安特吉 (ETR) 2004 Q2 法說會逐字稿

Welcome to today's Entergy Corporation second-quarter 2004 earnings conference call. Today's conference is being recorded. Now, at this time, I would like to turn the conference over to Nancy Morovich. Please go ahead.

Good morning, and thanks to everyone for joining us this morning. We'll begin with comments from our CEO, Wayne Leonard, and then Leo Denault, our CFO, will review results for the second quarter. After the Q&A session, I will close with the applicable legal statements. Wayne?

Good morning. Our business has completed another successful quarter, resulting in today's earnings announcement of $1.14 per share. I am not going to summarize recent events and accomplishments this morning, as I usually do. Each of our businesses continued to pursue the objectives we articulated in earlier calls, and each made noteworthy progress that Gary, Rick or can describe to you in the Q&A session. Leo and I will instead focus our comments on three topics that we believe are of great interest to you. I will cover first our recent strategic alternatives review at Entergy-Koch, and second, our thoughts on capital redeployment in light of the $1.5 billion share repurchase program we are announcing today. Then Leo will discuss our 2005 earnings guidance and further elaborate on our growth aspirations.

Starting with Entergy-Koch, following our early June announcement, I know you are anxious to hear about the status of our review of strategic options for that business. We have, in concert with our partner, Koch Industries, conducted a thorough review of our current options and how we think the sector will develop. While the business has been quite profitable and invaluable, and has (ph) insights into establishing our point of view, we do not believe we are the long-term natural owner of this business compared to, say, a large financial institution. Similarly, we view the Gulf South Pipeline as a strategically located and competitively advantaged pipeline which should command considerable interest in the current market environment, where a number of parties are striving to build franchise-quality systems.

When we formed the EK venture, we believed deregulation was in our immediate future, which would have resulted in a significant long generation position and substantially short customer position. Trading was going to stand in the middle, to bring these positions back together by managing the risks in an integrated way. In addition, our plans included a major generation buildout, adding to our long position and requiring daily trading expertise to manage.

But as you know, neither of these events came to pass. Today, all five of our jurisdictions remain vertically integrated, regulated businesses, and there are no indications retail open access is in our immediate future. Because our region is so overbuilt, with reserves approaching 100 percent, our markets are driven to drive price transparency and economic efficiency. With our utility in a short position, our procurement processes for short- and long-term energy capacity have proven to be extremely capable of meeting our needs. To in addition, on the unregulated side, our large nuclear fleet is baseload generation, is contracted months to years in advance and is not a daily tradable commodity. And a generation overbuild across most of the country resulted in the cancellation of our turbine order and a wind-down of our merchant generation plant.

As a result, we believe the sale of EKT to a buyer who has a large balance sheet, an appetite to warehouse more long-dated risk, more products, services, assets or customer relationships to wrap around EKT's energy commodity information and training expertise, would be value-creating for both the buyer and the seller. Like we have said many times, Entergy has a dynamic point-of-view-driven strategy. To execute on this point of view, we need a buyer who shares it and is willing to back it up with a fair price for the opportunity. We have no intentions of choking down a marginal deal for Trading or for the Pipeline just to get this off our to-do list. Both of these are good businesses that are creating shareholder value. But if our point of view is correct, selling them will create even more.

That said, we obviously do not have a transaction to announce today. Quite frankly, I thought we would. Interest has been extremely high, as it should be, but negotiating a transaction in a trading business where the assets are largely people, information, systems and relationships is considerably more complex than, say, selling a power plant, where the asset is iron and steel and isn't going anywhere.

And while I cannot point you to a specific date or timeframe, I can tell you that we are in advanced negotiations with a highly credible, very sophisticated party. We are optimistic an EKT transaction will be forthcoming, and further, we are working as quickly as is practical, as is the potential counterparty, given the nature and complexity of this business.

The summary is that our strategic review indicated our shareholder value would be maximized by a sale -- first Trading and then the Pipeline. As long as our point of view indicates that this is the best option, we will continue to pursue this strategy, all the while taking the necessary steps to protect the value of the business, whether it is sold or we remain the owners.

Turning now to the topic of capital deployment, because we believe the sale of Entergy-Koch is in our near-term future, we are pleased to announce a $1.5 billion share repurchase program to be executed between now and the end of 2006. This program is incremental to the authority we already have in place that allows us to repurchase shares to fund employee stock options. As you know, that program alone has resulted in nearly $300 million of share repurchases in 2004.

This new buyback reflects our Board's commitments to balance the option value of maintaining the balance sheet strength, to weather adversity or take advantage of opportunities which may arise, with a strong desire to return capital to owners in a timely manner. While our Board is highly focused on shareholder value, they strongly believe in the long run that shareholders do not win when credit quality and financial flexibility are routinely dismissed in favor of short-term gains. Our Board's decision to initiate a buyback program now was made giving consideration to current and projected asset acquisition opportunities, as well as the likelihood that Entergy-Koch will be sold, with such sale creating additional cash. If an Entergy-Koch transaction does not materialize, our repurchase program will be reduced to $1 billion, to be executed over the same time period, between now and the end of 2006.

