安特吉 (ETR) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entergy Corporation second-quarter 2005 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 Michelle Lopiccolo Investor Relations. Please go ahead.

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 statements. Wayne.

Good morning. I am pleased to report that during the second quarter we achieved substantial progress across a range of goals and we are particularly pleased to achieve resolution of a numerous items pending on our regulatory agenda for 2005. I will review the status of each of our businesses, and I will turn the call over to Leo for a review of the quarter's results. Before I begin with utility, I should acknowledge that from time to time, particularly after last quarter's call, investors tell us we spend too much time on regulatory matters. But even the best of quarters operationally gets overshadowed by the seemingly endless links and number of regulatory proceedings. If you are one of those investors I have to warn you that you may feel we haven't been listening because today we have a lot to say.

But today it's not about process or progress, it's about positive and constructive results. I wouldn't call the quarter a grand slam because it wasn't, but we are as close to clearing the bases as any of us have ever seen. Maybe that is why last quarter's call may have seemed a bit anxious. We expected that we were nearing conclusion of a number of substantial cases or issues, and as you know we felt good about our positions, sometimes you get surprised. And during a happy surprise this takes a lot of time and a very receptive court willing to take it on. Thankfully, we are not dealing with that in any of the orders we received.

Starting at the state level the Louisiana Public Service Commission unanimously approved two settlements for the Entergy Louisiana rate case and the Entergy Gulf States gas LDC rate case. The settlement in the Entergy Louisiana rate case established a formula rate plan allowing the company to earn an ROE just over 11% before sharing with customers. In addition, the return of and on the Perryville acquisition was rolled into Entergy Louisiana rates in a separate proceeding immediately pursuant to the June 30th close to the transaction.

In the Entergy Gulf states gas case the LPSC approved a rate increase and established a rate stabilization plan allowing the company to earn again up to 11% before sharing with customers. Rates had remained unchanged for that business since 1997. These actions combined with the first quarter approval of the Louisiana global settlement achieved their goals. They resolve the ratemaking framework for all Louisiana jurisdictional companies for the next few years and provide the means for expedited annual reviews aligning the economic interests of customers and shareholders. With these approvals in hand, roughly 60% of our rate base is now subject to incentive-based and/or real-time recovery mechanisms. A year ago that number was only 25%.

Turning to Texas, the Governor signed legislation that clarifies the pass forward for interest in Gulf States Texas. Even though the legislation extends our base rate freeze until 2008, it paves the way for right of recovery of certain costs in the near-term and provides considerable direction to the Commission as to the will and the intent of the Legislature for moving Entergy Gulf States Texas to retail open access if and when it becomes part of a certified power region.

Perhaps more importantly, the legislation allows us to proceed with jurisdictional separation which is critical to providing the flexibility we need to execute consistent with our dynamic point of view strategy. During the quarter Entergy Gulf States Texas filed its first right of request to recover $23 million of capacity cost. Going forward, we intend to file for a transition to competition cost writer before the end of the summer, and we will continue to prepare for our January 2006 qualified power region filing.

Also during the quarter Entergy New Orleans made its electric and gas FRP filing and requested extension of this successful model for three more years on substantially the same terms. This model illustrates how both customers and shareholders benefit when the economic interests are aligned. In this case through the sharing of fuel and purchased power savings under the generation performance-based rate plan. Over the last two years in this, our smallest jurisdiction taking up less than 5% of total rate base, total savings under this plan have been $141 million, $131 million of this has been shared with the customers.

Finally, in Mississippi we filed for rate recovery of the Attala Plant acquisition announced earlier this year. Like Perryville, this acquisition will add another load filing highly efficient plant to our generation portfolio. These investments at a cost of roughly $230 per kilowatt are well aligned with our disciplined, location-specific market point of view for capital deployment. On the Federal level a long-awaited system agreement decision in our view was a substantial improvement over the ALJ's decision. We argued all along that this was not a revenue requirement case but a very complex and potentially dangerous precedent-setting case on cost allocations and jurisdictional incentives and accountability.

It was critical to our being able to do the right thing for customers that FERC get this right. And I'm happy to report that they appear to have done just that. First of all, FERC supported the view that full production cost equalization is not appropriate. Secondly, the Commission selected a wider bandwidth of plus or minus 11% as opposed to the 5% band recommended by the ALJ sending a strong signal that significant and immediate rate shocks are highly undesirable. And third, the Commission confirmed that the effects of a parochial decision by one regulator should not be exported to customers in other jurisdictions.

