安特吉 (ETR) 2004 Q3 法說會逐字稿

Good day, everyone. Welcome to the Entergy Corporation third 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 Miss Michelle Lopiccolo. Please go ahead, ma'am.

Good morning. Thank you for joining us. We'll begin this morning with comments from our CEO, Wayne Leonard, and then Leo Denault, our CFO will review results. After the Q&A session, l will close with the applicable legal statement. Wayne?

Good morning. I know many of you are preparing for the EEI financial conference, and I'm also aware that there are a number of other companies in our sector reporting earnings today and holding conference calls. With these activities in mind, I will be brief, offerings comments on the Board's dividend decisions and reviewing key events of the quarter. As always, we will be available at EEI to discuss our business in more detail and I hope you will stop by to meet our new head of Investor Relations, Michelle Lopiccolo. I can tell you that her background in planning and accounting makes her a perfect fit in the role, and I can assure you she will continue to pursue the standard of excellence we have strived to achieve in our disclosures in recent years. At the same time, Nancy is not going too far away. She has been given broader responsibilities which include Investor Relations that will continue to report to her.

I'll begin with a quick review of key events of the quarter. As you know, the Board voted to increase the dividend by 20%, $1.80 to $2.16 per share on an annualized basis. This increase, which is effective with December 1st, 2004 payment, follows a 29% increase announced in July of 2003. We believe this increase combined with the $1.5 billion stock buy back that was previously announced this year clearly demonstrates our Board's commitment to maximize shareholder value, to discipline the timely actions that provide for future investment opportunities without having to access the equity markets while also protecting our credit quality and continuing to return substantial cash to owners. In this case, the Board acts on the dividend prior to the regularly scheduled November meeting. The timing of this decision reflected the resolution of a number of outstanding issues during 2004.

When we started the year, there were a number of uncertainties that could have had a substantial impact on either our cash position or our risk profile, including the direction of Texas retail open access, the outcome of Entergy-Koch and the level of investment opportunities that would clear our risk adjusted capital costs standards. At the same time, it was unclear as to whether we would be precluded by regulatory constraints of purchasing power plants to meet the utilities obligations served. As the year proceeded, the outcome of these of these issues became more apparent, when the Texas Commission in June denied retail access, the sale of EK in September and most recently with the loss of a significant investment opportunity that we had been working on for sometime when the counterparty, at least for the time being, decided not to continue negotiation. Before you ask, this is not a merger-type transaction.

The resolution of these uncertainties allowed our Board to narrow the potential scenarios that influenced the thinking of the the level of the dividend increase that would be appropriate at this time. After management provided the various financial forecast stress test and the financial analysis that goes with all of that, our Board determined that making the dividend decision now, rather than in two weeks, would better aligned with our investor meetings and hopefully send a clear signal on how the Board is thinking about the dividend, rather than putting management in the position of speculating about something that we are really not in a position to do. Further, the Board felt it had all the information they believed necessary to make the decision and waiting two weeks would not alter it in any way.

One final note on the dividend, in spite of this, the second consecutive step increase, our aspiration for the long-term is unchanged. That aspiration, as you know, is to grow the dividend at a rate consistent with top core tile dividend growth in our industry subject to a 60% payout ratio cap.

Turning to other events this quarter, in early September we announced an agreement had been reached with Merrill Lynch with the sale of Entergy-Koch. As we described to you in August, our decision to put EK up for sale resulted from a point of view-based analysis. That was later confirmed by the successful sale. At EK, this was more to a large financial buyer than it was to the smaller physical players such as Entergy and Koch. We are proceeding towards close in the very near future, have already obtained various European and Canadian regulatory approval, and have been granted early termination of the waiting period under the Hart-Scott-Rodino Act. All that remains at this point right now is FERC approval and there was one intervener at FERC, that was Merrill Lynch, and they were for approval, and one approval from a regulator in Europe. Which we anticipate obtaining within a matter of weeks in accordance with their set period for review.

