安特吉 (ETR) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entergy Corporation second quarter 2006 earnings conference call. As a reminder, today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Ms. Michele Lopiccolo. Please go ahead.

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 results. After the question-and-answer session, I will close with the applicable legal statements.

Wayne?

Thanks, Michele. Good morning, everybody.

I'm pleased to report solid progress since the first quarter on our 2006 agenda. Including the continued growth of our interregulated nuclear business through the Palisades acquisition announced last month. At the utility we continue to advance our hurricane recovery efforts. We've traveled many, many steps forward since Hurricanes Katrina and Rita barreled ashore last fall. And while the path to recovery may seem incredibly complicated, and far too long, we never expected or predicted anything else.

The storm damage was unprecedented, and we knew recovery of the dollars spent by Entergy would take considerable time, given the fact that only the Federal government can print money, and gain state and local consensus on the obligations, and the rights of investor-owned utilities that are exposed to these types of catastrophic risks would not be simple. Given the limited funds and the virtually unlimited needs in the devastated areas that we serve. Thus our plans remain unchanged.

First of all, we want to collect all the insurance proceeds we're entitled to. Secondly, we want to secure our fair share from the Federal funding initiative, like the Gulf Opportunities legislation, and Community Development Block Grant funding, which are critical to mitigating the rate impact on our customers. Third, we will seek to achieve securitization for reimbursement of storm costs from 2005, and to add a safety net storm reserve in our jurisdictions for future storm damages. Lastly we will continue to work with our regulators to implement rate plans, to mitigate the uncertainty and the volatility that customers, owners, and lenders all experienced in 2005.

Let's start with priority one, insurance. We submitted our first Katrina proof of loss claim in the first quarter of 2006, and received a partial payment. We're continuing to actively pursue remaining payments from our insurers. While I'd like to report that we expect to resolve remaining claims and questions in relatively short order, once again few things are simple when big dollars are involved. It appears that the insurance companies will continue to extend the process to fully resolve the issues. In spite of a timeline that will continue beyond 2007, we remain confident about our $382 million estimate for insurance recovery, based upon our own insured damage assessments.

On our second initiative, Federal funding, we indicated that we had received a $344 million income tax refund, as a direct result of the Gulf Opportunities owned legislation passed at the end of last year. This legislation accelerated the timing of tax deductions and the related tax refund that we were entitled to, but had a substantially positive effect on the liquidity of the system, particularly at Entergy New Orleans, and we're starting to see progress in securing Community Development Block Grant money.

We applaud Mississippi Governor Haley Barbour's commitment to provide Community Development Block Grant funding to Mississippi utilities, to mitigate the storm's financial effects on the Mississippi ratepayers, and we have remained steadfast in our efforts to build a consensus for a similar commitment in Louisiana. In particular, Community Development Block Grant funding is crucial for Entergy New Orleans to emerge from bankruptcy, as a financially viable entity that can attract needed capital, to rebuild the utility infrastructure, and to provide excellent service at reasonable rate levels.

On the securitization front, on June 30, we filed our petition for financing over in Mississippi, authorizing the State Bond Commission to issue system restoration bonds for Entergy Mississippi system restoration, and related costs as a result of Hurricane Katrina. In addition, we have requested financing for an $80 million increase in the storm damage reserve.

In Louisiana, Governor Kathleen Blanco signed securitization legislation on May 22. This legislation establishes the framework by which the LPSC would permit the securitization of system restoration costs, and securitization to build a reserve for future storms. In Texas, securitization legislation was passed and signed by Governor Perry in the Special Legislative Session called in April.

Turning to our regulatory recovery initiatives, Mississippi held fast to their aggressive schedule to resolve Katrina-related effects on utilities that service citizens. On June 28, Mississippi Public Service Commission issued an order authorizing recovery of Hurricane Katrina costs incurred through March 31, 2006, in the amount of $89 million.

