you have a question. Moving next to Jessica Rutledge with Lasard Asset Management.

Hi, guys, how ya doing?

Hi, Jessica.

If I could go back to the nuclear contracts for just a minute to, just to beat a dead horse here, we talked about the NYPA process. Where are you guys in discussion with ConEd about their contract?

Jessica, it's about the same tempo. We're having very constructive discussions with them, we'd even characterize them as negotiations.

We think we can continue to serve them like we have in the past in a very satisfactory way and we're pleased with the terms and conditions that we're having some very initial discussions around. So the timing will probably -- will probably unfold very similar to NYPA in a quarter or two, and the best way to characterize it is constructive discussions following a time line that's consistent with what our expectations have been for the last couple of quarters.

Jessica, I'm sure you have these discussions with ConEd and others, but the Utilities in that area are looking at exactly the same way I think Rick look at it in our Utilities. The top criteria being looked at is, is it a credit-worthy couter-party, is it a stable price, like coal or nuclear versus gas, and is it going to be close to the load center? How far are you going to have to transport this relative to everything else going on? And host plants are about the only game in town, and everybody knows it. So just -- like John said, we're very optimistic about getting something done here.

I was also intrigued by the discussion about the impact of locational marginal pricing on the Northeastern Nuclear plants. You said Indian point is well located. If we look at the other plants, are there any that are particularly well or particularly badly located?

I think Pilgrim is the one that if you look at it is -- there's quite a few options around there relative to the transmission flow as they exist today; but, of course, the purpose of locational marginal prices is to send the right price signals, upgrade transmission, things of that nature to, and maybe levelize some of those different prices. But Pilgrim is the one that is probably under the most pressure. You might not think that when you look at the map, but relative to the transmission flows, it doesn't have the advantages maybe some of other plants have.

Okay. And the rest of them are staying relatively neutral under the new system?

Yes, although we've probably had, Jessica, a pretty modest and positive improvement in the position of Fitzpatrick.

Okay. And then if I could change gears one more time, and then I'll release the line here. If we think about your operating cash flow projection for the year, the $1.9 billion, I think you said it was, it looks like you're expecting a bit of a swing-up in 4Q to make up the difference. Where do you see that coming from? Is that an Entergy-Koch dividend? Is that a change in the fuel cost drag -- what's happening there?

It's mainly in collection of receivables. If you take a look at our cash flow pattern kind of 97 to 2003, we, on average, spend at about 75% through the third quarter. This quarter, we're only at 62, but if you compare it to a year that's the closest to this year, which is '01, '01 we were at 55% through the third quarter and we made the rest of it up in 4Q.

We'll have a couple hundred million. If you just take the basic building blocks of net income depreciation and deferred fuel, that will get us the rest of the way there except for a couple hundred million, and that will come from the collection of receivables that resulted from mainly third quarter sales. So if you analyze it, we're probably a little ahead of where we thought we would be looking at the pricing profile to our customers and our third quarter sale volume this year.

Excellent. Thank you very much.

You're welcome.

Next we go to Vladimir Ulisovich with Long Anchor Management.

Hi. This is Vladimir Ulisovich with Long Anchor Management. Just wanted to ask you a question regarding Perryville. Could you tell us how much debt is currently on the Perryville plant and maybe just explain, is this being assumed by Entergy or are you just simply cashing it all out?

We'll just be paying cash for that. And I don't know how much stuff they have on it.

You don't know how much they have on it? Okay. Do you see any other opportunities for acquiring plants in the near future and putting it in rate base?

Yes, we're in discussions with a couple of other parties for some plants in some other jurisdictions.

Understood. Understood. Any particular markets that you think makes the most sense for you right now?

No.

Understood. Also, could you just give us an idea of what 2004 on-peak and off-peak power looks like in Urcott [PHONETIC]? You know, what are your projections?

We don't have that.

You don't?

We don't serve Urcott,, so I don't know what -- that's a competitive market.

Vladimir, that's not a market that we participate in in an active way. We don't participate at all in our Utility. We participate in a very minor way in our retail group. Our Trading group trades in that market, but we have a policy of not providing our point of view other than just kind of a general -- our general observations of broadly where gas and power are going in various regions.

Understood. So you wouldn't want to comment on your outlook for on-peak and off-peak Entergy circ pricing?

For Entergy circ pricing?

For '04.

No, we really would prefer not to talk at that level of detail.

We'll go next to Greg Gordon with Smith Barney.