Moreover, the Commission acknowledged the importance of Entergy's supply plan and the potential role it will play in achieving rough production cost equalization by noting that it's bandwidth approach is an insurance policy in the event the supply plan initiatives are not able to sufficiently address production cost disparities. Finally, FERC's remedy calls for no refunds. A number of parties have filed motions for clarification on rehearing on different issues, as we expected. But this is a very reasonable and reasoned order given the facts and circumstances that the rough production cost equalization issue that dates back over 20 years. It clearly considers the interests of all parties, and we are optimistic that this will resolve this issue once and for all.

In a separate decision, the ALJ acted on our affiliate PPA case finding all eight contracts to be just and reasonable, with one small exception pertaining to 19 (ph) megawatts, which was denied on a basis of a procedural issue. I would ask you to just think for a moment on all the allegations and accusations that you may have read or heard on these affiliate transactions, and every single one of them were found to be just and reasonable.

In addition, the decision upholds the design and implementation of our original solicitation in the 2002 RFP and rejects proposals submitted by other parties that would have circumvented our process or required special procedures in the future. While noting that the RFP process was not perfect, the ALJ stated that "it in fact worked quite well to achieve the goals of obtaining resources at the lowest cost to rate payers and reducing disparities from system average production costs for the two highest cost companies". In other words, the ALJ acknowledged the supply plan process is working as it should for the benefit of customers.

Moving onto market power, just over a week ago we notified the FERC that we are withdrawing are pending request for renewal of market base rate authority in the Entergy control area. You might be wondering why we took this action when we had been so adamant in our view that we do not have market power and the market power test designed by FERC under certain interpretations are deeply flawed. Let me assure you that we continue to strongly hold both of these views. FERC's June 30th order requesting more information does not adversely rule on either one of these points. The withdrawal of our petition is based upon the simple fact that as a capacity short company in an overbuilt market there is an insignificant effect on our operations from possessing market-based rate authority in our control area.

Because of this our business decision is not to spend money or commit potentially substantial resources and time on further hearings and proceedings when we can operate just fine under approved cost base rates. Furthermore, given the productive outcome of recent FERC decisions in other cases we believe we are better served by focusing our efforts on more important issues like implementing our independent coordinator of transmission proposal.

And while on the ITC subject in May we made our 2005 filing outlining the required actions to implement the ICT. At the request of FERC, we held a technical conference to further explain our proposal to merchants and others, and last week the STB Board voted to serve as our ICT. We continue to work with all stakeholders to advance the ICT and anticipate a FERC ruling in the fall.

Before I leave the utility I should also note that we are very pleased with the recent passage of the Energy Bill by both the House and the Senate. Curt Hebert, his staff and many others at Entergy have been working diligently in recent months on numerous issues, all of which are included in a final version. And perhaps more importantly, every single Congressman and Senator from our multistate regulated service territory voted in favor of this important legislation.

Turning to nuclear, progress was demonstrated on a number of fronts, in our regulated fleet we completed a 68 megawatt Waterford 3 upgrade during the spring outage, and we received approval from the Nuclear Regulatory Commission to extend the operating license for Arkansas Nuclear Unit 2 by 20 years to 2038. The operating license for Unit 1 was previously renewed and will expire in 2034.

In our Northeast fleet we had another strong run in this quarter with a capacity factor of 91% which included completion of 2 planned refueling outages at Indian Point 3 and Pilgrim. We also continued our contracting efforts increasing our sold forward position by 6% in 2008, and 5% in 2009, moving the average contract price per megawatt hour up to $45 per megawatt hour in 2008 and $46 per megawatt hour in 2009.

In Vermont legislation was passed to allow Vermont Yankee's application for dry fuel storage to be filed with the Vermont Public Service Board for consideration and approval. While this process may take up to a year, the legislative approval represents a positive milestone to our life extension filing that will be made for this plant in the near future.

Finally our Pilgrim plant received OSHA's region 1 VPP Star among Star's safety award for the second consecutive year. In summary, operational results continue about on track but our aspirations, of course, remain much higher. From a regulatory perspective the year has brought unprecedented success in constructively resolving regulatory litigation that will service this Company and its various constituencies well for years to come. Nonetheless, we know our work for the year is far from over.

With so many regulatory successes behind us now, you'll hear us talk more in the future about other initiatives we are constantly working on. But we have been a bit out of the limelight in recent months. Things like deploying capital, achieving long-term aspirations and the blocking and tackling in our day-to-day operations to achieve our goals in 2005 and beyond. And with that let me turn the call over to Leo.

Thank you, Wayne, and good morning. I will cover several areas this morning, including second-quarter results and cash performance, progress in our stock repurchase program, earnings drivers for the remainder of '05 and finally I will put recent accomplishments in the context of how we think about future opportunities.

