安特吉 (ETR) 2004 Q1 法說會逐字稿

Good day, everyone. And welcome to the Entergy Corporation first quarter 2004 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.

Thank you. Good morning, everyone. We will begin this morning with comments from our CEO, Wayne Leonard, and then Leo Denault, our CFO will discuss results for the quarter. We will follow that with a Q&A session and at the end of the Q&A, I will close with a quick reminder of the applicable legal statements. Wayne?

Good morning. In our last call, I told you we -- we would be updating you each quarter of our results across a range of goals we set for 2004. First I will review the progress we've made in each of our businesses and I will discuss how 2004 fits into our longer term plan. Then I will turn the call over to Leo for a review of the quarter's results.

Let me begin with utility where we made two major regulatory filings and are preparing to make another in Texas as a contingency plan if it is determined the retail open access is not in our immediate future. In Louisiana, as all you know, our filing on January 9 indicated a $167 million revenue deficiency that will be significantly offset by fuel savings under our generation supply plan, if the LTSD approves our request.

You also likely know that a significant part of our supply plan includes the purchase of the 718 megawatt Perryville plant from Cleco [ph] for $170 million or about $237 a KW. We filed for LPSD approval of this transaction during the quarter and our goal is to obtain regulatory approval and close on Perryville by early '05 and to obtain LPSD approval of our rate requests so the new rates are in place for essentially all of '05. At first, we filed our independent transmission structure proposal on April 1.

In the next 30 days we will find the details of that proposal with all of our local regulators. We will be requesting that they thoroughly review and consider our proposal and that they ultimately file supporting comments at FERC by the end of July. We are hopeful FERC will act on the proposal within 60 days thereafter.

Our proposal was developed and defined in an extensive informal collaboration process with stakeholders with specific goals addressing the priorities and concerns of both our local regulators and the FERC. Under our proposal, there will be a realtime hands-on independent oversight for transmission access and usage, and pricing policies are consistent with FERC order 2003 A. That operational control will remain with Entergy.

Our local regulators have insisted that the responsibility and accountability for maintaining reliability not change hands. We understand their concerns and believe our proposal addresses them. We strongly believe that it also satisfactorily addresses issues FERC has regarding the importance of independence relative to nondiscriminatory access and pricing. Our last quarter's call, I expressed our goal of moving to retail open access in Texas by early '05 and are confident that the pass the Texas commission has set would get us there.

Since then, the PUCT issued an order defining criteria to be considered for transmission independence that, depending on how you read the words of what they intended them to mean, could be more stringent than we might have expected. We expect the PUCT to be more definitive on the transmission independence issue in early June. That will determine our next course of action.

If their decision supports retail open access and a reasonable path to get there, we would expect a start date in mid '05. Otherwise, we will file a rate case this year to address the single digit returns we've endured for the last five year, as base rates have been frozen pending retail open access, which has been stuck in neutral despite our best efforts to move it forward.

Before I leave the utility, let me mention another FERC issue in recent headlines, the new SMA screening test issued earlier this month. We believe after an initial review of the new rule, FERC took an important step in the right direction on this issue. We are very encouraged by the recognition that native low requirements have to be properly considered in any evaluation of market power.

We will file our studies required under the new screening methodologies in mid June. Beyond these regulatory initiatives, other progress was made detailing the first quarter, when Moody's placed both Entergy Arkansas and Entergy Louisiana on credit watch positive. We have vigorously pursued and approved credit ratings in discussion with the agencies for some time.

But now, clearly, the facts speak for themselves. And we are hopeful the agencies will agree. We have created a strong balance sheet, reduced risk across our businesses, and produced enviable improvement in both our cash flow and earnings. At Entergy nuclear, our outstanding operation results for the quarter included a capacity factor for the entire fleet of 10 units of 97.2%. Probably more important to most of you is the northeast, where we were 98.9% and in the south, 95.8.

In addition, our new license renewal contract was signed with another nuclear owner, and new power contracts were signed with NIFA and Con Edison. The terms of these new PTAs prevent us from sharing all the details but we can tell you that both contracts are unit contingent, not firm and both are consistent with the rise in natural gas prices that have driven power prices up, and the combined price per megawatt hour exceeds that of the initial contract with these customers that are now expiring.

Previously we had targeted to have 100% of the '05 outfit sold by mid '04 and 75% of the '06 outfit by the end of the year. These contracts put us essentially at our volume goal, but we are already ahead of schedule in getting there. '05 is 94% sold out. '06 is 73% sold out. And we are working to get more done this year. I'd entered at Entergy-Koch several to do items were accomplished.

A lawsuit that had been a substantial resource strain at Delsouth Pipeline was settled during the quarter on favorable terms. At EKT, we added a major new customer in the physical optimization business and we had an outstanding quarter in the profitability of our European group. Obviously U.S. rating didn't do as well. This is the first quarter in over three years of our venture that the U.S. trading group has struggled.

This is a difficult quarter in the U.S. with relatively low volatility and some transitional changes in the overall market dynamics but market go through these transitions from time to time and when they occur EKT adjusts to them, to their trading strategy, not by taking on more risk. But in any event, this is not a business we get too excited about one way or the other on a quarter to quarter basis if earnings vary within some reasonable band. One other positive note on EKT, we settled CFEC investigation during the quarter which had been pending for almost a year.

I should note that while this review is complete, because the trading industry is subject to heightened regulatory scrutiny, EKT is responding to a few other inquiries and investigations. Obviously, we will keep you informed if any of these inquiries and investigations become material in any way. Now, moving on a broader view of 2004, I want to focus on activities that extend beyond the first quarter.

We knew that 2004 would be a year where blocking and tackling would be a daily exercise, that visibility around earnings would be higher than the past year, with potential variability -- less variability, barring some event outside the two sigma range we generally plan around. At the same time we knew 2004 offered significant opportunities to put in place the drivers for future growth consistent with our stated goals, objectives and aspirations.

Including the rate activity in Louisiana, movement to retail open access in Texas, resolution of supply plane issues at FERC and in the state, the potential for new nuclear service contracts, continued productivity improvement, expanded customer base, DKT and a more prominent trading presence in Europe and the potential to put significant capital to work at attractive returns. Success on these fronts in 2004 could well define an earnings growth path for us that is consistent with our aspirations for years to come.

We are working fast and furious to accomplish this and Leo will describe how we are already seeing '05 take shape. And I know some of your issues were not on the list I just shared. For example, would we be able to deploy our available cash into value creating investments? Secondly, when will we increase the dividend again? And what level are we targeting? And third, will we initiate another share buyback program? I hope I don't surprise too many of you when I tell you we can't definitively answer those questions today.

What I can tell you is, with regard to investments, our priorities are unchanged. But our investment process is rigorous, and our return criteria is more stringent than simply earnings accretion. Further, our expectations are significantly more positive today than they were say six months ago.

Increasingly nervous bankers, who now reluctantly own or control more and more physical assets, combined with the effects of potentially higher interest rates in an already highly leveraged market and the harsh realities of an overbuilt market and a nonstorable commodity all point to more realistic expectations on the part of sellers, more transactions, and a premium for buyers who can transact quickly, which we can.