We have stated many times in the past that we view all cash deployment options in a rigorous, consistent manner and that when it comes to our own stock, we view it as an investment alternative that is evaluated in exactly the same manner as we would evaluate a nuclear plant acquisition, for example. In this case, the repurchase of our stock is a sound decision, because we believe our stock is an excellent investment. The program has been properly sized to ensure our strong credit quality is not compromised. Execution risk is minimal, and the flexibility to expand or contract the program over time is always an option, should material unexpected events occur.

I want to assure you today that other cash deployment options, investments and dividend increases have not been taken off the list. The fact that it's still our expectation that a combination of all three options -- share repurchase, dividend increases and investments -- will result over the next few years, and while value-creating investments could materialize at any time, the dividend level is scheduled for review at the early November Board meeting.

And with that, I will turn the call over to Leo.

Thank you, Wayne, and good morning. I will review several areas this morning, including second-quarter results and cash performance, '04 and '05 earnings guidance and, finally, a review of the our financial aspirations.

Slide two shows the second-quarter '04 as-reported earnings were higher compared to results one year ago. This is due to the absence of the loss provision recorded last year, in connection with an unfavorable court decision on the Obay (ph) portion of the River Bend nuclear plant. Operational results in the second quarter of '04 were $1.14 per share. This amount was slightly lower than second quarter '03, when disproportionate income sharing for Entergy-Koch contributed about 10 cents to earnings. Excluding disproportionate sharing, second-quarter '04 earnings increased 6 percent.

Moving to slide three, net cash flow from operating activities for the second quarter was up 12 percent compared to the prior period. This increase was driven primarily by higher earnings at Entergy Nuclear, with some offset at the utility due to the timing of the recovery of fuel costs. On a year-to-date basis, net cash flow from operating activities increased more than $400 million to $900 million, and we continue to project more than $2 billion for the full year.

On slide four, utility, parent and other earnings show an 8 percent increase quarter over quarter. Improved industrial sales, particularly in the chemical and refining sectors, more normal weather and lower interest costs were the primary contributors to the increase. However, customer support and employee benefits costs increased in this business, which serve to partially offset the overall earnings improvement.

Slide five reflects Entergy Nuclear's earnings per share contribution. This quarter was considerably stronger than prior year, due to three factors -- first, the increased output resulting from fewer unplanned and planned 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 are expecting production costs to move up somewhat later in '04, as planned refueling outages in the fall will impact the denominator of this per-unit cost measure.

Energy Commodity Services performance is illustrated on slide six. Overall results were down significantly. However, nearly 60 percent of the 17 cent decrease came from the loss of disproportionate income sharing at Entergy-Koch. In reviewing results on a comparable 50/50 income sharing basis, earnings from the venture were down 7 cents in the second quarter of 2004, compared to one year ago. Gulf South Pipeline results were nearly flat after adjusting for the loss of disproportionate income sharing. Throughput was about equal to last year, with somewhat higher production expenses.

Results for Entergy-Koch Trading declined in the second quarter compared to '03. As you may recall, market conditions were extremely favorable in the first half of '03, which drove robust point-of-view Trading results. In contrast, current quarter results reflect lower volatility, and the fact that second quarter is generally considered a shoulder period in the Trading business. There were positive developments at EKT during the quarter, including the addition of a new international physical optimization customer. Also, EKT's European trading activities continue to develop, and we believe this business is well-positioned to match the US operations over time.

As shown on slide seven, EKT's gain/loss days and average DE@R improved noticeably. More importantly, the 8 percent improvement in earnings to DE@R reflects the increased productivity of the capital put to work by EKT during the quarter.

Slide eight details previously-issued '04 guidance of $4.10 to $4.30 in operational earnings per share, which we are affirming today. Over the second half of '04, utility results will be primarily driven by sales growth as we enter the peak summer season, and Entergy Nuclear drivers for the remainder of the year include the continuation of higher contract prices and the completion of our 2004 productivity initiatives. You will notice that we have not revised '04 guidance for Entergy-Koch at this point, even though we anticipate a sale announcement in the near future.

Upon an announcement, guidance for '04 will be revised, incorporating two primary changes. First, the earnings contribution from Entergy-Koch will be treated as a special item, removing it from operational earnings to reflect the fact that the sale is pending. And, second, the earnings contribution will be adjusted to reflect anticipated closing dates and any gain or loss from the sales of both Trading and Pipeline businesses.

Moving to slide nine, we are initiating '05 earnings guidance in the range of $4.60 to $4.85 a share, representing growth of 10 to 15 percent compared to the midpoint of our current '04 guidance. This range is based on two key assumptions -- first, the anticipated sale of Entergy-Koch is completed by the end of '04; and, second, the share repurchases are initiated under the $1.5 billion program Wayne described, to offset lost earnings.

