安特吉 (ETR) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Entergy's Corporation first quarter 2007 earnings conference. Just as a reminder, today's conference is being recorded. And now, I'd like to turn the conference over to our host today, Ms. Michele Lopiccolo. Please go ahead, ma'am.

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

Good morning, everyone. Last quarter, I outlined for you our to do list for '07 and beyond. This quarter, I'm pleased to report progress on many fronts. Starting with the utility, in Louisiana, the hearing began yesterday in storm cost recovery cases. At the start of the hearing, the stipulation was read into the record, quantifying the balance of storm costs for recovery in the amounts of $545 million for Entergy Louisiana, and $187 million for Entergy Gulf States Louisiana.

Reserves for future storms were also stipulated among the parties in the amounts of $152 million for Entergy Louisiana, and $87 million for Entergy Gulf States Louisiana. The stipulation also called for securitization of both storm costs and storm reserves in the same amounts. The stipulation is among the companies, the Commission staff and most but not all of the parties to the case. We view this as constructive, comparable to the outcomes in the other jurisdictions.

The stipulation brings us close the other resolution of the recovery of the substantial storm costs incurred in Louisiana in an equitable manner for all stakeholders, preserving the Company's ability to respond to future storms in the timely, efficient manner that our customers deserve and are accustomed to. Simply put, we can continue to respond in the extraordinary manner we're known for, even in the most extraordinary of events.

We are hopeful that the Commission will approve the stipulation, anticipate the Commission will take action on this stipulation, and the remaining issues in the case during the second quarter. In Mississippi and Texas, we already have financing orders in hand, authorizing securitization of approximately $369 million in total for storm restoration costs and storm reserves, which we expect to receive no later than the third quarter.

There's also been some good news for Entergy New Orleans and its various stakeholders. Just yesterday, the bankruptcy judge approved two contracts that should ultimately enable Entergy New Orleans to remove conditions precedent in order to emerge from bankruptcy. The first contract relates to an agreement that was reached with the Office of Community Development for the State of Louisiana, whereby Entergy New Orleans will receive $171.7 million in Community Development Block Grant funding in the near term.

Entergy New Orleans expects to collect the remaining $28.3 million of the $200 million of total CDBG funding awarded by the State of Louisiana as costs are incurred for storm restoration and rebuild work in the coming months. The second contract pertains to an agreement to settle the storm insurance claim with one of our three insurers, Hartford. This settlement, with one of the two excess carriers, is in the amount of $69.5 million, of which $53.7 million is attributed to Entergy New Orleans.

We are projecting roughly $400 million of total insurance recovery on a systemwide basis. Given this progress, Entergy New Orleans expects its plan of reorganization to receive approval leading to exit from bankruptcy in the second quarter.

In other utility regulatory matters yesterday, Entergy Arkansas began the evidentiary hearing in its base rate case. For over 20 years, Entergy Arkansas' base rates have not seen an increase. Entergy Arkansas' case in chief supports the rate increase in the $100 million range. In contrast, the Commission staff's prefiled testimony advocated a $16.8 million rate reduction, putting rates below 1986 levels.

Yesterday, it is my understanding, which I have not seen the document yet, I don't believe Rick has, either, but it's our understanding that the staff filed supplemental exhibits in response to one of our witness's sur-rebuttal testimony, and the revised testimony now reflects a revenue deficiency, not a surplus, of about $2 million. That's almost a $20 million improvement. We still do not believe the record or balance regulatory policy supports the remaining adjustments the staff is still advocating.

On the other hand, we're encouraged by yesterday's amended testimony in two other developments in the case. More specifically, all parties express support for continuation of the energy cost recovery rider as the ongoing means for recovering fuel and purchased power costs. Remember last year, the Commission ordered a review to consider elimination of the fuel tariff. There's also support to use a rider mechanism for recovery of the system agreement payments.

It's important to point out that if you add our base rate increase in total, and the system agreement rider scheduled to be implemented this summer, a typical residential customer's bill will be essentially unchanged from the beginning of 2007 due to the reduction of fuel charges during this period. Despite the fact that we have been on the receiving end of some particularly harsh words at Arkansas at times, we expect to have a fair hearing on the merits of this case. The Commission has until mid-June to rule on this case.

In Mississippi, we made our annual formula rate plan filing in March. That filing calls for a 10.85% ROE midpoint and a $12.9 million annual rate increase. The report is currently being reviewed by the Mississippi public utility staff. In Louisiana, we'll make our annual formula rate plan filings in both jurisdictions in May. In Texas, we remain on track to file a base rate case in the third quarter. The filing will support the first base rate increase in over 16 years and allow Entergy Gulf States Texas a reasonable opportunity to earn its cost of capital.

With regard to our portfolio transformation effort, in February, we announced an agreement to purchase the Calcasieu generating facility, a modern quick start [INAUDIBLE] resource in close proximity to large customer loads with large potential load swings in a region where there are natural limitations on the ability to import power, such as the Gulf of Mexico.