It's important to note that no costs were disallowed in the Mississippi proceeding. The dollar difference between the earlier storm filings and the authorized amount for recovery in this proceeding, primarily related to insurance recovery, deferring certain costs for later recovery, like those related to Hurricane Rita, and the difference in estimates versus actuals. For example, we've since lowered our storm cost estimates for Hurricanes Katrina and Rita in Mississippi by $13 million. But again, no disallowances.

On July 5, we filed for storm cost recovery in Texas, seeking $393 million for costs incurred through March 31, 2006, in connection with Hurricane Rita. Pursuant to the recently passed securitization legislation, the Public Utility Commission of Texas has 150 days to rule on the storm filing. Consequently, we expect a decision no later than December 4, at which time we'll initiate our securitization request. In Louisiana, pursuant to our Phase I interim storm recovery order that was approved in February, we have recovered $20 million of storm costs through the fuel adjustment clauses for Entergy Louisiana and Entergy Gulf States Louisiana.

In September, recovery will shift to base rates as a combined rate of just under $3 million per month for the two Louisiana companies, and will continue until Phase II levels are determined. On July 31, we initiated Phase II of our storm recovery process in Louisiana, filing detailed support and testimony for $467 million of storm costs at Entergy Louisiana, and $200 million of storm costs at Entergy Gulf States Louisiana, both incurred through May 31, 2006.

We're also seeking to build storm reserves in the amount of $132 million for Entergy Louisiana, and $81 million for Entergy Gulf States Louisiana. The current procedural schedule in Louisiana calls for testimony from the LPSC staff and interveners in early October, ultimately leading to public hearings in the first quarter of 2007. We'll seek the Louisiana securitization and financing order once we have a storm recovery order in hand, which the schedule would indicate could occur in early second quarter of next year.

And in New Orleans, we continue to work toward a reorganization plan to emerge from Chapter 11. A critical part of that plan is our regulatory filings made on June 30 with the New Orleans City Council.

In those filings we have requested a recovery over a 10-year period through two separate rate riders. One for $139 million of storm restoration and related costs incurred through March 31, 2006, and the second to build a $150 million reserve for future storms.

We still anticipate total storm restoration rebuild costs of approximately $275 million, plus $355 million for accelerated replacement of the gas distribution system. That replacement will occur over a number of years. As requested in our storm filing, we anticipate making semi annual filings in June of December of each year, to update for and recover through the rate riders additional storm costs incurred beyond March 31, 2006.

Finally, we also submitted our annual formula rate plan filing for Entergy New Orleans for the test year ended 2005. While several alternatives to FRP filings were submitted, we believe the filing adjusted to reflect the current customer base, and to recover all of grand Gulf costs for the Entergy New Orleans fuel adjustment clause, instead of recovering some through base rates, is the most reasonable path forward.

But as I've said, we have provided other alternatives for the Council's consideration. That's the regulatory plan for Entergy New Orleans financial recovery. As additional costs are incurred, they're recovered through the rider. As our insurance proceeds or Community Development Block Grant money is received, they are credited to the customer side of the ledger. As the customer account grows, the formula rate plan will automatically account for those revenues.

Nonetheless, we continue to strongly believe that Community Development Block Grant money to mitigate the rate impact of the storms, just like Mississippi proposes, is a sound and prudent use of the money provided to the state, and benefits all customers by increasing their disposable income, and supporting economic development and job growth. In the event Community Development Block Grant funding does not materialize, municipalization remains an alternative for the city of New Orleans, in order to lower the overall cost of capital, and access Federal money available under the Stafford Act for future storm damage.

In June, Governor Kathleen Blanco signed legislation paving the way for the city of New Orleans to municipalize the distribution system. In the event this path was determined to be the most optimal outcome. In any event, we have the groundwork done. Securitization and municipalization bills passed. Insurance and Community Development Block Grant money applied for, regulatory filings made, to allow for a variety of outcomes that are consistent with the shareholder rights under the law, while mitigating the impact on our customers.

