安特吉 (ETR) 2005 Q3 法說會逐字稿

Welcome to the Entergy Corporation 2005 earnings conference call. [OPERATOR INSTRUCTIONS] At this time for introductions and opening comments I'd like to turn the call over to Ms. Michele Lopiccolo. Please go ahead ma'am.

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

Thanks, Michelle. Good morning, everyone. I know many of you are preparing for the EEI Financial Conference. And I'm also aware that others in the sector are releasing earnings today and holding teleconference.

With these activities in mind, I will spend most of my time this morning providing a high level overview of our hurricane recovery strategy and discussing the financing plan we announced today. And how it aligns and is consistent with our long term principles and aspirations. Leo will follow up with a discussion of the quarter's results. Including the financial impacts of hurricanes Katrina and Rita and on the third quarter financial statements. What we won't talk about today, in the interest of time only, is our northeast nuclear business. We'll say more about that at EEI. But in the meantime, rest assured that this business continues thrive. An increase in value as we put new contracts at prevailing market prices in place, increase production levels and make continued strides in our cost management efforts.

Starting with our hurricane recovery strategy. First and foremost, our immediate priority was to get the lights back on. And as you know, we were able to accomplish that as a result of the extraordinary and successful restoration effort made possible by our employees and the massive outside assistance we received from all over the country when the call for help was made. Concurrent with these system restoration efforts, other members of our senior management team are working on another top priority; the development of a comprehensive cost recovery strategy. Including, the stranded cost related to the customer loss and mandatory evacuation that is still in effect in some areas of New Orleans even today. Under this cost recovery strategy, we are actively pursuing a broad range of initiatives. Including, collection on insurance coverage, various forms of federal relief, rate actions that all lead to securitization.

At the end of the year, our negotiations with loss adjusters to assess damages and estimate covered losses should be substantially complete. Our insurance policies cover up to $400 million of nonnuclear property losses per occurrence. So we'd have two occurrences here. As you know, commercial insurance coverage for above ground utility wires in the Gulf south and the south Atlantic areas was generally eliminated from policies following hurricane Andrew in the early 90's. Given the great majority of damage was to the electrical distribution system, we would not expect to approach the limits of our coverage. Although, we would expect, due to the damage to the gas distribution system in Katrina, that insurance will be a larger contributor in that event.

We also anticipate that by year end we will see Congress take action to clarify prospects for the amount and timing of any federal relief. And actual storm restoration invoices will be processed through our accounting records providing the necessary details to enable regulatory filings for rate relief and securitization at the state level. By the end of the first quarter of 2006, we expect to take action to specifically request regulatory recovery in all of our jurisdictions. The goal for each jurisdiction is to establish a mechanism that begins collecting some form of reimbursement for storm damage by the end of that year, that would be 2006, again. By 2007 our as aspiration is that these uncertainties will be largely behind us. Even though it is still likely we will still be collecting on our recovery initiatives over a number of years.

That leads me to a discussion of the financing plan we announced today. This comprehensive financing plan will allow us to source from $2.5 to $3 billion through a combination of new debt and equity linked securities. The plan is designed to address near term liquidity and capital needs through three primary components. First, as a parent the financing plan approved by our Board will allow us to expand our bank revolver capacity to provide additional liquidity to meet existing and potential utility and competitive business needs. Our current revolver capacity is $2 billion. And while we haven't finalized the sizing decision on the new revolver just yet, it could nearly double our current capacity.

The second component of the financing plan allows the Entergy Corporation to source up to $1 billion through equity linked securities over the coming months. The level and time at which will be determined based on market conditions and our capital needs. And finally at the utilities, our financing plan calls for the parent Company to provide up to $300 million of additional funding to Entergy Gulf States to help the subsidiary with the highest overall restoration costs, continue operate with adequate liquidity and investment grade credit ratings in advance of obtaining some form of cost recovery.

You may be wondering why we need a financing plan for the storm costs. When we already had one of the strongest balance sheets in the industry and a fairly conservative risk philosophy relative to many of our peers. The financing plan has been designed to address three key objectives. First, it provides capacity to meet current as well as potential but admittedly unexpected calls on our cash position. Second, it solidifies the parent Company's investment grade credit rating as well as the credit ratings of Entergy Gulf States. And third, if provides the flexibility to get back on the path were on prior to the storms. Without risking a significant financial set back should an unexpected event occur. The last objective is most important. And it's what makes this plan unique. Because we designed it to put the Company on sound financial footing even if another unexpected event occurs. But over the coming years it can be unwound without substantial breakage costs has storm restoration costs recovery materializes.

Now, let me cover the three financing plan objectives in a little bit more detail. You are all very familiar with our previous disclosure of having $1.6 billion of cash available for capital deployment. Sources of cash in this amount came from operating cash flows of $6.3 billion. And additional debt capacity of $1.8 billion that we could access without exceeding our 50% net debt ratio. Uses of course, included 3.8 billion of capital expenditures for maintenance and growth investments. And about 1.2 billion for our share repurchase program, which as you know we have been executing on well ahead of schedule at the end of the second quarter. Reflecting in part, our bullish view of the growing strength of our northeast portfolio.

