安特吉 (ETR) 2005 Q4 法說會逐字稿

Good day and welcome to the Entergy Corporation fourth quarter 2005 earnings conference call. Today's call is being recorded. At this time, for introductions and opening comments I'd like to turn the call over to the Investor Relations, Ms. Michele Lopiccolo. Go ahead, ma'am.

Good morning and thank you for joining us. We'll begin this morning with comments from our CFO, Leo Denault. After the Q-and-A session, I will close with the applicable legal statements. Leo?

Thank you, Michele, and good morning. Let me begin by offering Wayne's sincerest apologies for not being able to participate in the call this morning. Unfortunately, he has completely lost his voice so he can't address you today, therefore, I will attempt to incorporate some of what he was going to cover in my remark,s and between me and the rest of the management team we'll do our best to fill in for him.

I'll begin, then, by providing you with an update of our recent accomplishments before moving into my typical explanations of quarterly and full-year results. Then I'll close with a discussion of earnings guidance, and I will try to put that guidance in context in terms of the goals we are working to achieve in '06 and beyond. Before summarizing our recent accomplishments I would like to start by reminding you where we were headed before the storms. In mid-summer we were actively executing on a major share repurchase program and we were evaluating another substantial dividend increase. Our utility was pursuing cost management initiatives in both healthcare and support service areas while also pursuing generation acquisitions under its supply plan. In nuclear we were continuing to demonstrate operational excellence with the goal of applying our expertise to newly acquired or contracted plants.

In addition, we were completing a multi-year productivity improvement initiative in executing our contracting and hedging strategy. Then the two hurricanes struck our utility, putting many, although not all of these initiatives, on hold. I provide this context to emphasize that everything we accomplished in the fourth quarter and what we hope to accomplish in the coming quarters is aimed at getting us back to where we were. From our perspective, getting back to where we were requires focus on three areas: stability, recovery, and growth, and I am pleased to report we made progress on all three fronts.

In the area of stability our most important fourth quarter achievements were operational. We successfully navigated through countless challenges to stabilize and repair our utility system, so that we could again provide service to our customers. At the same time, we stabilized our headquarters' operations by relocating 1500 employees to safe work locations with minimal disruption or productivity loss. From a financial perspective, we restored stability to our balance sheet by executing the financing plan that we announced in November. This plan provided needed liquidity while also providing excess capacity should another 2 Sigma event occur in the future. As part of that plan we completed a new $1.5 billion corporate revolver for the parent. We issued $500 million of operating company debt. We marketed $500 million of he can units, and you might recall this amount is at the lower end of the half a billion to a billion dollars range we were considering. And finally, we infused $300 million of equity into Entergy gulf states. This infusion helped the subsidiary with the highest overall restoration costs maintain its liquidity and its investment grade credit rating in anticipation of obtaining some form of cost recovery.

During the fourth quarter we began advancing our storm recovery initiatives, the second focus area that we view as key to getting us back to where we were before the storms. At the federal level, the Gulf Opportunities Zone legislation and the Katrina Relief Bill were both passed. The GO Zone legislation, as it is generally called, permits public utilities to elect a ten-year net operating loss carry-back for casualty losses due to Katrina. This will allow the utility to accelerate the timing of certain income tax reductions on future tax returns.

The Katrina Relief Bill provided $11.5 billion of community development block grants and included language that permits funding to be provided to publicly owned utilities. The department of Housing and Urban Development has already allocated specific amounts to each of the states have affected by Katrina, Rita, and Wilma who in turn will administer the grants. We intend to pursue CDBG funding in Louisiana, Mississippi, and Texas during the first quarter and we are working with state leaders on behalf of our ratepayers to make the case for federal assistance through support of the operating companies in the affected areas.

At the state level we made filings to request interim recovery of nearly $600 million of storm costs in Louisiana and Mississippi, and we obtained important decisions in Entergy New Orleans' Chapter 11 proceeding. In December the bankruptcy judge granted Entergy's request that our dip financing prime all liens. The dip financing currently stands at $90 million. In addition, the judge confirmed that the insurance proceeds can be used as determined by Entergy New Orleans. Both of these decisions were important to ENO's overall goal of emerging from bankruptcy as a viable entity.

Outside of storm-related activities there were several other fourth quarter achievements that were important to our long-term growth. In the utility, for example, the Mississippi Public Service Commission approved interim recovery of the Attala acquisition paving the way for the January '06 closing. The Federal Energy Regulatory Commission issued a file order in the System Agreement case, essentially affirming its June '05 decision. And in Entergy Gulf States Texas, two new riders were approved. The first allows us to collect $18 million of annual capacity cost, while the second allows for interim recovery of $18 million per year of transition to competition costs while our TPC case is pending.

And finally, in nuclear, our contracting efforts were successful at solidifying incremental revenue sources for the future. We executed a major multi-year contract at attractive market prices. This contract along with others closed during the period increased our sold forward positions in '07, '08, and '09 by an average of 10%. Over the same years our average sold forward price for the portfolio increased $3 to $7 per megawatt hour.