Guidance for '05 includes growth from utility and nuclear, supplemented by accretions ranging from 27 cents to 37 cents per share. Key assumptions supporting this range include increased utility earnings from rate actions in Louisiana and Texas, and hired nuclear earnings generated by a combination of uprates, improve contract pricing and productivity improvements.

As is reflected on slide 10, we are initiating '05 guidance based on the configuration of businesses we anticipate next year. If negotiations do not result in a sale, we will revised 2005 guidance to reflect the addition of an operational earnings contribution from Entergy-Koch, and the removal of a portion of the accretion to reflect a repurchase program in the amount of $1 billion instead of up to $1.5 billion. If implemented, these changes are likely to be approximately offsetting, such that the overall '05 guidance range of $4.60 to $4.85 would remain intact.

We have noted in previous discussions with you that the size of the our cash position and the strength of our balance sheet provide us unique flexibility compared to many of our peers. Our decision to pursue a significant share repurchase program has not diminished that flexibility.

Slide 11 details our projected cash position through '06, which confirms that ample liquidity remains even after deploying up to $1.5 billion in share repurchase. Our new estimate of cash available for investment, debt repayments or dividend increases is $1.5 billion. This amount represents a decrease of $1.9 billion from the previous estimate, due to a combination of factors. First, cash is reduced by the difference between the share repurchases and the expected cash proceeds on the sale of Entergy-Koch, and second, additional debt capacity is reduced as the repurchase of shares temporarily increases leverage.

It is important to emphasize Entergy's commitment to retaining its credit quality is firmly in place, in spite of the share repurchase program. Our total debt-to-capital ratio, currently at just over 47 percent, will move up slightly by year end, but will work back down to its current level by the end of '06. Likewise, net debt to net capital will experience a similar pattern, returning to approximately 45 percent by the end of '06. And cash flow interest coverage, currently at nearly six times, will remain consistently above five times. Entergy has been diligent over the past six years in growing its business for the benefit of shareholders, while actively improving its balance sheet. Today's announcement should in no way reflect a departure from our commitment to balance these interests.

This is clearly reflected on slide 12, where we have summarized the financial aspirations that support our overall goal of delivering top-quartile total return to shareholders. While the categories are similar to what you have seen from us in the past, I would like to highlight two specific changes we have incorporated. First, we've clarified that are near-term 8 to 10 percent earnings growth aspiration is appropriate for both '05 and '06, given the repurchase program we've announced today. Previously, we had indicated that 8 to 10 percent was a near-term aspiration that could only be achieved through the deployment of capital into new investments. Second, we have revised our return on invested capital aspiration to 9 percent from the previously-stated goal of 10 percent. This new level reflects the anticipated EK sale, the share repurchase program, and our expected investment opportunity set over the next several years.

And now, our senior team is available to respond to your questions.

(OPERATOR INSTRUCTIONS). Ashar Khan, SAC Capital.

Good morning and congratulations. Wayne, can I just ask you if you could a little bit elaborate on the dividend policy going forward? Is it going to be in line with earnings, or is there a specific payout level that you have in mind with the share buyback plan in place now?

Okay. Now, what I am going to do -- I'm going to try to do this morning a better job that I did in the last call. We got some criticisms, I think, on the last call because I answered too many questions before the experts had a chance to jump in. So we're going to try to reverse that order today, and let the expert in these areas talk first and then, if there's any need to fill in, or I have something to add that's of substance, I'll try to do that. So I'm going to kick this to Leo, who is our Chief Financial Officer and has just been through this review with our Board.

Thanks, Wayne. Dividend policy going forward -- we continue to have the same goals around policy as we've had, and that is to be top-quartile growth in dividend, as has been experienced in the industry over the past 20 years. So our policy won't be changed in that regard. We believe that the program that we've announced provides us with the flexibility to continue to review that on a thoughtful basis and that, similar to the review we had for the share repurchase this year and the review we had for the dividend last year, we'll take up at our early November meeting, as Wayne said.

What do you classify as top-quartile dividend growth?

Usually about 5 to 6 percent.

And, Leo, can I just ask you, what is the average share count assumed in the '05 earnings guidance?

Around 215 million.

And is the transaction -- I know you don't have the bids, but I don't know if I've heard it rightly or not on the call, final bids. But what kind of proceeds are you expecting, or are they envisioned in the '05 numbers from the sale of the Gulf South and Trading? And is this an accretive transaction, in your mind?

Well, we've got a range of possible outcomes. Without getting too specific, we're assuming around $1 billion of proceeds from the sale and liquidation of the partnership. You've got to keep in mind, that includes not only the sale of Trading but the sale of the Pipeline. It also includes working capital, cash balances, et cetera, and any tax implications of the transaction. So I know that's somewhat of a broad range, but it's in the range of $1 billion. And we would envision that our guidance reflects, between the sale and the proceeds and then the share repurchase, that we effectively replace the earnings from Entergy-Koch.

