安特吉 (ETR) 2004 Q4 法說會逐字稿

Welcome to the Entergy Corporation fourth quarter 2004 earnings conference call. As a reminder, today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Michele Lopiccolo. Please go ahead ma'am.

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

Thanks Michelle. Good morning everyone. A year ago I outlined our agenda for 2004. At the time we knew our plans were aggressive and we would have to overcome numerous obstacles to meet our objectives. Of course, as you know, the year turned out to be even more challenging than we expected. With the exceptionally mild weather, the poor operating results of EK, and the failure to obtain rate relief in Texas, is the top of our list of disappointments.

At the same time, there were a number of happy events also. I won't reiterate all the details of those, but I will highlight several recent events; then turn the focus to our goals for the future, including progress that has already occurred in the current year.

In the category of recent successes, Entergy completed the sales of Entergy-Koch Trading to Merrill Lynch & Company, and the Gulf South Pipeline to a subsidiary of Loews Corporation. We exceeded our expectations by not only announcing the pipeline sale before year-end, but also by closing the transaction about six months ahead of schedule. Both sales marked the completion of a process where we executed on our point of view, in this instance selling businesses to more natural owners at prices that represented the value potential to them which exceeded any reasonable cold ice (ph) expectations of the value to Entergy of continuing to hold these businesses. And, perhaps most important to you, we continued to buy shares under our $1.5 billion stock repurchase program, completing roughly 1/3 of the program as planned.

On the regulatory front, recent events were mixed at best. The quarter was dominated by the extremely disappointing lack of action by the Public Utility Commission of Texas on our request for a rehearing of the PUCT's unexpected dismissal of our rate case in September. Based upon what we believe were misinterpretations of the agreements and record in previous Texas proceedings, by not taking action on our petition by early December, our case was effectively dismissed by operation of law. That is something that we have to change.

On December 21, we filed an appeal in the courts, citing, among other things, that the PUCT erred -- first by basing its dismissal on a fundamental misinterpretation and an improper expansion of terms of the 2001 settlement agreement; and second, by adopting procedures inconsistent with prior practice; and third, by failing to even conduct an evidentiary hearing before dismissing the case.

On the other hand, in a matter of days we expect a bill to be introduced in the Texas legislature to create financial stability and certainty for Entergy Gulf States while the Commission continues to monitor and evaluate development of the wholesale market in our area. The bill is expected to be similar to legislation passed in 2001 that delayed customer choice for the Southwestern Public Service Company. The bill is also expected to clarify that Gulf State is no longer operating under a rate freeze and to expedite relief to recover transition costs and increase purchased power costs incurred since our last base rate increase, which occurred in 1991. We believe this bill will receive strong if not unanimous support by the elected delegation in Entergy's Texas territory and will give the PUCT the guidance it has previously indicated it is seeking.

On the federal front, in December, as expected, the FERC initiated a generation market power 206 (ph) proceeding. This proceeding does not constitute a finding that we have market power in our control area but is simply an inquiry to evaluate that issue. However, our filings previously submitted under protest did indicate that we failed one of FERC's two generation market power screens, the wholesale market share screen in our control area.

The reason our filing was submitted under protest was because we believe that evidence submitted by Entergy and a number of other parties clearly proves that this screen is fatally flawed. It does not reflect the ability of an incumbent utility supplier with capacity committed to serve native load to exercise market power within its control area. Failing that flawed test provides the basis for FERC to initiate the 206 proceeding and established a rebuttable presumption of market power. Our filings have already demonstrated that we can rebut that presumption through the tiebreaker delivered price test.

After properly taking into account the capacity to serve native load, results clearly indicate as capacity-short utility with the obligation to serve retail customers in all our jurisdictions, we do not have market power in any relevant market including our control area. FERC has indicated that it expects to be able to reach a final decision on this matter by the end of April.

Turning to nuclear, we completed two successful refueling outages around 30 days each during the quarter. Efforts from each outage will deliver value going forward as capacity upgrades of 13 MEGAWATTS at FitzPatrick and 44 MEGAWATTS at Indian Point 2 are now in service, growing the total Northeast fleet capacity to 4058 MEGAWATTS from 3955 MEGAWATTS at the end of 2002.

Active contracting efforts also paid off. In the fourth quarter, nuclear sold roughly 12 percent of its 2006 through 2008 generation at prices nearly 40 percent higher than those under the contracts that were expiring, and raised the average portfolio price during that time frame by a little over $2 a megawatt hour. From an operational perspective, success was achieved at the Cooper Nuclear Station following the receipt of an NRC report that indicated inspections would be scaled back due to the improvements that we have achieved at that plant.

Now let me shift the focus to 2005 and beyond and describe the initiatives that we are pursuing. While these goals will be familiar to you, I want to spell them out so you can track our progress over the coming quarters. These goals support the financial aspirations that we have outlined for you for top quartile shareholder returns, achieved through continuing earnings growth and our commitment to deploy capital through disciplined but timely action.