Before turning to nuclear be let me address one more topic, the situation in Arkansas. As you may recall, on March 31, pending further investigation, the Commission suspended the annual fuel rate increase scheduled to take effect in the first billing cycle in April.

On a similar note, on June 7, the Arkansas Public Service Commission filed a complaint seeking to have the FERC institute a formal investigation and hearing, into the prudence of all the Entergy operating company's past practices relating to a host of issues, ranging from transmission expansion policies to wholesale power purchasing practices, and other generation decisions to gas hedging and purchasing practices. All of which are related to production cost differences, and any amounts Arkansas may owe under the recent FERC ruling in the system agreement case, what's called FERC Order 480.

With regard to the first issue, on June 29, the Arkansas Public Service Commission agreed to implement effective July 1 the annual fuel rate increase it had previously suspended, and to re-establish a procedural schedule to resolve issues under investigation in connection with this proceeding. We're confident that our fuel and purchased energy expenditures will be found appropriate and will be recovered. As previously indicated, the Arkansas Commission staff reviewed in detail, Entergy Arkansas' 2005 actions and decisions, and found no imprudent actions.

With regard to the second issue, the prudence of past actions relative to all production costs. We believe that this complaint is merely recycling allegations, that other parties have previously raised in proceedings before the FERC or various retail regulators. Clearly, no new evidence was presented in the complaint, and no evidence has been presented in any proceedings, that would indicate our prior actions were imprudent.

Turning to nuclear. The Northeast fleet delivered another quarter of solid operational performance. I'll let Leo discuss those results in more detail. Instead I'll spend a minute discussing a very positive development during the quarter, our announcement to acquire the Palisades Nuclear Energy plant. As we've discussed with you in the past, while hurricane recovery has demanded the attention of management in recent months, we've never taken our eye off the daily operations, or managing the business for the future, and the Palisades acquisition announcement offers direct testament to that end.

Our nuclear strategy is unchanged. We seek to become the leading nuclear generator by leveraging our core expertise and nuclear plan operations through a continuation of our disciplined approach to risk allocation and capital deployment. The Palisades acquisition allows us to advance the strategy by further leveraging our core expertise in nuclear plant operations.

The Palisades plant will become the third combustion engineering, pressurized water reactor in our nuclear fleet. It expands our presence in the Midwestern market, where we have successfully demonstrated our ability to improve operations at the Cooper plant, through our management services contract. Like the Cooper plant, as part of a larger fleet we expect to achieve additional operating efficiencies for the Palisades plant in the areas of purchasing, inventory management, and resource sharing.

Expansion of our presence through the Midwestern market also provides a strategic platform for increasing scale through future potential acquisitions, and/or management services contracts. The Palisades agreement included a 15-year power purchase agreement for 100% of the plant's current output. Obviously, the plant will be substantially accretive to earnings immediately, given that the marginal cost of financing the acquisition will be the corporate revolving credit facility. But I assure you, our successful bid was made on the basis of earning above our project risk adjusted marginal weighted average of cost of capital.

In closing, while we're extremely pleased with our progress since the first quarter, we recognize that much work remains to be done through the end of the year. We remain committed to our mission to catch up to to where we expected to be on key measures like earnings, dividends, ratios, as if the storms had never hit, and to deliver top shareholder returns, as we have been accustomed to doing in the past. The path is becoming clear. And the finish line is moving into sight as a result of the many steps we've taken throughout the year. And because obstacles never before encountered are being worked around or overcome.

And now I'll turn the call over to Leo.

Thank you, Wayne. And good morning, everyone. In my remarks this morning, I will cover quarterly results, review our recent progress in nuclear contracting, and discuss our current thinking on our '06 operational earnings guidance, which we are reaffirming to be in the range of $4.50 to $4.80 per share. I'll then wrap up with an update of our current cash flow and longer term cash available position.