With regard to the dividend, we are well aware that our dividend has significant headroom for future increases as expectations of interest rate moves heighten, this becomes a bigger issue for us than those who don't have the headroom to raise the dividend. Our board is committed to review the dividend in October of 2004.

They will give careful consideration to all the right things including what is the optimal capital structure and the appropriate payout ratio, when they weigh an increase against the other possible uses of cash and the expected risk profile of our businesses over the long term. Finally with regard to the stock buyback, our preference is to deploy capital when value-creating opportunities are available, and right now, that appears to be a realistic possibility.

But we will return capital to owners in some other way if the attractive opportunities we are focused on don't materialize or if the capital structure reaches a point that makes holding on to the cash until such time as they do a value-destroying option. We don't see a buyback as a near-term decision, but rather one that could become more of a possibility over the next 12 to 24 months.

There is no one more at Entergy more keenly aware of the importance of value creation for shareholders than our board of directors and the team assembled with me today. Following me on the call will be a voice new to some of you but not new to the industry and not new to Entergy. Leo Denault has stepped into the CFO role from his previous role of leading our corporate development team.

There he demonstrated discipline, creativity and savvy in evaluating structuring and closing high value transactions. Leo has brought these talents, plus industry experience and excellent leadership to the role of CFO. A familiar voice, that you will no longer hear on these calls is that of Don Hintz. As announced last quarter, Don will be retiring later this week.

However, as promised, last quarter, we did not let Don get away and I am pleased to report that he has been nominated to Entergy's board of directors. Don will not only provide expertise to our already strong nuclear committee but also he will have specific responsibilities in support of our nuclear business development activity. I'm currently negotiating Don's arrangement with us, and he is pretty easy to deal with. He just wanted to be paid for results. I like the way he thinks, I always have, on a whole lot of issues. You should look for great things from this team.

We set the expectations high for each one of them. And not one of them so much as blinked. They know the challenges, the opportunities that lie clearly at hand and they are already focused on execution. And with that, let me turn the call over to Leo Denault.

Thank you, Wayne. And good morning. Before I discuss results I will comment briefly on the new layout of our first quarter release. Slide two highlights changes we adopted this quarter in response to your feedback. You will first notice the release itself covers only 10 pages and includes information on earnings, operating cash flow and guidance. We hope this organization will allow you faster access to the most pertinent quarterly information.

Other details have been moved to the appendices. I want to emphasize that we have not discarded any of the tables you are accustomed to seeing in our releases. In fact, we have added several new items including an earnings sensitivity table on page 16 to assist in your projected earnings analysis. A new regulatory calendar on page 15 to help you track key events. And estimated financial impacts have been added to our regulatory filings table on page 13. We hope you will find these changes helpful and I encourage you to share any feedback with Nancy and her team.

Now, turning to the quarter, I will cover three topics. First, a brief review of results. Second, a discussion of earnings guidance and earnings aspirations. And third, a quick review of our liquidity, credit, and return metrics. Slide three shows that our first quarter '04 earnings were lower compared to results one year ago, on both an as reported and operational basis.

As reported earnings in first quarter '03 benefited from the implementation of the new accounting standard FAS 143. This standard produced a cumulative effect in accounting change that added 61 cents to earnings. On an operational basis, first quarter '04 earnings were 88 cents per share. While lower than the prior year, this represents the second highest first quarter earnings in Entergy's history.

Moving to slide four, operating cash flow for first quarter was up sharply compared to prior year. This increase was driven primarily by fuel cost recovery at the utility, and by increased profits at Entergy nuclear. All of our fuel mechanisms have been reset since first quarter '03, and there have been no material disallowances of fuel expenses in any jurisdiction. On slide five, we see the utility current and other earnings were flat quarter over quarter.

However, for the first time in over a year, industrial sales showed positive growth as the impact of cogeneration losses ended and we began to seat effects of an improving economy. We also realized the benefit of our refinancing efforts last year with 8% lower interest expense contributing positively to earnings. These two effects were offset by milder weather, and a slight uptick in O&M expenses due to timing differences. Slide six reflects Entergy nuclear's earnings per share contribution.

This quarter was considerably stronger than prior year due to three factors. First, increased output resulting from fewer unplanned outages and 46 megawatts of recently completed upgrades. Second, higher realized contract pricing. And finally, lower production costs driven by lower O&M, and significantly higher generation. We expect production costs to -- in the remaining quarters of '04 to be slightly higher as planned refueling outages impact the denominator of this per unit cost measure.

Before leaving nuclear, slide seven demonstrates our '05 and '06 sold forward positions increased to 94 and 73% respectively. As a result of the new contracts Wayne described. Sold forward prices for these two years also increased by nearly $2 per weighted average megawatt hour thereby reducing our exposure to gas prices significantly. Previously we indicated that '05 earnings could vary by 25 cents per share for every 50 cent per million BTU change in gas prices.

As of today, this sensitivity has decreased 80%, to only 5 cents per share. Entergy commodity services performance is illustrated on slide eight. Looking first at Gulf South Pipeline, results were equal to a year ago. Excluding the impact of disproportionate sharing, this business experienced a 100% improvement quarter over quarter.

The improvement was driven by higher transportation rates, slightly higher throughput and the absence of fuel costs incurred in '03 to ensure system integrity and periods of extremely high demand. Partially offsetting these factors were expenses which are not expected to recur in future quarters. Results for Entergy-Koch trading declined in the first quarter to one year ago due to a combination of anticipated and unanticipated factors. Exceptional trading results and disproportionate sharing achieved in first quarter '03 were not expected to be replicated.

These two factors accounted for about two-thirds of the quarter on quarter decline. Remaining decrease was driven by a combination of low volatility and weak point of view trading in the U.S. This was partially offset by improved trading profitability in Europe. As shown on slide nine, EKT's average deer for the year declined nearly 50% to $10 million. This overall decrease reflected a quarter on quarter decline in the U.S. deer, of nearly 65%.

While deer in Europe doubled. These changes in deer, along with the mix of lower U.S. profits and improved European results are entirely consistent with EKT's strategy of allocating capital where it believes profits can be made and retracting where it does not have a strong point of view. Slide 10 details previously-issued '04 guidance of $4.10 to $4.30 in operational earnings per share which we are affirming today.

We were only a few pennies off our first quarter plan after adjusting for normal weather and the usual expenses at Gulf South which will be recovered later, in later periods. Over the remaining three quarters of '04, we have seen encouraging economic outlook, that should continue to help utility sales.

We achieved a very strong start in nuclear and at EKT our range is within reach if we can perform on par with quarters two through four of last year. And of course there are always opportunities to identify additional productivity improvements in all of our businesses. In our call last quarter, we shared details on potential drivers that could impact our '05 earnings.

Referring to slide 11, I would like to ground you on how we view '05 in light of these drivers in our near term earnings aspirations. While we are not in a position to issue '05 guidance today, we continue to target 5-6% intrinsic growth to be driven by the blocking and tackling Wayne referred to.