I should also point out that our efforts to sell the Gulf South pipeline are also proceeding as planned. Interest in the pipeline has been high, as we expected. While we are in a position to discuss details, such as how many bidders there are, when the bids are due, we can say that we do anticipate in adhering to the time line we shared you in the past. That time line calls for announcing a sale before year-end with the closing likely in the first half of 2005. Perhaps most important to you, with the announcement of the sale of EKT, we have been able to commence share repurchases under the $1.5 billion stock repurchase program that the Board approved in late July. As you may recall, the buyback was authorized with the $1.5 billion level contingent upon signing an agreement to sell EKT. Without such an agreement, the program was still authorized at $1 billion.

Turning to utility events, we obtained concurrence from the Federal Energy Regulatory Commission in early October, that our proposed purchase of the 718 megawatt Prairieville plant [inaudible - background noise] does not require their approval. The Prairieville asset acquisition was the first of it's kind resulting from our utility supply plant procurement process and returns of and on the capital costs of the plant were incorporated into the rate request at the LTSC. We will negotiate with other parties and anticipate other asset purchases that will narrow the utility short position and reduce its overall cost structure at the same time.

One final event from the quarter worth noting, unfortunately fits in the category of a disappointment. That is understating it. On September 30th, just over a month after receiving our filings, the Public Utility Commission of Texas dismissed our rate case on the basis that it believes Entergy Gulf State Texas remains under a rate freeze dating back to a 2001 agreement which sets September 15th, 2002 as a target date for retail open access to commence. We had filed a request for a $68 million rate increase in August following the PUCT's July order, which effectively ordered us to halt efforts to move to retail open access until such time as a fully functioning RTO or other comparable entity meeting the requirements of Texas law is in place. That July order, in our view, further substantiated the end of the rate freeze period as defined by the 2001 agreement.

In addition, repeated references in this agreement and the PUCT order adopting the agreement tied deadlines for completing the various tasks to the 2002 timeframe. In our minds, there is no doubt that the rate freeze was over. The two passed the retail open access set forth in the 2001 agreement which the Commission references, have come to an end. First of all, the RTO contemplated by 2001 agreement was not SPP. Rather, it was the RTO to be established in connection with then ongoing RTO initiative. And as you recall, FERC ordered us to pursue joining in RTO in the southeast region. In July of 2001, after they deemed STP to not be large enough. When that RTO, which turned out to be C trends, failed to materialize in the timeframe contemplated by the agreement, we were to pursue an interim solution, which we did. But in July 2004, the Commission ordered us to cease efforts to develop an interim solution, in part because they were concerned about mounting expenses to remain in a state of readiness. Now, the Commission is suggesting that we should never have stopped.

Further, in the open meeting on September 30th, the Commission turned its attention to the possibilities of pursuing a legislative out or joining STP. But neither of these ideas were part of the original agreement, and neither justifies keeping the rate freeze in place. Further, STP is not a fully functioning RTO with day two market mechanics that consider congested management and dispatch. I know of no plan or time horizon for STP to even get to day two market, but in any event, to quote a Texas Commissioner in the proceeding to cease work on interim solution, "It ain't happening any time soon."

I should add that we just received the PUCT's written order in this matter yesterday afternoon and we are in the process of analyzing it quickly and carefully and comparing it to the September 30th transcript to obtain additional information. When our review is complete we will file a request for rehearings within the 20 days required by law of what we believe was a deeply flawed decision. And we always have the option of also filing a petition to end the freeze. We have already prepared legal, factual and policy statements to address the points raised by the PUCT to support either approach and we are hopeful that our explanation will make clear the facts and circumstances in this multi-step process and convince the Commission to get our case of a long, overdue rate increase back on track.

Before I close, let me summarize by noting that our actions to increase the dividend by 20%, following a 29% increase, announced just over a year ago to repurchase $1.5 billion of our own stock and to make sound utility investments, such as Prairieville, are all highly consistent with the expectation we laid out to you over a year ago that available cash would most likely go to a combination of investment, share repurchases and dividend increases in a manner that would deliver top quartile total shareholder returns consist with our financial aspirations, which include keeping the overall risk profile of the Company on sound footing. We believe a mix of these three components has proved to be in the best interest of our long-term owners in the past, and we continue to believe that combining the right mix of these three components in the future will allow us to continue to achieve that aspiration.