Turning to our financial results for the quarter, Slide 2 shows the second quarter '06 as-reported earnings, which includes the gain on the sale of the competitive retail business, equal results of one year ago. However, operational earnings in the current period were lower compared to second quarter of 2005. The decrease in operational results came to lower earnings at Utility Parent & Other, while Entergy Nuclear and the non-nuclear wholesale business each demonstrated quarter-over-quarter improvement.

Slide 3 shows the decline Utility Parent & Other earnings compared second quarter of last year. The factors that produced this decline included lower unbilled revenues, the absence of Entergy New Orleans in operational results this period, and higher interest expense. Several items served to partially offset these factors, including additional revenue from sales growth and rate actions implemented in '05 and early '06, warmer than normal weather, lower operation and maintenance expense, and lower income tax expense.

Let me provide a few comments on the most significant drivers during the quarter, starting with unbilled revenues. It's important to keep in mind that this is a normal accrual of revenue for sales, not billed to customers at the end of each period. Several factors including price, volume, customer mix, and billing cycle changes affect the amount of unbilled revenue recorded. We have at times seen wide variations in the effect unbilled revenues can have on our results, and these variations have been both positive and negative. We anticipate that the second quarter unbilled variance will be partially offset over the rest of this year.

Turning to sales, let me remind you that our sales data in the release excludes Entergy New Orleans. Looking first at the residential and commercial segments, we saw increases in both, even after adjusting for warm weather effects. This occurred in all of our jurisdictions this quarter except Louisiana, where we continued to see slower than expected recovery in the areas hardest hit by the storms. The industrial segment was down once again, a pattern we've seen since Hurricanes Katrina and Rita. The decrease was just under 1% compared to last year.

All but one large industrial customer is back on-line. However, the refining sector is experiencing extended routine maintenance outages, and we continue to see the storm's effects among our pipeline customers. In addition, high energy prices are squeezing most of the subsegments among the chemical producers, such as the agrichem.

Two other items worth noting in our Utility, Parent, & Other results this quarter are higher interest expense and lower income tax expense. We continue to see higher interest expense as a direct result of increased debt incurred in connection with the funding of storm restoration costs. The lower income tax expense reflects the benefit of a tax deduction taken on an item that is accounted for using flow-through accounting. This accounting treatment matches the regulatory treatment of this item for rate purposes.

Moving now to Entergy Nuclear. We've recorded higher operational earnings per share compared to the same period last year. The increase is due primarily to higher contract pricing, which contributed $0.05 in additional earnings this quarter, compared to second quarter '05. Also, additional generation made available from the upgrade completed at Vermont Yankee earlier this year added to results in the Nuclear business. Partially offsetting these factors was higher O&M due to the timing of refueling outages.

Outages at two sites last year had the effect of lowering O&M at both locations, while there was only one refueling outage in the current quarter. refueling outages affected Nuclear's results in another way, as well. While the refueling outage to-dates quarter-to-quarter were comparable, the outage in the second quarter of 2006 was at a larger unit, resulting in decreased generation available during the current period.

Closing out the discussion of quarterly results, we look at the nonnuclear Wholesale business. Results at this business in second quarter '06 were higher than a year ago, the increase came primarily from the gain recognized during the quarter on the planned monetization of Entergy's interest in a power development project. We have been active recently in our nuclear contracting efforts, so it is appropriate to share some additional thoughts on this topic.

As reflected on Slide 4, our sold forward profile shows we are well positioned over the next few years. For example, looking at '07, we were able to increase our average price per megawatt hour by approximately $4, with only a 13% increase in our contracted position. We are comfortable with the level of output that is locked up, as it is consistent with our risk tolerance, and we've preserved some opportunity should prices strengthen. While you'll notice that our '07 position stands at 94% contracted, that does not indicate a shift in our hedging strategy.

As always, we strive to optimize the value of our position. We've done so by considering market conditions and the opportunities available, and by contracting when we believe the price and terms available meet our threshold criteria.