Components include for example, growing utility revenues through retail sales and regulatory rate cases, growing nuclear revenues by producing more megawatt hours selling at attractive prices and initiating new service contracts, achieving O&M and capital productivity improvements and minimizing the impact of inflation in benefits cost. Add to this another 2-4% growth which we believe will be achievable given investments we've made to enhance our base utility and nuclear businesses.

Examples here include major capital upgrades in generation, transmission, and distribution facilities, supply plant assets, purchases, and -- or repowering projects to address the utility short position. And upgrades in our nuclear plants. When combined, these two growth elements comprise our 8-10% near-term earnings aspirations.

On top of this range, we view retail open access and asset acquisitions as strategic growth opportunities which could provide substantial upside as they materialize. We have quantified the possible impact each of these could have in '05 or beyond, even though we are unable to assign definitive probabilities to their occurrence. To summarize, our near-term aspirations to deliver 8-10% earnings growth in '05 and perhaps beyond, given the earnings drivers associated with our base business, we consider this aspiration to be quite achievable.

Further, we are working proactively to make upside opportunities in Texas, and asset acquisitions a reality. The strength of our financial position will clearly support us if we are successful in these efforts. This is evident on slide 12 where we project OCF to be $6 billion from '04 through '06. In '04 alone OCF is expected to top $2 billion, including EK dividends.

In fact, we received $26 million from the venture just last week and we anticipate similarly-sized dividends in each of the remaining quarters of '04 to be easily supported by the financial strength of this business. In addition to maintenance capital of $2.6 billion, we have committed $1.2 billion of capital to growth investments associated with our base businesses. The majority of this amount will be included in the utility rate base, where it will earn regulated rates of return on equity of 11% or greater.

In our nuclear business, growth investments will fund 200 megawatts of upgrades in '04 and '05. The terms on these projects typically exceed 20%, assuming power prices of $40 per megawatt hour and capital costs of $800 per KW. Considering these growth capital commitments along with additional debt capacity that Entergy can tap, we expect to have more than $3 billion available over the next three years for a combination of investments.

Including potential investments in our own stock and dividend increases. Turning finally to slide 13, our return metrics are somewhat lower compared to a year ago as a result of lower first quarter earnings. As the year progresses, returns will strengthen as we achieve growth in our businesses. But will be offset as disproportionate sharing rolls out of the 12 month annual statistics.

Particularly noteworthy are our credit metrics this quarter, both cash flow interest coverage and net debt ratio are at their strongest levels in several years. As I noted before, the strength of these metrics, combined with our robust cash position, provide the foundation required to execute on investment opportunities that we believe will become available in the coming quarters. Our senior team is available and it will now open the call for questions.

Today's question-and-answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit one on your touch-tone telephone. If you are using a speaker phone, please make your mute function is turned off to allow your signal to reach our equipment. Once again if you would like to ask a question, please press star one. We will take our first question from Ashar Kahn with SAC Capital. Please go ahead.

Good morning, Wayne. Wayne, can you just -- I don't know if you shared or not. Assuming -- hope it doesn't happen but if the Texas retail doesn't go the way you like, can you tell us what the size of the rate case might be in terms of dollar terms?

Okay, let me have Rick Smith answer that. Rick is the President of all of our utility operations. And I think Rick was involved in putting that case together right now. Rick, do you have an idea?

Yeah, we're looking -- we've done some preliminary analysis. I mean we will be refining that over the next couple of months as we really dig in to the test period and look at -- but preliminarily, we are looking at a $40 million annual increase in rate.

Thank you very much.

Yea, and that's primarily based upon new investment.

The transmission distribution investment, we've made over the last couple of years.

Okay. Thanks.

We will take our next question from Greg Gordon with Smith Barney. Please go ahead.

Thanks. Hey, guys.

Hey, Greg.

When I look at the page 11 of your handout, the growth aspirations stack, and I compare that to the presentation, Wayne, that you made about a month ago where you sort of, you know, laid out in the old format what the ranges of upsides were from the different pieces of the business, is there anything that has changed materially in either the utility, the nuclear, or competitive services? Relative to sort of the bid-ask spread of what you thought the growth opportunities would be? Or are you just trying to portray this in a different way?

Like Leo said, the quick answer, Greg, is nothing has really changed. Probably since we talked last. The big thing that actually has -- the event that has actually occurred of course was in Texas where they continue to indicate they want to move to our competition but they're putting criteria down to be discussed that looks like it could take longer than what we think. And there is going to an argument about what those words actually mean, I think.

We feel pretty strongly that the plan we had in place passed the test. The new plan will do even better than that. But that's going to take some time to argue that out with all parties. And Texas is fairly evenly split about whose interested and who is not about going to competition. So that's kind of a new piece of news. And one that hopefully we will get resolved here favorably.

But the point I think of what Leo laid out was to put it in a little bit more of a structure where to give all of you the opportunity to put probabilities or weight those in your own minds with regard to whether you think that is going to an '05 event or an '06 event or whatever, or never happen, there are certain things that like Leo laid out that we have a high degree of control out. We either execute or we don't.

And there are things that we are going to have to -- like in Texas, we are going to have make strong arguments against opposing parties who feel strongly the other direction. So I think he was -- Leo's main purpose was just simply to put them in that kind of format where you can isolate them and then put your own weighting on them.

When would you plan on filing a Texas rate case under the scenario where you just felt like competition wasn't going to happen? And when do you think you would get that rate hike?

Yeah, that would probably happen in July. We will be ready to go. The June hearings will get into the discussion, do you primarily -- primarily the issue is do you have to turn over operational control, which means get into an RTO, which as all of you know, that generally means getting into an RTO, but as all of you know that is problematic for us as a system but that's not to say that it couldn't be done. It certainly could be done. For Texas by itself.

It is interconnected with SPP, for example, and at least with 3.5 line 2, 138 line and you don't even have to be electrically interconnected,but it is. So if that was the decision in Texas, that was the criteria they laid out that would be something we would look at very strongly. So we have a lot of options in Texas. But the issue really is how long are we going to continue to just get dragged along this path that's been going nowhere at this point. So --

You file in July of '04 for a rate hike at some point in '05 if you just thought you just weren't -- didn't have a clear window towards getting the market open.

That's right. And the preferable treatment, obviously, would be to sit down with the parties, all come to some agreement that we want -- this commission wants to get to open access, we want to get there, most people want to get there. It is going to take longer than we thought.

Let's agree to some interim rate increase and then let's do this on a discipline thoughtful pass. That's what they want. But don't expect Entergy just sit here and be passive as we continue to debate some of these issues for about the fourth and the fifth time now.

And then the second question I was just on the cash balance. You know, the way you guys have portrayed earnings, at least prior to this presentation, was that there is something, like a 25 cent to $1.05 opportunity in 2005. Obviously, you can drive a truck through that.

But one of the things you never gave yourselves credit for in that stack was actually putting cash to work and now you're saying that on the margin, you are seeing perhaps more opportunity to make some real investments.