Now, I will turn the call over to Leo.

Thank you, Wayne. Good morning. I will cover four topics this morning, beginning with the recap of third quarter earnings and cash results, followed by a review of earnings guidance, the progress report on our share repurchase program, and finally, a quick recap of our financial aspirations. Slide two shows the third quarter '04 as reported earnings were materially lower than results one year ago, as we anticipated in the guidance release we issued in late September. This is due primarily to a significant decrease in interest in Entergy-Koch LP, which one year contributed 18 cents to Entergy's earnings, including the impact of disproportionate sharing income. In addition, lower results at the utility due primarily to extremely mild third quarter weather and modestly higher operation and maintenance expenses served to further reduce the Company's as-reported results.

Operational results in the third quarter '04 were $1.39 per share, reflecting 11% decrease compared to third quarter '03. If the prior period was adjusted to exclude the contribution from Entergy-Koch, operational earnings would be flat quarter-to-quarter.

While the pending transaction at Entergy-Koch has resulted in the exclusion of the venture results from our operational earnings, I want to spend a few moments explaining the current quarter's loss in that business. As shown on slide three, on a mark to market, or economic basis, the venture experienced essentially a breakeven quarter. The Gulf South pipeline doubled its contribution to earnings this quarter compared to last year, this in spite of losing the benefit of disproportionate income sharing. However, at Entergy-Koch trading, the application of various accounting rules resulted in a reported loss. The reasons for this are twofold.

The first reason is related to the pending sale of EKT. Because of the transactions anticipated fourth quarter close, EK's auditors deemed the Company unable to represent that forward sales entered into to offset physical positions were probable, as required by the accounting literature.

The second reason is associated with normal hedge accounting. In this case, certain hedges EKT entered into to offset physical gas storage positions did not meet the appropriate accounting definitions to allow their mark to market value to be recorded on the balance sheet. The change was in mark to market therefore flowed to the income statement.

These two items comprised substantially all of the loss at EK for the period, but are expected to turn around when the sale of EKT is closed. This turnaround effect will be considered in our determination of the overall gain or loss on the sales of the trading and pipeline businesses as well as the wind-up of the joint venture.

Moving to slide four, net cash flow from operating activities for third quarter was up more than 20%, compared to the prior period. This increase was driven primarily by increased recoveries of deferred fuel at the utility and higher contract prices at Entergy nuclear. Cash flow continues to be quite strong, with year-to-date net cash flow from operating activities up more than $500 million to $1.7 billion versus the same period of '03.

On slide five, utility permit and other earnings show a 4% decline quarter-over-quarter. In third quarter 2004, we saw improvements in weather adjusted residential, commercial and governmental sales, as well as solid demand in the industrial sector. In addition, a recently completed decommissioning study on a River Bend nuclear plant to reflect the impact of life extension, supported an adjustment in our decommissioning liability and a positive income effect this quarter. The new study will result in [inaudible-background noise] going forward. The positive items impacting utility, parent and other this quarter were, however, more than offset by the mildest weather experienced in over a decade combined with higher [inaudible - background noise] competencies.

Slide six reflects Entergy's nuclear's earnings per share contributions. This quarter, once again, reflected improved results over the prior year. Higher contract pricing contributed to the increase, as did the revision of decommissioning liabilities following recent studies to reflect life expansion. Offsetting these positive effects were unplanned outage and higher operation and interest expense. I should note that, as we described last quarter, both our utility and nuclear businesses are experiencing higher benefits costs, primarily as a result of higher pension and medical expenses. These increases have served to partially offset the impact of productivity improvements in '04.

In '05, we expect benefits expenses to flatten out based on our latest actuarial assumptions.

Slide seven details our current '04 guidance of 3.70-3.80 in operational earnings per share, which we affirming today. In the final quarter of '04, the utility expects an improvement in residential sales, assuming normal weather, and continued strength in the industrial sector. In addition, timing differences, which serve to increase O and E in the third quarter will turn around and will spend less on competitive retail than we did in the fourth quarter of last quarter when we were aggressively prepared for retail open access. While Entergy nuclear will be working through two planned refueling outages, positive drivers for fourth quarter include the continuation of higher contract prices, and the completion of '04 productivity initiatives.