Moving now to earnings guidance, Slide 5 reflects the components of our operational guidance for '06. The key drivers have not changed. At Utility, Parent, & Other sales growth and improved pricing are expected to make a solid contribution.

However, higher O&M and higher interest expense will largely offset these positives. The contribution to earnings from Nuclear pricing will likely be significant with additional earnings coming from higher volumes of generation sold. These increases from pricing and volume are expected to be partially offset, by higher O&M, interest, and other expenses.

We realize that the actual effects of each of these items on our full-year results may vary somewhat from the mid-point estimates shown on Slide 5. However, we continue to see overall operational earnings in the range of $4.50 to $4.80 per share. And as a final point on slide 5, I remind you that the results of Entergy New Orleans are excluded from our operational guidance for '06.

Slide 6 includes a snapshot of our cash flow performance this quarter, which was quite solid. In the current period, collections of previously deferred fuel costs and higher revenues at Entergy Nuclear increased net cash flow by approximately $200 million. Over the longer term, our cash position continues to be strong, as Slide 6 shows, our cash available for deployment is nearly $2 billion in the '06 through '08 period, after reflecting the recently announced Palisades acquisition.

In conclusion, you may recall that our three post storm financial goals were focused on stability, recovery, and then growth. As you know, we declared victory in our stability efforts before the end of '05. Stability came through our successful work to source $2.5 billion of new capital, from debt and equity investors. This was crucial funding to pay for storm restoration, and provide us with a liquidity cushion. We then turned our attention to recovery, and Wayne reported on many encouraging developments in this area in his remarks.

We have more work to do, however, as evidenced by the fact that to-date we've collected only $35 million of the estimated $1.5 billion of storm restoration costs. We are cautiously optimistic that our recovery efforts will ultimately be successful. Which will allow us to focus our attention on growth as we move into '07. We've already taken a significant step forward in pursuit of our growth goal with the purchase of Palisades, and we intend to build upon this progress. You can rest assured that we remain committed to executing our business model with discipline. We won't lose sight of the importance of financial flexibility, and we are committed to consider all capital deployment alternatives that contribute to creating long-term value.

We now turn to our question-and-answer session, and our senior team is available to respond to your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll pause for just one moment to assemble the queue. We'll take our first question from Ashar Khan with SAC.

Good morning. Just to go over this cash. Does this cash flow forecast include the 100% recovery of the storm proceeds or no?

It does not.

It does not. So if you get that back that will be an additional $1 billion over the 1.9?

Correct. And what it also doesn't include is unwind at the financing planned, and things like that. So the schedule that we've shown is consistent with the way we've been showing it for the last year, does not include storm recovery.

Okay. Can I ask you I guess these numbers indicate that buyback like you guys had previously, you know, $500 million a year or so, just looking at the earnings level and all that, that kind of a buyback seems to be, you could put that back in that level, you know, $1.5 billion over a three-year period from these cash flow numbers. Am I looking at that right? If I go back to the previous buyback and say, could you initiate a similar one, that is doable with these numbers?

Well, to start out, the original buyback is actually reflected back in there, in terms of finishing the $400 million we have remaining, as you recall.

Right.

And then the rationale for putting the table out there, is to identify that for capital deployment opportunities, whether they be dividends, buybacks, new nuclear plants like the Palisade acquisition, or supply plant assets, all of those are possible with that $2 billion that you see on that table.

Okay. Okay. And then, Leo, I was just doing some math on numbers you provided. And if I assume you get market on your unhedged portions of your capacity, is it fair to say that if you put market prices in right now on the curves going out to the year 2009, the year 2010, is it fair to say that nuclear earnings reach a plateau in the year 2009, the year 2010 level, is that a fair assumption, or no?

That's a fair assumption given where prices are today. As we go forward into 2009 and 2010, that's when we get to the bulk of the unhedged position being available. So if market prices remained unchanged, absent other cost initiatives that we have and the like, that's when the bulk of those dollars will show up is when we get out into those, where the currently unhedged portions, around 2009 and 2010.