So should we be thinking about, in our minds, as we take that buying power, putting a return on capital on that, because, you know, you're targeting a 9-10% on a vested capital business-wide, you're not earning that on a blended business, I would assume that anything that you would target to acquire would be at a rate -- return on investment capital rate higher than what you're currently earning on average across the business. Is that a fair way to think about it?

That's right, Greg. That's the way we think of it and that's the way we tried to lay it out. Like Wayne said, I think you just mentioned, the range of drivers that we had given in '05 was pretty wide, so we did just try to put those in a more structured type of bucketing so that you could place, you know, these are the things that are internal to the business that are blocking and tackling, et cetera and then we do have those growth opportunities with the capital deployment on the end of that as well.

All right. Thank you, guys.

Thanks, Greg.

We will take our next question from Carrie Stevens with Morgan Stanley. Please go ahead.

Hi, good morning.

Good morning, Carrie.

I just wanted to -- I don't want to harsh on the guidance, but if I remember correctly, when you laid out the 25 cents to $1.05 for '05, you had already adjusted down your expectations for Texas, so there really isn't that much exposure to that one event in the outlook for '05. That's correct?

That's correct.

Okay. And also, I would think with the nuclear hedging being achieved and the success that the driving the costs down at the nuclear business, that you may be feeling a little bit more encouraged on that piece of the '05 drivers?

Yes.

Okay. When are you expecting to issue formal '05 guidance?

Probably third quarter.

Third quarter. Okay.

In the third quarter.

Okay. And then lastly, on the cash flow redeployment, I had thought from prior discussions that you guys had said that if you were unable to put capital to work by the end of the year, you would be looking at roughly a 40% net debt ratio which was kind of a trigger for a consideration of a buyback.

And from all I can tell, it still looks like are you on schedule to achieve that net debt ratio, though I noticed during this presentation you talked about the timing for a buyback now being 12-24 months. I'm curious if this is a change in thinking, you know, why are you being less aggressive in your view, and then maybe a follow-up on that.

Okay. Obviously, things like a buyback, just like the dividend was last year, you know, we set out certain targets based upon how we're thinking about the business, how the economy is performing, how you're all thinking about the business, and then when those things deviate from our point of view, then we try to act as rapidly as possible consistent with the way the market is reacting or consistent with the opportunities that we see.

You know, what has thrown -- I think, Carrie when we were probably at your conference, we talked about the value of that option, of keeping the cash, and the value of that option in many respects has gone up in the last few weeks, I would say. As more and more discussions have -- more and more evidence has came into the marketplace, that inflation could be heating up, durable goods, I think, came out last month with something like seven times the orders that people expected.

The fed has started to express some concern over that. And people are interpreting that as meaning, you know, possibly we might see some interest rate increases. As that happens, if that happens, or as expectations of that happens, regardless of whether it happens or not, that some of the relationships and the timing of things start to change. And the value of that option becomes more valuable.

As, you know, as you all well know, as interest rates goes up, it very well may make a lot of sense for us to increase the dividend in line with interest rates as they move up. But if we fall into one of those periods of time like we did, you know, as we have many times in my career, most recently in 2000, no matter what you do, the market tends to ignore this sector and moves some place else, so that might be a terrific opportunity, as it was in 2000 to institute a buyback program.

It might be the best investment we ever make in the event that something like that would happen where the whole industry gets crushed, then we obviously would move to our board of directors and with the appropriate recommendation which I'm sure they would take into account. But while we think about that possibility, then we also have to think about the longer term and the possibility that a whole lot of people might start dumping a whole lot of very attractive assets very quickly, and we also want to be in a position to take care of that.

There is something like $40 billion of debt that comes due with some of these distressed companies, over the next three year, I think. So you know, I don't want to portray it as a stake in the ground and we don't look at any of this stuff until the date comes up on the calendar.

We pay a lot of attention to what is going on in the marketplace. We continue to do our analysis. And in large part, the outcome is going to hinge upon how the market reacts to interest rate movements and to -- or to the expectation of that.

Okay. Just two quick follow-ups, what net debt ratio do you believe your cash balance becomes a value destroyer? Because I guess you mentioned that that would trigger some decision? I kind of thought that was 40%. But maybe you've updated that level?

And we -- and 40%, you know, again is kind of a -- it is a current thinking, relative to our current business risks. And as other opportunities come up, the thing about what they are, you know, it might need to be higher than that, you know, if for whatever reason, which we have said, you know, that we did -- uninterested in, you bring on a merchant nuclear plant, that is a whole lot of risk and you better have some more equity in your capital structure if that is a decision you want to make. In the right region, you know, with the right set of relationships, you know, we might consider that. We don't have one today to consider.

But that would change that obviously. You've got a lot of merchant plants out there. We've said we will only buy merchant plants in our own territory if they can be rate-based. But if we bought some merchant assets outside of the territory, for example, for trading purposes, you again, you might want to figure equity component because they could be under water for a couple of years before you actually start to see the real value in those assets.

But given our risk profile today, I think it is fair to say that 40%, you've got a real -- you've got some decisions to make. We owe you some answers.

Okay. Thank you.

We will take our next question from Paul Fremont with Jeffries. Please go ahead.

Thank you. Can you give us a Texas rate base approximate number? And if you file a case in July, does that preclude you from simultaneously pursuing a competitive option in Texas?

This is Rick Smith. The rate base level is about $1.5 billion. And no, we don't see that it could preclude us. I mean we could see we would be down essentially both paths, we would file the rate case like Wayne said earlier, because we see that it is going to take a little longer to get to retail open access.

And then as a sort of a quick housekeeping, two quick questions. It seemed as if you had a lower tax rate during the quarter. Can we get a better understanding of what drove that? And it also seemed as if the competitive businesses reflected higher nuclear refueling expenses during the quarter despite the fact that the utilization level was obviously much higher.

On the tax rate, you know, our effective tax rate, I think last year, first quarter, was right around the statutory rate, it is a little bit better this quarter, driven, you know, primarily tax strategies have a lot to do with timing issues and things, so I think what we would anticipate is this year, effective tax rate would end up just a little bit short of the statutory rate.

Refueling costs, [inaudible].

Yeah, those really reflect the cost from the refueling as of last year which are amortized forward. Because we didn't have any costs this year. We would expect to make a continuing progress as we're seeing in our refueling to improve on those but that reflects last year's costs.

Great. Thank you.

We will go next to Laura Blocko [ph] with Credit Suisse First Boston. Please -- please go ahead.

Hi, good morning.

Good morning.

I have a couple of questions. If you go to slide 11, in this 2-4% growth capital, this -- there are two pieces, well three pieces there, right? By the first two, one is like next generation transmission distribution system upgrade. Is that -- I mean do you have to put that into rate base? Or do you need to buy for a rate increase in several of the ones that you have? Or how does it work to give you the 2-4% growth of capital?

That is assuming -- those would be capital projects in the utility that would go into rate base, yes.

But will you have to fight for another rate increase? For that or is that going to take care of --

Some of those are already in the filings that we've made. And some of them would go into future filings.