Let me just add to what Leo just said about the question around accretion. I won't get into Leo's numbers on accretion or dilution, but I'll go back to the statement that I made in my remarks. We look at all these transactions -- I mean, certainly accretion and dilution is something that is looked at, but we look at all of them as investments. And the divestments, under the parameters that we believe are realistic for EK, has a very attractive NPV attached to it, and the investment in our our stock also has a very attractive NPV. Both pieces, the divestment and the investment, are positive shareholder value creation opportunities.

Paul Patterson, Glenrock Associates.

Just a little bit back on the dividend, I didn't hear; did you guys actually -- do you guys have a payout ratio that you're looking at?

No; we don't have a payout ratio that we target. We have effectively put a cap on our payout ratio. We don't believe that we should exceed 60 percent payout.

The second thing I wanted to ask you was the return on investment. You said you're now projecting, if I heard you correctly, from 10 percent to 9 percent. I was also wondering whether or not you were looking at a lower weighted-average cost of capital, considering that your business now with Entergy-Koch, if you end up divesting it, will be lower risk in terms of -- and what your thoughts are there.

That's a good point, Paul. Let me take that second point first, is that we would view that the volatility of earnings, volatility of cash flow, types of businesses that we would be in post the sale of EK would be a lower-risk business, and thus a lower cost-of-capital business than the one we have now. So that's a good point, and that's certainly what we've taken into consideration, as we look at the return levels that we are targeting going forward.

As for the ROIC target, I'll say that that's part of the reason. The other part of the reason is that, while we still would strive to improve those returns, and maybe even approach 10 percent, that's a pretty long-term goal, and probably outside the realm of the next five years that we would get there, and it would involve deployment of capital beyond what we're seeing right now.

So, just to circle back here, the return on invested capital and the weighted-average cost of capital -- what do you see the economic profit, or in terms of the delta between the two, do you see that changing substantially? Or to you see that -- do you feel that the WAC offsets the return on invested capital decrease that you're seeing?

Well, we would not see ourselves trying to limit that spread that we target between the weighted-average cost of capital and the returns that we shoot for. We still are targeting investing in positive spreads to our WAC, and that's something that hasn't changed. I think we really are not seeing the return -- quite honestly, Paul, the return opportunities for the business haven't really gone down much. It's just that the 10 percent ROIC target was probably out beyond the round of the next five years, in any event. So we've just brought that back to something that's within our sights.

Finally, the 41 to 47 cents from the utility business that's associated with rate cases and with sales growth -- could you give us a breakdown as to how much is coming from sales growth in that range, and how much is coming from the rate cases?

Yes, Paul. It's probably broke down about 50/50 between each.

Greg Gordon, Smith Barney.

I have another question on the dividend. I don't mean to beat a dead horse, but did you say that the 60 percent payout ratio was where you effectively capped your dividend? Is that the number?

Yes, Greg. That's where we've set our targets, in terms of what wouldn't want to exceed 60 percent payout. We've obviously looked at distributing capital to shareholders in a number of different ways over the course of the last five to six years, both through the dividend and through repurchases.

I appreciate that. I guess, just one more follow-up. Is there part and parcel of your review of the dividends -- obviously, with a 40 percent payout ratio, if you hit the high end of your earnings range next year, you'd be well underneath that 60 percent cap. Do you, from time to time, also consider what the appropriate level of payout ratio is, as well as what the dividend growth rate ought to be, or should we just sort of assume, if you guys do 6 or 7 percent dividend growth off of the current level, that you would be hitting the high end of what you think the best-in-class dividend growth rates are?

We take all that into consideration. And if you think back, that's one of the things we took into consideration last year, when we did the stepwise increase in the dividend; we increased it 29 percent this time last year. We take into consideration the payout ratio where we are, as well as a cap and our earnings growth and our growth potential in that, as well as investment opportunities and other avenues for the capital. But that's exactly right, Greg; we take all that into consideration.

I'm going to switch gears and ask one other question. Looking at table five of the press release, not the presentation, you give a breakout of the hedges and the nuclear fleet in the Northeast, and the average contract price and the breakdown of what is unit-contingent versus firm LD? And going out to '06, '07, '08, obviously the hedges start to decline pretty materially. And those prices -- the average contract price is $38 or so. That's $12 to $15 below the current flat forward power price for '06-'07, at least from what I've seen internally here at Citigroup.

Can you comment on what you're seeing in your ability to actually contract at those prices? Are those prices not indicative of sort of a deep market (ph)? And what kind of a discount to you need to take in order to sign a unit-contingent deal versus a firm LD deal?