First of all, the utility will continue to resolve its regulatory issues on both the state and the federal front and make demonstrable progress on its supply plan. On the state front, as you are aware, we have two significant cases before the Louisiana Public Service Commission. In January, a procedural schedule was set for the Entergy Gulf States global settlement proposal that resulted from extensive negotiations between the Company and the Commission staff. If approved timely, this settlement will resolve 12 open dockets, some of which could be litigated for years absent of settlement. The proposal also includes a formula rate plan which reflects an ROE midpoint of 10.65 percent and an ROE range from 9.9 percent to 11.4 percent, and a specific provision for timely recovery of additional capacity costs.

As for the Entergy Louisiana case, hearings concluded in December and there has been some preliminary discussions of a framework for settlement. Current timelines call for the Commission consideration of the Entergy Gulf global settlement proposal in February and a ruling on the Entergy Louisiana rate case around the end of the first quarter.

In Texas, we will aggressively and relentlessly work to end the untenable situation of being required to pursue competition for years with no certainty of ever being allowed to go to competition, as we have already requested, while being denied the rights of a price-regulated entity with the obligation to serve to charge rates that are just and reasonable and can attract capital. We will do so through legislative or regulatory actions to ensure that Entergy Gulf States has a fair opportunity to earn its required rate of return by 2006 by or by following through with alternative strategies in the event that the Texas process fails us again.

On the federal landscape, the utility is charged with resolving pending cases at FERC on terms that protect the public interest, promote the public welfare, and are consistent with the intent of past agreements and practices with and among the various jurisdictions. The utility will also advance its independent coordinator of transmission proposal. A recent enhanced proposal filing in this case urged FERC to issue a declaratory order indicating that the structure does not change state jurisdiction, and that the pricing mechanisms satisfy FERC's pricing policy. Successful resolution of the ICT in 2005 will allow us to move forward in 2006 to advanced FERC's goal of creating greater independence over granting transmission access while at the same time protecting our native load customers from bearing the costs of transmission upgrades that are not required to serve them.

In the utility supply plan, we expect to complete the purchase of Perryville by mid 2005 and to seek to obtain at least one new agreement with a third party to purchase an additional generating plant at a price that lowers customers' rates while providing long-term supply certainty.

In nuclear, success in 2005 will include continuing to demonstrate a track record of improving operations while maintaining the highest standards of safety and security for employees in the public. Nuclear will complete the ANO steam generator vessel head replacement and the 68 megawatt water (indiscernible) and the 47 megawatt Indian Point 3 upgrade. Nuclear will also resolve the regulatory hurdles at Vermont Yankee that prevent placing in service the 50 megawatt upgrade that was completed last year and by submitting fuel storage applications. Nuclear will achieve productivity improvements which will drive the production costs of our Northeast plants to levels that reflect the potential scale economies associated with operating that fleet. Nuclear will also continue to proactively engage in contracting efforts for the Northeast fleet.

At the same time, given the current prices relative to our point of view, the question has shifted from if we should leave a portion of our output unsold in 2007 and beyond to how much should we sell spot or in seasonal markets. The inside gain from our ongoing relationship with Merrill Lynch will support our efforts to keep our point of view unbiased and current, in this case, to ensure incremental returns are commensurate with the incremental risks assumed by leaving a larger portion of output unsold. Nuclear will also expand its efforts to reach agreement with a third party in 2005 on a new service contract like that in place at the Cooper plant, or through some other venture that may close after 2005.

Finally, Entergy will maintain its disciplined market point of view-based approach for deploying capital into high-performance investments consistent with our financial aspirations, which include keeping the overall risk profile of the Company on sound footing. We will continue share repurchases, and consistent with our aspiration of maintaining dividend growth in a top quartile among our peers, our Board will consider the dividend for an increase next fall.

Throughout the year, we will report progress toward achieving these goals so you will be able to track our performance. In the second half of the year we will invite you to an Entergy analyst conference that we are planning to host here in New Orleans to give you the opportunity, among other things, to spend time with our management team exploring Entergy's strategy for moving beyond the basics. And with that, let me turn the call over to Leo.

Thank you, Wayne, and good morning. I will cover four topics. First, a brief recap of earnings and cash performance for both fourth quarter and full year; second, a review of '05 earnings guidance; third, a snapshot of our liquidity position; and finally, perspective on our opportunities for '06 and beyond.

Slide 2 shows that fourth quarter '04 as-reported earnings were materially higher than results one year ago. Key factors impacting as-reported results in the comparable quarters include -- charges of 52 cents recorded in the fourth quarter of '03 for a voluntary severance program; tax benefits of 42 cents recorded in the current quarter as a result of monetizing a portion of our non-nuclear wholesale assets business; an impairment of 16 cents recorded in the current quarter for the Warren peaker plant; and losses in the current quarter at Entergy-Koch LP primarily due to the trading activities prior to the sale of this business.

Operational results in fourth quarter '04 were 50 cents per share, reflecting a 32 percent increase compared to fourth quarter '03. This increase was achieved in spite of the absence of any operational contribution from Entergy-Koch in the current period.

Slide three reflects as-reported and operational results for the full year '04 compared to '03. As-reported earnings in each period included special items, which had the effect of producing essentially flat results year-over-year. On an operational basis, earnings per share decreased primarily with the absence of ETLP in the current period due to the sales of the trading in pipeline businesses.