Slide 2 shows that second-quarter '05 as reported and operational earnings were higher compared to results one year ago. More than 20% increase in operational earnings in second-quarter '05 was provided by improved results at the utility during a quarter when nuclear matched the earnings produced one year ago. In addition, second-quarter results also benefited from accretion associated with our stock repurchase programs. Lastly, the non-nuclear wholesale assets business reflected improved results this quarter as it once again was able to generate a positive margin through a combination of activities.

Moving to slide 3, utility parent and other operational earnings showed a significant increase quarter-over-quarter. A number of items contributed to this, including sales growth achieved in spite of the loss of 1 customer to cogeneration, higher unbilled revenues, a return to normal weather, lower interest expense, tax benefits from the American Jobs Creation Act of 2004 and finally, accretion from the share repurchase program.

While there are a number of positive contributors to improvement at the utility higher O&M expense partially offset the stronger results. The higher O&M came primarily from increased employee benefits expense. Also higher nuclear outage expense and a small reserve taken in connection with nonperformance by a bankrupt vendor added to O&M this quarter. Given the level of contribution this quarter from unbilled revenues, I will spend a minute or two on this topic.

Unbilled revenue is a routine accounting accrual which is recorded at the end of each period. This accrual is necessary because meter reading cycles do not align perfectly with the end of the accounting period. Recording unbilled is a two-step process. As you first have to reverse the unbilled entry from previous period since these results are now in billed revenue and then record the current period end entry. Fluctuations in unbilled revenue are the result of volume, price, timing, billing cycle and mix differences. In any particular period the impact can be either positive or negative. In fact, the unbilled revenue impact in the first quarter this year was negative.

In the second quarter the unbilled revenue impact is positive, and while that impact seems fairly large it is consistent with the range of variances we have seen in the past. And recall that this impact will be reflected in billed revenues next quarter. Continuing with the middle panel of slide 3, we see that Entergy Nuclear's earnings per share contribution this quarter equaled prior year performance. Lower generation and higher costs were largely offset by improved contract pricing and accretion in second-quarter this year.

Specifically output decreased slightly due to unplanned and planned outages at larger units compared to prior year. O&M expense increased due to the impact of unplanned outage expense and higher benefits expense. And higher realized contract pricing added to earnings as more recent contracts include pricing reflective of continued strength in the Northeast market. Energy Commodity Services performance is illustrated on the right panel of slide 3. Once again, this quarter we were able to reduce O&M expense in the business and together with the sale of SO2 allowances turn the previous quarter's small loss into a profit.

As reflected on slide 4, net cash flow from operating activities for second quarter was roughly half cash production of a year ago. Changes in deferred fuel receivables, a timing event and customer refunds agreed to in the Louisiana Global settlement were two key drivers to the lower cash flow this period. In addition, increased pension funding and cash tax payments also contributed to the quarter-over-quarter decline. However, the strength of our cash position remains intact on a year-to-date basis as net cash flow from operating activities was more than 750 million. And for the full year 2005 we continue to project this number to be more than $2 billion.

Turning to slide 5, you will note a number of our financial metrics reflect modest improvement quarter-over-quarter. Our returns metrics are strengthening, and our cash flow interest coverage is exceptional at nearly seven times. Our net debt ratio has edged up a bit as we expected it would given our share repurchase program. However, we remain below 50% and expect that ratio to begin to improve as we approach the completion of the $1.5 billion program at the end of '06.

Slide 6 reflects the progress during the quarter in our share repurchase program. During the second quarter we repurchased 3.6 million shares at an average price of approximately $72. Roughly 80% of the repurchases were through the $1.5 billion authorization with limited activity coming from purchases to offset the dilutive effect of stock option exercise. We continue to estimate that average shares outstanding at the end of '05 will be approximately 215 million.

Our path to achieving our earnings guidance objective for the full year remains much the same as I described on our first quarter call. Improved utility results compared to the second half of '04 will come primarily from sales growth and rate actions already in place and the expectation of more normal weather. Also reduced O&M from changes in spending patterns in the second half of this year compared to a year ago will contribute to '05 growth.

At Entergy Nuclear drivers in the second half of this year include higher contract prices and additional generation with only one remaining refueling outage compared to two in the fall of '04. We will also get some earnings uplift from upgrades. Finally, Entergy Nuclear is pursuing cost-savings through productivity initiatives which we have discussed in past presentations. With respect to the non-nuclear wholesale assets business we expect to break even operations roughly on par with the second half of '04. I should point out that we do not foresee this business becoming a consistent positive earnings producer due to its commodity price risk. As such we continue to look for opportunities to further harvest value from these assets.