Okay. So part of that, it is in the intrinsic growth in the rate increases that you're accounting there?

Potentially.

Okay.

For example, the steam generator,. A&O would be in a future rate increase, request.

Is that the the main item in that category?

That's probably the biggest item in there, yes.

Okay. And how much are you expecting to get from that? For the steam generator replacement?

What is the price tag on that?

That including [inaudible] head replacement is around $200 to $230 million.

So we're looking at approximately a $30 million rate increase in Arkansas for that, it would be effective '06 because that project would be done by the end of '05.

It will go into effect in the spring of '05.

Okay. And the second item is purchase generation under the pipeline. Does it include the [indescernable] acquisition?

Perryville would be in the first number. The intrinsic growth. That would be add-on opportunities that we might have in the -- to purchase what we power within the existing plants for meeting utility short position and supply plane.

Okay. And how about these -- your past affiliated contracts? Are those included in the 6% intrinsic growth or --

I --

I guess my question is, if FERC decides that you cannot go ahead with your past contract, where you affiliate, is that going to impact your intrinsic growth or is that including the other bucket of 2-4% growth capital.

That would be part of the intrinsic growth but if those contracts probably wouldn't have any impact, if for some reason, those contracts weren't approved, we would go out and get other contracts from different suppliers most likely and those would get rate relief on those.

Right. But would that kind of like jeopardize your negotiating strategy with the commission? Because that could imply like a higher cost for your retail consumers.

You know, it could, and probably the best example would be New Orleans where we already have in place a generation and performance plan. And if those get kicked out, which, you know, we won't know the answer to that until sometime in '05, so they will stay in place in '04, and most of '05.

South Carolina.

And -- Okay.

And what we will end up doing is substituting short term purchases that might be a little more expensive than the existing TPAs, but we're maxing out under that generation incentive plan, so it is a little bit on the margin as it relates to rate pairs and I would expect the regulators to hang in there because it is still creating a significant benefit. Curt, you have something?

Yeah, Laura, this is Curt Hebert. Let me just touch on a couple of things. One, you know, if the contracts are not approved, the retail jurisdictions do end up perhaps paying more for that replacement power, so I think it is going to be a stretch for them to do that. You know, the hearings are coming up June 22.

We certainly feel like once we add in our transmission analysis, that the staff will see that the affiliate bids are the lowest cost alternatives. And if for some reason FERC does go where I don't believe they will go, then they can be adjusted, modified for avoided but at this point we feel like we're in good shape on those.

Okay. All right and can I do a follow-up on Wayne's comment? In the call, you said that -- the dynamics of the business are changing in the U.S.

The dynamics are changing, yeah, yeah, we did mention that, that's correct.

What do you mean by that?

Kyle, you want to talk a little bit about how the markets flattened out a bit and what you're seeing taking place?

I don't want anybody to get alarmed about it. We had an interesting quarter in that as Wayne mentioned earlier, volatility was significantly less than what we would have thought it would have been. I think more than anything else, we've got a transition from the standpoint that a lot of the old players have left, new players have come in, everybody has a little different strategy, so it always takes a little while to adjust to different strategies, so that is really more I think what we would talk about. The other thing that was particularly difficult about the quarter is sometimes when you've got headlines driven by Iraq and all those things, that tends to kind of confound things, at least on a short-term basis. But we've had those before but it is transitional from that standpoint only.

So this dynamics are not structural changes, it is more like quarter --

Kind of a blip -- yeah, we see these things all the time, because sometimes, sometimes you see them a little clearer than others. This particular quarter, we just didn't have as good a quarter. Particularly in our gas area but the other sides of the business did okay. But that's really the transition we're really talking about.

All right. Okay. Thank you.

Thank you.

We will take our next question from Leslie Rich with Banc of America Capital Management. Please go ahead.

Hi, I just wanted to follow-up on the trading question. You mentioned that Europe was a particularly bright spot in terms of profitability in the quarter. And I just wondered if you could talk about, you know, why and then in what markets and are you expanding there or was one market particularly strong? Sort of what were the dynamics?

Hal, can you address that?

Sure. I probably can't get too specific, at least strategically, but let me just mention, Europe is an area that we had high hopes for when we started EK. Last year, we made some structural changes in the way we were organized. We also moved some people over that had some great background in the way our business ran over here so the first thing we've really done is try to put together a team over there that integrates knowledge between the books and all that, in a way that we do here in the states and we found successful.

So first thing that I think I would just say is that starting with really the latter part of last year, that group started really hitting its stride from an analytical standpoint and really integrating the gas, the power, the weather knowledge we had into making better decisions. So that's -- I think that is the core. Europe, you know, has a very active commercial market. Particularly in the power and the gas side.

So we were -- the money that we've made over there has been clearly in the gas side, on the -- probably the English side, and a lot of -- we've also done well on the power side on the continent. Overall, I think the other thing we've seen that has been a plus there is we've seen from a services or optimization business, we've seen both industrials, power companies, and merchant power, and producers be very interested in partnering with us, to help them, you know, really make more money with the options that they have from -- from either a supply standpoint or an asset standpoint.

So overall, what we're really seeing there is a market that is really, you know, maybe it is is a few years behind where the U.S. was but it is really kind of growing and we found that, you know, a lot of players that were there before vacated and you know we're one of the few U.S. players that are still there. And we seem to have a very good relationship with the locals.

And have done I think a good job of working with the other major players in the area. So overall, we see good things there. We're also seeing kind of the regulatory environment may be opening up to provide a little bit more open access to pipelines and things of that nature, similar to what we saw in the states years ago here. So overall, we are pretty optimistic about where we see thing going in Europe.

And are you at liberty to say what your returns on invested capital are?

We don't usually -- we don't usually release that information. But it is -- let's just say that we believe our returns there will certainly be consistent with what we have experienced in the United States.

Okay. So you're not having to beef up your head count and --

No, actually, what was interesting, we did a little bit and mainly it was not so much -- we added some capability, we've actually had our head counts probably -- maybe even slightly is less than what it was but we've really been able to direct it in a much more focused way. So, overall we've had some spare capacity, I think, that we've been taking advantage of. So it's not -- we haven't really added overhead. If anything, it is probably flat.

Okay. Thank you.

We will take our next question from Steve Fleischman with Merrill Lynch. Please go ahead.

Hi, guys.

Hey, Steve.

Couple questions. First, I would be interested in your view on the FERC the market power kind of screening test they laid out. If you look at that and look at acquiring Perryville, how would that fit in your view under the new guidelines for market power?

You know, the -- I like I said, we're going to file the -- there has been some question on Perryville, given the fact that we failed the first test, there has been some question whether FERC would have allowed Perryville to go through. We are in the process right now of doing the -- the market screen test, as we think they're intended to be done. They've appropriately addressed the native load as we have said.