Importantly, the $1.6 billion estimate was for the three year period '05 through '07. During which capital expenditures and the buy back uses were front end loaded. While the debt capacity sources were back end loaded. Then in August and September when back-to-back storms occurred our all out response to storm restorations resulted in an immediate and unexpected need for more than $1 billion that was not considered in these estimates. At the same time, revenues were greatly reduced by more than $60 million in the first week after hurricane Katrina and more than $50 million the first week after Rita. And revenues in more severely affected areas continue to suffer even today. This is particularly evident at Entergy New Orleans. Where load currently stands at about 33% of pre-Katrina levels for this time of the year.

The point is, the math would have generally worked if the entire $1.6 billion was available for use on day one. And we were comfortable with having little financial cushion or in changing our financial goals. Or in the ability to substantially reduce risk somewhere else in the business. But simply making the math work isn't all we we have to consider. And it's not how we manage risk. And it's not how we price or value our credit quality. Which leads me to the second objective, solidifying our investment grade credit rating. For several years before this storm we carefully managed the business to assure that our BBB credit rating was on solid ground. Factors supporting that rating included thoughtful and deliberate evaluation of our risk positions. Improved regulatory outcomes. A generally improving economy, favorable prices in the northeast. And very little capital requirements for almost any reasonable environmental restriction even being considered.

In the aftermath of the hurricanes, this positive momentum was abruptly interrupted by the effects of the storm. And all the credit rating agencies took actions, generally moving ratings from stable to negative watch or outlook to reflect their expectation that our cash flows would be temporarily reduced and our debt would be increased. As expected, the most severe action occurred at Entergy New Orleans, following its bankruptcy filings. With all three agencies flowing the Company to below investment grade. And shortly thereafter credit ratings for Entergy Gulf States came under new pressure when Hurricane Rita hit. Increasing that Company's restoration cost obligations by up to $500 million. Entergy's Gulf state ratings would stand only 1 notch above noninvestment grade at one of the agencies. And were placed on review for possible downgrade at another agency.

At the same time the agencies' actions were occurring in response to the storm the level of corporate guarantees we were providing to secure our obligations to deliver nuclear output under contracts at prices that are below current market prices in the northeast, continued to increase. On the surface, increase guarantees necessarily mean that prices are up and the value of our portfolio has increased, which is true. But at the same time, higher guarantees could impose higher cash collateral calls if Entergy's credit rating was decreased to certain levels below investment grade. We view this as something that you have to avoid for a whole lot of good reasons. It's real money with real costs, which is why there is a element of equity linked securities in our financing plan. We believe the additional funding we plan to provide to Entergy Gulf States on the financing plan and the new financing sources that are planned for the parent Company; will ensure incremental near term needs can be funded while maintaining solid investment grade credit metrics. As constructive regulatory actions result in new cash flows to stabilize Entergy Gulf States on its own.

I want to emphasize, we do not believe that a downgrade for the parent or for Entergy Gulf States is appropriate. Absence this proposed financing plan or even with a debt only financing plan. On the other hand, we believe that the amount of financial cushion available to prevent a downgrade, if one or more other unexpected events occurred in the future, presented too big a rest stock simply roll the dice on it. This is because the dice in this case would be directly linked to shareholder value if we allowed ourselves to get one event away from a potential downgrade. And that one event happened causing a substantial need for increased capital for liquidity, that is ultimately unproductive, expensive and dilutive to earnings.

Our proposed financing plan we believe provides little argument that Entergy's investment grade credit rating is solidified. But we do acknowledge that there is a bit of a circular reasoning problem that results in the most perverse assurance. That in large part because we are putting a financial safety net in place now, it is highly unlikely that we will ever need most of the capacity later. For example, due to a rating downgrade.

Finally, I will address last and most important of our financial objectives. The flexibility to get back on the path we were on prior to the storms. Our long term principles and aspirations remain the same. Our goal is to create wealth and distribute that wealth in a timely manner to our owners. Near-term, the effects of the two unprecedented hurricanes, combined with an extensive floods, supply constrained gas price surges and the timing issues to related recovery have temporarily interrupted the substantial progress we've made. But our goal is to get back on track as soon as possible that. That means restoring dividend increases in the future to move our payout more in line with peers and the risk profile of the Company. And reinstating the share repurchase program. As recovery initiatives materialize and it becomes clear the parent's credit and the cash flows are stabilized. And we have the ability to unwind the financing plan we're putting in place today without endangering any of that.

While on the dividend subject, you undoubtedly saw that last Friday the Entergy Board voted to maintain its quarterly dividend at its current level of $0.54 a share. This action was an obvious yet a difficult decision. Since the Board takes very, very seriously its aspiration to grow the dividend. And before recent events that occurred, had already devoted considerable time to reviewing the merits its of a step-wise increase this year. Our aspiration to grow the dividend at a rate that keeps us in the top fortel growth in our industry, subject to the self imposed 67% payout ratio cap, hasn't changed. Even though the timing for acting on that aspiration is necessarily delayed.