With respect to '05, we continue to project operational earnings in the range of 4.60-4.85 per share. As shown on slide eight, the key assumptions in our '05 guidance are essentially unchanged. As Wayne noted earlier, the Board's decision to implement another step wise increase in the dividend, reflects our continuing commitment to return value to our owners. Slide nine reflects the impact of the current dividend increase and further demonstrates that we expect to distribute essentially 100% of operational earnings to our owners over the next three years through a combination of dividends and share repurchases.

Moving to slide ten, I'll quickly review the progress we've achieved since initiating the $1.5 billion stock repurchase program in August. We repurchased 2.4 million shares in the third quarter, bringing our year-to-date total to 7.4 million shares acquired at an average total cost of $56 per share. This total also includes repurchases made under authority associated with the employee stock option program. We plan to continue to make opportunistic open market purchases consistent with our guidance assumption to reduce average shares outstanding to approximately 215 million by the end of '05.

Lastly, I want to take just a few moments to reiterate that our ability to return value to our owners through stock repurchase programs and dividend increases comes from our continued focus on a well-balanced set of financial aspirations. As shown on slide eleven, we remain committed to improving earnings and returns as well as credit quality. And as evidenced by our recent actions, we are deeply committed to getting the value we create into the hands of our shareholders. We now turn to our Q&A session and our senior team is available to respond to your questions.

Thank you. The question and answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We'll take our first question from Greg Gordon at Smith Barney.

Thanks. Three very quick questions. First on dividend policy, thanks for the rebasing of the payout ratio. I think that's what people were hoping for. If you continued to meet your near-term growth aspiration, however, that will be more than double what a quote, unquote, top quartile dividend growth rate would be, and you would actually see, you know, assuming you hit your targets, a reduction in your payout ratio in '05-- in '06 over '05. So is it fair to say that if you meet your aspirations that you would recommend to the Board that they consider a similar type dividend increase?

Greg, certainly your math is correct. We wouldn't do the numbers any differently than you have done. That, that is certainly a high class problem to have. It's the problem that we've had over the last five years, as you know. In '98 when we cut the dividend and we said about 5% a year increase to growth in the dividend, we did that. We had five, five, five, 29 and then we bumped it to up 20 and we still haven't got to 50 at this point in time. So it wasn't because we failed to deliver on the dividend number. It was simply the fact that earnings were growing much more rapidly than we expected or I think that the market expected. I hope that that continues to be the problem.

And that we continue to grow earnings fast, and so fast that the dividend has a hard time staying up with it. If that happens, when that is our expectation in '05 and 06 certainly, then I expect what the Board will do is look a it in exactly the same way they did this year in terms of what is the total cash that's being returned to the shareholders, and in this particular case, over the three-year period of time or so, it's around 100% of operational earnings. If you consider the buyback, if you take EK out of the buyback, then it's like 75%, that's a fairly substantial number. If you look at the total shareholder return, I think a year ago at EEI we were given the award for the top shareholder return over the '98-'03 period. That continues to be our aspiration in every rolling five-year period of time.

The Board will continue to look at how we hit that total shareholder return number and just doing dividends is not going to get you there. You're going have to continue to grow earning, as you suggested, and combine it with dividend increases in the buyback and that's how the Board thought about this increase and I'm sure that's how they will think about it next year, assuming that we hit our earnings target and they will make the best decision possible on an expanding basis on how we hit that top total shareholder return. And that's about the best I can say right now, Greg. It could be a dividend, it could be more buyback. It could be an investment opportunity.

But that's what we told you a year ago, and it turned out to be all three and so we'll just see how the year plays out. There's a number of uncertainties that we do have to think about, and hopefully they will go our way. You know, the Texas rate case, the Louisiana rate case, our system agreement case at FERC, our independent transition with FERC, gas prices are moving our direction, in terms of nuclear. So if all of those things continue to move in our direction, then like I said, we'll have a high class problem to deal with over the next year.