We also identified resources in our long and intermediate term RFPs for further negotiation including the re-powering of a unit at Entergy Louisiana's Little Gypsy plant. Little Gypsy will utilize circulating fluidized bed technology developed under the Department of Energy's Clean Coal Technology program and use the abundant, low-cost petroleum coke supply in the area as its primary fuel. The project is expected to produce substantial customer value due to fuel savings, even in a carbon constrained environment through both lower rates and greater price stability. The re-powered unit will be among the cleanest plants of its type in the nation.

The Shaw Group has been selected as the EPC contractor for the project. Of course, regulatory preapproval is a condition to proceed and we anticipate filing plans in the near future with the Louisiana Public Service Commission.

As for new nuclear, it is competing for base load needs in the 2015 to 2020 time frame. Critical issues include the level of cost estimates, the risk sharing arrangement with the EPC, and the clarity and equity of legislative and regulatory rules and mechanisms with regard to risks, including timely cash recovery necessary to maintain the credit quality to attract capital at rates consistent with the project's cost estimates. In fact, in response to the Louisiana Commission's directives to develop a rulemaking that would promote development of nuclear power in Louisiana in March the staff filed a cost recovery rule for nuclear power generation.

The Commission considered this rule at its March business and executive session and is expected to take action at its May meeting. In another action, required for new nuclear, in April, Entergy nuclear received an early site permit from the NRC for another unit at the Grand Gulf site. The early site permit is valid for 20 years and certifies that the site is suitable for a new nuclear unit resolving many safety and environmental issues.

In other developments at Entergy Nuclear, we completed the Palisades acquisition on April 11, and, finally, we advanced our efforts to operate Vermont Yankee and Pilgrim for another 20 years when the NRC staff issued its preliminary safety evaluation reports, finding nothing that would slow its path for license renewal.

I'm also pleased to report that we were named to the Forbes list of America's most trustworthy companies for our corporate governance practices and accounting transparency. We were the only utility to make the list, which was drawn from 8,000 public companies. Using more than 200 accounting and governance metrics, audit integrity generated a list of 100 companies showing the highest degree of accounting transparency and fair dealings with stakeholders during 2006. Particularly significant was our top five rating among the listed large cap companies. That result combined with our ISS proxy analysis and corporate governance ratings demonstrates our commitment to the highest standards in how we conduct business.

The ISS report indicated that Entergy outperformed 99.8% of all companies in the S&P 500, and outperformed 100% of the other companies in the utilities group. ISS calculates governance ratings for more than 8,000 companies.

Before closing, I'd like to briefly touch on the leadership reorganization announced earlier this quarter. In my nine years at Entergy, I have resisted reorganizations or change for the sake of change. With over 30 years of experience in the industry, I always felt confident that we had the best people in the industry in the right jobs, particularly given the challenges and the opportunities we face as a Company.

As we experienced the loss of institutional knowledge due to retirements, we backfilled those jobs with people I had enormous confidence in. And I feel the performance of each person has supported that confidence. It is Bob Dylan, who once wrote and sang, "The times, they are a changing." And we must make changes with them. Thankfully, we already have the right people with the right experiences. You will just see them in different roles than they have been in the last few years. We've done more than just move people around.

We've gone some effort to redraw the boxes to best fit what we're trying to accomplish and to assure we have very well defined accountability and responsibility. In a matrix structure, this can be the downfall if it's not perfectly clear. Bringing together the best of the utility and nuclear cultures along with the respective experiences and talents of their leaders is critical to advancing our corporate aspirations and initiatives and I remain confident that will become more obvious to all of you over the next year. And now I will turn the call over to Leo.

Thank you, Wayne. And good morning, everyone. In my remarks today, I will cover quarterly results followed by liquidity and cash flow performance, an update on our share repurchase activity and a recap of our '07 guidance. I will then close with a brief discussion of our longer term opportunities. Looking first at our financial results for the quarter, slide 2 shows the first quarter '07 as reported earnings increased by 12% compared to one year ago.

Operational earnings also reflect improvement in the current period rising 13% compared to the first quarter of '06. The increase in operational earnings came from higher results at Entergy Nuclear, partially offset by lower results at Utility, Parent and Other in the non-nuclear wholesale business.

Slide three presents the factors that drove the quarter-on-quarter increase at Entergy Nuclear. Increased revenue from higher pricing was the major driver. The scheduled refueling outage at Indian Point 3 partially offset this increase as there were no refueling outages in the first quarter of '06.

At Utility, Parent and Other earnings were lower in the current quarter than those of the first quarter last year. The key factors that contributed to lower results were higher operation and maintenance expense, higher depreciation expense coming from increased plant additions during the period, and higher interest expense due to financing costs associated with storm spending and share repurchases.

The increase in O&M this quarter is driven by several factors. Some elements of the increase in expenses are incremental costs, while others are a function of year-over-year changes in spending patterns and we again have a storm-related effect. Incremental costs include items such as transmission spending to implement our ICT plan and higher insurance costs. Insurance expense, for example, reflects higher premiums as insurers respond to '05 storm effects, as well as some added coverage. These are additional expenses we anticipated and included in our guidance.

As for our spending pattern, in '06 we saw a significant portion of O&M come through late in the year. This is in contrast to our expected '07 pattern, where spending later in the year should be below our spending levels of comparable periods for '06. Also contributing to the quarter-on-quarter increase in O&M is a return to normal spending on both transmission and distribution activities compared to the first quarter of last year's focus on storm recovery.