Like I said, we intend to be relentless in the recovery of these storm costs. Given the extraordinary response to this massive devastation, there is strong support among most parties. But we are working diligently to earn the support of everyone that is critical to the overall recovery. And we believe that over the coming months and years, as we realize additional capital from deferred fuel collections and our recovery initiatives, that unwinding could be affected easily and at a reasonable cost. By for example, simply paying down the revolver or initiating a share repurchase program to supplement the $1.5 billion program we intend to complete by the end of 2008.

In short, the safety net financing plan that we will implement will have a modest cost, particularly when compared to the cost of doing nothing. And is a necessary step that can be quickly executed to start getting back on track. More importantly, we believe our actions to combine a financing plan with our efforts to achieve recovery of storm costs are highly consistent with the aspirations we have previously laid out to deliver top quartile total shareholder returns. While keeping the overall risk profile of the Company on sound footing. And with that let me turn the call over to Leo Denault.

Thank you, Wayne, and good morning. As is typical on our quarterly calls, I'll start with an overview of third quarter results. Then, I'll discuss the impact of the hurricanes on our financial statements. And I will describe how the accounting for Entergy New Orleans is affected due to its bankruptcy filing. Next, I'll review quarterly cash flow performance, our liquidity position and provide an update on our share repurchase program. Lastly, I'll close with some thoughts on Entergy's financial performance going forward.

Slide two shows that third quarter '05 as reported and operational earnings were higher compared to results one year ago. Operational results increased more than 15% but fell short of our expectations due to the severe impact of the two hurricanes. The higher earnings in third quarter '05 were driven by utility and nuclear. As well as by $0.13 per share of accretion associated with our stock repurchase program.

Moving to slide three, utility parent and other operational earnings show an increase quarter over quarter in spite of the devastating events in our service territory. A number of items contributed to this increase. Warmer weather produced higher usage in the residential commercial and governmental sectors outside of the areas hit by the hurricanes. The weather impact this quarter was $0.06 per share, versus a loss of $0.10 per share in the third quarter of 2004. O&M expense was lower as many utility resources were dedicated to restoration work for the entire month of September. And we received proceeds from a settlement on low level waste disposal services. $0.04 of which was applied to reduce O&M where it was originally recorded. An additional $0.04 from the settlement was recorded as miscellaneous income. The two storms during the quarter had the effect of reducing our overall results due primarily to the impact of significant customer outages.

Our estimate of the overall impact of the storms was a decrease of $0.13 per share. This is comprised of lower revenue of approximately $0.19, partially offset by reduced O&M expense of about $0.06. As you review our financial statements, you will notice there are a number of other storm effects. On our balance sheet, for example, we recorded restoration costs as either capital and utility plant or as deferred regulatory assets. We recorded an estimate of the cost of both storms at the low end of our current range.

This is the appropriate accounting for these costs rather than recording only the amounts incurred during the period. This treatment assumes that cost recovery will come through insurance, regulatory processes or other vehicles. Since we have not yet gone through the recovery process there is an element of risk with regard to the ultimate success of our efforts. Other balance sheet line items reflecting significant changes due the storms include accounts payable and outstanding debt. Both of which reflect significant increases. From a cash flow perspective, the storm's impacts are reflected primarily through lower cash flow from operating activities, higher capital expenditures and increased debt.

In future periods, we expect interest expense to be higher due to the storms. I should also point out that our financial statements this quarter have been adjusted to exclude Entergy New Orleans amounts from individual line items. This is because effective this quarter we are no longer consolidating E&O for financial reporting purposes. Instead we are treating it as a equity investment in unconsolidated affiliates. This treatment results in; lower property plant and other assets on our balance sheet. As well as reduced liabilities with net amount increasing the balance in equity investments and affiliates. Lower revenues and expenses on the income statement but higher other income in the form of equity and the earnings of affiliates. A range of changes of various cash flow line items, given the exclusion of the impact of E&O. With an increase in the investment in equity of affiliates.

Accounting rules also require that we continuously assess the fair value of our investment in Entergy New Orleans. We currently believe, we have the regular story right to recover and collect restoration costs from customers in the future. We also believe there will be some level of insurance proceeds and there is the potential for federal relief. All of these together support our position that the investment in E&O is fairly valued on our books.

Moving on to slide four. We see that Entergy Nuclear's earnings per share this quarter exceeded last year's performance. Higher generation and lower costs, along with the positive effects of accretion yielded the increased results at Nuclear. In the current quarter, outputs increased due to uprates, fewer unplanned outages, compared to the third quarter of '04 and no planned outage days. This is compared to the prior quarter, which included a portion of the refueling outage at Fitzpatrick. In addition O&M expense at Nuclear decreased slightly due to lower refueling amortization costs.

Entergy commodity services performance is illustrated on the right panel of slide four. This business recorded a small loss reflecting higher operating costs and lower generation compared to third quarter of '04. Our Harrison County plant remains unavailable because of the pipeline rupture near the facility that caused damage earlier this year. As I alluded to earlier, slide five shows that net cash flow from operating activities for third quarter was well below cash production a year ago due to a combination of the hurricanes and higher gas prices.