Hey guys. When I look at the Entergy-Koch projections for next year, you know, how much should I think about in rough percentage terms coming from sort of the asset business, the pipeline business? Obviously, there's variability around volumes and costs, but, you know, roughly speaking, and how much comes from sort of the -- what you guys would project to earn from the trading businesses?

Greg, the way I'd encourage you to think about it is, if you look at the JV since we've put it together, we've had a gradual shift, because it's performed so well, of income from the gas transportation business, the financial sales business, to our Asset Management Services business and to point of view trading. The overall profile, since that period of time, is about half end point of view trading, 30% in Asset Management, 10% in financial sales, and 20% in gas transportation.

Now, we are not anticipating in our guidance or in our forward plans to perform as well as we've performed in that business over the last couple of years, specifically in point of view trading, so it would get back to closer to a normal profile, but a little bit dampened from what we've described in the past, probably about 30% gas transportation, 10% financial sales, 25% of Asset Management Services, and less than 50% in point of view trading.

We're very encouraged about our Asset Management Services initiative that we've been talking about over the last couple of quarters. Wayne mentioned that new services contracts we've received, and we've -- we think that's a business line that can really take off for us.

I guess that was my -- you know, what piqued my interest in the question. It seems that when you take into account gas transportation and all of the service contracts you've got, that, you know, you're just backing into a pretty small implied contribution from point of view trading.

Yeah, and, Kyle, we're a little bit different locations here, Greg.

That's the correct assumption, right?

Let me ask Kyle to kind of step in, because he's on the phone in Houston, and we'll see what insights he might be able to offer. Kyle?

First of all, I think point of view trading will continue to be significant.

So I don't want to give that impression. I think the reason the forecast forward was to be a little less of an issue, this year was extremely volatile period, particularly the first quarter, Greg. You know, we were very successful in that quarter, and I think all we're saying is that more than likely the volatility and all next year will probably not be -- we won't expect it to be quite the same as this year. So number one, point of view trading will continue to be very strong.

I think what we are saying, though, is our goal has been to really build up our service business, which as our asset service and our financial services, and we've been very fortunate to not only pick up the Gen [PHONETIC] holdings deal, but we've got several other deals we're looking at and we think there's some great opportunity for us to leverage our point of view ability by partnering with other companies.

I guess the way I would put it is, our point of view success has actually given us a lot of the strength to actually go out and grow these other businesses. But we'd like to get to the point where the point of view piece itself is a less significant part of our business, but it will really still, in my opinion, be the driver.

Right. I guess, you know, put another way, I don't want to have to feel, as a shareholder, that I have to count on a big repeatable point of view profit for Entergy as a consolidated entity to make its numbers. And if you look at what you're projecting, you're being purposely conservative.

You could do better in the point of view trading business than what you're budgeting, but a big piece of Koch's projected contribution to Entergy next year is from these other asset management and physical business.

That's right. And, one thing we've even added, got a new facility that just started up here in the last week, our storage business in Gulf South, in Magnolia, that will also start contributing next year. So we want to continue to grow what we would call a little bit more ratable type piece of our earnings.

Great. Thank you.

We'll return to Vladimir Ulisovich with Long Anchor Management for a follow-up.

Thank you. Just one question. In the New York and Ne-pool, do you foresee any of your competitors, nuclear plants, going down, being shut down, or having extended outages in the next one or two years?

John?

No, we're not anticipating it. In fact, you know, the nuclear industry, you know, continues to improve in performance, and we don't anticipate any of them to be in a long-term shutdown or be permanently shut down.

Understood, understood. Also, I believe that N-star is currently in the process of running, you know, auctions. Will any of your plants in Ne-pool, do you think any of them will be able to obtain N-star contracts as a result of this auction?

We probably won't, Vladimir, although we don't really want to rule that out, but that is not likely to be the kind of load profile and shape that we can compete with. We have been looking at those kinds of auctioned opportunities in the -- with the provider of last resorts, or the -- each one of the distribution companies are calling them a different thing, but right now we want to focus on the unit contingent base load arrangements with our current customer set.

We have entered into a few, a very small firm LD-type of sales arrangements out of our Pilgrim unit. Quite frankly, we will likely be looking at moving away from those positions because we've had such a successful sales effort with unit contingent arrangements out of Pilgrim over the last month or so.

Uh-huh. And then just in -- thank you for that. And then in Connecticut, that I believe Connecticut Light and Power is even looking for longer term contracts to replace the energy contract that rolls off at the end of December. Do you think you will be looking to, you know, do anything there?