It is important to note that if the contribution from EK is excluded in '03 as it is in '04, operational earnings demonstrated an increase of 13 percent. This improvement was due to higher earnings at the utility in spite of unfavorable weather throughout the year and very strong results of Entergy Nuclear, primarily from higher contract pricing.

Looking more closely at fourth-quarter operational results, slide four show's utility, parent and other achieved more than a twofold increase quarter-over-quarter. In the current period we saw a robust increase in weather-adjusted residential, commercial and governmental sales. Strong demand in the industrial sector, particularly among chemical and refining businesses, also continued at levels we have observed in recent quarters. We expect growth in this segment to taper somewhat in '05 because our largest customers appear to be operating at sustainable levels, and we will lose a Texas customer to cogeneration.

Entergy Nuclear's earnings per share reflected slightly lower results compared to the prior quarter; however, given that we completed two planned refueling outages and had to overcome the lost generation and related revenues that comes from such outages, we view Nuclear's results as being quite solid.

Turning lastly to the non-nuclear wholesale assets business, we achieved improved performance compared to one year ago. While the business sustained a loss for the quarter, the loss was somewhat smaller than we anticipated and we have made strides towards harvesting the value in that business. For example, in the fourth quarter '04 we completed the sale for a portion of three generating plants at a price approximately equal to book value. We've also achieved some operational improvements and lowered our overall costs for the portfolio. This, combined with higher energy margins realized, allowed us to achieve a near breakeven quarter.

Before I leave the subject of earnings, let me take a minute to note what is not reflected. We did not record a gain in fourth quarter on the sale of Entergy-Koch's trading and pipeline businesses, as we had previously expected to do. The gain, estimated to be about $60 million, will be recorded in '06. We did, however, receive nearly $900 million in distributions from Entergy-Koch LP prior to year-end.

Turning to slide five, net cash flow from operating activities for fourth quarter was up more than 45 percent compared to the same period last year. This increase was driven primarily by the portion of the EK sale proceeds that were treated as ordinary dividends. Cash flow for the year '04 exceeded $2.9 billion and was well above our original projections even if the EK dividends are excluded. This is primarily due to fuel cost recovery at the utility at higher revenues in Entergy Nuclear.

Slide six details our current '05 guidance of 4.60 to 4.85 in both as reported and operational earnings per share, which we are affirming today. Note that we have adjusted the mix slightly as well as some of the details for each business. Three primary events drove these changes.

First, at the utility, we expect a modestly lower contribution compared to our earlier estimates based on the delay of the Texas rate relief until '06, the pending global settlement in Louisiana, and minor refinements of our sales growth estimates. Second, higher benefits costs are also expected at the utility and nuclear based on benefit plan assumptions that were determined as part of our annual update of actuarial assumptions completed earlier this month. Our discount rate will decline to 6 percent in '05 from 6.25 percent, and our expected rate of return on assets will decline to 8.5 percent in '05 from 8.75 percent. And third, the anticipated loss from our non-nuclear wholesale assets business is expected to be lower than previously estimated. Our continuous efforts to harvest remaining wholesale positions have produced results as I already noted. While this business will not achieve profitability in '05, we do believe it can sustain improved performance at the '04 level.

With these changes, we remain at the 4.60 to 4.85 range that we first established in July of '04. I can assure you that we view it as our assignment for '05 to achieve earnings consistent with this range. That said, I will also acknowledge what you have probably already surmised -- our current view is closer to the lower end of this range due to the Texas case dismissal and higher benefits costs primarily related to low interest rate assumptions.

Let me emphasize two key points. This does not give us reason to change or retreat to a lower range and this does not mean that the upper end is no longer possible. This is because in any given year we expect some variables to move against us and some to move in our favor. With 11 months remaining in the year, our assignment is to proactively take action to capture opportunities that are still on the horizon such as earning ROE enhancements in utility jurisdictions with incentive regulation, achieving higher nuclear prices for our remaining 5 percent open position, improving the performance of our non-nuclear wholesale assets business, lowering costs through productivity improvements, and accelerating share repurchases.

Looking now at our liquidity position on slide seven, our operating cash flow is forecasted to be more than $6 billion over the period '05 through '07. Combining cash generated into business with our borrowing capacity, we have ample liquidity for capital deployment without impacting the debt ratio and credit rating improvements we have worked so hard to achieve.

Slide eight recaps one of our most significant capital deployment initiatives under way, our share repurchase program. We purchased more than 9 million shares in the fourth quarter, bringing our total purchases in '04 to 16.6 million shares at an average price of $61. With approximately one-third of the $1.5 billion program completed in '04, we are on track to execute the overall program consistent with the expectations we have previously shared with you.

The left-hand panel of slide nine reflects the financial aspirations we have referenced often in our communications with you. These aspirations guide the actions we take every day to deliver current period results as they guide the decisions we make to deliver long-term growth and value to our owners. The right panel highlights potential strategic opportunities that we are currently evaluating to create value in the future. Clearly, some will be advanced, some will be dismissed, and new investment ideas will be considered. Obviously, we cannot give you a preview of the precise mix that will result in the future, but we can assure you that we will apply the same disciplined and capital stewardship we have applied in the past to ensure our risk and return criteria are met. And if our opportunity set becomes limited, we will return cash to owners through share repurchases or through dividend increases just as we are doing today.