As you'll notice in our release, sales growth at the Utility was over 3% quarter-over-quarter on a weather-adjusted basis. While this is certainly encouraging during the first quarter of '06, we were still experiencing customer losses due to the '05 storms as home and business rebuilding process struggled for momentum. Accordingly, we continued to project just under 2% sales growth for the year. At the Non-Nuclear Wholesale business, results in the current quarter were modestly lower compared to the same quarter last year due primarily to costs associated with a planned outage.

First quarter's results included only one special item reflecting the $0.01 per share increase, or earnings in Entergy New Orleans. Earnings at ENO were down from the $0.03 per share earned one year ago. Higher O&M and interest expense were the key factors leading to the lower results in the current period.

Increases in both of these items reflect the effects of the storm in '05 as O&M spending patterns in the current period reflect more normal activity compared to the first quarter of '06. In addition, interest payments suspended in the first quarter of '06 have been resumed consistent with an agreement reached in the bankruptcy proceeding.

Slide four includes a snapshot of our cash flow performance this quarter. The decrease in cash flow during the current period primarily reflects the the absence of two positive contributors in the first quarter of last year. Tax refunds made possible by the Gulf Opportunity Zone legislation and unusually high levels of accounts receivable collections made significant contributions to the first quarter of '06 cash flow.

On slide five, we look ahead at our overall liquidity position, our net cash available over the '07 through '09 period remains at $1 billion. Slide five also reflects progress during the quarter on our share repurchase program. During the first quarter, we repurchased 5.7 million shares at an average price of approximately $98. Just under 90% of those repurchases came through our $1.5 billion program, with limited activity coming from purchases to offset the dilutive effect of stock option exercises. We continue to see our '07 as reported in operational earnings guidance in the range of $5.40 to $5.70 per share.

Slide six details the components of guidance which have not changed from those we shared with you last quarter. At Utility, Parent and Other, the positive effects of sales growth and improved pricing is expected to be offset by higher O&M depreciation and interest expenses. The contribution to '07 earnings from Nuclear will come from higher revenues reflecting higher pricing for the northeast portfolio, and new sales volume from the Palisades acquisition which closed earlier this month. Partially offsetting these strong results are higher O&M primarily driven the addition of another plant, and the effects of two additional refueling outages including one at Palisades.

With respect to the final component of our '07 guidance, we continue to estimate increased losses at the Non-Nuclear Wholesale business. Through the first three months of the year, many of the factors noted above have come through actual results much in the manner we projected. We realize there is always the potential for unexpected events to move earnings up or down and that realization is why we use a guidance range. One such event is the recent unplanned outage at Indian Point 3. With Indian Point 3 now having been out of service for 21 days, it will be a negative effect on Nuclear's earnings. As an update, I can tell that you that we currently expect the unit to be back online within a week.

On the positive side, better than expected pricing and other factors such as the early close of Palisades gives us confidence that our earnings range is still intact. We've been extremely active in the first three months of this year and the remainder of '07 offers opportunities for more of the same. Our financial aspirations remain unchanged and our path to achieving those aspirations is well defined. We will focus on investing in positive MPD projects in the non-regulated businesses and high quality assets in the utility while maintaining operational excellence in all that we do.

Through these investments and operating success, we will achieve positive returns and continue to reinforce reliable service to our customers. These actions support our financial aspirations of maintaining balance sheet strength consistent with our risk profile, focusing on credit quality, and growing earnings per share by approximately $1 per year through 2010.

Our success in these efforts will then position us to achieve a 60% dividend payout over time and continue our share repurchase activity. We believe the realization of each of these aspirations will be a significant accomplishment and the collective result will lead to continuing to provide top quartile return to our shareholders. The process of identifying opportunities that align with each of these aspirations is well under way.

Investments in projects such as Palisades and Little Gypsy reflect our success achieved to date, our portfolio transformation initiatives, as well as advancing our work on the potential financing of the nuclear business can also generate value creating opportunities.

We do not have a shortage of positive catalysts and our time will be filled with pursuing initiatives that create the most value for all of our stakeholders. With that, we now turn to our Q&A session and our senior team is available to respond to your questions.

(OPERATOR INSTRUCTIONS) We'll go first to Dan Eggers with Credit Suisse.

Hi, good morning. First question, I guess my only question, given the good free cash flow generation, the fact that the storm cost cash is now coming in the door, can you remind us of balance sheet targets, the parameter you guys are going to hold yourself to, both leverage and coverage ratios and then, can you prioritize which of those metrics will be most important?

The bottom line on that, Dan, is we continue to measure to the aspirations that we set out, I think, earlier this year, the end of last year. As far as an overall metric on the balance sheet, we've been looking at a 50% to 55% debt-to-cap on the total basis. As far as all the other metrics, we are focused on maintaining the credit quality that we already have and in those ranges of where we stand today at the corporate level around the BBB rating. We actually believe the balance sheet that we have is stronger than that, the coverage ratios that we have are stronger than that. That's where we sit with the agencies, kind of with a split rating at the parent level. We're going to continue to manage within those.