Now turning to our financial results for the quarter, slide 2 shows that fourth quarter '05 as reported results were lower compared to one year ago. The reason for the decrease is attributed to the special items recorded in the fourth quarter 2004 compared to those recorded this year. In 2004 we recorded a net positive special of $0.18 per share. This special included the impact of tax benefits on restructuring partially offset by a loss at Entergy Koch and an impairment reserve. In 2005, special items had a negative impact on earnings. The specials reflected an impairment reserve and results from discontinued operations following our decision to sell the Texas retail business. The differences in these special items created a $0.34 per share decline quarter over quarter as reported results.

Operational earnings in the fourth quarter of '05 were $0.59 per share, a $0.09 increase over fourth quarter '04, the increase coming from higher results at both Entergy Nuclear and the nonnuclear wholesale assets business. Slide three shows utility, parent, and other earnings declined compared to fourth quarter of last year. Lower revenues were the primary driver including revenues in Entergy New Orleans which are recorded in the other income -- in "other income" due to the deconsolidation of that business. Industrial sales in particular were down significantly quarter to quarter. We still have two large refineries, customers at Entergy Louisiana that have not yet returned to full service, and two of the large industrial customers remain out in New Orleans.

In addition, a chemical plant in Entergy Gulf States Louisiana service area suffered severe damage and will not reopen, with a resulting loss of about 2.5 million of annual revenue. This is the only major industrial customer we are aware of that was a permanent casualty of the storms. We expect that one of the refineries currently down should return to full service by the end of the first quarter. However, the timing of the return of the other large customers hit by the storm is still in question. Continuing outages of these customers will reduce revenues $3 million to $4 million per quarter.

Lower O&M expense partially offset the overall decrease in results at the utility. We saw the continuation of storm restoration work which lowers O&M along with back end loaded expense reductions that we discussed with you early in 2005. Entergy Nuclear's operational earnings per share reflected higher results compared to the same period last year. The increase is due primarily to higher generation due to one less refueling outage and higher contract pricing. In addition, lower O&M due primarily to timing and the positive impact of accretion also contributed to higher results at Entergy Nuclear.

Closing out the discussion of quarterly results, we look at the nonnuclear wholesale assets business. Results in the fourth quarter of '05 were higher than a year ago, reflecting the sale of SO2 allowances in the current period. This business has some generating assets with operating attributes that have produced excess allowances. Therefore we can periodically create value by monetizing a portion of these allowances.

Slide four includes as reported and operational results for the full year '05 compared to '04. As reported earnings reflect an increase of 7% with improved results coming primarily from Entergy Nuclear. Full-year operational earnings increased by 16% with higher contributions from each of Entergy's three business segments. Favorable weather and accretion from Entergy's share repurchase program were the primary contributors to the higher operational earnings at the utility in '05. These positives were largely offset by a $0.26 per share negative effect due to the storms. Of this amount, $0.16 per share is associated with Entergy New Orleans alone.

Entergy Nuclear's full year results improved $0.26 per share or 25% due primarily to higher contract pricing, higher generation, lower O&M, and the impact of accretion. And finally, operational results for the nonnuclear wholesale assets business improved year-over-year due to lower costs and gains on the sale of SO2 allowances. The results of the business exceeded the goal we set several years ago to achieve a breakeven position by the end of '05.

As reflected on slide 5, net cash flow from operating activities was down significantly compared to fourth quarter 2004. The absence of sale proceeds from Entergy-Koch, which came in during the fourth quarter of last year, account for more than $500 million of the decrease. In addition, spending and lost revenue due to the storm stripped away another 300 million. Lastly, working capital fluctuations at the utility decreased cash but were essentially offset by higher revenues and lower refueling outage costs at nuclear.

In spite of these effects, however, we ended the year with more than $580 million of cash and our gross liquidity position stands at $3.1 billion due to the success of our financing plan. Further, we now expect to have $2.3 billion of cash available for investments, repayment of debt or equity or dividend increases over the next three years. This level of cash availability assumes recovery of significant amounts of deferred fuel costs which is cash we've already spent. The $2.3 billion also assumes realization of higher market prices for unsold nuclear generation, and incremental debt capacity that could be tapped toward the end of the period while remaining within our stated debt targets.

Moving now to earnings guidance, slide 6 reflects the major components of our as reported and operational expectations for the current year. We see '06 as reported earnings in the range of $4.78 to $5.08 per share, with operational earnings in the range of $4.50 to $4.80 per share, both excluding results from Entergy New Orleans. We have excluded New Orleans because we are not in a position to provide near-term earnings estimates for that business. The city's repopulation and the bankruptcy process both have uncertainties associated with them and we cannot predict those outcomes today.

Continuing on slide 6, we show how '06 earnings estimates build from an operational base of $4.40 per share. In the second and third bars we isolate two of the '05 variances to provide more visibility of the forward-looking drivers. The $0.10 of weather is deducted and the '05 storm effect of $0.10 exclusive of the NOI is added back. This gets you back to a starting point of $4.40 per share. '06 utility drivers then follow in the next three bars. These include nonstorm-related rate actions and normal sales growth at the utility partially offset by the continuation of storm-related outages at Entergy Louisiana where approximately 31,000 customers remain unable to accept service.

Higher operating and maintenance expense due to benefits, inflation, operating expenses for the Perryville and Attala plant and costs will incur to implement our independent coordinator of transmission and higher interest expense that results from the $1.6 billion increase in debt at the end of '05 and are expected to increase usage of the corporate revolver during '06. In nuclear, the key '06 guidance drivers are higher contract and market energy pricing, higher generation from up rates and fewer outages, higher operating and maintenance expense due to inflation and benefits expense, and increased interest expense due to market-price driven collateral requirements. As our release shows, we added specific pricing assumption based on published market prices for purposes of setting guidance for our 9% open position. In addition, we provided sensitivity so you can estimate how consolidated earnings will change as market prices move throughout the year.