Deferred fuel receivables increased approximately $350 million during the quarter. This increase came primarily at Entergy Arkansas, Entergy Gulf States and Entergy Mississippi due to surging natural gas prices. Rich team is in the process of evaluating possible ways to accelerate recovery of these amounts. Particularly in jurisdictions where resets occur quarterly, semi-annually or annually. Some progress has been achieved in Arkansas as fuel collections on an accelerated basis have been put into place subject to regulatory review.

Slide six reflects progress we've made on our share repurchase program before hurricane Katrina. During the early part of the third quarter, we repurchased 3.1 million shares at an average price of approximately $76. Roughly 50% of the repurchases were through our $1.5 billion authorization. With the remaining activity coming from purchases to offset the dilutive effect of stock option exercises. We continue to estimate that average shares outstanding at the end of '05 will be approximately 215 million.

Following Katrina, our repurchase activity was halted due to the cash demands triggered by that event and by hurricane Rita. We had previously projected that we would complete the $1.5 billion program sometime in the latter half of '06. But now project that date could extend throughout '08. We have authorization from the Entergy Board of Directors for the revised ending date. Depending on on the level and timing of restoration costs recovery that we achieve, future repurchases could be executed opportunistically, as we've done in the past. Or through an accelerated share repurchase agreement.

Before I close, I want to address a key question that is probably on all of your minds related to earnings guidance. As you know, we are not able to speak specifically to '05 earnings guidance due to the events of the quarter. This effectively precludes us from discussing guidance beyond this year. Because of uncertainty at the starting point and also uncertainty as to the continuation of storm related effects into '06. In the absence of forward guidance to share with you I do want to qualitatively highlight the drivers that are likely to have a significant influence on our results in the fourth quarter. We believe certain issues we've had to deal with this quarter will continue to negatively impact utility results. For example, we expect lower revenues to continue due to extended customer outages.

As of the end of this past week E&O's daily load was about 33% of its normal forecasted level. Revenues may also be affected by changes in load patterns that we expect could take shape. For example, we have many instances of residential customers having been been restored but that have not yet moved back to the city permanently, so their use is below average. We also have a higher proportion of load going to serve commercial and industrial customers than is typical in the storm affected areas. These effects are obviously offsetting in direction but magnitudes are simply unknown and difficult to forecast. Modestly higher O&M has resourced a shift from restoration back to planned O&M activities. And we incur incremental costs associated with the E&O bankruptcy proceeding at both the parent and Entergy New Orleans. Potentially higher interest expense, which was originally projected to be lower compared to fourth quarter of '04. Interest expense increases could come as restoration costs demands and higher fuel prices increase our financing requirements. And finally, moderately lower accretion due to the suspended repurchasing activity could likely impact fourth quarter results.

Each day some of the uncertainty introduced into our business unfolds. Each day we learn more that will help us return to the point where we can project within a reasonable range forward earnings, cash flows, cash needs and ultimately cash available for future capital deployment. Our goal is to resolve enough uncertainty to be in a position to issue '05 guidance on our fourth quarter call in late January.

I will close by saying that successful execution of the financing plan, Wayne described earlier, is but one critical milestone for us. There are, however, other milestones as we work to recover from the difficult events that have come our way. Efforts associated with continued restoration work, recovery of restoration costs and the continued execution of our nuclear business plan are crucial as well. We have worked extremely hard to position Entergy to have the profitability, growth and financial strength and flexibility that create long term shareholder value. We will move ahead with the same dedication to the full range of initiatives before us. We now turn to our Q&A session and our senior team is available to respond to your questions.

[OPERATOR INSTRUCTIONS] We're first hear from Dan Eggers, CSFB.

First question, you laid out there was $1.7 billion of guarantees to parties. Most of that seems to be related to the nuclear with the $425 million sensitivity. Since gas curves have come down quite a bit since then, should we assume that that call on capital is probably down somewhere between $500 million and $800 million at this point?

What you can do is actually to follow it through time is to actually try and use the sensitivity that we've provided. It has come down to some extent due to the falling gas prices not quite that much, maybe more about $100, $150 million during, something like that. But if you go ahead and use that sensitivity that's how you can follow it as you track gas prices up and down.

When you think about customer displacement, obviously, there's unfortunately a lot of people in New Orleans who still aren't able to take power. Have you seen more of those customers showing up somewhere else in the service territory? Or do you have a feeling that they're generally not in the system anywhere at this point?

Rick Smith, Head of Our Utility Operations will cover that. Rick?

Yes. We are seeing a certain amount of additional customers showing up in other jurisdictions, like Entergy Louisiana, Entergy Gulf States and Entergy Mississippi. So, there is some load showing up in the other jurisdictions. But it's probably about half that load so far but not the total amount that we've lost.