And we think that while we do that we can still target the 60% payout over time. We can still target the share repurchases along the way as we've outlined before, finishing up the $1.5 billion program that we have currently. But also looking at that idea of, in the, as we go forward looking at both investments in the nuclear investments in the utility business, as well as maintaining a view on can we or can't we do on average $500 million of share repurchases a year?

All those things, Wayne laid out for you earlier. We try to balance all those and in addition to that, as we look forward to the utilities and the securitization, that's going to have an impact on what we do at the operating companies, as well. As you start to see some of the debt that sits at those businesses be replaced by securitized debt as we get through course of the year.

With credit metrics better than the BBB rating at the parent, does that mean that you would move credit metrics to match the rating? Or would you hope for a rating increase to match the credit metrics?

Well, that's an interesting discussion that we have a lot when we're meeting with the agencies. Right now, we think that the metrics that we target are the metrics that we should target. We pay attention to the rating, obviously. And we have discussions with the rating agencies on a regular basis about what those ratings are, what we think they should be versus maybe what they think they should be.

But we don't manage the business to the rating necessarily. We manage the finances of the business to the risk profile of the business. And as we go through the year and evaluate, again, with securitization proceeds, how we manage each of the OpCo's, when we get through that process, how we manage the corporate credit and then as we continue to evaluate what we're going to do on the nuclear side, all of that we continue to revise.

But while we are certainly cognizant of what the ratings are and how those ratings are determined by the agencies, we first and foremost try to manage the business to the risk profile of the business or businesses that we're looking at as opposed to manage it to the rating.

Got it. Thank you, guys.

We'll go next to Greg Gordon with Citigroup.

You covered a lot of what I was going to ask. I guess, Leo, you made a comment in your formal statements that you continue to think about more broadly what the right balance sheet position of the Company is, not just on a consolidated basis, but when you look at each of the individual operating businesses.

How far along is that process? Are you comfortable giving us sort of a time frame over which you plan on making a decision on how the corporation ought to be levered, how the different operating businesses ought to be levered and what type of sort of pros and cons have stacked up on either side of the ledger here as you think about that decision?

Well, as it relates to how far along we are, we're pretty far along on a global basis if what you're really drilling down to is maybe, Greg, around way we're doing with nuclear, that's something that we continue to investigate, and as far as a timeline on that, as we said earlier, we'll make some choices on that during the year. And it's one of those things that hasn't really been done before. And there's a lot of steps in looking at what may or may not transpire there.

Restructuring the business into its, into a stand alone entity, as well as getting audited financial statements, having discussions with rating agencies, making filings at the NRC, making filings at the FERC. There's a lot of activity around that that would have to occur if we head down that path.

You'll see us do some of those things probably throughout the year whether at the end of the day we actually did the financing or not, just because to put it in place and to get that evaluated, you have to actually make those filings, you have to do those restructurings, et cetera. So we're pretty far along in our thought process on that. There's a lot of work to be done and there's a lot of people outside the Company that we have to deal with when we do it.

Thanks, Leo.

Moving on the [Jesse Loudon] with Zimmer Lucas.

Hi. Good morning.

Good morning.

Regarding the progress on the re-powering at Little Gypsy, should we assume that the CapEx associated with that is in your CapEx forecast as it's presented now? Or is that incremental?

No, there's CapEx in there for a project like Little Gypsy. At the time we did the CapEx that shows up in the 10-K, we knew we would need a project like that. There's CapEx in there, not necessarily specifically for Little Gypsy, but there's CapEx in there for a project like Little Gypsy. And so it's covered in that '07 to '09 period. The project wouldn't go in service by then so there could be CapEx associated with it out beyond 2009, as well.

Okay. Is it mostly in '08 and '09 in terms of where we would actually see that?

As far as what you would see in the 10-K, yes.

Okay.

There will be, as I mentioned, the project would go in service after that point in time so there would be CapEx that would continue after 2009, as well.

And are there opportunities for additional sort of regulated generation projects that we should think about in sort of getting regulatory traction on in the next maybe 12 months?

This is Wayne, are you talking about new builds or re-powering or acquisitions?

I mean, I was talking, I guess, kind of sort of running the range of new build or re-powering.

Okay.

But also acquisition

Okay, Rick, why don't you go ahead?

Yes, there is. Coming out of the RFP we have a couple of projects that we're pursuing with counter parties right now, see if we can come to contractual terms. I would expect we'd get that accomplished yet this year, and make the necessary regulatory filings this year to do that. So they would be acquisitions. And then, in our normal planning process, we're looking at other generation. But for this year, they'd be acquisitions.

Thank you.

Moving on the Michael Lapides with Goldman Sachs.

Hey, guys, Michael Lapides here. Question for you on energy commodity services, on the non-regulated non-nuclear plants. One or two industry kind of magazines or sources have listed those as plants that are actively being shopped right now. Just wanted to ask kind of what your viewpoint overall on that business and what your long-term strategy for it?

Well, the strategy for that business, Michael, is no different than it's been since we exited the kind of development business several years ago. Those are assets that we either already constructed or were far enough along that we, the commitments were made to go ahead and finish them up.