Our last key earnings component for the remainder of the year will come from accretion. Utility earnings are seasonal in nature with a noticeably larger contribution in the second half of the year. Therefore, accretion will be somewhat backend loaded given the cumulative earnings impact of shares purchased during the year. With respect to earnings guidance I acknowledge that there are variables that will continue to move both with and against us such as outages and sales. However, we're up to meeting those challenges and your expectations and continue to affirm the low end of our guidance range.

Before I close I want to put our recent accomplishments into context of a forward view of our business. We are certainly quite pleased with the successes summarized on slide 8, particularly given that '05 is only half over. Because Wayne reviewed most of these in his remarks I will not go through this list in detail. I will, however, highlight two key points that helped demonstrate who we are as a company and how we think about running our business.

First, it is important to note that while slide 8 includes a number of high-profile achievements like major rate case settlements, we believe some of the lower profile ones are equally important because they create options or opportunities for adding future value. Second, while we do reflect on and even celebrate achievements like the ones you see here, our greatest motivators are the next opportunity and the next challenge. These are the things we truly focus on at Entergy because they are the ones that have the potential to enhance the value and the positions of our utility in nuclear businesses. At the utility enhancing value will come from actually earning incentives in the future after having worked so hard to get approval for incentive-based recovery mechanisms in three of our five utility jurisdictions.

At Entergy Nuclear enhancing value will come from transforming a collection of assets into an integrated business and then by applying our differential skills and expertise to plants we don't own. In short we are committed to growing the business and in the near-term that aspiration calls for earnings growth in a range of 8 to 10% in '06. Longer-term we're striving for 5 to 6%, a level that has been achieved by top quartile companies in our sector. We plan to share more details about the opportunities we believe will deliver this growth at our analyst conference in October.

For now let me assure you that we believe we have well developed strategies that not only position us to capture future opportunities, but also motivate us to succeed in these efforts. We now turn to our Q&A session and our senior team is available to respond to your questions.

(OPERATOR INSTRUCTIONS) Ashar Khan with SEC Capital.

Wayne, could you elaborate a little bit towards the comment you made at the later end referring to more strategic outlook for Entergy as most of the regulatory agenda has been successfully accomplished, especially since the passage of the energy and PUCA going away and I guess the prompt response by the FERC in terms of the Exelon pegi (ph) merger. Does that not things change more on the table for you guys as you look at the assets as well as companies on the strategic side?

Yes, I think that's a good way of putting it. We haven't talked a lot about the opportunities I mean maximizing the opportunities we have in the Northeast. And we continue to contract for these plants, and we haven't spent a lot of time on the various options that we are considering and that we are actually pursuing them on various paths. I know that is something that you are all interested in, so I think we'll have more time in the future and likely to mention at the analyst conference in detailing what, how big those opportunities might be with our existing plants or with the different type of strategy maybe than we've used in the past.

I think at the utility level like we have talked about the incentive based regulation, the opportunities that exist to add more plants to our portfolio, to capture a piece of that value through incentive mechanisms through the FRP process, I think Rick will spend more time detailing how he plans to capitalize on that. We will spend more time thinking through the issues in Texas. We obviously have been very involved in Texas right now in fighting fires and trying to get the company up to a level where it is providing at least decent returns. And provides a path going forward. But now that we have legislation in place I think Rick will be better prepared to talk to you about how we're thinking about the future of business in Texas, and what is going to drive the ultimate outcomes in that area.

So there is a lot of different issues you have heard us talk about acquisitions on a nuclear front. The one thing that you certainly have seen is I think the last three plants, I may have missed one, but if you consider Kinay (ph) Kewanee, and Duane Arnold, again we've maintained our discipline not to overpay for plants where we did not have maybe a distinct strategy on how we're going to add value over and above what the current owners were already doing. The owners I think were very smart. There was a seller's market. They had maximized pretty much the value on the operating side and saw the value that could be realized with simply different cost of capital between themselves and the potential buyer. And they were able to monetize that. So we participated, but in the end we did not overpay. I think maybe some of those issues you will hear more about in the future than maybe you have in the past on how we're thinking about other assets and where the value added actually is.

Leo, just going to the unbilled revenue am I correct that you mentioned in the release it is approximately $0.18? And I'm just trying to count as when you gave your forecast last year, where would this variance show up as a positive item year-over-year, can I ask?

It would just show up within revenues, it would show up as part of sales because it is included in revenues as I said. What you do though this two-step process you are just trying to capture between the billing cycle and the end of the period the electricity that you generated and delivered, what you sold it for. So it doesn't show up. That's why it's called unbilled because we haven't sent out those bills. And then the two-step process is you reverse prior period and then you set up the next period for it. So it is really just part of -- part shows up as part of your sales forecast, revenue forecast for the year.