Turning to slide 7, we show the key initiatives we are working on to shape our company's future. It should come as no surprise that each of the initiatives is aimed at either stability, recovery, growth, or some combination of the three. This is because, as I noted at that time beginning, a lot remains to be done in all three areas to get us back to where we would have been absent the storms. We view '06 as a year of rebuilding for the utility. While the infrastructure restoration is largely behind us, our utility will focus on he building or resolving issues at Entergy New Orleans and beginning storm recovery.

Other key objectives we will pursue include redefining corporate headquarters rebuilding our balance sheet to restore credit rating strength. These are not tasks that we can complete on our own. Rather, '06 will be a year where we must demonstrate our ability to work in a cooperative and productive manner with government officials, our regulators and our rating agencies. Achieving success in these efforts is critical as we work to protect customers, shareholders, bond holders and employees from the costly effects of past and future storms.

'06 will be a defining year for our nuclear business as well, with initial productivity and fleet alignment improvements in place, nuclear will demonstrate that it has the talent, capability, drive, and discipline to operate in a highly competitive commodity-based business. Challenges in nuclear will come in the form of taking measured market risks to capture upside while aggressively managing cost to increase margins. In addition, nuclear will implement the up rate from Vermont Yankee, while also initiating life extension approval processes for VY and for Pilgrim.

If we are successful in both of our core businesses, our goal of getting back to where we would have been in '07 and '08 absent the storms is well within reach. Now I know you'll probably be quick to ask what does success mean in terms EPS growth, ROIC, dividend and share repurchases. Let me assure you that all of our aspirations remain squarely in place. In fact, we acknowledge that it may become necessary to revise some of them upward in the future, particularly given the market price opportunities that exist in our nuclear business.

But now is simply not the time to get ahead of ourselves. This is because our immediate priority is to work with government and regulators to recover 1.5 billion in utility storm costs. Further, this recovery must be done in a way that allows us to begin paying down the $2.5 billion financing that we effectively advanced with little more than a moment's notice. It goes without saying our '06 agenda is filled with challenges, but let me assure you we are focused on achieving timely resolution of these issues that are before us, and we intend to do so while continuing to create value and drive growth that will be clearly evident in '07 and '08. We now turn to our Q-and-A session and our senior team is available to respond to your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Greg Gordon with Citigroup.

Thanks. Good morning, Leo.

Good morning, Greg.

Two questions. First on the utility and the milestones that we're looking for in terms of GO Zone benefits, block grants being directed to the Company, and getting a window into how much and over what time period the individual states will allow for a recovery from customers. When are we going to start to get sort of tangible numbers around those four -- three or four areas?

I'll let Rick go ahead and start off with that.

Good morning, Greg.

Thank you.

We're in the process right now working with the various state committees and the legislatures in the different states on really the CDBG grants, and internally we've started the process of developing the applications for the CDBG, and I think our expectation is we may see something out of that around mid year kind of the result of those efforts. On the GO Zone grants, those would be part of any filing that we would make out of the 2005 tax return and that's really a situation where we're carrying back the losses a number of years. So, again, I think that's probably sometime this summer we'd know the results around that.

And then on the rate making mechanisms, as you've seen, we've filed in Mississippi and Louisiana Phase I of two-part filings. In Phase I we're looking for really interim relief to really start some cash to come into the utilities that were significantly affected by the storm, and hearings on those are going to happen over the next couple of months, and we hope to get some results out of those probably in the second quarter of this year. We'll follow up later in the year in a Phase II filing when I think there's -- the costs will have solidified at that point in time time, and we'll know where we stand with the CDBG grants, insurance, and we'll follow up with filings later in the year in Phase II where we'll also be discussing with the Commission's securitization around any additional amounts that need to be requested above the Phase I level, and also to be talking to them about securitization where we'll look to build up a larger storm reserve than we've had in the past.

Okay. So insurance is also expected by mid year?

I think we'll have a fair idea what it might be, and we'll probably have to have some kind of regulatory mechanism that trues [ph] it up on an ongoing basis, how those funds might come in.

Greg this is Leo, you're right, there's several ways to attack the issue here. Insurance, the federal relief efforts that we're going to make, as well as rate recovery. And on the insurance front, we'll be starting to make preliminary -- or outgoing proof of loss to the insurers pretty soon, but that will start to come in over time, but we should have a pretty good idea by mid year or so exactly where we're going to be on the insurance, and then we'll continue to pursue the CDBGs and then the rate recovery as well.

Greg, this is Curt Herbert. Just to finish up with what Rick was talking about with the CDBG's, the community development block grants. I think it's important to kind of go back to the setting we were in the last time we talked in November. If you remember that our point of view was that due to Stafford, we really had no opportunity here. So what we were trying to do is go to Washington D.C., work with our leaders there, work with our state leaders, and create some type of opportunity. Obviously, that was done through tax initiatives, the GO Zone, and the community development block grants in the form of the $11.5 billion that was sent down through the $29 billion package.