I don't have any specific knowledge. Kyle might have some specific insights on that. Kyle, do you know anything?

I don't at this time. That's not an area that I'm deeply familiar with.

Okay. Thank you very much.

Thank you.

And next, Jessica Rutledge with Lasard Asset Management for a follow-up.

I was actually looking back at my notes and thinking about what you guys were saying at the beginning about seeing improvements in chemicals within your territory, and also about having seen a lot of people switch away from gas to oil or other product earlier this year. I'm curious whether those two things are tied.

Are you seeing the chemicals industry switching back to using gas, or are you seeing gas costs coming down and that's the driver of the recovery? Just wanted to see if I could get some more color on what's driving your thoughts there.

The way we do our sales analysis, Jessica, with our large customers, we do a specific review of their site and their expansion plans. Some of that is driven by the dampening of gas price, particularly on the agricultural side. All of our gas price-sensitive industrial complexes -- not all of them, but most of them -- have had production slow-downs.

We've got a few of very specific expansions planned. Our customers have planned, particularly in refining, and that will result in higher demand from them. We're not anticipating a major recovery of the extremely gas-sensitive customers like fertilizer, nitrogen, or businesses like that.

Okay. Thank you very much.

You're welcome.

And to Greg Gordon with Smith Barney for a follow-up.

Yeah, I'm going to piggyback on her question, because I think it's an interesting one. There's a thesis out there that because gas prices have been so systemically high and could continue to be, that we've seen significant permanent demand dysfunction among those type of customers that you mentioned last, heavily gas-sensitive chemicals.

Would you care to comment on that? Because your service territory is really the predominant industrial base for those types of companies. Do you see them coming back or are they gone for good?

Greg, you know, we don't want to say anything disparaging about key customers, but there will likely be a facility or two that won't ever come back. And that's just -- that's kind of representing what they're saying publicly. But short of that, and they're not that big a load customers, short of that we see most of these customers coming back to production.

Now, if we were to have $5-plus sustainable -- $5 in [INAUDIBLE] sustainable gas for two or three years running, that could put some real long-term pressure on these facilities, but right now they're hanging in there, and I think they're hoping that gas will back down to the 4 to 4.50 MMBTU range. Kyle, do you have anything to add to that?

I would tend to agree with what John said. I recently listened to a gentleman from the Chemical Manufacturers Association, and obviously they're very concerned about gas prices long term, and certainly are pushing to have a lot of the access -- resource areas in the U.S. opened up for gas exploration and all that, but our concern would be the same, that we've seen some loss in demand this year that we still think is recoverable, but if we had sustained high gas prices for another few years, you would probably see some of these, at least cut back or either start moving production offshore.

And I think certainly we're hopeful that's not going to happen that way, but I think that is a risk -- but I think you'd have to have sustained high gas prices for two or three more years before that would occur.

So if we were to see a drop in gases prices, you could see a continued sort of longer term trend of improved industrial consumption beyond just what you're forecasting for next year?

I would say so, yeah, Greg.

And the flip side is, if it lasts like this for much longer, then it's gone.

Well, it could. Certainly I'd say there's some that might decide to go overseas.

That's the thesis, that they're going to shift their production from U.S. to abroad, and that's great for them but that hurts your revenue stream.

Yeah, I think that's a debate that's really going to be followed very closely on our energy policy and all that probably over the next two or three years, but that's a big point right now, at least on the demand side.

Thanks a lot.

Greg, this is John again. On our -- I won't give the name of the facility, but on our detailed analysis where we characterize a facility as recovery uncertain, maybe permanent, we have about $2 million of adjusted gross margin that could be at risk. So it's not a lot.

Two million that you're not currently general rating that you think --.

Could be permanent.

Okay. Thank you. That's very helpful.

You're welcome.

We'll go to Lee Anderson with Alliance Capital for follow-up.

If we did see gas at that $5-plus sustainable level for the next couple of years, what kind of volumes at the Utility would be sort of exposed to that? I'm not sure, maybe that $2 million gross margin was in answer to that, but I'm not clear on that.

No, it would be more than that. If you had sustainable $5, Lee, for two or three years and you had some of our larger gas sensitive customers permanently shut down, there could be -- I'm just giving you a rough estimate -- but there could be $15 million of AGM at risk, something like that.

Okay. Great. Thanks.

This does conclude today's conference. I'd like to turn the conference back to Ms.Nancy Morovich for any closing comments.

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