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 -- there was -- on slide nine in the other section there was a fourth bullet point under -- a third bullet point, other ways to evaluate M&A opportunities. Can you just elaborate a little bit more over there what that -- I guess what that means a little bit more, if you could clarify?

Leo, why don't you go ahead? You have got it in front of you there.

Ashar, obviously, M&A alternatives are something that we look at on a regular basis. It's not really something new. I think at this point one thing that has piqued everybody's interest, I think, is the fact that he had an announcement finally after a few years of drought with the Exelon PSE&G transaction. But it is not really anything new or different in focus. We continue to evaluate M&A opportunities like we always have, but we are also cognizant of the difficulty in creating real value in those service transactions. And that's something we're not going to lose sight of. And also, the regulatory environment that we are in today as an industry makes it something that you really have to be certain of before you actually execute on it.

If I heard rightly, Wayne had mentioned that we might see one more transaction like Perryville to be announced by the end of this year or going into next year. Is that correct? And another transaction like Cooper or something in the next 12-month or 18-month horizon on the nuclear side.

I think on the -- as far as the supply plan, obviously it's a little bit easier maybe to predict the closure on that given the number of assets we have in our territory and the number of motivated bidders. So we feel very positive that we are going to be able to close another asset purchase here, or at least announce one fairly soon. On the nuclear front, Cooper has turned out to be an absolutely terrific marketing tool for us and has gotten a lot of interest around the country. And the owners of Cooper have been very, very helpful in marketing Entergy's skills -- what we've done -- been able to do with them at that station. And so we are having a lot of discussions with parties in a similar situation to Cooper. And again, we're very hopeful that one or two or whatever of those will bear fruit.

If you remember, the Cooper transaction -- there was some specifics around a Nebraska law, I think, in particular that precluded us from structuring the relationships that we would have preferred, which would have been that our fee would have been more based upon what we're able to achieve in terms of real economics at the plant. And in terms of -- this transaction is more fee-based. So hopefully in the future if we have a venture like this one where it is an operating agreement, it will be tied to the economics and the safety and reliability issues that we are able to achieve at the plant, which is what we are really good at and where the value really is.

Wayne, there's another plant coming, nuclear plant, which is on the blocks in the Midwest. Is that going to be of attraction to you guys?

I will let Gary Taylor -- I don't know if you have met Gary. He is our CEO of our nuclear operations now. He kind of replaced -- in the line of things he replaced Jerry Yelverton, who replaced Don Hintz, and now it's Gary Taylor. And we're really happy to have Gary on the team here. I'll let Gary talk about that.

Yes, I think it's very exciting, the fact that (indiscernible) has decided to move with Duane Arnold, I think for really two reasons. The first is I think it does present an opportunity, and we always look for the opportunities and evaluate whether that makes sense in our mix, whether we think we can bring skills to that picture. But probably even more so, it's the first plant that's really come to market as a single owner here in about the last 18 to 24 months. I think that really kind of bodes well for what we think will happen in the future, where we will see some more come on, especially single units, as they really realize that there is a real fleet advantage, as you see what we have been able to do in our own plans, and as Wayne has said, what we have been able to do with Cooper.

What kind of timing can we expect when the final bidder might be announced for that transaction?

It's my understanding, and this is based on what we have been told by the owner, that they were hoping that that was sometime in the mid part of this year.

Leo, if I could just end up -- could you just tell us, I thought you guys did a little bit more share repurchase in the last couple of months. Do you know what the average share count we should kind of go back -- tell us what -- assuming the '05 guidance? And is there a chance that the share back could be more up-front-loaded in this first half of the year versus the last half?

We're still looking at about the same thing. I think what we told you before, Ashar, was about 215 million shares for the share count in '05.

Because I saw you were at year-end at 216.8, correct?

Yes.

Because I was just thinking that's pretty low, unless I was trying to see -- you still have to do a lot of share buybacks this year.

That's on the basic calculation. You've got to do the diluted calculation which is little bit different, which has some of the benefit plans and other things included in it. So that's probably what you are -- there's a difference in the way those are accounted.

Do you know what it is on the dilutive calculation, what it might be approximately at year-end?

At the year-end of '05 we're going to be looking at 215.

215. So the buyback is going to be evenly throughout the year, no plans to do it more -- because you got your proceeds in much faster, as you mentioned, right? So there's no inclination to do the buyback more in the first half?

Right now what we are looking at is that same third, a third, a third program that we talked about earlier. And as we've discussed before, you know there's rules and issues around how we do that in the market through open market purchases. And that's probably as far as I want to go right now.

Thank you very much.

Carrie Stevens, Morgan Stanley.

I just wanted to touch on two areas. First in your table 8 projected cash available for capital redeployment, it looks like that number has moved up 200 million, if I'm correct, from the third quarter. And I kind of went through and did some pluses and minuses, and I could go through those with you, but maybe if you just want to elaborate where we should focus on why that has been raised and where is kind of the main deltas there?