We've been trying to create as much value out of those assets as we possibly can and we have sold bits, pieces and total plants continuously over the last several years and that process continues. So we bid them into RFPs, both for Entergy RFPs, as well as RFPs for other companies that have gone out for power in the region.

We have entered into contracts off of those just like we do with nuclear business. We have sold slices of those units to other parties and we have sold entire units to other parties such as the [Mauritza] plant that we sold last year. So, creating value out of them is actively shopped on a regular basis. And to the extent that that includes exiting those plants, that's always on the table.

Got it. One follow-up, a little bit unrelated, on the non-regulated nuclear business, what is your view overall of kind of going forward, the market or potential for acquiring nuclear assets? Has the number of companies have bought assets over the last couple of years, is that market obviously shrinking, or are there still opportunities? And what type of opportunities, not necessarily specific plants, but just in general, do you think exist over the next few years?

Michael, I'm going to ask Gary Taylor to address that. Michael, Mike Kansler is our new CEO of Entergy Nuclear, Mike is here, but so is Gary. Since Gary has been mostly involved in this piece, and we're still kind of in the transition, I'm going to ask Gary to go ahead and give you his views. Gary?

Yes, I think there's really, you're going to continue to see some plants come up for sale. If you look at the landscape out there, there are still in excess of about 20 plants that still have single operators to them and I think they can recognize value by combining those.

Having said that, though, if you look at what the cost of the last auction went for, I think we're really starting to approach whether or not too much value is being transferred to the present owners and not enough value that we could see necessarily going forward. So I think we're kind of reaching that point. I think at lot of this may actually be implemented too in what happens in carbon legislation as we go forward and how that plays out in some of these sales. But I think there's still some opportunities. But they are getting on the upper end of where the risk that you're taking on and the rewards that we would expect to generate for our shareholders may not be in agreement.

Got it. Thank you guys.

I will now move on to Jonathan Arnold with Merrill lynch.

Good morning. Hope to get a little update on what's been going on in the Texas legislature and your take on that and implications for the plants? Obviously, both going to market and also integration.

okay. I'm going to ask Rick to handle that one. We'll stick with our outdated organization structure, it appears. Rick, go ahead.

Jonathan, I mean, there's a lot of activity going on in the Texas Legislature. And I think it's still pretty difficult to predict how it's going to sort out at the end of the day. We got about another month to go through those activities. As it relates to Entergy, we're still pushing movement to ERCOT and I think that's still on the table even though there's been some bills that have passed in the house that would not have that happen.

But the Commission still moving forward on our TTC filing and we're having conversations with the variety of parties over there trying to convince them that that's the best thing for us to do. But I think more broadly, I don't know, have to turn it over from Leo from an investment and generation and stuff like that, we're not spending much time looking at those avenues today.

Yes. In ERCOT, we haven't really been focusing on that a lot actually since we got out of the retail business in ERCOT last year.

I think when Rick says the best thing for us is ERCOT, I mean, what Rick's alluding to is the best thing for system reliability and the wholesale markets. Whether we go to retail competition or whether that's even on the table, is so far down the road and so many things will happen between now and then. That it's not even really on the table at the moment even though it's part of that filing. The testimony that we have in Texas and has been supported by the ERCOT analysis, is that moving our jurisdiction, our footprint into ERCOT is good for the wholesale market, good for the liability, reduces congestion cost and it pays for itself.

So we don't want to confuse two issues even though they are commingled into Texas. What we're really asking the Commission to do is to make the first step, which is pays for itself and they can decide the other issues sometime down the road based upon the merits of the case, or whether they change the rules, or whether the circumstances changes or whatever. So what we still feel pretty strongly that going to ERCOT is the right answer, not necessarily for the reason that we originally headed down that path, or were pushed down that path. For other reasons.

Just to follow up. In the event that the bills that have passed the House pass the Senate, and become law, I was really -- does that preclude you just from going to market? Or would it preclude you also from integrating into ERCOT?

Well, Jonathan, currently those bills would preclude us from going to ERCOT.

Thank you.

And we'll now move on to Leslie Rich with Columbia management.

Thank you. I had ERCOT questions but since you just answered those, I'll ask about the outage at Indian Point. You said that was an unplanned outage, and just wondered what the nature of that was and sort of what that is attributable to?

Now we are going to go back to our new structure. And Mike Kansler is really an expert on this subject in particular. So, Mike, why don't you go ahead?

How you doing, Leslie?

Fine, thanks.

Yes, we actually had a failure of the high side bushing on the transformer which caused the transformer to fail. And we had done a lot of work on the transformer and the bushings during the outage to verify they were intact and good for the cycle and this was kind of a surprise. So we're trying to get to the root cause of why the bushing failed. Fortunately, we maintain a capital spare transformer on site so we've been in the process of switching that transformer out and we're moving the unit towards startup going forward.

So in aggregate, it's about a 28-day unplanned outage? --

I think we'll be well less than 28 days, yes, but probably three weeks and a few days.

Yes, it's very close to just a refueling outage is where we are.

Right.

Thank you.