Great. On the utility business, you did mention explicitly, you've had a resurgence in industrial sales. You're up I think just under 5% year-over-year. What is the assumption that's built into your utility earnings expectations for 2005? Is it sort of a reduction back to more normal type industrial growth, or do you expect to continue to see that resurgence?

We've got it in our view, still in the more normal growth patterns of 1.5 - 2%.

Okay. You did give us a sensitivity in your handout that every 1% that that's exceeded with will be worth 4 cents?

Yes, right.

And then finally, on the nuclear business, your realized price in the third quarter '04 was $43.38, which is substantially higher than the hedged price, which is 39. I assume that's because you were selling the non-hedged power into the spot market, is that--

It's a combination of factors, Greg. It's one of seasonal pricing. Some of the contracts that we have, have higher prices, different seasons, so it balances out over the year and it's also some of the unsold capacity that we were selling to the market.

Great.

Those factors go to balance out towards higher in the summer months.

Then I'm looking at my price curves here. Looks like round the clock pricing in New York and New England right now is between $55-60 a megawatt hour. Even if you took the type of discounts you guys normally take for unit contingent, that would mean you would be selling power the remaining unhedged portion of your capacity at significantly higher prices. Are you holding that power back to sell it, you know, more near term markets or are you still actively trying to hedge those?

We're still actively trying to hedge out those positions. As we've mentioned earlier, Greg, we do look at different ways to handle the hedging plan going forward based on our view of the markets and transmission congestion and obviously where gas prices are going, but we continue to work toward hedging those out longer term. We've made some progress. If you look at our sold-forward table we have made, you know, entered into some new contracts and those new contracts are at higher prices than are embedded, as you said.

The gas market continues to move with us, so you can think of when we entered into the contracts that are embedded in the majority of that, of the sold-forward table gas prices were $1 or more lower than they are today.

Right. One more quick question. That hedge percentage includes the Vermont Yankee contract, which is 13% of your capacity, but that contract also has some adjustment mechanisms in it, correct?

Correct. That's correct.

So that pricing should also go up over time?

No, no, those adjustment mechanisms do not go up. They can go down.

Okay. Thank you.

Thanks, Greg.

Next we'll move to David Pickens with Capital Management [ph].

Good morning. Wayne, can we-- not to beat a dead horse on the dividend issue, but can we step back for a second and maybe get your thoughts on what, over the longer term, is an appropriate payout ratio for this Company, given, given really kind of the declining risk profile now that you're getting out of the EK business?

David this, is Wayne. I mean that's a tough question. It's certainly a good question, appropriate question. When we set the 60% cap, we did that in '98 and as we discussed it at the Board meeting, which we've had, we had an extensive Board meeting, a couple Board meeting on the subject recently, there's no question that our risk profile has declined in our minds. We have consciously done that. We try to conserve risk capacity at every possible turn in a way that creates value for shareholders. We try to be very stingy with regards to our risk capacity, but not stingy with all of you in terms of getting the cash back to you.

In terms of the things that have changed, of course we've gotten out of the merchant development business. We've gotten out of trading, the trading business, even though it was [inaudible - background noise], it certainly had some risk attached to it. Our regulatory operation risk has been reduced. So we do have a lower risk profile than when we set that 60% cap. We've been doing a lot of work around this issue that you suggest on what is the optimal cap structure for this utility, and along with that, what is the optimal payout ratio. Obviously there is a number of factors, including the investment opportunities that go with that. 60%, I would tell you I think is a conservative payout number for this Company.

Nonetheless, that is the number that we have at this moment, given the investment opportunities that we have, given the outstanding issues that we think we will positively resolve, and if, if those things get resolved and if we head down the road into the future and the investment opportunities do not materialize, I don't think this Company would be constrained by the current 60% cap. That's my personal opinion, and Leo and his people have all ran the numbers. You know, when we looked at the dividend, for example, we stress tested it in a number of different ways, more like kind of arbitrage pricing model where you're combining various economic factors and things outside of your control and things that are within your control and it really takes multiple draconian events at the same time to put this Company in any kind of financial distress where the current dividend would be in danger. So I'm not in a position obviously to speak for the Board relative to that cap today. The Board certainly, I think, understands that in order to maintain total shareholder return under the right set of circumstances that reviewing that cap might, may well be the prudent thing to do. But that's about all I can say without regard-- we're very open minded. The numbers are very-- we have a lot of head room on those numbers and as time passes, just like it did this year, then we'll be able to give you probably more guidance around what we think that number might be relative to the 60% cap that we have today.