Now, you know, those opportunities we're having to work through and we're working with HUD. We're working with states. We're working with the local recovery efforts as well as the CDBG coordinators in Mississippi, Louisiana, and Texas, but what we have done is found an opportunity now to go after some of these things. And again, we're hopeful that in the spring there will be some other opportunities, and our work is not done in Washington. We're going to continue those efforts, not to mention continuing to try to make some changes to Stafford.

Thanks. Switching to the nuclear front, you know, over -- this has been -- the nuclear story is obviously turning into a revenue growth story, but over the last several years, it was also a cost reduction story, but in '05, and now for your projections for '06, we're seeing reasonably substantial increases in operating costs. In our last visit to your nuclear northeast headquarters, you know, we came away with the impression that in the long run there was still operating efficiencies to be gained at the nuclear fleet. So why are we seeing sort of the systemic increase in operating costs? And -- that's my first question on that front.

I'll start out with that, Gary. One of the things we've done is add in, you know, shown you the A & G side of this as well, the same cost increases, inflation and benefits costs that we've seen are also impacting nuclear. At the same point in time we still see cost reduction efforts-- some of the things that we've been fighting against that we didn't to have fight against when we first started were areas of security and things like that, that have increased other time, but we still do see some opportunities to lower costs and to continue down that path. I'll let Gary go ahead and complete that.

Yes. This is Gary Taylor. To build on what Leo said, I think we have seen our efforts really materialize on the things that we said we would do, as he said, but basically, pension, benefits, increase in security costs have offset some of those, but we haven't completed that first phase, and we do see some opportunities looking forward, and we have initiated internally what that next step may be, but we still believe there are some opportunities for efficiencies going forward.

Okay and then the last question is on the depreciation increase. What is that related to? Is that related to the Vermont power plant up rates, and will that potentially reverse out when we get license extensions? Can you explain what's going on there?

It is associated with the -- with up rates and other capital expenditures we've had at the plants. I really wouldn't see that changing much going forward.

Okay. Thanks, guys.

Thank you, Greg.

Our next question comes from Ashar Kahn, with SAC Capital .

Good morning.

Good morning, Ashar.

Leo, I just wanted to understand this appendix which was attached to the presentation, number 9. You mentioned that the storm effect was $0.26 for the year, $0.14 and $0.12 for the third and fourth quarter. And you also reported, I guess, when you reported earnings, that because of this you were doing, you know, lower O&M and hence, '06, O&M is, I guess, in the budget is hitting by about $0.25 or, so '06 versus '05. Could you quantify how much lower O&M was in '05 because of, you know, the storms and all that was doing? So, what is the normalized increase in O&M going from '05 to '06? Or is it caught up in the storm effect numbers? I'm a little bit -- if you could just clarify that?

Sure. Some of it is caught up in the storm effect numbers as well, because what you see is a redirection, a redirecting of O&M to storm costs. So as we go through and calculate that $0.26 overall impact there's a benefit, I guess, for lack of a better word to O&M for the fact that some of those dollars are going into the storm costs. I'd say that if you look at that $0.25 increase in 2005, about 50% of that is inflation and benefits costs and things like that. We also got some added costs in there for Attala, which is probably another 25%, and some for Perryville, I think like another 10% of that O&M number. So there's a lot -- there's a few things going on there, and the balance of that would be redirection of O&M back to O&M as opposed to storm costs.

Okay. And then getting back to -- I've missed this. You mentioned regarding the free cash flow projection from 2006 to 2008. You mentioned that it was also dependent on certain recovery of certain costs. Could you quantify what that number is?

Really, the recovery that we've got in that is for deferred fuel.

How much is that?

That's probably about $400 or $500 million, and as I've said, we've already spent that money in '05, as deferred fuel balances rose and through the regulatory process going forward where we will recover those dollars.

Okay. And, Leo, could I just ask you, if one was to -- trying to do a little bit of comparison of before and what this cost, how much of the '06 guidance, which has been impacted by the higher borrowing or the new equities, the new convertibles that you kind of issued? And so, as you look out and you get these proceeds throughout the year and, you know, you have the flexibility of buying back some stuff. So could you quantify to us how this higher borrowing costs associated with all that went on in 2005, whether through the convertible instrument or the straight debt cost, how much is costing you in your '06 plan because of that?

Well, primarily that $0.10 of increased interest costs that you see is related to that.

Okay.

Because as we go through time and we collect deferred fuel and things like that, we'll be able to reduce that burn, but the $0.10 is how we're quantifying what that impact is.

But should I look at that $0.10 in the utility? Why on the nuclear side is there $0.05 for increased interest expense? Can I ask?

The nuclear side is really related to what the Company charges nuclear for the use of capital and collateral requirements. So it's really offset at the parent.

Okay. Okay.

It nets out in terms of where it goes from nuclear to the parent. But those are guaranteed fees. We have a discipline around how we charge the business unit for the capital they consume from the corporation, and that's nuclear's piece of that.

Okay. Thank you very, very much.

Sure, Ashar.

We'll go next to Kit Konolige with Morgan Stanley.

Hi, guys.

Kit.

Just to follow on the nuclear a little bit, I apologize if this is obvious to other people, but in the -- on page 7, where you're discussing the forward-looking assumptions in the nuclear segment, there's a bullet point that refers to $20.50 per megawatt hour, nonfuel O&M expense reflecting inflation, higher benefits, semicolon, $19 per megawatt hour production costs. What's the difference between those two numbers? And, I mean, why am I looking at two different numbers there?