And from Morgan Stanley we'll move on to Vikas Dwivedi.

Good morning. This is Vikas. Just a -- and I apologize, I joined late so if you've answered this, I'll do a replay later. But on the nuclear fuel question, with rising costs, can you guys remind us what your cost structure and kind of risk exposure is to those rising costs, whether it's hedges, et cetera? And then the second one is, also related to nuclear on how receptive states like Louisiana and Mississippi have been or if those discussions are moving forward on new build even if it's quite a ways away, just getting a start on that?

Okay. This is Wayne. This is a good illustration of why we're reorganizing around here. A lot of these questions really do cross functional lines and our new organization is going to make this clear who's got the ball. What we're going to do right now, I'm going to split that question. Gary is going to talk about fuel and Rick is going to talk about where our home states are on new nuclear.

On the fuel question, and no, it had not been asked before. So to put some color around that. As far as Entergy, it's something that we have monitored for a while. And our position has been to be hedged out. So if you look at our exposure over the next few years, both from an enrichment point of view and from a product point of view, we're actually hedged in those years going forward.

That structure that we have and it's reported in our 10-K, but it's been fairly competitive in the $4.50 to $5.00 per megawatt hour our total fuel cost in the operation of our plant. So we don't see that as a major challenge immediately. Obviously, as we move forward over those next several years, we would move closer to what you see market prices doing. But I think most of us anticipate that there's going to be a response to the high prices, most of the of firms that we look at would call for those to moderate some as we go forward. And I think that would put us in a better position strategically to be in that time frame as the curve comes the other way.

Okay. Are you able to share how far out you've hedged in general?

No, in general, because for reasons that, obviously, as far as negotiating with others, I think at this point, I can just say for the next few years.

Okay.

Rick?

On the new nuclear, I mean there's quite a few conversations going on in both Louisiana and Mississippi. The governor of Mississippi is very interested in new nuclear, at the Grand Gulf site and the Louisiana Commission has a docket open, where are the, we have filed comments on what regulatory mechanisms would be necessary to incur, encourage new nuclear and Louisiana staff has filed comments. I think the Commission will probably enter an order in that next month. So I would say from both states, we're getting very positive reception to new nuclear.

And we're moving along with vendors, or vendor to really define what the costs would be and those type things. So that's the critical element of what, trying to lock down costs, get designs certified with the NRC and those type things. So there's a lost activity going on within the Company, with our vendors and our regulators on new nuclear. But, obviously, those are very long lead time projects. We're talking a good 10 years out here before those may show up.

Got it. And would that mean that the first indication of what a cost might be still quite a ways away? More kind of measured in years instead of quarters?

I wouldn't say years. I mean, if you give us four quarters, that might be more realistic.

Okay.

But I don't think it's years. I mean, we're working pretty hard on that stuff with a vendor right now.

Got it. Thank you.

One of the things I'll just add, one of the things we're particularly focused on, we have a unique situation, as you all know, with the overbuild that exists in our territory with combined cycle plants and with the escalations that have occurred in many of the commodities to build something new, certainly buying existing power from the owners or buying plants competes very favorably with something like new nuclear. But when you start looking at carbon constraints, your forecast for carbon prices for really CO2, it's starting to get pretty close.

I mean, depending upon the exact bill and how it's done, whether the new nuclear works or not, is very dependent upon how risky the project is, what kind of discount rate you're going to use, and what kind of risk you're going to have with your EPC vendor. And so right now, as Rick said, it might be four quarters, critical to us is developing the carbon curves under various scenarios so we know what we're comparing it to and other alternatives.

But most likely for us, we're probably looking at things that make sense is going to be buying power off the marketplace, more of an environmental dispatch or a substitution along with probably nuclear. The, assuming we can come to resolution with the EPC and the other parties with regard to the risk. Most of the other new build type things just probably are not going to work as we sit here today. But again, that carbon curve is going to be critical to that decision.

Okay. Thank you, guys.

And we'll now move on to Vic Khaitan with Deutsche Asset Management.

Hello, thank you, and congratulations, Wayne and team, for such a good progress. I was wondering whether you can discuss a little bit more about the synergy between the unregulated side and the regulated side as you think along and whether they should be really one ownership or several ownerships?

Are you talking about nuclear, Vic?

No. The unregulated businesses.

The whole Company?

Yes.

Okay. Well, we've talked about that before and, Leo, like you said, he's working through the process in terms of how to maximize the value in particular of the northeast nuclear fleet while preserving the benefits of having the integration of one fleet, which is what Gary and Mike has been working on for some period of time. And there's, I'm convinced, and listened to them even yesterday, more and more that there are substantial advantages in the new organization under the alignment process. So that's something that we would want to preserve.

And, but Leo is working through process of, from a financial standpoint, making sure that at least we maximize the financial engineering aspects of it. Along with that, I don't think Leo necessarily got into it in his discussion. But he also is working through other structures that are way too preliminary and way too complicated, I think, for this call. But does get to the question that you have posed with regard to is there a structure that would that would minimize the tax leakage and preserve the benefits of having one nuclear fleet and preserve also the credit and the shareholder value, maximize the shareholder value.