The main thing is the roll forward, I think, Carrie. We have gone from having that go through '06 to now it goes through '07. And so that is one major change of it. And there's probably a few kind of gives and takes. For example, before we would have had some of the EK dividend showing up, and now that won't because that's going to show up in -- that showed up in '04 instead of in '05. So if you look at the net repurchases, that throws that number around a little bit. Also --

It looked to me like the net repurchase was up like 400 million?

Yes, and that's because we had anticipated getting the dividend in '05. And when we were going '04 through '06, that would have been included in any event. And so now that we're going up to '07 that is no longer included. As you know, the buyback will be -- program that we are in is done at the end of '06. So that's -- when you roll into '07, that's another factor that changes it. Plus I think OCF is up a little bit through the period as well. Michelle can probably give you better details around some of those, but it's a combination of those factors.

That's helpful. And then just on your contracting for both nuclear and non-nuclear, maybe you could discuss kind of why this quarter the non-nuclear results -- you have seen so much of an improvement there, if there's been any trends that have led to that. And then on the nuclear, obviously, gas being stronger led I'm sure to some of the better contracting. But again, could you point out any trends you're seeing there? Are you seeing higher capacity value? It looks like that is now adding pretty consistently to your contract pricing. And are you taking on any kind of non-unit contingent contracts in more size that is helping kind of raise that price? Just kind of trends there.

I'll start, Carrie, with the non-nuclear wholesale business, and that is pretty basic blocking and tackling type of things in terms of both operational performance improvement and some better heat rates at some of the plants, as well as one of those plants is a QF, and the QF pricing has been a little bit better than what we had anticipated going into the year. So we just -- that business is probably a result of just a lot of hard basic sweating the assets and getting better improvements (ph). O&M is down, heat rates are better, as well as, like I said, the QF pricing has been a little bit better.

On the nuclear front, the improved contracting is a function of the prices are higher, for one. Obviously we have got the -- as you go through the year you get what comes up in the up rates and everything that have occurred, plus just the normal operational improvements that we have had up there. But as we have discussed before, the market prices in the Northeast are higher than they were when we entered into those original contracts. So the guys up there have been working really hard to take advantage of that and to sell the open positions into the market at market prices.

Are you selling like -- because I know before ConEd and (indiscernible) were your two main purchasers -- are you selling to more diverse clients who maybe they're not as politically sensitive? Or is there any type of other trends that you're seeing there?

We are selling to a number of other parties up there. Obviously with the way the retail markets are up there, there are other retail providers, there are other utilities, etcetera, that we have been providing power to in that region. So we have a broader mix of parties. We have had a broader mix of parties since those original contracts started to work off. But we have continued to expand that way. So there is more than just the big parties of (indiscernible) and ConEd and the like.

Paul Patterson, Glenrock Associates.

Just to follow-up on Carrie's question here on the nuclear. On page 5, table 6, you give an average realized price per megawatt hour of about 40.70 for the quarter. I was wondering what it was for year-to-date? It doesn't seem to be there. And just the fact that you guys than expected to go down to about $30 million a megawatt hour. Just trying to get a better idea about what is driving the numbers.

We don't report -- I don't think we have the year-end number in there. I think it's -- I don't have it off the top of my head, but I think it's a little bit better than the $40 number that you're talking about. Some of that has to do with the fact that the way the actuals are reported versus the -- we've got some seasonal pricing that goes on in some of those contracts, as well as the fact that the capacity revenues and other types of revenues that show up in the actuals that aren't in those energy contract are capacity contract prices. So that is why you'll see the actual piece float around a little bit from what's in there. By and large, it is true that what happened if you go from last quarter's release to this quarter, the contracted price for '05 and beyond has gone up. And we have gone up. I think last time we were at about $37 in '05; it's up to about $39 now.

Let me skip to -- I heard some comments there that sort of indicated a little bit of frustration with FERC and what is going on there with market power. I was wondering just to sort of make sort of a cataclysmic kind of -- what if you were to have made your market base rate authority taken away, as sort of an extreme outlook let's say? What would the impact be? Could you sort of walk that through if you have any ideas?

Let me start, Paul, and then I will let (indiscernible) or Rick kind of jump in here on that. The first thing to keep in mind is the whole proceeding is directed toward our own territory, nothing in the Northeast or anyplace where the ability to charge market-based rates is important to us -- really important to us is affected by this at all. It's only our own control area. To the best of my knowledge we almost never use -- we never really use that market-based rate authority. We make short term sales as does all the other utilities under that tariff because it's kind of an (indiscernible) tariff and you can make hour-to-hour sales without having to file specific tariffs relative to those prices. But those are sales that are made right at or above marginal cost in general, like the economy sales where you're splitting the difference between the savings of what you can generate it for and the cost if what somebody else can.

So there is really no material impact. I'm not aware of any impact on the shareholders under that if that would be taken away. If -- and there would be some very, very immaterial impact to customers, but most certainly we would find another tariff to replace that with so those savings would not be lost for customers. And I'm sure that's not the FERC's intent either that those transactions would not occur or. Curt, do you want to add anything?