Okay, Leo, can I ask you when you expect to share with us your '07 guidance, and I guess some reflection of a returning of this cash flow, either in new investments or to shareholders? When the new plan could be tabled to your shareholders, timing of that.

You know, we will probably be looking at what's going on with storm recovery. I think a lot of things coincide with going into the end of this year, the beginning of next year, as we get clarity around where we are with nuclear pricing. And as you see, we've done a lot in the '07 timeframe already this year. What's going to happen with storm recovery, and where the business looks around the end of the year.

Okay. And what about '07 guidance?

Probably be on the third quarter call, or during the fourth quarter.

Okay. Thank you very much.

Our next question will come from Greg Gordon with Citigroup. Mr. Gordon, your line is open.

Sorry about that. Can you hear me now? Guys?

We're here, Greg.

Sorry. Just follow up to Ashar's question. What specific milestones do we need to see to knockdown or past for you guys to get comfortable for a reconsideration of increasing the dividend, and/or completing and replenishing the buyback? I know you said that, you know, earnings guidance for '07 third quarter is probably when you start addressing that. But what should we assume you need to have behind you, in terms of specific storm recovery and restructuring activities, to be comfortable with redeploying cash to shareholders again?

Greg, this is Wayne. Yes, I'm not sure that we can define that for you in a way that you're probably satisfied with today. What we have, what we often talk about is, you know, kind of like art. You kind of know it when you see it. It's hard to describe what you like. And that's kind of the position we're in with all the different states and all the moving pieces. But there are some key things that I think that you should look to, that's coming up in the future.

I mean, Louisiana's interviewers are going to be filing their testimony. As you have seen in Mississippi that went fairly quickly. There were no disallowances, no major issues really raised there. If in Louisiana that tends to go roughly the same way, that there's not a record trying to be created by interveners, with regard to that's inconsistent with the law that would cause us to have to go to Court to get, to protect shareholder rights, or is maybe stretching the rules with regard to prudence, and things of that nature, then that would be adverse. But if the intervention goes the way it should go, like it did in Mississippi, then that would be a positive sign that, with regard to what kind of recovery we would expect to get.

Community Development Block Grant money now in Louisiana is kind of coming down to it. That's the kind of a key event for New Orleans. We can if it doesn't materialize, then, you know, then we have to start to ramp up other alternatives like municipalization.

If it materializes, then we have a whole lot of options ahead of us. If it materializes to a substantial number, then we have a whole lot of options, relative to moving forward with both municipalizations, and potentially securitizations for the storm reserves.

And as long as the public sentiment and the regulators' sentiment is as constructive as it has been, and I think it's been extremely constructive over the last few months, then I don't see any reason we have to, I certainly don't hope we have to get to the end of the road to where we have orders in hand and all these type of things, in order to start to treat shareholders in a way that will allow this company to attract capital going forward, which is always in the best interests of customers. So hopefully we're talking about getting a clear line of sight this year. Whether or not that means we're able to start doing something this year or not, depends on how clear that line exactly is.

As you've seen, of course, it didn't cause us to be timid with regard to Palisades. With regard to the investment side, you know, we're not going to pass up opportunities when clearly we believe we will have cash available in any kind of scenario. But, you know, we are prepared most certainly on this issue to take it all the way. I mean, to go all the way to Court, or whatever it is, to protect the shareholder's rights. And we hope that isn't the case. And right now there's no signs that that will be the case. But like I said, Rick's very close to it, and we're going to look for a nod from Rick on the regulatory side, a nod from Leo on the credit rating agency side, that they're comfortable with where we're headed.

And I think the credit rate side, Leo's already having considerable discussions or plans on having with them, with regard to what they're going to want to see, to make sure they're comfortable.

Greg, one thing I might add. That the form of the recovery is important. Community Development Block Grants and securitization give us one profile, in terms of the types of opportunities we pursue. And if it's the normal, traditional rate making where it's recovered over a number of years, it's a different profile. So that's an important aspect of how this all turns out, as well.