So can I assume this is now in earnings of course, and this is nothing which will reverse itself in the remainder part of the year, right? It is just a catch-up and hence the earnings levels are sustainable and higher period? Is that a way to look at it?

The first thing I will say is the sales forecast that we have in guidance we're about where we expected, so I wouldn't say that it sustained higher levels over and above what we've already projected to go forward. But again, what we will do next quarter the unbilled revenue from this quarter shows up as billed, so you reverse their entry from this period and then you will have it in billed sales next quarter.

Okay. Thank you.

Greg Gordon with Citigroup.

You guys accomplished a lot in the quarter. Congratulations. Two questions. First, it doesn't look like your hedge ratio for 2007 has gone up at all. So can you talk about why you chose not to firm up any of your incremental '07 position on the nuclear plants in New England?

We actually have made some additional sales incremental in '07, but they are just not that significant. Right now in terms of the strategy, Greg, we are just looking forward in terms of what kind of opportunities are out there and what the prices are. And as you know, our hedging strategy overall is shifting a little bit in terms of we've got a lot more counterparties, a lot more contracts, and we have given ourselves the opportunity to negotiate and play in the market a little bit more. During the quarter we sold about 3% of the '06 to '09 output into the market and '07 just happened to be kind of in the in between year where we didn't sell as much. We sold some more near-term and some more longer-term, but at the end of the day we are actually giving ourselves the ability to keep a little bit more open and do a little bit more in terms of the types of products we sell just so that we have a little bit more negotiating capability in the market but also make sure that we are acting on our point of view. So there is no specific reason why '07 didn't move up other than it is a little bit between some of the contracting opportunities that we felt we would want to take advantage of.

Aren't you implicitly saying you're no longer willing to sell the power at the discount, that you have been incurring to get the unit contingent contracts?

No, no, no. We still experience that 4 to 10% discount depending on the plant, depending on the region, that sort of thing. It is just a question of where we think the market is at that point in time and what opportunities we have at that point in time. But as far as unit contingent discounts and basis differentials and things like that, those are all still pretty consistent with where they have been in the past.

The second question was on the SO2 allowances. Are these allowances that are allocated to some of your gas-fired generating fleet where it is just more economic to not run the plant and sell the credits? Can you talk about what that economic opportunity looks like?

They are actually associated not with the gas fired plants but with some coal fired plants tat we have in that some partial ownership with in that fleet. And the opportunity is that their market for allowances has gone up, probably a year ago was probably a third of the price (indiscernible) to allowances where they are today. So it is something that has always been out there. It is just that the opportunity is a little bit stronger now because the allowance market has moved up.

Thank you.

(OPERATOR INSTRUCTIONS) Steve Fleishman, Merrill Lynch.

A couple of detail questions. The American Jobs Act tax benefit, could add about $0.05 a share?

Yes, roughly.

And is that just going to occur in this quarter, or is there any ongoing impact?

Well, what occurred in this quarter because of the Jobs Creation Act is all we expect to have in '05. There are other benefits due to the Act in future years that are associated with production costs, credits that we get. And so those will probably show up more '06 and beyond. Really don't have the opportunity to utilize those benefits in '05. '05 it had to do with provision in the Act that allows repatriation of foreign income and via tax benefits of if it is reinvesting in the United States. So that is what that was from in '05.

We should expect the numbers in the future to be lower than $0.05?

I think they will start out a little bit lower and probably grow roughly to be about the same (inaudible).

And then the size of both this reserve on the bankrupt vendor and the emissions sales?

The emissions sales will probably be about a penny give or take from the SO2 allowances. And the reserve for the bankrupt vendor is about $0.01 to $0.02, in that range.

Okay, and can you give a little more flavor of the potential impacts of the Energy Bill for your Company? From an either earnings or cash flow tax related benefits?

Let me turn that one over to Curt and then if Curt misses something, then we will, the rest of us will kind of jump in others that may come to mind. Curt was obviously on the ground in Washington here for the last month or so working the issues. So I'll let him take that.

Good morning, Steve. If you look at this Bill, and we haven't gotten all of the numbers together yet exactly what it will mean to us at the Company, obviously as you look at the opportunities presented, one of the big issues to us was participant funding to make sure we had statutory authority for that and we do now. The repeal of PUCA, perpa (ph) if you look at the transmission incentives what opportunities that will present for us there, again strictly for us as a company. We're not clear yet because we'll have to see exactly what the planning will be for that. If you look at nuclear decommissioning, the 1.3 billion there for the tax, as well as the nuclear construction incentives, the fact that it is going to be one of the innovative designs and you qualify there for 80% of the facility costs, is certainly something that is important to us.