Yes. Paul, he kind of covered the pricing issue and the cost of it. As far as we are concerned, though, what I would say about market power and where we are -- as you know, we made the filing there on the delivered price test. It's before the FERC. No judges have been assigned to it at this point. The most recent action has really had everything to do with the rule-making with the technical conferences that took place last Thursday and Friday. But our position is that the delivered price test information that we filed at the FERC will show, in fact, that we have no market power.

Finally, with Entergy Texas, what was your -- do you guys have an idea about what the regulated ROE that you guys earned there in 2004 was, and what the total amount of equity that you have at that business?

I'll let Rick Smith (indiscernible) as the Group President of our utility operations. Leo could probably answer that, but I'll give Rick a chance to talk. He's being left out here.

Not really. Paul, I think the earnings were roughly around 7 percent. The equity -- the rate base is about $1.4 billion. So it's probably around 5 to 600 million in equity, but we would probably have to follow-up on that specific number.

But you guys are authorized right now at about 10.5, is that right?

That's correct. Like Wayne talked about in his comments, that goes back a lot of years when those base rates were set and what the equity was set there. So that's really why you have that (indiscernible) up until now, and why we filed the rate case last year.

Paul, I think we have had four decreases. We have had no increases since 1991 and four decreases in Entergy Gulf States. And I don't think there's any disagreement, any serious disagreement about the need for a rate case. It's a procedure issue. The newspapers, (indiscernible) there's been a lot of editorials written about they never imagined they would feel sorry for a utility, but they are. But that's just the process we find ourselves in. Like we have said, we have got tremendous support in the legislature for a fix to this situation.

That's what it sounded like when I have spoken to them as well. Assuming it passes by the end of the legislative session, when would you -- I guess you guys are expected to file a case pretty promptly thereafter. Just any idea about when we actually might see the actual benefit in '06?

We would file it, Paul, pretty quickly, probably around August or September of this year. And then, again, you have about a nine-month hearing process in Texas. So that would take you through about midyear '06.

Greg Gordon, Smith Barney.

I just have one -- a lot of the questions are answered. I have two questions, actually. The first is, when I look at the hedging for 2007, obviously, it's on the Northeast fleet gone up quite a bit, as has the average price since the end of the third quarter. But when I look at the sort of use of basic algebra to back into what it appears like the incremental hedge contracts are for, they're still at a pretty steep discount to what I see as the forward curve up in New York and New England; I think actually a little bit steeper than maybe what you have guided to earlier. Is that indeed true? Am I calculating that wrong? And how does that relate to your comments at the beginning of the call on wanting to potentially stay more naked to the market?

Leo wanted to jump right in; he must have a quick answer to that. I will let him finish up. Let me start here. Greg, I think your observations are dead on there. What we have seen -- and we have seen it really in our own territory and we've seen it in the Northeast -- is everybody is discounting the future with a very, very high discount rate. In our own territory for example the long-term prices that we see in terms of people offering up capacity are much, much higher than the short-term prices. In other words, they are hoping that the future gets a lot better than the present. And that's for environmental reasons or commodity price reasons or whatever, so people just are not willing to take a long-term -- make a long-term decision.

We're seeing the same thing occur in the Northeast except the numbers work the opposite way. What we are seeing is of course very high short-term prices and we're seeing very high discounts relative on the long-term side; again, people unwilling to make long-term decisions given the amount of volatility around commodity prices, the economy, environmental rules, all kinds of things. And that is what is really driving our decision to leave more positions open for a longer period of time.

Now, as we get closer to those periods of time, as we've said, we'll continue to evaluate our point of view relative to what kind of discount rates exist in the marketplace, how risk-averse the marketplace is and how risk-averse, quite frankly, we are. We feel fairly secure in our point of view relative to what power prices will be in the Northeast in the 2007, 2008 type timeframe, and how other factors like LNG or other things might potentially affect those prices. So we are willing to wait that out for awhile, maybe for quite awhile, take it right up to a daily basis.

And as you have seen in virtually every one of our power plants, the price in the market today is somewhere between 10 to $15 a megawatt hour higher than the ultimate contract prices we have today. As you go out into the future maybe that's a little bit lower at some of the plants, but it's a big number. And so if you marked our entire portfolio up there to market, which we can't do because of some long-term contracts, you'd get a much -- certainly a much higher number.

We still put up very high value, of course, on contracts with counterparties like Nifa (ph), who have exceptional credit quality and very easy to do business with, a very good counterparty. And so we will continue to work those relationships that we hope to maintain for a long period of time. Leo, you had something to say?

(indiscernible). I don't want to -- maybe you and Michelle can go through your math going forward, but we have seen prices in those new contracts at about what we would say is where we have guided you in the past in terms of the discount, to even some cases a little better than that discount off of what we would see in the market. If you go out in that later time frame of '07 and '08 and you go back to where we were last year -- for example, in '07 we were at $36 in terms of the average energy price, up to 42 currently. So there's been a pretty good move when you look at how we have been able to move those numbers. And particularly if you include the blended rates as well from say 36 to 43 out in the '07 timeframe. So I am sure that there is something in your math, and maybe you and Michelle can go through it, but we have been contracting in the area of what we have been talking about, Greg.