If you get recovery, that's one thing because I guess the good news/bad news is, bad news is we already spent most of the money. The good news is we're well on the way to recover it. But if it comes in the form of securitization and Block Grants, we have one profile. If it comes in, you know, 30 years of rate recovery, it's a different rate profile.

Thank you very much, gentlemen.

Thank you.

Thanks, Greg.

We'll take our next question from Daniele Seitz with Dahlman Rose.

Hi, I was just wondering in your forecast did you include all of the, did you make any assumptions on the rate increases you should receive, and also in your 5% to 6% growth rate that you mentioned, that does not include the recovery, et cetera?

In terms of the 5% to 6% growth rate, I guess I would tell you that that's what we put out there as our aspiration in terms of what we believe that we can achieve over a long term. If you go back over the history of the last 10, 20-year period, 5% to 6% is top quartile growth over time. So it really isn't a forecast per se, as much as the aspiration that we hold out there on the long-term basis. Acknowledging that in the near term, as I think Ashar alluded to earlier, nuclear pricing alone could help us achieve that or better.

Right.

As far as rate relief, in our projections for '06, we have what we had already planned. You know, if you go back to when we set our guidance back at the beginning of the year, we had some opportunities for rate relief that were associated with things outside of storm recovery. Storm recovery is not in that '06 guidance range that we've put out.

Okay.

Our next question will come from Rudy Tolentino with Morgan Stanley.

Hi. I noticed in Table 5 that it doesn't appear that your projections for Entergy Nuclear includes Palisades. Could you kind of give us some idea of how Palisades projects some of those numbers?

In terms of our sold forward? Well Palisades for that period is completely sold. So if you added the megawatts to the Table, and then just added those in terms of being completely sold forward, I don't have that math done in my head at the moment, but Palisades, the PPA is 15 years for all the output of the plant.

And what about the contract pricing? Can you give us an idea how that number would change?

The contract price starts in about $43.50, goes up to about $61.50 over the timeframe, the average. If you average it out it's about $51.

And just out of curiosity, is there any like sharing, I know like the New York plants had sharing of, you know, prices that reached a certain level. Is that in this contract, or?

No. It is not.

Okay. Thank you very much.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from Michael Lapides with Goldman Sachs.

Couple of easy regulated questions for Utilities subsidiaries. One, on [NOPSE], how much is left on the debtor and possession financing? And for the other Louisiana subsidiaries, can you talk a little bit about the items listed in Appendix C regarding the rate increases under the formula rate plans?

Rick Smith is the President of our Utility. He'll take those. Then Leo can jump in if there's something missing. Rick?

Michael, under the Dip financing for ENOI, we sit at about $50 million right now. So the Board authorized up to $200. And that number has moved down from the beginning of the year, as we've implemented a variety of regulatory strategies, plus the tax refund that Wayne alluded to.

And then going to Appendix C, let's see in the Gulf States, we filed a formal rate plan adjustment, and that was in, let me see here, that was at the end of May, and we're requesting a $7 million rate increase there, that would be implemented in September. And then the ELI, or ELL FRP was filed mid-May, and there was really no changes in the earnings levels per se, but we do have an adjustment of $119 million, that will be a rate increase to recover previously deferred capacity costs related to Perryville. That has already been approved by the Commission, and that should go into effect in September also.

Going back to the NOPSE debtor and possession financing, when you say $50 million, meaning that's $50 million that's been drawn, or $50 million that's left on the Dip financing?

No, that's $50 million that's been drawn.

Okay. And do you expect the other $150 million to be drawn on it?

No, I do not.

Okay. Thank you, guys.

[OPERATOR INSTRUCTIONS] Our next question comes from Peter Hark with Talon Capital.

Good morning. Thank you. First, on the accretion analysis of Palisades, does that include any forward capital costs, including potentially the vessel head replacement there?