I think one of the big issues right now - - telling the customer that is there, we're ready to provide them service. The problem is most of the customers just aren't there. We have entire circuits that are energized but you may have one or two houses that are just spotty. And you've rebuilt to provide service to the whole circuit. One of the problems in New Orleans right now, among others, is the fact that schools are basically not open. In January, Tulane, most all of the universities, I think all of the private schools, which makes up a big portion of the schools in New Orleans have currently announced that they are going to be reopening for the second semester in January. That will - - whether or not they reopen and whether or not the families come back as the schools reopen will be a big event for the recovery of New Orleans. Whether that happens or not or whether people stay away.

Okay. I guess just one more. Can you give some color on just what the actual cash outlays have been for storm restoration costs in the third quarter and where you seem to think they're going to be in the fourth quarter? Generally there's e a pretty meaningful lag between between cost is incurred and when cash is paid.

Of the tell estimate of the total storm costs in that $1.1 to $1.4 billion range we would anticipate 70% to 75% of that would be expended in '05. With about 20% of it coming in '06. And then the balance of it depending on what goes on primarily around New Orleans would show up maybe even later than that. But the majority of that is going to be in - - like I said 70% to 75% of that will than in 2005. With most of it probably in the fourth quarter. As you know we were spending all the money in September in terms of incurring the costs.

So, that's when the cash will go is probably the fourth quarter?

That's when the cash will go is mostly in the fourth quarter.

Thank you guys.

We'll now here from Kit Konolige with Morgan Stanley.

So, my first question was, so what was the - - previously you had had '05 and and then now you've withdrawn it. What brought you to that point?

Well, Kit, we had the '05 guidance out there prior to the storms. And since the storms have hit, the uncertainties around the return of load in the jurisdictions that have been affected, the costs of restoration and then even the mix of load, all those things are difficult for us to project at this moment. As Wayne said, you've got people who have been restored to service but they're not living there yet, so their load patterns are different. We've got a change in the mix where commercial industrial load may be back but residential load is not. So in addition to just the fact we don't know how quickly people will return to take service, it's when we hook them up we're not certain that there's anybody there and that they're going to take it. All of those things go to making it difficult for us to really project given the nuances of how this is playing out going forward.

Sure. Let me change to a different topic. Can you repeat? I wasn't sure I caught it how much the decline in cash flow is related to higher nat gas prices for generation?

If you're talking about the deferred fuel balance, deferred fuel changed about $350 million during the quarter. As gas prices run up.

Right. And so that will - - are you going to attempt to, for example, sort of roll that into storm recovery as well and just say, "we've got two big things going on here. We burn a lot of gas and that's way up and then we got the storm recovery costs. Why don't we just make it all one recovery?" Or is it of necessity just two separate paths?

Rick, go ahead.

Kit, we have normal mechanisms to pick up fuel costs. We go through this if you go back a couple years ago when gas prices spiked again we had large deferred fuel balances. And pretty much - - and like the Louisiana jurisdictions there's about a month or two lag on that. We start collecting those higher fuel costs. In Mississippi it's quarterly. And in Texas it's semiannually, that we can request higher fuel costs. So, you'll see that number probably peak by the end of the year. But then I would say over '06 we'll pretty much get all that in the fuel clause mechanisms and you'll see we'll be collecting substantial amount of that.

Have you seen anything formally or informally where the - - just politically since that fuel cost is a large number on top of the storm recovery costs being a large number that that's going to be more difficult this time? Are there any commissions just indicating so far that there's going to be some foot dragging or some prudence reviews or that sort of thing? I noticed Arkansas is doing a prudence review of some of your coal costs.

Well, Arkansas is a little bit different animal. And Leo mentioned that we'd filed for special rider, which is available to us. And two things we're going on with that. One is coal rail problem that we're all experiencing. And we asked for a little over a 6% increase in fuel costs collections. And there was request for us to look at 1% to 1.5% of that increase and maybe go after the rail companies, which we're looking at that issue, anyway. But they did approve - - go ahead and put that in place subject to refund, which I see as a positive event.

Sure.

We knew that was beyond our control.

Great.

And in the other jurisdictions, the mechanisms are continuing to work. We just implemented a fuel clause mechanism in Mississippi and Louisiana and Gulf States Louisiana. And I think Texas right before the hurricanes hit. So - -

All right.

Everybody is aware fuel costs are going up everywhere and that this is putting pressure on us from a cash perspective. And they've all been very favorable with what we've been doing.

Yes, Kit, coming out of the last time that gas prices ran up we did have some various hearings particularly in New Orleans relative to that. And we came out of that. I don't think we had any disallowances at all through that process. But coming out of that process we were very diligent about establishing hedging programs in each of our jurisdictions. So, we wouldn't be second guessed going forward relative to how much you should hedge out, when you should hedge it out and how much should you rely upon the spot market? And before we really didn't have that. That was kind of the basis for the some of the prudency hearings was maybe you should have saw it coming when the market didn't see it coming. And those kind of things. But we kind of ended that debate, whatever it was, four years ago when we put the hedging programs in place with all their blessings.

So, with their blessing, so that's the key. That the hedging programs that you had had signoff from the regulators?