The regulatory risk if you look at the future of nuclear is probably something that is as important to us as anything as we look at that decision. The first two getting 500 million or capped at 500 million coverage of 100% of their risk, be it regulatory or litigation. And then if you look at reactors 3 through 6, you get 250 million or 50%. The production tax credits again one of those things that is, as you look at it and compare what we will take as a company depends on how much we do in the future. Price Anderson extension twenty-year. these are all things that I don't want to use the term moneymakers for the company, but they certainly put us in a better position than we were before the Bill. But I think it is a little premature to jump out there and say exactly what it can do for us financially. I was counting through it this weekend and this morning as I was reading back through the provisions of the Bill, and it is over 1700 pages not including the tax title. And as you look at it FERC has 16 rulemakings it is going to have to have. DOE has 5. There are other rulemakings out there for other agencies as well. But if you look at that you understand there is still a lot of work to be done under this Bill, a lot of things that have yet to be decided. But I think it is fair to say there are plenty of opportunities out there.

I have one more quick question for Wayne. With the sale of Entergy Coke last year reducing a risk and now having resolved a lot of your long-standing regulatory issues, does it make it maybe more possible to see a higher dividend payout quicker? I know you have been growing the dividend pretty aggressively, but it is still well, well below the industry norms and certainly companies of the risk profile.

I think that is right on point. That's one of the reasons that you have seen I think we were at 5 and 6% for dividend growth in the last two years we were at 29 and 20%. And part of the reason that the Board was more aggressive the last two years was in part they had clear line of sight on earnings growth. But it also was the amount of risk that we had no longer warehousing and that included merchant risk on the nuclear side because we were hedging out and the cancellation of our merchant development program on the fossil side.

So as one of the things as we have said before the Board looks very strongly at is what the future is going to be, while not necessarily the past, we do a lot of stress testing under a whole variety of scenarios. The Board likes that. I think their wish is the available cash would go to a combination of all three, for dividend, for buyback of securities and to invest in growth going forward. And as we shed more and more of the risk, including the regulatory risk that you've seen like I said this quarter, which was really quite significant. I think that gives the Board a much more comfort in terms of having the line of sight, in terms of cash flows and earnings going forward and maybe makes that decision a little easier for them than maybe it has been the last few years. So they look at the dividend. I think a lot of Boards truly do look at the dividend, and then they vote. Our Board analyzes the dividend, they virtually every quarter they do that and look at where it stands relative to where we're going and make sure it's the right level.

The normal timeframe for considering an increase would be this meeting, next meeting coming up at the end of October. And they have already received considerable analysis of the range of potential outcomes and how much risk we believe we have warehoused versus where we have been and where we see ourselves going as a company. So again I am optimistic that they are going to look at it in the same way that you just described. We are an exceptionally strong company that keeps getting stronger virtually every quarter.

Thank you.

Steven Rountos, Talon Capital.

Just so I understand where you are on your share repurchase program, I think at the end of the first quarter you still had 730 million left under the $1.5 billion program. So where are you at the end of the second quarter or I guess today?

At the end of the second quarter we probably got about 520 million left under the program; we're at about 980 million through the program to date.

980 million to date, and you expect to complete the remainder of the program in '06?

Yes, we're still planning on the same pattern that we set out in terms of '04, 5 and 6 completion of the program. As you recall, we got through the sale of the Entergy Coke assets a little bit sooner than we had anticipated and actually a little bit stronger price than we had anticipated. So there was a little bit of front end loading of that particularly in the end of '04 beginning of '05.

Got it. Okay, and I guess I have to ask the obligatory coal hedging question, where are you in your coal supplies, and what do you look like going forward?

This is Rick Smith. We're in pretty good shape. The transportation companies we are dealing with have reduced the trains moving this way to about 80 to 85%. But based on our wholesale market we've been able to adjust our dispatch to really offset that and have stabilized our inventory levels at a very acceptable level.

Have you had to eat fuel, increase fuel costs because of that?

No, I mean we have fuel cost mechanisms in all the jurisdictions, so we just pass that through to the customers. It is not a big change for us because the off-peak period which is really where we are adjusting the dispatch, really there is still pretty favorable generation costs out there in off-peak.

Got it. Thank you very much.

Vic Khaitan with Deutsche Asset Management.