Okay. Well, the basic different is that the -- it's fuel and A&G. We take fuel out, add A&G back in to get the O&M number versus production cost. So production cost never included A&G expense.

So the one is a cash and the other is a book cost? Is that how I should look at it?

Not exactly. I think that they're both have elements of cash and books in them depending on how you look at amortizing the fuel and the like. It's really what's classified as O&M versus the way we would classify production costs. Production costs don't include the A&G component.

Okay. So the $20.50 has A&G in it. The $19 doesn't?

Right.

So when you're talking about rising costs, is it all across the $20.50, or is it in A&G in particular -- or?

I'm sorry. Could you repeat that, Kit?

The rising costs over the last couple of years at nuclear.

Yes, they've been a little of both, but A&G is probably the bigger component in that.

Okay. But it sounds like I should use the $20.50 going forward with some increases possibly as the incremental cost of -- as you sell more megawatt hours.

That's all in -- It just depends on how you're handling -- I can't tell you how you're handling A&G outside of this at the corporate level. But I think you've got it right, Kit. That has the A&G component. That was missing.

Well, luckily, they're pretty close. Okay. We'll leave that at that. And you mentioned looking forward at nuclear that you may be looking to the cost control, which I think you've discussed already, but you talked about measured risk, and I assume that suggests that you may depart at least a little bit from what looks like an ongoing this year, a hedging program that was pretty much all-unit contingent.

Well, it's a combination, as we discussed before, Kit, about our hedging strategy. As you know, we provided ourselves the flexibility to leave a greater portion of it open, to sell into the spot market. I mean if you the look at our sold forward tables, that's why this year is the first year we're going into the -- going into the year with a 9% open position. And we've provided ourselves the flexibility to leave more than that open if we choose to, so that's the risk we're talking about, and that's why we've actually provided you with a little more information around what the market looks like when we put this together and what the sensitivity of the portfolio is to changes in market prices.

And can you give us a sense -- that 9% that's open for '06, is that by -- can you give us an idea by season or by on peak and off peak which parts are open?

That's kind of the balance of the year. Kind of on average. Rather not get into too much detail about what's open during what months, et cetera.

Okay. All right. Fine. Thanks.

Thank you, Kit.

All right.

Our next question comes from Steve Fleishman of Merrill Lynch.

Hi. Good morning.

Good morning.

First, Leo, to clarify, your cash flow table, cash available over the next three years, you're excluding any storm recovery in there?

Yes.

Okay. So the -- in theory, since you're asking for 1.5 billion, the 2.3 billion could be 1.5 billion higher if you get storm recovery?

It's always going to depend on how we use that to unwind the financing plan, what the revolver is going forward as well.

What do you mean by that?

Well, in terms of we put the 2 .5 billion out there already in terms of increased revolver and the equity units and the like. And basically we've committed ourselves to, as I said, we'd use that as an advance on getting storm recovery, and our plan is as we go forward to use the storm recovery to try and put ourselves back in the same position. So it's going to depend on when it comes in and how it comes in and how we use it to unwind the financing plan.

Okay. Then secondly on the new nuclear contracts, rough estimate looks like they were done in the low to mid-$70 area. Is that correct?

Yeah, that's roughly correct.

Okay. And then the $83 number you're using for non hedged '06 power, that's kind of a full year average price at sometime beginning of this year?

Yes. That's looking at the strip across the year.

And that's kind of a mix of on-peak/off-peak?

Right, around the clock, throughout all the zones where we've got plants.

Okay, and then lastly, on the storm recovery cases, it seems like the one state where there's been some at least intervenor public opposition has been Louisiana. Could you discuss a little bit what's going on with the Louisiana Phase I recovery, what staff and intervenors are seeking and their arguments? I guess they're maybe arguing that some of this should be offset by -- you know, related to your earned returns?

Rick?

Yes, Steve, I think that's part of it. Part of the argument is run it through the FRP, which kind of has been a fall-back position, but our point is that we've incurred a lot of cash, and we need to get started on really collecting this cash to give you guys some comfort, the rating agency comfort that we're going to be treated fairly here, so we've pushed forward with Phase I and Phase II is really where I discussed earlier, an opportunity -- I mean, the increase in rates is less than 2% in Louisiana of what we have filed, and that doesn't assume securitization. So our sense is we can stay around a 2% to 3% increase and accomplish everything through a storm reserve, and it would be difficult to unwind an FRP filing to securitize this cost, and that's really where I think both our interests lie and also the Commission's and the customer's interests lie.

Just so I understand, in the FRP as it stands, for what I think this is supposed to be kind of a big exogenous cost that was force major--

Right.

--in the FRP, as I recall?

That's right.

Were those supposed to be treated as separate items from kind of early calculations under the plan?

That's where this would be. Typically the normal reserve is not. So we've had a normal reserve within the context of the base rate change, then evaluate that through the FRP, but in this event, it's so large and significant of an impact, we're really suggesting the better way to handle this is outside the FRP, and from an interim basis, let's get the cash started, so that we can improve the financials of those operating companies, and then in Phase II, which will be six months to nine months down the road, we'll true all that up and look at the benefits of securitization against that.

Okay. So all you're suggesting is just an earlier timing?

Yes.