Yes. Yes. So we had been hedging all year long. And they are definitely in the money now.

[OPERATOR INSTRUCTIONS]. We'll now hear from Ashar Khan with SAC Capital.

If I heard correctly Leo, you now mentioned the buyback now will be contemplated to the completed by '08, is that correct?

What we've done Ashar, is recognizing the fact that we've had to halt the program temporarily that we may need more time to implement it. And as you know, we had authority from the Board to implement that through the end of '06. And what we've done is we've gotten authority from the Board to go through the end of '08. The timing of when it will come back and how it will come back will be based on the recovery efforts both from an insurance, from regulatory recovery and from any federal aid. And as we recognize those things, they aren't going to happen immediately as those dollars start to come in. And as Wayne said we anticipate that they'll start to come in in 2006. Then we'll evaluate where we are with the repurchase program and all our other financial strategies and start to reinstitute those. And so that's in order to take advantage - - or to acknowledge the fact that right now we've got the significant outflows because of the storm restoration and the recovery will come later. We've delayed the timing and we've gotten authority to do it through '08.

And Leo, can you just tell us a little bit more, what is the timing of these financings that you kind of indicated in today? And secondly, what is the cost of these as you see it? If one was to look at your old, old '05 guidance and assuming everything was running normal and could you just elaborate what kind of costs you see it on an EPS basis of these financings?

Well Ashar , I can't really go into detail on the financings for a variety of reasons, most of which are legal. So, we're kind offer limited in how much we can divulge about the timing and the nature of those going forward.

Okay.

But what we're looking at now, as Wayne said, is that $2.5 to $3 billion sizing of the financing. Which we would anticipate that we would begin reasonably quickly. And that right now we would be more probably closer to that $2.5 billion side.

Okay. Thank you very, very much.

And we'll now hear from Paul Fremont with Jefferies & Company.

I was just hoping to get a quick review. In terms of the total storm reclamation costs between the two storms, what is the total number there?

The total storm range is $1.1 to $1.4 billion.

Okay. And of that, how much is New Orleans?

The New Orleans is about $265 to $325 million, I believe is the range.

Okay. And it's safe to assume that the New Orleans is essentially going to be debt financed. So at least in terms of returns there it will get a debt rate of return? Through the debt financing?

Well, in terms of how it will be financed, currently it's being financed through the dip financing. In terms of how the rate making will be, that's yet to be determined. Recovery of those dollars as it emerges from bankruptcy will be contingent on a lot of things. It will contingent on what the insurance recovery looks like. It will be contingent on what the plan of reorganization looks like. It will be contingent on any federal aid that occurs and whatever happens with the rate levels going forward as it emerges from bankruptcy. So, recovery has yet to begin. So, to say that it will happen at debt rates is probably premature.

Okay. And if we look outside of New Orleans, it looks to be - - well, would the remaining 1 billion or 1.1 billion or so of costs, would the intent be to try and rate base all of those costs or a portion of those costs?

Paul, this is Rick Smith. Right now it appears to be about a 50/50 split. Half of it is capital and half of it goes against the storm reserve.

Okay. So, at most you'd have half of those costs would potentially add to the rate base of the utilities. Yet you're talking about a potential equity financing that at the low end would be at 100% of what you're proposing to add to rate base. And at the high end would be twice what you're adding - - potentially adding to rate base ? I guess the part I don't understand here is, why would you be adding more equity to the Company than you're actually adding in terms of allowed equity on which you could earn?

Well, first of all, the equity linked securities is our intent, not just straight equity. Our intent right now would be that we're probably at the low end. We have authority to go up to $1 billion on that but our intent now is probably the $500 million level. As Wayne mentioned going through the plan, there's a lot of different elements in terms offer how we size each piece of that. Not just the capital needs and the recovery strategy but also the credit ratings in the near term as we go through this. Also as Wayne mentioned, as we start to gain recovery is when we would start to look at how we put the cap structure back in the position that it ought to be. For example by reinstituting the share repurchase program that we have or maybe a broader repurchase program going out into the future as we start to get insurance recovery, recovery through the regulatory process and any federal aid that may come through.

Okay. But at least until you would get to whatever your ultimate capitalization goal would be, there is clearly a level of equity that is contemplated here that would be in excess of the amount of equity that could be supported by the rate base that you're talking about.

Well, I think if you look at it in terms of what ultimately recovered is thing. But if you look at it in the near term in terms of our planning around the credit quality of the Company and everything prior to getting recovery that, that feature in the plan is meant to keep the credit rating solid and keep the business in solid footing going forward until we get to recovery. At which point in time, we'd start down the path of more share repurchases and putting this cap structure in line with an entity that is actually getting the recovery.