They have provided, you know, the two tests, the pivotal supplier test and the market share test, and then they have provided the deliver price test on top of that. Now, in the process of all of that, I mean we have not completed the analysis, but I mean just intuitively and again, you got to remember we are basically still short, even with the capacity that we have picked up, our generation that we are displacing with the stuff that we are buying or that we are displacing in the energy market, which at times about half of our energy we're buying in the marketplace, we got about 100% reserves in this territory, it is all combined mostly all combined cycle 7,000-something heat rate stuff.

It seems just intuitively without completing the analysis that it is very unlikely that what we have is going to be at the margin, whether you're talking about the single peak for the year or you're talking about -- I guess they're using an average peak over that month. And then whether using either one of those tests that we won't pass the delivered price test when it comes down to it.

But I haven't seen the analysis at this point, I know we're working real hard to get through it to make sure we do it right and FERC has indicated that this test we put out there is kind of an interim test that we will see if it actually works once the analysis comes back. So you know, I have personally a high degree of confidence that Perryville is a deal that is going to happen.

It makes all the sense in the world for every party, it is located at the right spot, you have a willing buyer, seller, and you have a commission in Louisiana, that controls both sides of the transaction and wants it to happen. And it lowers rates for us, and does a lot for them in terms of financial health. But I think it is -- I think regardless of this test, that is one that should happen.

Okay. Second question on EK trading, you mentioned -- well, it was down 34 cents in the quarter. And just to clarify your comment, I think you said two-thirds was really the, you know, loss of benefits last year and about one third was essentially some of the point of view losses in this quarter. So that would be about 11 cents. Is that kind of -- is that what you meant?

Yes.

Okay. So maybe this quarter was 11 cents worse than it might have been in like your budgeting, or normal targeting for that business?

Well, we had, as you recall, there was a couple of things, in our perspective, on this. One, the loss of disproportionate sharing. And the other, as you recall, when we did our original '04 guidance, Steve, we were saying that we would have, you know, we weren't -- we weren't planning or anticipating the kind of blowout results that EK had last year. And I would say that if we look at our last year performance, Q1 was really where that blow-out occurred. So the combination of those factors then plus the fact that then they did just, you know, underperformed versus our plans is true.

Okay.

One thing on that, Steve, that I want to -- I do want to emphasize, is the point that Leo did mention, you know, we're kind of pointing to it wasn't the best quarter you know that we certainly had, and we're using volatility, reduced volatility as somewhat of a reason for that. But I want to make sure that ya'll don't miss the point that Leo made, that the capital that they put at risk when the volatility was down was consistent with that. Like Leo said, you know, neither one of the partners pressure Entergy-Koch at all to put more capital at risk to get the earnings up or whatever.

That we tell them to take -- to put the capital at risk when it is appropriate to do so. And when they don't have a strong point of view, it is not the volatility they're looking for, they don't do it. And as you see this quarter, they didn't have a blowout type of results, they didn't have what we would think of as normal type of results, that they kept the capital risk very low, also.

Okay. One last quick question on the nuclear contracts. The nuclear contracts are clearly at higher prices than your prior contracts. But I do think they're probably below where kind of maybe general spot market prices are for -- and given the higher gas prices for that kind of power. Is it because you have got this -- continue to get this unit contingent type contracts, that that would explain that? So you're reducing your risk?

Yes, Steve, it is a combination of factors. One is certainly that they're unit contingent so if you were to look at the spot market for LD prices you would anticipate that there would be a discount for that. Also, the -- there's -- we sell at the busbar, not at the hubs, so what are you seeing typically are the quoted prices at the traded hubs, and we have to be cognizant of basis differentials between the busbar and the traded hubs.

And then the other aspect of it is the fact we're doing longer-term prices, longer-term contracts, so all of those factors combined turn that into where these are probably adequate market prices. These are good market prices, actually, for these contracts.

Thank you.

Thanks, Steve.

We will take our next question from Brian Olson with Luminous Management. Please go ahead.

Good morning, guys. I just wanted to follow-up on the nuclear contracting a little bit. How much in the 6% intrinsic growth, what does that assume for the nuclear output going forward? Do you expect to be able to contract basically the rest of the '06 portion at a higher price? And you know, what kind of pricing is built into your intrinsic growth?

Yeah, it assumes that we continue to seek contracts coming out in the same fashion that we have. Obviously it is in the nearer term, when you look at '05 and '06, we've got a lot of that done through these current contracts.

I mean it looked like the first quarter this year was a pretty good time to be out contracting for that. Do you expect to sort of lock up the rest of '06 pretty soon? Or will you wait to make sure you got the best pricing you can?

This is Gary Taylor. No, we're actively out pursuing contracts to sell the remaining portion of that. And we have some discussions that are ongoing and we would hope to make some more progress as the year progresses.

Okay. And then second, I guess with regards to Entergy gulf states, assuming that the business separation goes on as planned, and you go into the sort of Texas market, first what impact would you expect from a dollar in MMBTU gas price change on the price to beat if you go there? And would you have any plan to go out of your own territory to cover any customer losses?

Rick, you have a -- that number at your fingertips?

No, I don't.

Give us just a minute.

We do have that number.

The second part of that.

I looked at it this morning.

I think the price to beat moves about $12 per one dollar move in gas.

Okay. And then with regards to the customer numbers, if you started to see losses in your own territory once it was in the sort of open market period, would you expect to expand your retail presence in Texas and would that involve buying any generation in Texas?

When we go to price to beat, we've already got a retail business in Texas. Obviously, in the ERCOT market and as we would go into retail open access in our Texas jurisdiction, we would plan on also using that as a basis to drive growth in the ERCOT market as well, and we would obviously as we grow that look at generation opportunities as a way to manage that -- those positions, and we're not going to go out and do major short positions in the ERCOT market. We would balance that with the generation as well.

Do you have your eye on any assets in the Texas area today?

It is too early for us to be talking about that right now, given where we are with the nonERCOT piece of the business.

Great. Thank you, guys.

Thanks.

We will go next to Zach Shriver with Dukane Capital. Please go ahead.

Hi guys, it is Zach Shriver at Dukane. Just a question for Wayne. You know, on this whole Texas strategy and getting, you know, the independents transmission structure approved, would you guys be willing to join the Southwest Power pool?

That seems to be a concept that's being floated out there that could kind of bridge the gap here between your independent RTO and some of the other sort of concepts out there to create a more sort of robust, you know, segregated structure between the other transmission and the generation and the retail supply.

And do you think that would be sufficient in terms of meeting the interveners and the staff and everyone else in Texas's viewpoints and do you think you could fit sort of logistically and technically that kind of a structure into all of the other transmission proposals and the various other federal, state, regulatory jurisdictions?

Yeah, the -- you know, as far as the -- if we were sitting here today and the question was, you know, if FERC was forcing us toward SPP as a solution, we would have a real problem. And because that would be changing -- that would involve a change in controls, and it would involve not just a change in control, but a whole lot of rules that are in place, and SPP, that we and our customers and our regulators would find objectionable. They don't protect the native low customers anywhere near the way the CTRANS proposal was intended to.

Or as 2003 A seems to intend to protect the native load customers with the higher pricing. Now SPP has been told, as you know, to kind of get their act in gear here, make some changes, get an independent board, it is likely that they will change some of their pricing policies or they may not. But as a system, it would be a problem for us. Without a doubt.

