安特吉 (ETR) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entergy Corporation Second Quarter 2007 Earnings Conference Call. Today's call is being recorded.

Now at this time for introductions and opening comments, 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 Chairman and CEO, Wayne Leonard, and then Leo Denault, our CFO will review results. In effort to accommodate everyone with questions this morning, we request that each person ask no more than two questions. After the Q&A session, I will close with the applicable legal statements. Wayne?

Good morning. This quarter I am pleased to report progress on many fronts, including actions on key strategic initiatives and advancement of our financial aspirations. That bring said certainly some things could have and should have gone better. For those things that didn't go so well, our focus is fixing on what we can and avoiding repeats going forward. Starting with the utility, we resolved storm-related matters in three of the four affected utility jurisdictions. We received securitization bond proceeds totaling approximately $370 million for Entergy Mississippi and Entergy Gulf States Texas. In May, we achieved what many once considered a most unlikely but happy outcome. Entergy New Orleans emerged from Chapter 11 bankruptcy pursuant to a full compensation reorganization plan. Tomorrow we expect the Louisiana Public Service Commission to take action on its agenda item for storm related matters for Entergy Louisiana and Entergy Gulf States Louisiana.

Last week the administrative law judge in the case recommended approval of two stipulations, the first quantifying the balance of storm restoration costs for recovery and establishing reserves for future storms and the second providing for securitization. One other noteworthy point for Louisiana storm recovery relates to the alternative securitization legislation that became law in June. This legislation authorizes the establishment of a nonprofit corporation to issue and administer the storm securitization bonds, creating potential tax benefits that should reduce the ultimate cost for customers. Assuming Louisiana Public Service Commission acts on the storm agenda item tomorrow, we anticipate securitization proceeds could be received in the fourth quarter, resolving regulatory talks recovery issues for the 2005 storm season.

In other utility regulatory matters, we were dismayed by the Arkansas Public Service Commission ruling on Entergy Arkansas' rate case. While there were some positives, like the retention of the UCR writer for PO and purchase power cost recovery and approval of the production cost adjustment or PCA writer for recovery of system agreement rough production cost equalization payment, most other actions were generally negative. Particularly troubling, where retroactive rate making findings associated with refurbishing the turbine and for prudent storm restoration costs reflected in the storm reserve. Sunset provisions on the ECR PCA writers, rejection of a proposed capacity writer, disallowance of market-based compensation, adoption of a 9.9% ROE, one of the lowest in the country, adoption of a hypothetical cap structure that impute lower equity levels than our actual investment in the business, and in position on Entergy Arkansas of an annual earnings review process yet to be designed. From the tone of the hearing, we were concerned about aspects of the case where the commission as the export body generally has discretion, like said in the ROE. But we were surprised by the number of issues that were not evident on the record in the case but found their way into the final order. But you get the idea. Establish a low REO, eliminate equity to push the real number even lower, and disallow costs so there is no realistic opportunity to earn anything close to a fair return.

Entergy Arkansas has since filed for rehearing. In its rehearing request, Entergy Arkansas addresses multiple instances in which it believes commission actions are arbitrary without either precedent or evidence in the case or otherwise unlawful including clear instances of preemption of federal law. If the APC -- APSC does not rule in 30 days Entergy Arkansas' request for rehearing is deemed denied. This order is decidedly unlike what you would expect in Arkansas. For years Arkansas has been characterized by constructive, even-handed objective regulation. Unfortunately, the FERC system agreement decision to establish parameters for rough production cost equalization has created a regulatory environment in Arkansas that makes it hard to be overly optimistic that we will be successful at obtaining an objective rehearing. In the event we are unsuccessful on rehearing, we will seek an appeal in state court. We would certainly intend to challenge the reasonableness of the multitude of decisions that led to an order without a reasonable opportunity to earn a fair return. We will be equally, if not more aggressive in our efforts to preserve our rights to due process under the law. Arkansas' frustration with the system agreement payments is understandable, but that does not make it our fault nor within the law to take it out on Entergy simply because we are only party available to them to do so.