Okay. I think I understand that. Okay. Thank you very much.

Thanks, Steve.

We'll move next to Daniele Seitz, of Dahlman Rose.

Thank you. I was just wondering could you talk about the SO2 allowance sales and what are your expectations for next year?

Sure. The SO2 allowances sells some of the units that we have, as I mentioned in my remarks have attributes where they generate SO2 allowances during the year, and we look at the production out of those units and the market price and we make a determination about whether or not we should or should not sell those. Market prices for SO2 allowances moved significantly during 2005, and so not only did we have what was generated in '05 but we had some from previous periods that we were able to sell into the market.

Going forward, it's difficult to say. It's going to depend on how much those units run versus the allowances that they get, but I think in the aggregate there may be around 2,000 to 2,500 allowances that are available. The market is running about $1,000 to $1,500 a ton at the moment. Just depending on how we utilize those units versus the market price, that's how that decision will come about. It shouldn't be as significant going forward as it was in '05.

Okay. By a factor of half or something?

Probably even a little more than that, because we had -- as I said, we had some from previous years when prices were a lot lower.

Right. Going through the nuclear area, you do not anticipate any additional refueling or outages relative to 2005, right?

I'll let Gary talk about that.

Are you talking about as far as planned refueling outages?

Right. Right.

Actually, we have one less in 2006. We only have two for 2006. One in the spring and one in the fall.

Okay. And just from a number standpoint, is there still some lingering effect, from the stock repurchase, or where is the program at, at this point, none of it is in effect? What is the status at this point?

We stopped the repurchase program when the storms hit, and we had about $400 million of the program left to go, of the $1.5 billion program, and we obtained authority from the Board to extend that program. As you recall, it was supposed to expire -- we were supposed to complete it by the end of '06. And we've gotten approval from the Board to complete that by the end of '08. So depending on how things work out, with the rest of the business and the nuclear northeast and the like, that program would come back later. Right now we don't have anything in there for '06.

Okay. So likely to be after you have settled all of the recovery phase?

Right, and see where we are on all of that.

Great. Thank you.

Thank you.

Your next question comes from Michael Lapides of Goldman Sachs.

Hi guys. A couple of -- just questions on the regulated businesses. Entergy Arkansas understand -- I was in the the impression there would be a rate filing, a rate case regarding recovery of the cost for the steam generators. Where does that stand? Has that been put on hold?

Michael, it has temporarily, because of the events around the system agreement, and there's a variety of things that go into a rate request, and, you know, although the A&O steam generator was put in place at the end of '05, we'll be looking at does it -- what do the numbers look like at the end of '05, what will they look like in mid year '06. We have a compliance filing that we will be making at FERC around the system agreement, so one of our issues have been to make sure that we have that compliance filing synced up with any rate request in Arkansas. So we're still evaluating that and wouldn't really make a definitive answer here probably until later in the year.

Okay. What's the impact of -- what is the impact to rates in Mississippi of adding Attala?

Probably about $0.03.

You were looking for the earnings impact?

I was just thinking of the overall revenue requirement.

The revenue requirement probably would be probably about 10 million to 15 million, but I think Michelle could give you a firm number on that.

Okay. Thanks, guys.

Thanks, Michael.

We'll move next to Neal Stein with BKS Asset Management.

Good morning. A few questions if I could. Where do you expect cash flow from operations to be in '06?

We expect it to get back to a level above $2 billion.

I guess like 2 billion was what you expected last year, then on top of that you're going to get some fuel recovery. Would that be sort of the two major pieces?

Pretty much, yeah, but we're going to have -- that's going to be reduced also by lower -- the fact that we've got the storm impacts still lingering out there, to some extent.

Yeah.

But it should get back over $2 billion.

Are you getting any proceeds from the E-K sale in 2006?

Yes, we are.

how much will that be, about?

Probably about $100 million.

Is that in cash flow from ops?

That will show up actually in invested cash.

Okay. And then in the long-term cash flow guidance do you assume completion of the billion and a half share repurchase? I just want to confirm that.

Yes.

Okay. As far as the retail business, do you have a sale process in place? Timeline for completing it?

We'll probably be done with that this quarter.

This quarter?

In the first quarter, yes. Where is that valued on the balance sheet now? It's just -- I don't know exactly. I'll have Michelle get with you on that Neil, in terms of exactly where it shows up.

In the 2.3 billion cash throw forecast do you assume any proceeds from the sale?

From the sale of the --

retail business.

--retail business? No, that's not in operating cash.

So that would be incremental?

No, it would be in -- probably be in invested cash.

I'm talking about the 2.3 billion, three-year -- taking into account three years --

No, it's not really in there.

Okay. What sort of -- in your '06 guidance, what sort of normalized sales growth do you assume? I know you -- I think you have 4%, but adjusted for the hurricanes and all that? It's about 1.5% outside of the recovery piece of that, that gets you into the 4% range. And I guess that excludes New Orleans from the '05 base as well.

Yes.

Do you think 1.5% to 2% is still a good long-term sales growth forecast?

It's difficult to say. It probably seems strong based on recent history but I'd say '05 is a difficult one, even though we have a lot of data around '05, it's a difficult one to use. It's a difficult one to use as a bounce off point, because of the impact of the storms and the netting of people who left one jurisdiction maybe for another and things like that.