In terms of the accretion, first of all, it's an earnings number, and it would include everything that we've got built into our forecast in terms of CapEx, O&M, all of that.

Okay. And what is the incremental CapEx from Palisades?

Well, I'll tell you that we've disclosed what the purchase price is in terms of our go-forward capital plan throughout the life of the unit and all that. That's not something that we would disclose.

Okay. Okay. Thanks. And then on the non-nuclear Wholesale side, could you help us reconcile the change in the amounts that have been hedged or contracted for, and the pricing?

Some of that is just the change in the amounts that have been hedged is basically the rolloff of some contracts that were at one plant, as well as we had a plant that was out of service that we've brought back. So I think by and large that the majority of those in terms of the, you're talking about the sold-forward position?

Yes, sir. Yes, thanks, Leo. Thank you very much.

Peter, one point. There's just one thing. When Leo said, we don't really disclose that, the reason we don't disclose that is around these bids, we don't have too many competitive advantages. I mean, we look at some of our competitors, and sometimes we just can't get to where they are, because we just can't get the cost of capital numbers, risk adjusted under our methodologies the way we look at risks to the same place that they do.

The place where we think we have the advantage is the vast experience we have in PWR's and BWR's, and in the due diligence when we go into these plants. We really overwhelm the plant. And then when there are things that need to be done, like capital deployed or things like that need to be done, as in the case of Palisades over the next few years, we actually bring the due diligence work back, and then Gary Taylor and his people work a plan to do that, the same way as if we already owned the plant.

So we're not just accepting what maybe the owner gives us, or what's in the room itself, with regard to future capital expenditures, or when they'll be made or how they'll be done or whatever. Actually that's where our advantage is, is that we work it all the way down to if we had to do it and we owned it. And that's why we don't really get into the details of what conclusions we came to in the due diligence process, with regard to how capital would be deployed, when it would be deployed, what the alternatives are for achieving the same types of things. That's where our advantages is.

That's perfect, Wayne. Thanks very much.

Sure thing.

Our next question comes from Shalini Mahajan with UBS.

Good morning. A few questions again on the Palisades acquisition. On your accretion analysis, what capacity factor have you assumed for the plant?

I think that that's another one of those items like Wayne was just discussing, that we would prefer not to disclose.

Okay. And any color on the capacity factor guarantees for July and August, is that something that you can talk about?

Gary? Gary will -- there is a couple that Gary needs to mention.

This is Gary Taylor. Good morning. Your second question on the guarantees, in the month of July and August, what we did agree to was if the capacity drops below 95%, there is a $20-megawatt hour penalty that would be assessed as part of that. But that is factored into the analysis.

And to your first question, what I might add, we do have general guidance as we look at how we operate our fleet. And we put that out, and I would say that if you look at how we operate our Northeast, it's consistent with how you would see our Northeast fleet.

Okay. And Leo, then going back to your comment on why the tax rate was down in the quarter, I didn't catch that. If you could give some color as to what the effective tax rate will be for the whole year?

I'm sorry. I didn't catch the question.

You said the tax rate was down in the second quarter, and you gave an explanation for that, which I did not completely understand.

Okay. It has to do with the regulatory treatment of a deduction that we take in Arkansas, around replacement of the steam generator and A&O. It's traditionally, you would have a deferred tax that you would set up around an item like that, but the way the regulatory treatment is in Arkansas, we flow that through. So as opposed to setting up a deferred tax, excluding that out over time, it kind of mirrors the cash tax impact of that. And you get a current deduction.

So what, is it just a quarter effect, or what is done for the rest of the year?

We're still in the estimating it will be about 36% for the year. Yes, it is just a quarter effect.

Okay. All right. That's helpful. Thank you.

And at this time, we have no further questions from the phone audience. Ms. Lopiccolo, I'll turn the conference back over to you.

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And that does conclude today's conference call. We'd like to thank you all for your participation, and have a great day!