And that's like I said, there's a lot of ideas, but they're so preliminary, it would be premature to even talk about them, I think. But that's number one on Leo's list this year. And I know he's working on it because he talked to me about it yesterday. But that's about as far as I can go, Vic.

Okay. Thank you.

And from Duquesne Capital, we'll go to Zack Schreiber.

Hi, Wayne, hi, Leo, it's Zack Schreiber from Duquesne. Congratulations on a good quarter.

Thank you.

And thank you for all the value that you've created for us shareholders, the value that you continue to create. Just a question on following up on Greg Gordon's question on sort of on recapping the generation assets, discreetly. Are you talking, when you talk about a separate entity, are you talking about a separate legal entity that can support debt financing, or are you talking about a separate entity that would float and have its equity traded separately from Entergy? It wasn't clear to me, actually.

And then, also, can you just talk about the pros and the cons of doing this? I mean, I can see a lot of the pros. You seem to be alluding to some of the hurdles, I don't know if those hurdles are cons or if they're sort of things you have to overcome to capture some of this value. And is just, last but not least, is your commitment to executing on something like this, is it the same as it was a few months ago? Is it waning, is it increasing as you evaluate the markets and try and think about what creates the most long-term value? Thank you.

I'll try and go through that.

Great.

All for you, Zach. The bottom line is, what we are doing when we look at the business like we do all the time, and it's the challenge Wayne always gives us, how do we create the most value with the portfolio that we have, both through operating it and through the management of the portfolio?

As we look at the nuclear business in particular and as it relates to how we financed it and how it sits within the corporate structure, it's been financed primarily with equity out of the corporate center. And so as we look at the, at that business, we look at how it operates, we look at its future, we look at its financial strength, it looks like to us, we should get to the point of once we've got to operating all the plants well, is what Gary and Mike and their teams done, we get to combining the fleet in terms of operating with the synergy of the fleet itself and we grow earnings and cash and all that, that way plus take advantage of the hedging strategy that we've put around it with commodity prices being what they are, that the business is now a business that should be able to stand on its own within the corporate entity at the very least. Just like Entergy Mississippi, Entergy Louisiana and the other companies stand completely on their own, that business could stand completely on its own.

So as you start to head down that path, Zach, and what's the right way of, there's a long list of objectives that we wind out, I think we've talked about some of those before, for that in terms of if it stands on its own, it supports its own credit, it supports its own contracts, it supports its guarantees, et cetera, all of that to get it to where it's the discipline of that business is, and the finances of that business, and the cost signals of that business are at that business, those are all positives. To the extent that we start to separate the risk of that business from the risk of the rest of the business, that's a positive.

How far we take that, then just depends on a series of analysis which starts with what's the way to create the most value? And so as we go down that path, we do look at setting up separate legal entities that can actually support themselves. That's the kind of thing that we're analyzing and that we of to look at and we would have to put in place. And if we put that in place, even just for financing, there's a series of regulatory approvals and other things that we would have to go through in addition to creating a lot of new financial statements and the like just to do that.

And I think Wayne really answered the end game of your question. There's a lot of options that it creates once you put it in that form. And if you just think about in terms of the liquidity, not only the liquidity in the business, but the liquidity of that business right now to hedge it we sell the power. Or if we wanted to hedge it differently, we could sell interest in plants. Well, the more defined a structure you put that should entity, the more liquidity of that entity you have to where it's ultimately the most value is created through some restructuring of that business that included equity, either in a partnership, a JV, a spin, a split, an IPO, whatever, you're on your path towards doing that.

Analysis, as Wayne said, is so preliminary and there's so many different ways you can go about it that it would be difficult to give you any more than that.

From a leverage perspective, what kind of leverage can this business support? How many turns of EBITDA, given the sort of low capital intensity on the going forward basis of the business, are there major CapEx requirements, on steam generators, on reactor vessel heads, I mean, -- is it three times, four times, five times?

I mean, the envelope has been pushed on leverage. I'm just trying to understand, I'm sure it's not eight times or 7.5, eight times, I know it's not zero, either or one times on the implied with the intercompany loan now. But how many turns of EBITDA when we think about what you're exploring and put it through our own models, should we think about?

Well, it's a, it's probably too early for us to talk about that right now, Zach.

Is there a range?

Pardon me?

Is there a range or credit rating?

I think you kind of actually defined the range. It's a pretty big range.

Zero to eight?

Right.

You can drive a truck through that.

And I think the reason that I say that is that there are a lot of implications, a lot of implications around the credit of that business. There's a lot of implications around how the credit of that business impacts the credit of the rest of the business.

And so we have to go through all that analysis to determine where we think it should show up and then, as I said, it's not a unilateral decision, necessarily, we do have to go through some regulatory approvals and processes associated with that and talk to the agencies, and we will take their feedback to heart, as well. As far as, we do the same things you're doing. We're looking at the other [gencos] that are out there and the positive and negative side to those [gencos] versus what our [genco] looks like and certainly ours has a lot of --

More positives than some of the other ones, I would say, right?