I think outside New Orleans in your October presentation, you said the lost revenues would be about $24 million in '06, which took into account some lost customers offset by gains elsewhere. Is that still a good number?

Yeah, I think so.

Okay. What sort of tax rate do you assume for '06?

I think the effective tax rate is around 37% or so.

Is that the same as '05?

It's roughly the same, yes.

Last year you got a benefit from the Jobs Act, which was around $0.07 or so. Does that sort of go away, or are there other things that keep the tax rate lower?

In terms of the -- what we've got going forward in terms of the -- what we've got going forward, I don't think there was anything in '05, Neil. I think that's --

I believe in the first quarter you had a $0.07 benefit from repatriating cash?

Okay. Yes, yes, that's correct. I'm sorry. But there isn't any in '06 because it's really going to be that production credit that we're going to get, and we're going to start to see in that future periods.

That will be more in '07 and beyond, right?

Yes.

Is there any way you could quantify that?

Not really right now.

And then in '06 you had like an $0.08-cent decommissioning gain -- or in '05 you had an $0.08 decommissioning gain. Anything like in that '06 guidance?

It's difficult to say. They're really -- there's nothing really new in there. Just the continuation of what we did in those previous decommissioning studies, so it's not going to be quite as large as it was previously but there is still some lingering impact on the forward.

Okay. And I just wanted to clarify a question I think Steve Fleishman was asking regarding the three-year cash flow forecast and, you know, it doesn't assume any recovery of the storm costs, but I think, in your analysis where you look at debt capacity, the 800 million of incremental debt capacity over the period, assuming you stay below 50% debt, that assumes all the storm-related debt stays on the balance sheet, correct?

Yes.

It does?

Yes.

Okay. Those are all my questions. Thank you.

Thanks, Neil.

We'll go next to Terran Miller of UBS.

My question has been answered. Thank you.

Moving on, we'll go to Paul Patterson of Glenrock Associates.

Good morning, guys.

Good morning.

Just -- most of my questions have been answered, but I just wanted to touch base with you on, I think, Greg's question about the license extensions. You indicated that they were not expected to have an impact on depreciation going forward, is that right?

It's already factored in.

You guys already have factored in -- you've already count in your depreciation that you're going to get the extensions? Is that right?

To some effect, yes.

Okay, and then just finally on the Vermont Yankee up rate, I know you guys have accomplished a lot there with the NRC, and with the state, but it always seems that the state has some issue. Could you just briefly go over what the Vermont Yankee situation actually is with respect to the up rate and what have you?

Gary?

Gary Taylor. As you said, We accomplished quite a bit. We did get the Atomic Commission on the record safeguards. They ruled unanimously on all the issues as well as the NRC issuing their no significant hazards report. So we would expect to hear from the NRC this quarter. We do after CPG from the state. I know the state itself has to look at that, in relation of some conditions they had put on it, as far as the NRC evaluation, but that NRC report was very, very clean and the ACRS reiterated that, so we fully expect to be able to implement that by the end of the first quarter.

Okay, and so just to recap here on Vermont, because that's where it gets confusing to me, or at least it always seems to be more of an issue than one might expect. Where are we with Vermont and when do you expect that to be sort of resolved? And when do you think we'll actually see the up rate?

We have a certificate of public good, which is what's required by the state of Vermont. And we have to wait on the license amendment coming from the NRC which we would expect the latter part of the quarter. And with those we fully expect to be able to increase power at the plant.

And how much will that increase terawatt hours?

95 megawatts up rate, and off the top of my head I don't have that number but Michelle can get that for you.

Because, when we look at the Entergy Nuclear numbers on page 5 there doesn't seem to be much of a change in terawatt hours. I was just wondering if it's factored in or how --

It is factored in.

Okay, thank you very much.

We'll go next to Zack Schreiber with Duquesne Capital.

Hi guys. It's Zack Schreiber from Duquesne. Can you hear me?

Yes, Zack. We can.

I just want to follow up on some of the hurricane recovery issues and the community block development grants. In terms of the process, has the $11 billion that was in the DoD spending bill yet been allocated to the department of Housing and Urban Development? Yes or no? And has the state of Louisiana yet filed its applications with the HUD, and have you guys yet filed your own applications, and then lastly, and relatedly, when the enabling legislation was passed in the state of Louisiana to effectively allow community block development grant dollars to flow from state coffers into private corporations was there either an explicit or implicit agreement amongst yourself and various Louisiana politicians and stakeholders as to how much money the Corporation would be receiving?

Curt, why don't you go ahead.

Thanks, Zack. Glad to talk to you about that. The process as far as block grants is moving forward. As you know, the appropriate has been approved by Congress to go to HUD. The term allocation is not one that I would use. The money is there, it has been appropriated by Congress. It will be there. The state will be applying entities like ourselves that are interested in getting monies to offset charges to customers will be presenting their stories and their issues and their costs to those states. Some, as you've mentioned, may be sending that to private authorities, groups like local recovery groups, or something that may be similar to the Manhattan situation that you had in 9/11 in New York. All of these things are moving forward.