Your 69 percent hedged now for '07. Given your belief in the underlying fundamentals of that market is 70 percent at this point (indiscernible) out the right level to be hedged. Do you have a sort of target notional hedge amount that you could hedge up to but not beyond given your view, or can you not comment on that?

I guess I don't want to comment specifically, other than to say we have actually contracted and exceeding what we would have originally set out as targets for out there. And while, as Wayne noted, our point of view would lead us to believe, plus some of the regulatory things that are going on up in the Northeast, that leaving a portion unhedged is an opportunity that we're going to avail ourselves to, if you get the right deal, you take the right deal. It's not a requirement, it's a guideline. So as we put our risk management structure around that, the changes that we've allowed ourselves that opportunity to leave that unhedged, that doesn't mean we have to.

The final question -- and this is actually on the denominator side of that equation. As we get (indiscernible) through now approaching sort of the midpoint of your plan for costs and of reductions and efficiency enhancements at the Northeast fleet -- as we look beyond the year-end 2006, assuming that you get your cost efficiency holds is it your expectation that you will continue to raise the bar in terms of the cost structure of those plants? Because the conversations I've had with some of the people in your infrastructure there -- I have gotten a sense that they feel like there's definitively an opportunity to continue to drive costs down when you get to the end of the current plan.

Greg, on this end of the call we heard about every other word you said, so I'm going to let Gary Taylor try and interpret whatever you said.

If I heard you correct it was are there opportunities in productivity beyond what we said we would do by '06, and by '06 we said we would take approximately about $100 million in productivity, and we are on track to do that. Though I don't have a number around it, I would say that I think there are still opportunities by the synergies of operating the fleet, and I think there are still values that could be put on. And we're looking out what we would do beyond that. But right now our main focus is to hit the $100 million between now and '06.

Paul Ridzon, Key McDonald Investments.

Wayne, you mentioned that if you didn't get satisfaction in Texas you would pursue alternatives. Could you fill that in a little bit?

Yes, we were afraid you would ask that. I think Rick -- we just -- as most of you know, we had board meetings last Thursday and Friday all day long. Texas certainly was an item of discussion. And I will let Rick talk about it, about what that means. But the quick answer is Rick is kind of clearing the deck in terms of making sure that any impediment to any type of alternative is removed so we can execute on our point of view in a variety -- in any potential way as quickly as possible. So I will let him talk about what types of things fall under that.

Okay Paul. One of the things that Wayne is alluding to there is we have had in the Q, and we're back, in fact starting this month, in discussions with the Louisiana Commission and staff on really a jurisdictional split of EGSI. And we operate them separately as two distinct businesses. Jurisdictionally we have to separate the financials. And as we were moving towards competition, we were looking at a business separation and a jurisdictional separation. So what we will be doing this year, along with pursuing the legislative fix or getting back with POC (ph) -- they expect out a July 2005 date (indiscernible) -- if we don't give them a legislative fix, they would take up the rate freeze issue in any event.

With Louisiana and Texas we also will be creating the flexibility where we separate EGSI into a Texas company and a Louisiana Company. And once you split the Texas company off, then you have a lot of flexibility down the road here to look at unbundling -- completing the unbundling of the Texas company, moving just that section of Texas into an RTO or other opportunities, to really look at with just the Texas company and not be encumbered with the Louisiana Commission approval. So that is where we are headed.

Leslie Rich, Colombia (ph) Management.

Yes, just two quick clarifications. Who in Texas is likely to be sponsoring the bill that we should keep an eye out for?

(multiple speakers) it's Representative Alan Ritter of Nederland and Senator Tommy Williams of the Woodlands. And we expect if not all representative senators in our service territory to join the bill, substantially all of them will.

Just finally for Leo, going back to Ashar's question. If I could ask what year-end diluted shares outstanding were for 2004?

For 2004 it's, I think, 231 in '04. For a fully diluted calculation for '04, that is the average number.

Yes, but I was looking for as of December 31.

The actual outstanding?

Yes.

I think that's the 217 (inaudible)

217. I thought in response to Ashar's question you said that was the basic number, not the --

Right. That's the basic number, the ending basic number. There's ending basic, averages. So the ending basic is 217, the average basic is 227, and the average fully diluted is 231.

So for 2005 to get to an average shares outstanding of 215 doesn't imply that you're buying back all that much?

No, it does. It's got the same program that we have outlined. It's going from 231 to 215.

Tom O'Neill, Lehman Brothers.

I was wondering if you would just give the jurisdictional ROEs for the other properties besides Texas?

Rick? I think Rick is a little nervous here. We -- I will let him kind of give you some ranges how he wants to answer this. We don't get in too many specific sometimes with the -- (indiscernible) about the earned ROEs at each jurisdiction or the allowed?

Earned.

Well, overall the utility us at 11.6, and these will be split out in the 10-K when we reflect the individual companies' earned ROE. I honestly don't recall the individual ROEs. They range from Texas at 7.6 to companies like Mississippi that I know are up above 13. But individually I don't know what they are.

Neil Stein, John Levin & Co.