Question for Leo or Wayne. Regarding your balance sheet flexibility, could you update us as to based on your previous chart, this time you didn't provide that chart about where your flexibility is, financial flexibility and it sounds like Leo mentioned, or maybe Wayne mentioned that you have more opportunity beyond share buyback or dividend for acquisition. So is that what you were hinting at, Wayne?

This is Leo, I will go ahead and take that, Vic. No the slide wasn't in there but it is virtually unchanged from what it was before. We still have we believe about $1.6 billion of cash over the course of the next three year '05, 6, 7 timeframe. Obviously we will update that as we get into next year. And when we update it you would anticipate that the role forward of getting into '08 timeframe would actually start to make that a little bit stronger.

But we did not put the charge in there but it is the same as what it has been in the past.

But do I detect that this cash is going to be used for more opportunities as opposed to returning it back to shareholders?

That, again, all I can say, Vic, is that would be certainly the Board's preference that we find value creating transactions, not just accretive transactions. It's easy to find accretive transactions as you well know when you can borrow money at 4%. Virtually anything that you buy out there you can beat 4%. All you are doing is eating up your balance sheet and inevitably you're going to result in equity issuances, which as we said before I've done that once in my life and I don't want to do it again. Our Board believes very strongly that having a buyback program in place, whether you use it or not is a smart thing to have because of the -- due to weaknesses in the stock that are where the price deviates from the underlying fundamentals you want to be able to step into the marketplace and make that investment because it is obviously the investment that we know more about than any others.

I think the direction from the Board clearly was at our meeting we just had last week is that they want to see -- they feel very strongly that walking away from the opportunities that we had in the past was the right thing to do. We made fair bids, competitive bids relative to the opportunities, but we were unwilling to overpay. They don't what to change that mentality, nor are they willing to change that mentality. But they want us to put more and more emphasis on going after the opportunities that seemed to exist out there where we can add substantial value and spend more time knocking on doors than we have.

Again, this is not a Board that is willing to step back and basically say we're going to abandon growth, we're going to abandon credit quality and we're just going to pay out all of the available cash in dividends and buy back stock and kind of a dissolution financial strategy. This Board looks at the company in the long-term in terms of its financial health. They want to grow the company, and that includes a combination of investments, buying back debt or equity securities and continue to improve the dividend level.

Those are good disciplines, but Wayne do you have a point of view about where the power prices are heading because everybody thinks that we are in a new era of improving margins and stock spreads, etc.?

Well, people have to be very sensitive to the fact that power prices may be headed up is probably directionally correct, but it is being driven by gas prices and environmental regulations. That is not exactly creating the margin that people think may exist. We still have substantial reserves across the country. It is a non-storable commodity. When we look at gas prices, I don't -- we have a certain point of view but I don't see any real indicators that we would expect to see substantial reductions in gas prices going forward. For a whole lot of reasons there is still a lot of risk in gas prices.

Imports to Canada could be diminished, electric usage could go up under the clean air interstate transportation rules or under carbon restrictions. We could have more weather induced slows, the Northwest could see a reduction in their hydro capacity. I think the LNG market that people talk about, there are many reasons to question the amount of LNG that people have built into their models coming into this country or the price that people have built into their models that it really -- in this conversation at least, it is too long a list to go into. But I think it is greatly overstated.

I think some of the other technologies on coal gasification still is suspect. And so when people start to look at meeting new environmental regulations with gas or whatever, I don't believe that we're going to see the kind of margins that maybe people might expect just because reserves might be slowly coming down. It is still a non-storable commodity, and as long as its non-storable prices continue to get pushed toward short run marginal costs as long as their is one extra megawatt sitting out there. And that is a long time off.

Just a quick follow-up, then, that you would be not willing to buy any merchant plants, etc. because your view is more cautious?

I think when you buy merchant -- I assume you're talking about merchant fossil plants -- again, as we talked about before, if we could construct a scenario where the merchant fossil plants were used to help back up the base load nuclear plants and allow us to sell a more of a load following type service or a firmer service, then that might make sense. Selling a -- buying a merchant plant just to sell into the marketplace, again it would -- I'm not saying it couldn't happen, but it would be a distressed sale. And there's a lot of private equity money out there looking for that very same thing that has probably a lower cost of capital requirement than we do.

Okay. Thank you very much, Wayne.

Rudy Talintino (ph) Prudential Equity Group.

Hello, gentlemen. This is actually Vikas Dwivedi.

I had a question. With the system rate agreement now placed, can you give us an update on the potential timing for an Arkansas rate filing request?