Now, exactly how much money any entity, be it a homeowner or an Entergy Corporation may or may not get is just something that is unknown at this time. The setting we were in back in November, the important thing for us to look at right now is the setting we were in at that time where due to Stafford we had no opportunity. Had we been a public power system or one of the electric power associations we would have had the opportunity to go get $0.70, $0.80, $0.90 on the dollar and keep that cost from being pushed on to our customers. Here what we had to do was work with our leaders in Washington and the state leaders to try to present some type of opportunity to our customers so that we can offset what otherwise we would be required to put in the rate base as prudently incurred storm cost. So I can't give you an exact number. I know you would like to have that. I think the important thing for us to realize right now, Zack, is that an opportunity has been created.

No doubt.

I think lots of people saw that at that time as a long putt. So if you want to see that we've made one long putt while working with a good group of people, and I have to congratulate Congress, we're really working on our A game here and we're trying to make certain that we've got every opportunity. I just can't give you a number.

But to make sure I understand -- I think Rick had said a few months, six months, mid year '06, that was to actually have money in the bank from the whole community block development grant process playing itself out, or was that to be at some more sort of developed milestone along a much longer community block development grant road? What was supposed to happen by mid year '06 with that?

Are you asking me would we have a complete answer?

I think Rick had said we could expect some clarity or some resolution of the whole community block development grant by mid-'06, sir.

Yes, I think optimistically we would like to have some type of indication by mid-'06. Again, I just can't give you a time frame to say, you know, by the end of July am I going to have an absolute up or down, an absolute amount for you. We have done everything within our power, making certain that we've got consultants on board from the very beginning, that we work through this process because what we did, as soon as we knew about this situation, as soon as we knew that we had the chance to create an opportunity, we brought people in who had worked through the 9/11 process, who had worked with HUD who had worked with OMB. And so we are well ahead of the process in terms of being prepared to give our application, and that is what Rick is talking about, us having our application ready to give to the states, so the states will know what our needs are, and so they can act on that appropriately. I would hope by mid year that we have some clear signal that we are going to get some dollars and hopefully what those dollars would be. I just can't tell what you they are at this point, and I can't tell if you it will be completely nailed down by that point.

Got it. And just to make sure that we understand the process, the process is that Congress has given the money to HUD, and then the states have to then file with HUD for a certain amount of money and file plans with HUD as to how they intend to allocate that money, and it's subject to HUD's veto. And then you guys, along that same time frame file your plans with these to be created local development corporations which will then be making the filings at HUD? Is that the process? Are there other steps there that I'm missing?

Well, not every state will have a local development authority. As a matter of fact, I don't know that Mississippi is -- sounds like they may not. They may just work through their state, as far as Louisiana, that decision is yet to be made. But, you know, as far as how it works and the application process, that is pretty much how it works. HUD has already given pretty much its guidance as to what it's asking the states to do and what it's asking the states to give them.

Again, by looking back and seeing what happened at 9/11, what we were able to do is go back in and get some lessons learned, because the last thing we wanted to do is to get into the time frame that they talked about there. We wanted to speed up the process. So, hopefully you're going to see some of that show its face here and result in not only an opportunity but something that we can close the door on and find success in. But I just can't give you a firm date on exactly when that is. But many lessons have been learned since 9/11, and we will see exactly how that works through the process.

Now, you had passed -- the state of Louisiana had passed legislation to sort of enable the transfer at the state level. Is there other legislation that has to be passed in other states like Mississippi to allow the community block development grants to pass from the state coffers to a private corporation, or does the enabling legislation in the statutes in each one of your states impact by the hurricane right now exist to allow the transfer of federal dollars into state coffers and then into private corporations?

Well, you're right, each and every state kind of has its own flavor of how it deals with private corporations, but the one thing I think, Zack, it's important to understand and focus on is that community development block grants in dealing with private corporations who may or may not seek direct or indirect benefit from there is something that these states are accustomed to dealing with. Almost every state -- well, every state has a community development block grant coordinator, that I'm aware of, because they are continually trying to get help from the federal government in areas that they see help is needed in. So if the thrust is your question is, do we see any issues there and any problems with us getting allocations, we do not.

Got it. Then just a question -- a small question on Louisiana and the Phase II of the recovery, follow-up on Steve Fleishman's question. Do you plan on the Phase II process going through the full FRP process, or it's just in the Phase I you want to avoid the FRP, so it's really just a timing issue, or is it substantively that you want this whole process to be outside the FRP?

Zack, this is Rick. We want the whole process to be outside the FRP.

Great. And then second to last question is -- on the -- actually, last question. I think, Leo, you had mentioned that we have these aspirations, and they're all the aspirations of folks like myself and other investors who were looking forward to prior to the hurricanes and the whole goal has been to get back to that aspiration level and the stock buyback and dividends and higher earnings. You mentioned that, Leo, I thought I heard you say you would be exceeding your aspirations based on where power prices are and the back end of the gas curve, could you elaborate on that? I want to make sure I heard that right. You kind of threw it in there.

Well, I mean, I think, Zack, since -- since prior to the storms, between then and now, there's been a marked move in power pricing.

Right.

And so that on its own certainly changes our picture going forward as it relates to the nuclear northeast and what the opportunities are there. We've got to balance that against all the other work we've got to do in terms of at the utility and the regulatory process and the like, but that's certainly out there now, an opportunity that didn't exist prior to the storms.

Got it. Okay. Thanks so much, guys. Good luck.

Thanks, Zack.

And that does conclude today's question-and-answer session. Ms. Lopiccolo, I'll turn the call back over to you for 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 Web site 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 3816450. This concludes our call. Thank you.