Greg, the discounts per unit-contingent as well as locational vary by plant, and I don't really want to get into what they are in each. It ranges from not being a discount at all, from a locational perspective, to being a slight discount to the hugs, as well as unit-contingent discounts can range anywhere from 4 to 10 percent, depending on the plant and the location. We do see increasing opportunity to hedge those plants out at higher prices than what's in there currently. Our more recent transactions are getting higher prices, more -- I don't want to say totally in line with the round-the-clock, firm prices that you would see at the hubs, but obviously significantly better than where we are in those markets today. So I'd say that we've got upside in growing that business out there because of those prices.

Paul Ridzon, Key/McDonald.

Given the alternatives of special dividend, a buyback or increasing the dividend closer to your 60 percent cap, what was the thinking that went into the decision you ultimately arrived at?

We did look at all those options, and I guess, to go to the bottom line, the stock buyback clearly had the highest NPV attached to it, in all the different ways we looked at it. And we used a variety of relatively sophisticated ways of looking at it, for example, a big dividend step increase, which obviously had to include a lot of different scenarios with regard to how we would trade off yield versus our P/E and different types of things.

But we were very comfortable, at the end of the day, when we bounded those using some certainty equivalents around if you held one constant, how big would the other have to be in order to get higher shareholder return, that the stock buyback was clearly the best option. It's been the best option for some time, to be blunt about that. And what we were waiting on, frankly, was the EK analysis. We were looking at some investments, also, and what timeframes those might occur. And we were waiting, in part, to see how the market was going to react to interest rate movements and other things, because it's very important to us. As you know, we've had a tough year in the marketplace, and it was important to us to see some clarity around what price shareholders were going to firm up Entergy's stock price before we jumped into the marketplace with possibly a large buyback because it's an investment, obviously, to the Company and to the long-term holders. So we saw very strong evidence that shareholders were firming up the price. It was a very, very attractive NPV to buy our stock with considerable headroom around that, and all the credit-quality measures and other things aligned very well.

So it really wasn't a very close decision, I think, when it came down to it, although we certainly had a very rich discussion with the Board relative to those issues. And the Board has been aligned around this, really, for some time. It's just been a matter of at what point in time we pull the trigger, and getting very close on the EK transaction made it now the time.

Would you say that the decision to exit EK was driven more by the fact that it's probably more valuable to someone else, or maybe an internal desire to bring down the risk profile of the Company that certainly was impacting the valuation?

It was very strongly driven by the fact that it may be valued more -- that it should be more valuable to someone else. Every year, we go through the process of -- in all of our businesses, we ask them as part of the business plan to show us the business plan to double their earnings in five years. And like for the utility, that becomes a stretch at times for them to try to get there. So we ask everybody to present plans to do that. EK came in with plans to do that. We also ask our business unit to come in with plans to do it faster than that, outside of maybe the approved business objectives that we had given each of our business units. EK came in with a variety of scenarios that included some things outside of the things that we were strong at, like commercial -- that included commercial banking services, investment banking services, risk management services. And we obviously have a global market here for energy commodities now, with LNG and oil and other things really affecting US prices. So you'd be looking at a lot of other commodities, interest-rate hedges, oil, foreign exchange rate hedges, the opportunity to trade equities, which Entergy is precluded from doing under the Public Utility Holding Company Act.

So there's a lot of space here for somebody who can do all of these kind of things from the commercial to investment banking to the risk management activities, that we just weren't comfortable that we could build on our own or should be trying to build. And there were too many natural owners out there that should be willing or should have a business plan in place to capture those opportunities. So that triggered a very intense examination of the logical buyers and who had the same point of view that we did. And we found, like I said, tremendous interest and almost a backlog of people wanting to get through discussions with our management and get through the data room that we put together. So it became obvious to us that that was the appropriate course of action.

The market, I don't think, has ever been particularly comfortable, like you said, maybe with the risk profile, but we have. The reason, of course, that we shut down our own trading operations to form the venture with Koch was because we felt very strong that they had the highest possible capabilities around managing risk and around thinking about risk. And so we were very comfortable with kind of the narrow business objectives that we had given them. And we still feel very good about that, and so the desire was simply that there is more natural owners out there that can build this business much faster and much larger than we can.

Just real quickly, I heard the numbers 27 to 37 cents of accretion thrown out. I was wondering what that specifically relates to, and then how would you handicap a bidding war for EK?

I'll take the spread, in terms of the accretion. That's really due to different scenarios around a variety of things including share count, exactly how much we buy back through the share repurchases.

As far as handicapping the bidding war, obviously, we think there's a robust process out there for both sides of the business. So a bidding war is something that we look forward to.

The one thing I'll add on that is the pipeline. Certainly, it would come second, and there are many, many parties that that pipeline makes a lot of sense to. So in terms of a bidding war, that term may be more appropriate for what comes second, versus a smaller group of parties, of which trading might be a natural fit for.

Neil Stein, John A. Levin.