We're in the process with the system agreement order where the different parties have filed for a rehearing on a couple of issues. And I think we are still dealing with won't get a final order out of the Commission I think until about the fourth quarter. So once we have that, then we will. We are looking at what the need is in Arkansas with the steam generator, which would be completed by the end of the year also. So I think those two events come together, and that will determine what we do. So it probably be, look at something in the first quarter of '06.

Okay, and then with respect to the new status you have on market based rates, does that actually give you more flexibility for utility generation, supply planning, kind of following up from Perryville and Attala? I would think some of the market power reg and other regulatory burdens might be more muted now. Is that a fair way to think about it?

I don't think so necessarily. What we've been able to do with Perryville and Attala was under a market-based rates. We pulled those down in the plants that we've been purchasing, we really weren't pricing those out at market-based rates. So I think anytime that we go to purchase additional merchant generation, that we're going to have to show up at FERC, and one of their tests obviously is that influencing your market power. So that might be the next time you see that issue come up.

Okay. Thank you very much.

Neil Stein, John Levin & Co.

Could you comment on some of the trends you've been seeing in retail sales growth? Has it been in line with your expectations?

I think generally, Neil. It has been a little bit up and down. We've been trying to figure out what's going on there, but as we get into the second quarter and even this month, sales are starting to come back. So I think we maybe have a little milder weather that we were seeing in the first quarter that wasn't obvious to us. We are relooking at all our weather models, and I think as we do that, things are firming out for the rest of the year from where we were.

It shows here I guess weather adjusted, sales growth year-to-date is close to zero, and I think maybe you have to adjust for that Co gen (ph) customer.

Yes that's right.

But do you think that maybe there is a problem just with the model in the way you're calculating that? The way you're stripping out the weather impact and calculating this weather adjusted sales growth?

Well, it is hard to predict at different times. The winter was pretty mild for us, and to get real accurate on what the weather adjustment might be in the first quarter was a little bit, maybe a little bit light. But we are pretty comfortable with what we are seeing so far this summer.

I think the point that Rick mentioned is particularly significant in the shoulder periods, the weather models. And I think the important thing is the weather models tend to work well in the peak seasons where you can, you get a, customer behavior tends to be much more predictable. They flick their switch over to cooling and they leave it there. And so as we count the cooling degree days there is a pretty good cool efficient to have their usage. When you get into the shoulder periods and which we have seen last November or maybe the first quarter this year, the model margin of error on the model tends to maybe be a little higher because of customer behavior tends to vary. They may or may not flick their switch back and forth to cooling or heating. If the weather happens to be moved from 65 to 75 or 65 to 55 and although that is accounted for with -- there's a whole lot of statistics -- people's behavior changes over time, and we continue and we are spending really quite a bit of time looking at price elasticity issues, like Rick said and other things just to make sure that we are not missing something here. And that our guidance going forward and our forecast going forward is as accurate as it can be given the amount of uncertainties that are just inherent in this business.

Shifting gears to non-regulated nuclear, can you remind me kind of where you are in terms of productivity targets? Are you performing I guess in line with those targets?

Gary are you online?

Yes I am. I can address that. I think if you look at what is in the -- what we released, we are keeping pretty much on those targets. I think our costs are a little bit higher this year, but I think you'll see some improvements in the third or fourth quarter of the year. Primarily driven by we truly have talked about reducing our cost and outages, and we are seeing that. And that is starting to show up. Also through contractor and material cost reductions. Some of those alliances that we're forming I think we are going to start seeing more of the benefit this next couple quarters and the first couple quarters of next year. As well as we continue to work on contractor and staffing reductions and we are actually ahead of those plans as opposed to what we do with DSP. So I think we're going to see improvements through this year; I think we've committed to do that through '06 and believe we are pretty much on target to realize that.

And the $18 per megawatt hour target, is that for next year?

It is really 2006.

And are you still -- is that still the target?

I would say we're going to be somewhere in that vicinity, somewhere maybe a little bit higher than that. But a lot of it had to do with as we see whether we can get some of these costs as far as contractor costs and things like that.

Okay. Thanks very much.

Michael Lapides, Hibernia.

Thanks. Mine have been asked and answered. Much appreciated.

Tom O'Neill, Citadel.

Good morning, just a further question on Arkansas. I was wondering if you could update the numbers that were in a 10-Q with regard to this shift that would need to take place from Louisiana to Arkansas and just some of the -- I guess the creative ways you're thinking about dealing with that as you file a rate case in Arkansas.

I think the number numbers will be updated when the second quarter 10-Q comes out. So we are still finalizing that. So look for it in the second quarter 10-Q.

That is all the time we have for questions today. I will turn things back over to our speakers 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 836827. This concludes our call. Thank you.

That does conclude today's conference. Thank you everyone for your participation.