Paul, this is Wayne. I think what you said - - I would disagree with what you said. And I think that the answer - - Leo gave the answer. But I mean, once we - - that's why it is equity linked securities and not straight equity because we don't expect this is a long term situation. We expect that we will get relief. Like Leo said all these dollars are recoverable. If they were prudently incurred, there should be absolutely no question about that. It's a matter of timing. In the interim, regardless of how much goes to capital or how much goes to reserves, whatever, it's dollars that are out the door. It makes the rating agencies nervous, it makes everybody else nervous. If you're $1 billion or so out the door and you've got $0.5 billion in fuel calls and you've got potential collateral calls the numbers get big pretty quickly. And so providing that safety net kind of combination financing in the interim until we have the assurance in hand. It doesn't mean we necessarily have to have the dollars. But we have the assurances in hand that allow us and the rating agencies and others to know where we're going. Then we can start to look at getting back in terms of balanced cap structure as fast as we can. And that's the plan.

Okay. And last question is just a housekeeping item. You guys talk about a settlement with the Central Interstate Low Level Radioactive Waste Commission as part of your nuclear results. Can you quantify what the benefit was to O&M in the quarter?

The total benefit of the settlement was $0.08. $0.04 offer that went through O&M, which is where we originally recorded that. And $0.04 went through other miscellaneous income. So $0.08 in total.

Thank you.

And we'll now hear from Rudy [Toantino] with Prudential Equity Group.

Hi. I was wondering if you could provide a little bit more light on what type of federal relief that you're pursuing?

I think Curt is in a different location. I think, Curt, are you on the line?

Yes, I am, Wayne. I'm here in Washington and we're looking at several different avenues. We've certainly looked at some tax incentives and trying to get some things done there. It seems like there may be some opportunities there. We've had some good help in that area. The Stafford Act as you're familiar with is the Act that allows FEMA dollars to flow down to entities. However, for profit entities are prohibited from getting any moneys through Stafford. As an investor on utility we're prohibited.

If we were a co-op of municipal or a public power entity, we would have money flowing to us. Many of them already have had storm restoration dollars flowing to them in the area of $0.75 or $0.80 on the dollar. And it's interesting that many of those entities are in fact transmission dependent on us and folks like us. Having said that. We are working the Hill to try to make certain that they understand the problems with the Stafford Act, the fact that many of them thought on on the Hill We could get insurance and that's why they left the investor owns out. Well, they're learning now that insurance for us on the T&D side is something that's very difficult, very complex and so expensive it just doesn't make sense and our regulators don't like it.

We also looked at something called the Utility Stabilization Act. The Utility Stabilization Act is something that is mirrored on the Airline Stabilization Act. That was put together after 9/11 to aid and assist the airlines for everything from lost revenues to direct cost as well. That was in the Pelican legislation. That is another avenue that we're looking at to try to recover some of our costs. Community development block grants is another way through HUD that we might could recover some moneys. And that is the way that ConEd recovered moneys after the tragedy of 9/11 due to their costs.

And what I would tell you as far as looking at ConEd and looking at our situation as to us trying to recover, you know, somewhere in the neighborhood of a little over $1 billion here, specifically as you look at Entergy New Orleans, if you look at it and compare it to ConEd, we've basically lost our revenues there and don't look to be made whole for some period of time. I think ConEd had lost about 1% of their revenues and very few customers as compared to what we've seen. So we're working the Hill. We're working the administration. We're trying to make certain that O&B understands our position and our need down here specifically with Entergy Mississippi, Entergy Louisiana, over in the Gulf States region. But particularly with Entergy New Orleans because of the dire situation there.

Okay. And would you be able to give guidance on how much lost revenues that you expect in the fourth quarter and in early '06?

We can't really give you a good indication of that for all the reasons that I mentioned earlier around guidance. Right now we're still looking at how quickly revenues are going to come back, how quickly customers are going to come back. That's still a unknown. Not only do we not know how quickly they're going to come back, but as we mentioned earlier when they do come back we can hook them up. But we don't know if they're actually living there, if they're actually - - how the repopulation is going to go. I would say right now there's about 120,000+ customers that we view are going to be on what what we would call a extended restoration in terms of they won't be back. And they require some form of rebuilding and inspections and things like that. And it's too early to predict how that will play out.

Okay. Thank you very much.

Yes. I'll just say on that point, I mean, for those of you that happened to read "USA Today" there was a article today on that very point that talked about how much people in New Orleans are still waiting for the inspectors to tag them. And they don't know whether or not they will be tagged with - - whether they will be tagged to destroy the house and bulldoze it or whether they will be allowed to rebuild. Or whether they'll get a yellow tag that says you'll be allowed to do work or not. And that's still a long line of people waiting for the inspectors to even do the initiative tagging of these houses.

We'll now hear from Zach Schreiber with Duquesne Capital .

Yes, hi, Zack Schreiber with Duquesne. Just a quick question on the equity linked, which I think you had focused on and being at the low end of the 500 to 1 billion. Just wanted to make sure I got that right, firstly? And then the timing I think you said relatively near term. Do you need to make any shelf filings or do you have effective shelves to do that from? And then on the low unwind costs as I think you had mentioned, when other things come through or into place, what kind of unwind cost are you imagining? And in terms of the equity link then are you really talking about securities that are mostly debt but have some equity component to it, such that the unwind costs of effectively buying them back is much lower? I mean, you have a lot of cryptic things there, Wayne. I'm Just making sure I kind of picked them all up.