As it exists today or as it will likely exist going forward. For Texas, I think it is important that Texas completely understand if they wanted to go to SPP what they're getting into. You know, under CTRANS we have lock-down provisions and all kinds of things that would have prevented the RTO from changing the rules once you got in. None of those types of things exist in SPP today.

So you know, if Texas -- really came down the side of we really believe that SPP wanted to make some changes and FERC has ordered it to do, is the only answer that can get you to retail open access after having thoroughly argued that issue relative to our own proposal, which we think is attractive in a great many aspects relative to SPP or other alternative, that would certainly be something we would consider.

We would not set there and tell Texas that we know more about what is right for your state than you do, but we would most certainly point out the flaws that would exist under that kind of -- that kind of structure.

And what you're saying is --

And the costs.

And what you're saying is logistically and technically, moving the Entergy gulf south Texas transmission assets into SPP would not jeopardize technically or logistically or regulatorily, the other jurisdiction proposals for the other jurisdictions. You could do it as an island you're saying.

Yes, like I say electrically we're interconnected directly. You know, 345 line and 21838. To get into SPP, if you look at SPP, a great many of the members are not electrically interconnected with each other, by the way. The real issue is going to be, you know, the costs that it takes to maintain that kind of island and to make sure that the Texas commission understands that and that is appropriately picked up.

Is that something that they seem to be leaning towards potentially? I mean just reading tea leaves? Why is it something that you didn't propose at the outset?

I don't think it is something that necessarily that they are leaning toward. I mean as they're -- the issue is, I think by and large is we've had about three commissions in about four years.

That's true.

And so right now, the commission -- I mean if you read the, you know, read the orders, what they're basically saying is let's have a big hearing and then move everybody kind of back up to speed and see if the issues are the same, and what's changed and what the schedule is. The biggest issue that really seems to be, as far as if you're trying to read the tea leaves, it is do we have time to get this done on the schedule that the other commission had kind of set, which was the end of '04.

And that's what they're nervous about. And so that's -- that will probably be the focus of the June hearing, as much as anything else. How long is it going to take? You know, we need -- you know, we just filed our proposal April 1.

Like I said, we specifically, at the request of FERC, and at the request of our commissioners, and just good common sense, we filed it in all the states to give everybody a chance to look at it and everybody a chance to review it, everybody a chance to sit down and make sure they understand what it does and what it does not do.

And like I said, it was carefully put together, thoughtfully put together. It took the best of CTRANS with the other things we've seen around the country, and we're very optimistic that given the opportunity to sit down with the Texas regulators in an open forum, that we can convince them that that proposal really makes sense for everybody. Just like all of our other regulators.

Great. And actually, that -- thanks, Wayne and just a follow-up. During the conference call, you mentioned your expected dividends out of EKT for the year, you also mentioned your expected '04 operating cash flow which I missed, I only caught the cumulative one. Could you just give us that again?

We do expect the dividends from EK to continue throughout the year. We got $26 million just last week, so we would see that coming rapidly during the quarter based on the way the business is going. Or during the year on a quarterly basis. And as far as for the year, we see OCF in the range of $2 billion.

Great, guys. Thanks so much. Good luck.

Thanks, Zach.

We will take our next question from Andy Levy with Bear Wagner. Please go ahead.

Most of them were answered but just a couple of small ones. When did you give guidance last year for 2004?

I think it was the third quarter.

We think it was on the second quarter --

When we did the second quarter call.

In the third quarter, the beginning of the third quarter.

Is that timing, when you said third quarter for '05, was that kind of the timing we are talking about for this year? Or is it going to take a little bit longer?

That's what we're thinking right now. You know, --

So you are really talking about after -- when you release the second quarter and the beginning of the --

That would be the goal. That would be the goal. You know, and if for whatever reason there is a lot of uncertainty or something at that point in time, we will point that out to you, why we're not coming forward at that point. I think it will be obvious.

Okay. And can you just state the dividend policy, as you look at it in October as far as payout ratio, things like that?

Well, last year when we raised the dividend substantially, the -- we had quite a discussion with the board on the issue of the dividend policy, relative to all these other issues we talked about, and kind of we came down on the side of, as far as the stated policy that we wanted to grow the dividend in the top quartile of the industry. And that was about all we said, I believe. I mean I think that is all we said.

Now we had discussion about a whole lot of things about what that meant that we didn't really talk about publicly, but again, the reason we kind of stuck with something as vague, I guess, and simple as we're going to grow in the top quartile of the industry, it is for all the reasons we talked about earlier.

You know, depending upon where interest rates goes and different types of things that could mean a relatively robust dividend policy movement or it could actually mean a relatively low one with compared with the very strong share buyback program or something. So rather than try to state payout ratio or something of that nature during this kind of period of transition, we've kind of stuck with -- if you're looking for dividend growth, we're committed to that -- we are -- let me say that again before I get myself in trouble.

We are aspiring to be in the top quartile of all the companies that -- in the industry in terms of dividend growth.

Okay. Thank you very much.

We will take our next question from Vick Casom [ph] with Deutsche Asset Management. Please go ahead.

Thank you. Thank you Raymond and Leo. Question regarding your slight 13 when you talk about ROIC for this quarter, but I recall your goal has been getting to 10%. So what's the time period by which you could achieve that 10% goal?

Vic, we have set that out as a long-term aspiration. That is going to take us a few years to get to. And to get to the 10% area, we know we are going to have to deploy capital to get there. You know, we see significant progress, obviously, over the last few years in improving returns, we continue to see those -- that progress continue as we go forward, and -- but 10% is a -- certainly would put us at the top of the list in this industry. So we know we're going to -- it is going to take a few years to get there.

Uh-huh. But at the same time, you talked about that there are beginning to be more opportunities surfacing for you, so is that consistent with that kind of a return? Or is it more like a stretched goal?

No, it is consistent with that type of return. Our discipline around how we price and what we look at from a capital deployment perspective is all consistent with heading towards that goal.

And could you remind us the type of assets you might be most interested in?

Yeah, we continue to be focused on pipelines and storage in and around EK. And the nuclear -- the nuclear acquisitions and opportunities and that area are tops on our list. And as Wayne mentioned earlier, as we look at the fossil generation that we see increasingly becoming available, looking at that to match up with our generation supply plan to match the short position we have in our utility business is another area where we're really focused.

But it sounds like are you willing to do much also, is that right?

In specific circumstances if we can get the right transaction, yes. But obviously, you know, we look at each asset class, and the risks associated with it, and when we look at merchant, we obviously have to have a really good point of view around it, a really good perspective on the returns that we can earn there.

And could you comment about this Texas genco, if that is available, would you look at that possibility?

Well, I don't want to comment on any assets specifically. I know we talked a little bit earlier about our retail position in Texas. A growing retail presence there is something that would make that something we may want to look at. But obviously we're not really far down the road with our ERCOT retail business at the moment. That is a lot of megawatts. So --

Thank you.