Okay. Can you talk maybe a little bit about just what you think the appropriate timeframe for looking for alternative uses for the cash or just returning it to the shareholders? I mean what, what the timeframe for kind of making a decision on whether it's a go or a no-go on acquisitions?

Yeah, I mean it's real time. I mean, you know, we give you dates. We say, well, you know, we'll say looking at something on a certain date. But we look at these things in real time. We don't have like a schedule where we sit down and say we'll look at the dividend 11 months for now and make a decision. Next fourth quarter of next year. Or we'll look to the buyback because it's on our schedule for next Fall, or whenever it is.

We continue to look at all these things in real time relative to the investment opportunities and how it fits the optimum cap structure, how the market is responding, how the rating agencies are looking at our liquidity positions and things of that nature. Right now, what the Board has said is they will relook at the dividend again in terms of an increase a year from now. If whatever reason something unexpected occurs between now and then, you get a tax law change that dramatically changes the dividend versus a buyback proposal, then most certainly the Board would relook at the mix of all, of everything we're doing relative, to try to hit that top total shareholder return. But this is not one of these issues, I don't think that we ever stop looking at. But, you know, it's on the schedule right now for over the next year, we'll continue to look at it and make the appropriate decision.

All right. Thank you.

Our next question comes from Scott Eastrom at Hamilton Investment Management.

Good morning. Couple of quick questions. One, I did a word search in the earnings release for the word hurricane and it didn't show up anywhere. Does that mean it had zero impact or not enough to make a mention or any comments on that line?

It did have an impact, it probably had an impact in the range of about a penny on earnings.

Okay. Great. Thanks. The second question, is on the non-nuclear wholesale, though the six months you are showing a loss of five cents. In the third quarter you showed flat earnings, but showed for the nine months a loss of three cents. It's kind of a small issue, but is there something that went to discontinued or am I missing something?

No, it's just what's going on in the non-nuclear wholesale is that business, we've got about, a little over half of those plants are sold forward through contracts and the rest of it we sell either into the QF market at the, to the utility or we sell them into market on a spot basis and performance has been better than what we would anticipate in that business. It's not something that we plan on going forward in '05, but it has a lot to do particularly with one of the facilities in that suite with not only the QF pricing in the region, but also the steam demand of the host and those just, you know, have kind of bounced around a little bit within that business.

Okay. Maybe I didn't make clear what I was looking for. In the first six months you reported a loss of 5 cents and then in the third quarter you said earnings were flat, zero. And in the year-to-date for the nine months it shows up as a loss of 3 cents. So did something change between the second quarter release and the third quarter release?

Yeah, there was a special item in there. I'm sorry, there was the reversal of the reserve that we had associated with warranties that we had on a plant in the UK that we sold. We sold that a couple years ago, but we just had come to agreement with the resolution of all the warranties around that. That's what that impact is. I'm sorry.

Oh, okay. Great. Thanks.

Next we'll move to Jonathan Arnold at Merrill Lynch.

Hi, good morning. I had a couple of quick questions on the nuclear side. You mentioned items related to decommissioning liabilities, both on the utility and in the non-utility nuclear. Are those ongoing items or were they kind of one-time effects on the cost?

They have a bigger one time effect on the quarter, but they do have an ongoing impact. The total of the two is roughly north, a little north of 10 cents and a little less than half of that will be ongoing going forward.

On a quarterly basis or--

On an annual basis.

Okay. And then one other question related to nuclear, you have some upgrades built into the outlook for 2005. Can you refresh how much of that relates to the Yankee and maybe update us on the whole process of having that approved?