Yes. I mean, I've got enough lawyers sitting around here to - - the.

You can tell them to get a cup cough coffee. Just kidding.

Leo first approached me with this - - the good news is we were in New Orleans we were on the 28th floor. Now we're in Clinton, Mississippi. We're on the second floor. So when I threw him out the window he didn't take as many bruises when he mentioned equity. But we were able to settle on this equity linked idea. And I think that all the things you talked about are things we're certainly looking at and thinking about. Things that have - - do get credit at the agencies for having some form of equity content to them. But is certainly less permanent and less in nature and more reflective of our current situation, which is temporary. But beyond that I think I've probably already talked more than the lawyers will - -.

And then just as far as size goes, were you intimating that the overall financing was going to be closer to 2.5 billion at the size of the equity chunk would be closer to the 500 than to 1 billion? I've been kind of off the call. I want to make sure I got that right.

Yes. That's pretty much - - actually the storm restoration costs our original estimate has been kind of coming down. And some of the prospects for insurance recovery and things we're getting a little more optimistic than maybe we were at one point in time. Things have been moving in large part our direction. With the exception of the repopulation of New Orleans has kind of seemed to hit a brick wall here. And that one's just outside of our control. But I mean I think we're much closer to the $2.5 billion number than we are the 3 but we don't want to go to be going back to the Board with these kind of calls. Which we've had a great many of to ask for more authority or if we get another 2, 3, 4 sigma movement in gas prices, that type of thing that fuel causes to run or something of that nature. We want to make sure we've got plenty of authorization to whatever needs to be done ahead of going begging to the marketplace at the worst possible time.

Got it. And as far as timing goes I think you mentioned relatively near term. Are there any other authorizations that you need? Do you have effective shelves outstanding with the SEC already that you can just pull down from in?

Zack, this is Leo. We have to get a shelf.

Get a shelf. Okay. How long does that take? And how long would it take to become effective?

I can't really - - I can't go any farther than that.

Okay. Then on the kind of security what you're basically talking about is sort of a low delta equity linked security that will bridge you until the regulatory recovery, or the legislative recovery or the insurance proceeds come in?

I think we've gone as far as --

Sorry to be so pushy, guys. I thought maybe - - It's just I'm just trying to understand, because it's clear that someone doesn't like. I just want to make sure I understand what the reality is.

We'll now hear from Neil Stein with John Levin & Company.

Good morning. Not sure if this was addressed already, tax deductible on the storm costs. Anyway you could quantify what that offset might be?

We can't really quantify exactly what is is. But we will get casualty losses for dollars that we spend on restoration. So there is a - - the tax impact of that does exist.

I mean, and might there just be a tax offset of whatever your statutory tax rate is times the storm costs?

Well, it will be based - - it will have to get worked into the rest of our tax strategy in terms of timing and recovery and things like that as well. So - - and we'll probably end up getting into an carry forward situation of some sort.

Okay.

Yes, Neil, I think Curt - - I can't remember if Kurt mentioned it or not, and I have not talked to the Southern Company recently. You may have. But at one point in time we were both I think in agreement that one of the necessary options was increasing the carry back period. And I think we settled on trying to work it to seven to ten years as far as carry back in terms of losses. That would certainly address your question with regard to the offset. Otherwise, like Leo said, our tax situation is probably a little different than maybe Southern's and it puts us from a cash grow standpoint basically dollars will be there. But it's a question or will it be in the future or can we get a refund? And Curt, I don't know if you have anything to add with regard to where we're at on tax changes if we allow the carryback back to be extended.

Yes, thanks Wayne. Neil, what Wayne is speak to go is a ten year carry back on the NOL's. And actually we were able to extend the language back to ten years in the House Bill and there's strong sentiment that we would get that support in the Senate. We're certainly working for that and have every hope that we'll achieve that.

And Curt, I'm not sure if you mentioned this earlier. Anything in these Omnibus budget bills pending in the Senate and the House that will help you out?

Well, there's language all over the place. And we're trying to take any and every effort that we can to get anything in. And that's why when I talked to you about the different vehicles that we looked at whether a waiver of Stafford or even a permanent repeal, which is a far reach, or the Utilities Stabilization Act, or these tax incentives or the community development block grants, they can all be piecemealed into other pieces of legislation. Thad Cochran, who as you know is a very powerful Senator for us right now in Mississippi, we've had great conversations with. We know that he and others in those leadership positions are doing everything they can to help us. So, yes, we are using some of those as well but finding different levels of success.

Okay. Thanks very much.

[OPERATOR INSTRUCTIONS]. We'll now hear from Paul Ridzon with Key McDonalds.

My question has been answered. Thank you.

And there are no further questions. That is all the time we do have for questions today. Ms. Lopiccolo, I'll turn the conference back over to you for any closing or additional remarks.

Thank you, operator. And thanks to you 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 14 days by dialing 719-457-0820 replay code 970768. This concludes our call thank you.

And that does conclude today's conference. Thank you for participating, have a great afternoon.