Uh-huh.

We will take our next question from Paul Patterson with Glenrock Associates. Please go ahead.

Hi, can you hear me?

Yeah, Paul.

Just a brief -- I think this was asked earlier, I am a little confused on the growth cap ex. The growth cap ex that you guys have committed right now is $1.2 billion, and is that in the 2-4% growth capital number that you have on slide 11? Is that what you expect that to create again?

No, it is not. It would be -- well, it would be in the -- not in the outline to the right bar. It is part of the growth capital in the 2-4% in the -- that gets you to the 8-10.

Right. That's what I meant. Okay. So that would be -- okay, and that would leave I guess the $3.4 billion of net cash available, right?

Yes.

And you mentioned sort of asset acquisition zero to -- I'm sorry 2-6% and it looks like it says $1 billion. Is that correct? So when you guys identify that asset acquisition of 2-6%, why are you only looking at a billion, I guess, if you follow me?

The way we're framing that out is per $1 billion invested.

Okay. I see what you're saying. Okay. Okay. That explains it.

Then I guess the other question I just simply have, Wayne, you know, all investment considerations, let's put it this way, I mean assuming that all -- that you had a variety of opportunities that all had an equal return, quote-unquote, on a project specific basis, is there any particular asset class that you feel strategically would be something that you would be particularly interested in, or is there nothing like that, really? Do you follow me?

Yeah, that's a good question. The asset class I think we always had the most interest in is nuclear. Because when when we look at it terms of like an asset specific return, what we always find is when we go into the plan, and we start to build a business around the plan, and the more we have, the more opportunities we have to get out -- out of this unit contingent contract situation that we're in today, and I think it is very frustrating for Gary Taylor for Don Hintz, as the people have pointed out, there are higher prices in the marketplace, this comes with -- that comes with higher risk.

The more that we can structure fleets, the more opportunities we have to break these plants down in their various components, and sell different -- some firm, some merchant, some unit contingents, maybe pick up some fossil plans to help along with the buyback. But the nuclear plants by and large are so clean, they are so reliable, as we look out into the future, we can't see -- I shouldn't say we can't see, but it is hard to imagine a scenario with the value of these plants just not going to get more and more, go higher and higher, as the price of fossil fuels start to go up and environmental regulations become more strict.

So -- and we're finding more and more opportunities to reduce costs and prove reliability like you saw 99% in the northeast, with those five units. I mean who would have thought 10 years ago you would ever see all five of those units run at 99% for a whole quarter? And so I think that is a class that we really like for a whole lot of reasons. And when we walk away from one of those opportunities, there is a real reason behind why we do. That's ahead of the list.

Okay. Great. Thanks a lot.

Thanks, Paul.

We will take our next question from Michael Worms[ph] with Harris Nesbitt. Please go ahead.

Thank you very much. Question for Wayne. You know, we've heard in the past about distressed assets coming to the market, lots of them, and that scenario really hasn't materialized to any significant degree. What are you seeing, you know, what is happening that is changing that dynamics? Because you seem to have given the impression that there is much more of that going to happen now than perhaps had happened a year or two ago.

Now Michael, are you talking about nuclear or just all assets?

Well, you mentioned just assets.

Right. Okay. Like I said on the distressed assets side, there is probably more coming to market than you all might know. A lot of discussions are taking place with people who happen to own these.

Whether it is the utility, people calling the utility, and we have a formal bidding process that takes place a couple times a year, but nonetheless, our phone is ringing off the hook with people that can't wait for the next auction process to come up. Which is some indicator of the level of stress that they're feeling right now.

At the same time, you know, all the bankers, and all the owners of these assets know who has the money, also. And we're one of the few companies that has the financial wherewithal to do a transaction. We're also one of the few companies that has the trading organization, and the physical capability to manage the acquisition. Some of the assets that have tended to change hands are those that are hedged out. The plants that are struggling are the ones that have to be used as trading assets.

And that fits right into what EK does really, really well. So we become a natural buyer certainly for assets in our own territory as the utility, and outside the territory, then because of EK's expertise, because of our fleet of nuclear assets we have in the northeast, there could be thoughtful compliments to that that would work out well for us, so we're getting a lot of activity.

And again, those not all being done through auctions, and declared processes, but does that -- there is absolutely no question that the activity has picked up considerably over the last six months or so just in terms of people that are calling us. A year ago, we were calling people, basically trying to get them to understand that they might want to think about doing something and we were not getting a very warm reception. And now, the dynamics have reversed.

Great. One follow-up question. On the merchant assets, you indicated, I think, that -- some mention that you might operate these as a loss for a couple of years. Would you be willing to acquire an asset on a dilutive basis for a couple of years?

Yeah, in terms of would that be our preference, of course not. Would we be willing to? Under the right set of metrics, yes. Now, how dilutive would it be before we would say no to it? I mean that is an open question. How long? Not real long. I will tell you.

If it was a deal like we've seen in many cases where it is earnings negative, it is cash negative, and all the value is in the terminal, and the terminal value five years down the road, the answer is no. Those don't pass through the screen. Regardless of how big that terminal value might look like. Are you betting on something that is -- that not very many of us can predict.

On the other hand, you know, if it is a relatively small portfolio, fits into something that we do well, we can trade around, we like the market, we clearly can see the upside within the planning horizon that we look at and you all look at, we wouldn't say no to the deal just because it is not earning accretive. Like I said before, companies get themselves in a whole lot of trouble sometimes when earnings accretion is the only item they look at it.

Is one of the things we look at. But at the end of the day, we really look at what -- at what kind of value is creating within a window that we can fairly accurately predict and control.

Thank you very much.

We will take our last question from Neil Stein with John Leven. Please go ahead.

My question relates to some of the earlier questions on the '05 drivers. In looking at your slide, it looks like you changed the way you're presenting those drivers. And I just wanted to clarify again, is there anything to read into it? Or just generally why did you change the way you're presenting it?

Well, the reason we did that, Neil, was basically because we had floated out such a wide range without any -- any real grounding in how you go about getting it, or how we look at it in terms of how it places us at our 8-10% aspiration. It is really just a -- I think a clearer way to put it in the context of the things around which we have more versus less control, in terms of whether it is a unilateral decision, or whether counter parties are involved or regulators are involved, and the kind of things that are current day businesses versus looking out into the future of other things we might do.

And apart from Texas, there is no other change from the last presentation you did in mid--March?

Not really, no.

Thanks very much.

Thank you, Neil.

This will conclude the question-and-answer session. I will now turn the call back over to Ms. Morovich for closing comments.

Thank you. And thanks to everyone for participating this morning. Before we close, we would like to just take a moment to remind you to refer to our release and to our website for the applicable Safe Harbor and Regulation G compliance statements. Our call was recorded this morning. And can be accessed for the next seven days by dialing 719-457-0820. Replay code 250802. This concludes our call. Thank you, everyone.

Again, ladies and gentlemen, that does conclude the Entergy Corporation first quarter 2004 earnings conference call. We thank you for your participation and you may disconnect at this time.