Just a couple of questions. First, how are you going to execute the buyback? Would it be open-market purchases or a Dutch auction, or how would you do it?

Neil, we'll do that through open-market purchases.

And then a second question. What's your ability to start selling outputs in the Northeast nuclear fleet on a firm basis?

I'm starry, Neil. Could you repeat that?

If you wanted to start selling your output from the Northeast nukes on a firm basis, as opposed to unit-contingent, what is your ability to do it? Do you think you have the risk appetite to do that? Or would you need to add other assets in that region prior to selling on a firm basis?

Well, Neil, obviously we could do it right now. And we've done it on a very, very limited basis based on our knowledge of transmission constraints, as well as the markets up there. We hesitate to do that at this point without having other generation in that region. Also, it's possible that through the acquisition of transmission rights in that region we could effect more of a firm portfolio. Right now, that's not a risk that we are willing to take on. That's something that, if we do, it will be a combination of through the ownership of transmission rights or other generation or different a customer mix, and our ability to do that a couple years from now, out in the '06, '07, '08 timeframe.

And then for 2005, if I'm doing the math right, it looks like 75 percent of your earnings are going to be coming from the regulated business, up from around 60 percent historically. What bearing does that have on your target capital structure? You've been talking about 50 percent for a long time, but that was under a riskier business profile.

Well, it really doesn't change much, Neil. Around the edges, that -- as you recall, Entergy-Koch is only a little bit less than 10 percent of our earnings profile right now. So, while we do believe that it does lower the cost of capital, and does improve or lessen the volatility of earnings and cash going forward, it's not significant enough for us to change that range of target capital structure that we've been in. It falls with inside (ph) that same range of trying to stay in 45 to 50 percent net debt ratio.

Going back to the dividend issue, what about getting closer to that 60 percent cap than you otherwise would have? And what about growing the dividend faster than earnings growth near term, given the changing risk profile of the business?

Well, Neil, I think that those are all things that we take into consideration. In terms of getting the dividend to grow faster than our earnings growth, obviously our long-term earnings growth is more in that 5 to 6 percent range, not the 8 to 10 percent that you see in the near term. And we'll revisit, as we always do all the time, the dividend policy in terms of how close or far away from that 60 percent payout cap that we are willing to go.

Vic Caton (ph), Deutsche Management.

I'm glad to hear that you consider Entergy investment as a very good decision; I agree with that. But why limit it to 1.5 billion share buyback, when you say on your slide that you still have leftover, 1.5 billion leftover in '06, which is not committed?

And the second part is that, if the EKT sale does not go through, you said you will reduce the share buyback by only 500 million, when the cash is coming and about $1 billion. So why not increase the share buyback?

On that second part, thick, when we reduce the share buyback from 1.5 to 1 billion, we'll also make a slower payout. We'll push that out more ratably over the period, and when we get the proceeds from EK, under that scenario we would accelerate those repurchases so they would be a little bit more a third, a third, a third, '04, '05, '06 timeframe. So you would see under the -- if we don't sell UK, it would be more ratable on a monthly basis, out through now and '06.

So, while we are only reducing it by 500 million, it would come a little bit slower than under the sale case (ph).

As far as sizing it, I think we've sized it up so that it maintains the flexibility that we would like to have for future investments that we see coming down the pike, as well as keeping into consideration a replacement of any dilution that we have from the sale of EK, and keeping all of our credit and our balance sheet strength in line. So we think we sized it up about the right size.

Yes, but the biggest question for Wayne is that you have been looking for acquisition for a while. You have not found something which meets your discipline, so the cash is still building up despite the buyback. So it's a good situation to be in, but the shareholders don't get to earn it (ph) in a faster way then.

Yes; Vic, if I've understand, again, your point -- I guess you're going back to why only 1.5. And 1.5 -- we are very sensitive to the credit (indiscernible) and to growing into this and not getting ahead of ourselves on and EK sale, with our enthusiasm that that's very close. Like I said, this is a continuous process. As we move through the program, depending upon how investors react to the changes in interest rates -- we are just barely into this phase now with the Fed started to bump the rates. We are well aware -- as we move into the fourth, fifth, sixth bump -- the effect that tends to have on equity values. And we never want to be in a position where we don't have the ability to buy back our own stock, as it comes under pressure with interest rates or other types of things. We've seen a number of utilities fall into the trap of having to sell stock at difficult times, and we don't want to be there. But we will, like Leo said -- 1.5 is a big number. You take that with our stock option buyback, you're getting into something with a 2 in front of it, and that's about as fast as we can go right now, without moving to something like a Dutch auction or something of that nature. As you see that number start to dwindle down, if you see investment opportunities not materialize, and as we compare it to the dividend option relative to how interest rates are moving, you would expect us to do the right thing, whatever that is at the time. We are not shutting that off; we're not trying to say this is the number and then in five years we'll look at this again. Our Board looks at all these options at every single meeting, and I assure you we'll look at all this stuff again in November when we look at the dividend.