Well, you did a good job finishing my sentence. Because of its position, the markets it's positioned in and because of its position within environmental compliance and its non-emitting resource and the like. And then the fact that Gary and Mike and their teams have created probably the best operating nuclear fleet in the country. So, all of those things are positives. We're just in the process of evaluating all that.

What's the use of the cash that you think you could generate from this? And how do you deal with potential [dis-economies] of scale on an operational basis, i.e., they may be huge, what seems like to me if you were to create a separate equity, you run the risk of dis-economies of scale, I guess you could solve that with a nuclear operating service agreement.

Whereas if you did it with leverage and redeployed the capital at a good return, or to share buybacks or whatever, or the regulated utility at a return above your costs of capital, and kept the integrated operational, you would have financial benefits and not dis-economies of scale on an operational basis. How do you think about the operational aspect of this, as well as the financial aspect? There's another dimension, right?

Exactly. And that's one of the several pages of objectives that we have with all this analysis, is how do we maintain operational, that operational capability that we have across the fleet? And that's a very, very high priority of ours to make sure that every unit that we operate is operated safely, reliably, and providing good service to our customers. So that is a very key objective on the top of our list of how we continue to maintain operations across the fleet.

It can be done. And so that's the kind of thing we're looking at. As far as the use of the cash, it's going to depend on when, how much and what else is going on and we'll make that determination just like we do every time we look at deploying capital. What's the highest value use for the shareholders, while we the continue to provide great service to our customers in a reliable manner. And certainly we've got a great growth opportunity in utility, through the portfolio transformation, as well as share repurchases and the like, all of those things are always on the table every time a dollar comes in the door.

And on these objectives, you talk about several pages, have you made that public or is that internal?

That's internal.

Okay. Got it. And on FCM payments and the recent RPM auctions and PGM, is there a similar type structure for capacity auctions of different durations in New England? Has there been any read across in the capacity markets by the auctions in PGM and how that might impact the value of capacity generically? What is your position with respect to capacity? Do we think about that separately or is it bundled into your hedging guidelines? What kind of assumptions on sort of dollars per kilowatt day are in your numbers, and is there any flex on that or it's already in there?

In our numbers, we have capacity payments as part of the plan. And our capacity, we have a capacity point of view that's based on what reserve margins are in the region, what new build, what transmission and the like. So we have the same type of analysis around capacity payments as we do energy as we do basis, as we do environmental compliance as we do a whole host of different things in the market.

So, I think it's in there, it's something that we watch. As far as New England, New England does have the forward capacity markets and the impending forward capacity auctions. New York doesn't have the same type of operation, but there is a capacity market there and we do participate in it and we do have stuff in our numbers for that. I think I'm going to have to ask you, Zach, Michele is nudging me that maybe we might move on.

Zach, let me just close this. You asked the question, I like to start whether we were, since we previously talked about whether we were waning or whether we were we stood on this whole subject, and I think from what Leo had to say, from what we've said, I think we're encouraged from where we were, maybe even a year ago. We knew there were enormous amount of obstacles that had to be gotten through and, particularly the tax aspects and things on the fleet.

And we're very encouraged by analysis that we've done. That doesn't mean that we'll get to the end game like Leo described, but there are steps along the way that we can, we have more confidence than we did maybe in September that we'll be able to resolve to create, right now just create value but avoid the value destroying the cap structure and the way we're financing these plans.

So, I would certainly not want to leave you with the impression that because it's going to be a lot of hard work and some time, that we're backing out on this. We're putting more and more resources on this, particularly as we get deeper and deeper and closer to the real issues that have to be resolved. So again, I would say, I'm encouraged, we made progress since we probably last talked to you.

And we'll take our final question from Steve Fleishman with Catapult Partners.

Hi, Wayne.

Hey, Steve.

This may be a question for Leo, just to maybe close out some of this topic. When we look at the debt that you have at the parent right now, which I think was somewhat used to fund the nuclear purchases that you've made, if you were to lever the nuclear business on its own, would you keep this similar level of parent debt or would you potentially reduce the parent debt?

We would reduce the parent debt. I mean, as we go through the restructuring of this, there's a lot, I don't want to -- I don't want to dive down into it too much, Steve, because then it could just escalate into a lot of discussion. But as we look to push this on a stand on its own type of basis, we would remove potentially the credit support, financial support that comes from the parent to the nuclear business and put it at the nuclear business.

So that would include what we have there as existing debt that may have funded, for example, there's some short-term debt there at the moment that funded the Palisades acquisition, as well as credit support. Some of the other debt at the parent level is, they are funding the share repurchase program, that would be different. But stuff that's there to support the nuclear business, you could assume would transfer over to that business itself. The intent being, let's get it stand on its own, to have its own support in as many ways as possible.

Okay. Thank you.

Thank you.

And that is all the time that we have for questions today, Ms. Lopiccolo, I'll turn the conference back over to you.

Okay. Before I close, I'd like to apologize for those of you who weren't able to get your questions in today. We'll be happy to talk to you after the call. Thank you, operator, and thanks to all for participating this morning. Before we close, we remind you to refer to our release and website for our 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. Confirmation code 4234382. This concludes our call. Thank you.

Once again, ladies and gentlemen, that does conclude today's conference. We thank you for your participation, have a great rest of your day.