I just had a couple of questions expanding on Paul Ridzon's questions about Texas. Would you ever consider selling the Texas business? And then the second question is does it make sense for you, or why do you think it would make sense for you to remain there longer-term?

I'll answer that. There isn't -- to put it bluntly there isn't anything that we own that we would say we would not consider an offer, and that includes the things that we have made a lot of money off of like our nuclear power plant. For a long, long time we said we were a buyer for pipelines, gas pipelines. That's when they were selling, or appeared to be selling for 6, 7 times EBITDA. And when they went into double digits, all of a sudden we were a seller, not a buyer. Nuclear power plants -- we bought a lot of plants for some pretty low numbers. If the number of $800 (indiscernible) regardless of where it's located or regardless of the size, and we've got to look at whether we are a buyer or we're a seller of nuclear power plants.

The same is true in our utility business. If we have a chronically underperforming asset or business that we just can't seem to fix, then we're going to look for a natural owner of that asset. What Rick implied for example with this jurisdictional split was by splitting Texas into it, it might fit the natural -- there might be a natural buyer for Texas who maybe is already in an RTO and could take it to competition or solve a lot of the problems that possibly we can't solve because of other complications. So the idea of would we ever sell Texas, it's -- I don't want to single Texas out and make those people nervous, but that's really just no different than our point of view philosophy. And of course right now Texas is a problem. So that's one of the reasons that Rick is preparing in the way he is preparing.

To do the jurisdictional split, what would be involved in it procedurally? How long would that take?

We're starting the conversations with the Louisiana Commission and staff again this month, and procedurally we have a schedule that we would get an answer from the Commission by the end of the year.

Amit Sanghrajka, Banc of America Securities.

One question on plant CapEx. It seems like the '05, '06 capital expenditure projections have increased since the third quarter. And especially in '06 it seems like it's up by 215 million. Could you just talk about that?

Sure. One of the things we have done is we've included -- we have updated our capital forecast. There's been some movement around in some of the categories. We've got some more growth CapEx that's showing up in those out periods. Those projects are included, consistent with the priorities that we previously talked about, including supply plans and transmission upgrades, as well as some things that are going on up in the Northeast around upgrades in dry fuel storage. So it's just identification of more growth capital that's -- as we go along and get better clarity around it.

Does that in any way change your debt issuance plans going forward?

No, not materially.

Zach Schreiber, Duquesne Capital.

Just following up on Neal's question to make sure I understand. In terms of Texas, are we sort of talking about bringing back the issue of moving that -- those assets to a price to beat (indiscernible) regime just potentially in someone else's hands? Would you have to join the Southwest power pool to do that? How likely is that in the foreseeable future that the (inaudible) would be -- I think the requirement is a day two not a day one RTO? Are those assets sort of physically interconnected with somebody who would not be beholden to the Southwestern power pool being a day-two RTO?

It's Rick again. That's really not our plan. We are pursuing the legislative solution. We still have an opportunity to get rate relief through the Commission this year. The separation just creates longer-term flexibility with that business even under a legislative solution, once the wholesale market develops and it's easier for us to deal with a Texas-only company. But we see that a couple of years down the road in any event.

Following up on Neal's question. From a procedural perspective, would such a separation be contingent on the approval of the Utility Commission of Texas, or would it just be contingent on this process that's currently started in Louisiana?

We would go back to the Texas Commission and review that. We had the business separation approved by them a couple of years ago, and we would just need to go back and update them on that. But I wouldn't see any problems with that from their perspective, because that would encourage getting the retail open access someday down the road.

A final question for Wayne. Going back five, six years when you first got there, there was relatively contentious prior relations with the State of Texas. I remember hearing Pat Wood (ph) speak in public saying that Wayne Leonard and the new management team had done a great job in bridging these gaps and addressing customer service, and really sort of restoring some of the regulatory relations. Is the pendulum starting to swing back the other way here, Wayne, or is this just sort of normal regulatory stuff that doesn't bring back any of the ghosts and demons of the past, if you will?

Clearly, in my mind the pendulum has not swung back. The issue in '98, I think, was very real. The Commission had issues with us, labor unions had issues with us, and Texas, and we had made commitments that we had not lived up to at that time. And we fixed that with everybody. And as we look at where we are at today, we have gone well beyond, I think, where they expected that we would ever go, in terms of service, in terms of safety, in terms of relationships with our own employees and the unions and others down there. And there is -- and I could be wrong. You all have more flexibility in talking to the commissioners probably than we do, but there is not a hint in any of the proceedings, the transcripts of the proceedings, or in the order that we -- that Entergy is not welcome in Texas anymore, which is what I was told. And, Zach, it's actually been seven years, not as much as six. It seems like 20. But it was seven years ago that it was basically said we weren't welcome, and I don't believe that today. I think the person we have in charge down there has done an exceptional job, and he's very much appreciated in Texas. And I think what we've done is appreciated by our customers and others, and I think we will get this fixed. Thanks.

Ms. Lopiccolo, we'll turn the conference back over to you for any additional or closing remarks.

Thank you, operator. And 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 892012. This concludes our call. Thank you.

That does conclude today's conference. We do thank you for your participation.