So I don't want you to be alarmed that we sized it and we're done with that, and we're moving onto something else. It's like Leo said; it's a continuous process, and I hope that you will be able to trust us to always make good decisions when the time comes.

Jim Halstutch (ph), Alliance Capital.

Just looking at some of the proceeds numbers you mentioned, I assume that's after the dissolution of the partnership, and reduction or termination of debt at that level?

I'm sorry, Dave; I couldn't -- you broke up.

When you talked about the proceeds from the sale of the JV, I guess that's net of the debt reduction from the partnership?

Yes.

Michael Lapides, Hibernia.

Just changing tack a little bit, can you talk somewhat about progress in Gulf States Louisiana and the settlement talks, and just kind of give us an update on where you all are on that and when you expect resolution?

We have a settlement offer out there. The commission staff is reviewing that, and one element of that was the nuclear uprates. And we had a hearing this last month on kind of the ALJ recommendation, and the commission agreed to put it back to the ALJ to take into consideration some -- we brought in a third-party technical expert on nuclear uprates. So that will be rolled into the findings of the ALJ, and what we're looking at is probably at the end of September, when the commission gets back together, the possibility of that all being wrapped up.

What are you all viewing as both a best-case and worst-case scenario from the settlement?

From the settlement perspective, what we're looking at is probably a minor effect on earnings this year. We are pretty much fully provided, based on what the settlement reflects. And then there would be a possibility of a little uptick in '05. Worst case is we don't reach it and we have to go all the way out to a commission order, second quarter of next year.

Win-Win Chen (ph), ABN Amro.

I just had a couple questions here. First of all, in your $1 billion guidance for proceeds from the sale, is that $1 billion that would go to Entergy, or would you expect $500 million after the sharing with Koch?

No; that is what we would anticipate comes to Entergy.

My second question is regarding the future unbundling of Gulf States Texas. Do you think that's sort of dead for the next couple of years?

Yes, based on the commission order, we believe that's pretty much dead for the next couple of years.

Didn't you file, I think, a proposal suggesting that maybe you could put the RTO into SPP?

No.

Okay; I'm sorry, then. I'm mistaken on that. My last question is regarding future acquisitions, how many kind of interest in maybe buying one of the smaller distressed utilities? And I'm thinking specifically of Teco Energy.

That's not high on our to-do list, to say the least. We worked really hard the last six years to get ourselves out of the distressed category. The buybacks that we have, as we've said, has been sized to keep us out of the distressed category. Without getting into names, I'm not convinced that all the distressed utilities are properly priced as distressed. So the upside on something like that, you would consider there's a lot of heavy lifting involved if the opportunity was very real. And on all those types of things, we have to look at the market power issues at FERC, and other impediments there might be to getting done as far as execution. And those are just very high; execution would be very high today. So it's not something that we spend a great deal of time on, although we have people that that is what they do every day.

One follow-up, Win-Win, if I just could. Rick and I were kind of trying to figure out where your question might be coming from on SPP. I think that's a good question, that your memory is really pretty good on that. That was the Texas Commission, when they basically said this is dead, don't spend any more time and effort on it. But if, in the process of sitting around doing nothing, you decide SPP might make some sense, if you want to come back with that proposal, we might think about it. But outside of that, don't come back with the same old same old we've been seeing for the last few years, because we just don't think it make sense.

So they kind of gave us the signal that it's not totally dead, but you'd better have a really good business plan. And SPP was the one that they mentioned; and, as you know, SPP is really not a fully functional RTO at this point in time, and we don't see that coming for some period. So that's not likely that that would be something that we would take back to the Commission; that wasn't the intent of their comments.

Angelo Taro (ph), Oppenheimer Funds.

I'm sorry; my question has been answered.

Phyllis Gray, Dwight Asset Management.

Could you tell me what is driving the decrease in usage per customer that you referenced in the release? I think you had referred to a growing number of customers but a lower usage per customer of around 2 percent after weather normalization.

We think we're seeing some price response to higher gas prices, as it works through customer bills, and you see that translated to -- Leo had up there that change in the cash flow, the higher deferred fuel amounts. But we've had that over time, and those effects, most times, are just temporary. And that's what we expect here. So we see that that will work itself out this year, as we get our fuel costs trued up and a little softening in gas prices next year will help a lot.

Also, one aspect of that, as well, is that what we are seeing is a little bit of the change in unbilled at the end of the quarter. So while you're looking at usage on a billed basis, it's probably not as drastic a decline when you take into consideration that unbilled revenues at the end of June, when -- so it kind of varies by quarter to quarter, but even though the encouraging thing is to see the customer count increasingly on kind of a normal basis.

So you're not seeing some kind of technology adoption on the part of residential customers that would result in a permanent decrease in usage?

(multiple speakers). No, not at all.