This is Gary Taylor. There's really two that are scheduled for this year. The one at VY which I'll cover in a few minutes, which is about 50 megawatts and then the one at IT 2, which starts with our outage in a few days for about 16 megawatts; 44 megawatts, excuse me. The one in VY, I think as you read that the NRC sent us a letter saying that there is a generic issue, not just with VY, but with dryers and uprates at several nuclear plants and that one of the things that they told is that they are going require more information from us for them to be able to come to a conclusion on that. Right now in our plan for '05, we did not anticipate having that in to March 1st of that year, so that's factored in. We would see that there is a possibility that that could be delayed because of that information. We don't perceive that it would stop enough an uprate from ultimately being approved, but could delay it to later on in the year.

So in terms of earnings benefit in the guidance, can we be specific about that?

I think we've looked at it and in general we're talking about, since it doesn't go in till after, till March 1st, we're talking in the 3-4 cents kind of range.

Thank you.

And as a reminder to the audience, if you do have a question, please press star-one. We'll go next at Vikas Dwivedi.

Yeah, good morning. On Entergy nuclear, how much production cost reduction potential is still left in the northeast fleet? On a, perhaps like a $1 per megawatt hour basis?

I think we continue to look at that. I mean one of the things that's important that we look at is that we need to continue to invest in the plants and assure that they run reliably. We do believe there's still more upside. I think the key is that's built into our '05-'06 guidance where there is still productivity improvements that we are building in for next year and the year after that, and I would say, you know, just give you an idea, that's probably around a dollar megawatt hour.

Okay. Great. And then turning to Texas and the regulator there, what, what is your sense of what they would be looking for to kind of rehear or reopen the rate case? I mean where is the bar set for, you know, what would get them to, you know, restart that process?

I'll ask Rick Smith. Rick's is the Group President of all of our utility operations. I know Rick's been very close to this situation. I'll ask him to comment on that.

Okay. What we're going to do is we're going to file for a rehearing on their order and essentially make arguments why the rate freeze is no longer in effect, and that goes back to a lot of the comments that Wayne made, that the original settlement agreement was never envisioned, us going to SBP or in their June order also, they decided not to pursue any more interim proposals. So what we'll be looking at and refiling is asking them to obey the case so that we can, file testimony to really in their declaratory order request that really the settlement is over and we have the right to file a rate increase. They have focused on in, their order, on October 20th about us, we should consider joining SBP.

I think one of the things that we're going have to point out to them, we spent a lot of time on our independent coordinator of transmission, and we're way down the path with both FERC and our other retail regulators on that proposal, and that SPP is really not an option to us. Our other retail regulators have been very vocal, that they do not want us to go to SPP, RTO because that would be a transfer of control, and the only jurisdiction where we don't have to have approval is Texas. So we need to clarify with them because really none of the Texas Commission has been to any of these technical conferences with FERC and I just have a sense that they don't quite understand that SPP is really not an an option for us. So we'll be making all of those arguments. We have to make the rehearing filing. We'll make it before November 9th and we're hopeful that they will consider all of the arguments we make in that case to reconsider their order of yesterday.

Okay. Can that process proceed in a parallel path with the legislative solution?

Yes, yes, yes. Although, you know, in fact, I would think we would get-- either they would agree to abate the rate case dismissal or continue under a hearing, which is where they were out of their September 17th hearing open meeting, they were going have a hearing on whether or not the rate freeze were in effect, and they have never had that. So we're going to request that they go back to what they talked about on the 17th and we think we can get that completed by the end of the year and then the legislature starts the first of January. So we'll be pursuing that option once January starts.

Okay. Thank you very much.

Let me just-- let me follow up on what Rick said because, you know, I guess I want to make at least a couple points pretty clear. The-- it is-- it was certainly not our take from the, I think it was September 17th meeting and September 30th open meeting, or even from the order that there is any harshness coming from the Texas Commission relative to Entergy's position. The order on itself seems harsh, giving what we've been through and how hard we've tried to meet the objectives of getting to retail open access and to get an outcome like this seems, is very confusing. Like I said, it seems to be harsh, but there is no language, no words or anything else along the lines that that was their intent to treat Entergy harshly. It seems to be fairly clear in the discussions and the order that they were actually trying to be helpful in many respects.