And then I had another question about table 12 on page 11 of the release, that refers to potential uses for the cash, one of them being debt retirement. But I thought from the way this was laid out that 1.3 billion of the sources of the cash was additional debt capacity, and so I thought that might be a bit circular, and was wondering what the thinking was there.

I think that it's in keeping with our target capitalization structure. You could look at it as either letting the capital structure continue to improve beyond that, say, targeted range of 45 to 50 percent. And so it's a combination of -- you are right; it does seem a little bit circular. But we could either let it improve to where we delever over time, or we could maintain that target in that 45 to 50 percent range. And to do that, we would be having to continue to add debt to the picture. So it's somewhat circular, I admit, but it has the same effect if we let the cash structure continue to get stronger.

(OPERATOR INSTRUCTIONS). Vladimir Jelisavcic, Longacre Management.

Just one question. You mentioned that some of the strength you were seeing in your core regions was from oil and cash and petrochemical customers. I noticed that in the Exxon release, when they announced second quarter, that they announced that they are going to be committing about $1 billion to building cogeneration capacity. Presumably, a large portion of that is within Entergy. I was just wondering if you could comment on the effect of that spending on your market?

We have been aware of that project for probably about two years, and now they are moving forward with it, and it's reflected in our sales forecasts for '05 and thereafter.

Is it one particular project, or is it several?

Yes. No, it's one particular project over in the Beaumont area.

And when is that expected to go online?

I don't recall exactly; it sometime next year.

And just regarding the Perryville transaction that you either closed on recently or are about to close on, are there any plants in your service area that you think Entergy might want to acquire the rate base? Is that something we can expect over the next year, or is that no longer in use?

No; that's still part of our plan to close up our short position.

Any particular markets that you are especially short?

No; it's spread pretty much across the jurisdictions.

Vikas Dwivedi, Prudential.

I have two quick questions. One is concerning the sale with EKT. Will that change your approach to the pricing of supply risk management around the nuclear portfolio, in terms of LD versus unit-contingent, and how kind of layer into hedges or deals?

No; that won't change our strategy at all. If we go forward with the sale of EKT, we will continue to have services provided to us from whoever the buyer might be, under similar types of arrangements that we have today. Today we have contractual arrangements with EK where we get those types of perspectives and that kind of help. Also, as Wayne mentioned, there's a difference between the way the nuclear plants operate and run and the way normal traded commodities that EKT provides or is active in, in terms of daily tradable versus these are typically longer-term contracts, more originated transactions and things of that nature. But no; it won't change our perspective at all. We will continue to get information from Entergy-Koch, as well as our own internal analysis.

And then the second question is on page 10 on the '05 earnings guidance. You have a 41 to 47 cent increment at the utility from rate actions and sales growth. Do you have a sense for the split between those two items?

Yes. That split's about 50/50.

Jessica Rutledge, Lazard.

I was hoping to get, really, two points of clarification. One, if we look again at your guidance for '05, if you could help us understand the revenue increases forecast at the utility -- really, how that breaks down, what you are really looking for from these rate cases, what reflects organic growth, what reflects cost recovery of increased O&M, just so we can better understand what you are really building into this guidance here.

Well, what we have got built into '05 in those revenue increases, as I said, is about 50/50 between sales growth and rate increases, and the rate actions that we have are the ones that are ongoing with Entergy Louisiana and Texas. And if you were to look at what we've got, there's a range of outcomes associated with those cases included in our guidance. Full-year impact of the Entergy Louisiana case would be about 20 cents, per what we've asked. And if you look at the Texas case, the full-year impact of the Texas case would be about 10 to 14 cents, is what we anticipate, what we would be asking for when we get that filed. We would anticipate the Texas case comes in probably about midyear, and Louisiana around the end of the first quarter.

Than the balance of that -- like I said, it's about 50/50 between rate cases and revenue growth. So you can work it in that way.

And the 10 to 14 cents full-year projected from Texas -- does that include the 100 million of cost recovery?

Yes, yes. But that would be neutral to earnings. And that would -- the 10 to 14 would really be the $40 to $50 million increase that we'd be looking for.

And then just a little nitpicky question for you. If I'm looking at your CapEx forecast, it looks like you're shifting a little bit of your utility spending from this year to next year. And I was wondering if you could just tell us sort of what and why.

That's Perryville, from the end of this year to the beginning of next year.

This does conclude today's question-and-answer session. At this time, I'd like to turn the conference back to Wayne Leonard for any additional or closing remarks.

Actually, that would be Nancy. Thanks, operator, and thanks to everyone for participating this morning. Before we close, I'd just like to remind you to please return to our release as well as to our website for the Safe Harbor and Regulation G compliance statements. I'd also note that our call was recorded this morning, and can be accessed for the next seven days by dialing 719-457-0820, and the replay code is 507321. The call is also available on our website. This concludes our call. Thank you.