In the-- there are issues of both substance I think in their minds and issues of procedure, and I don't know which one takes precedence. That's relatively unclear, but the issue of substance, Rick just pointed. SPP, in terms of substance, as we will point out, does not measure up to our own independent transmission proposal in terms of the things that you need, not just to be independent, but to create efficiency and effectiveness of the independent entity. They don't have a position or an acceptable position on postage stamp versus license plate rates, through an out rates, they don't have a position on the higher of marginal costs or embedded cost pricing like we need. They don't have native loan protections, lock downs on that issue. So there is a lot of issues with SPP that I think when it's pointed out they won't like, like our other regulators don't like. Procedural, they have tried to be very helpful actually. I think their very concerned about doing something that might ultimately get overturned by the court or the legislature might find objectionable, and they had a lot of discussion around can they on their own just say that it's over with, you can't get there since the legislature clearly intended everybody to get there, and so they try to encourage to us go to the legislature and get them to do that, but they have also specifically gave a lot of guidance on how we could go to them, that would give them the information that they think they need to order the rate freeze to be over with so they can move forward. And Rick outlined those things.

You know, but they were very specific in that regard, tried to be very helpful, I think and what we will do, as Rick said, in our order in, our request for rehearing, we will try to meet all of the objectives, we will meet all the objectives they laid out in terms of what you would do if you're asking for an order that the rate freeze had ended, we will explain all of those things in the same time we're asking the case to go forward. But I don't want to leave the impression that I think that Texas, that this was in any way directed harshly toward Entergy. I think there is some confusing aspects of it and I think we can get it cleared up.

Okay. Thank you.

Next we'll go to Steven Rantos with Talent Capital [ph].

Hi, everyone. Actually I have two questions. The first, I noticed that you noted that normal weather would added about 10 cents or so to your third quarter EPS and given that the total watt hours billed were up almost 2%, generation up 6 1/2% year-over-year, where did that 10 cent impact flow through the P&L? How do you get there?

Well, it shows up in the fact that we just had reduced revenues because billed sales were lower.

But is that through price, through prices, or through volumes?

Through volumes.

Through volumes?

Through volumes, yes.

So you were looking for higher than 2% and 6.5% respectively?

Yes.

Okay. On the other side, I noticed that you had mentioned--

If I could just go back to that. I mean if you're looking at the weather adjusted data, that backs out the impact that occurred of that 10 cents. So really what we're saying is that while sales didn't-- if we had normal weather, residential sales would have been up that 2% for example. That's, that's-- if you look at that table, what we do is we present what the actual change was in sales, but then we put the weather adjusted sales level and so that's the weather adjustment to billed sales for the quarter. So when you're looking at that, that's excluding the impact of the weather, excluding what created that 10-cent drop.

Okay. On the other side, you noted that you want to get to 215 million shares by year-end of '05?

Yes.

Where are you right now?

We're at about 231 average for the year right now.

231 average for the year.

Yes.

But sort of snapshot in time, are you at the 227 level or are you higher than that?

That's probably about right.

Okay, so--

I don't have that right in front of me, but I think it's about 200-- it's about that range.

So we can imply that between now and the end of '05, you'll have to buy back at least 12 million, assuming there aren't any other adjustments for options, et cetera, or for plans. At current prices, looks like $750 million. Can we imply that you'll have to work through some additional buyback in '06 or how do you see that playing out?

Yes, the plan, the $1.5 billion authority goes between when we announced it with the announcement of the definitive agreement with EK or actually when we announced the buyback through '06. So we anticipate through open market purchases that we would purchase roughly a third, a third, a third. On an annual basis. So a third of it happening in '04, a third in '5, and a third in '06. That's the way we've got it mapped out from a planning perspective.

Okay. Thanks.

And there are no further questions. I'll now turn the conference back over to Management for any closing remarks.

Thank you, operator. Thanks to all for participating this morning. Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G compliance statements. Our call was recorded and can be accessed for the next seven days by dialing 719-457-0820, replay code 507321. This concludes our call. Thank you.

And again, that does conclude today's conference. Again, thank you for your participation.