Regarding annual formula rate plan filings, the Mississippi Public Service Commission approved a $10.5 million rate increase for Entergy Mississippi and final orders are expected in October for annual rate filings made in Louisiana. Entergy Louisiana formula rate filings indicates a 7.6% earned return on equity. Despite the fact that this ROE is well below the bottom of the FRP bandwidth, Entergy Louisiana's filing calls for an overall rate reduction of approximately $7 million. The reduction is driven primarily by elimination of interim storm recovery and reduction of annual storm reserve accruals, both expected to be securitized in full. Like-wise, we expect a rate reduction of approximately $23 million for the same reasons at Entergy Gulf States Louisiana, which earned a 10% return on equity and we'll file the long overdue rate case for Entergy Gulf States Texas by the end of the third quarter. We expect the filing will show with substantial revenue deficiency as base rates have not been increased in over 16 years. As a final point, we're also on track to implement jurisdictional separation for Entergy Gulf States by year-end, having received some of the necessary approvals from FERC.

At Entergy Nuclear, things didn't go perfectly either. This quarter we not only had more planned outages than last year, but also more unexpected outages that are acceptable under the Entergy's standards of performance. We had two planned refueling outages at Pilgrim and Vermont Yankee compared to one at Indian Point last year resulting in an 82% capacity factor for the second quarter this year. As you all know, refueling outages are inevitable, it's simply a matter of timing. That's one of the reasons why we don't get two excited one way or the other about quarter on quarter comparisons in Nuclear. But every hour counts, whether it's during refueling or whether it's in an unplanned outage. We are aggressively focusing on the route cause of the unplanned outages we have recently experienced to eliminate them going forward, some of which were outside the plan itself. Like the extended transformer related outage at Indian Point III That one event resulted in approximately $32 million in loss revenue and replacement power cost plus another $17 million to replace the transformer, for which we expect to recover just under $12 million through insurance. I would note on that outage there was some opportunity to mitigate the financial affect by starting the unit backup earlier using the other transformer at the plant and running at a lower capacity factor. We did not attempt to do that, because it was not consistent with the Entergy Nuclear standards for safety, redundancy, reliability, and risk management. As we've said and demonstrated many times, there are things more important than simply short-term profits.

On a more positive note, I'm very pleased to report that Vermont Yankee completed Entergy's second in the last year breaker-to-breaker continuous run for 548 days. And even more noteworthy accomplishment considering the 20% power uprate implementation mid-course. Previously, ANO Unit 2 completed that record run last September. A license extension, Pilgrim received its final safety evaluation report and environmental impact statement from the NRC and the NRC accepted as complete the Indian Point applications for license renewal for another 20 years. Turning to key strategic initiatives, we realized progress on our portfolio transformation initiatives on three fronts.

Entergy Louisiana completed updated cost estimates on Little Gypsy repowering project with the Shaw Group, the project's EPC contractor, and made its regulatory filing with the Louisiana Public Service Commission, seeking authorization to begin the project. The filing seeks approval in two steps. Step one, requests a ruling at the November Commission Meeting, enabling Entergy Louisiana to initiate vital equipment long lead orders before final project certification, which would occur next year. And to certify $225 million for this phase barring any imprudency finding. Entergy Louisiana also seeks contemporaneous recovery of cash earnings on[ QUIP] starting no later than July of next year. Step two, seeks final authorization by June of next year for the project, including certification of an amount to complete the project at a predetermined agreed level of cost, again barring any imprudence finding and secondly, preapproval of the process by which Little Gypsy will be reflected in cost of service simultaneously with the plans in-service date. Step two also seeks approval for monitoring plan, including quarterly reporting with a continuing update of the Company's assessment of the economic fundamentals of the project, the process would require the LPSE staff to concur or to provide an exception on the quarterly report within 30 days. The updated cost estimates of the project is $1.55 billion or $2,875 per KW.

Approval of current recovery of the financing costs for cash [QUIP] is expected to produce the capital amount when the plant goes online to $2,453 per KW. This request has been characterized by some as an attempt to eliminate all risk or pass undue risk to customers. As you know, it would not do that. Instead, the regulatory plan simple formularies on the front in what is the law. The regulatory bargain consistent was allow and the limited returns Prudence states appointed what you should have known and when, maintenance of the financial integrity of the business, and avoiding regulatory lags and impairs the financial integrity or the opportunity to earn a fair return. While the detailed construction cost estimate increased from the original engineering estimate submitted to the long-term RFP in May 2006 due to escalation in price and volume of commodities and labor, Little Gypsy remains the most economically attractive solid fuel option for Entergy Louisiana to pursue with substantial savings expected for customers over the project life, while stabilizing fuel prices and reducing the price volatility of customer builds.

In another late-breaking announcement earlier this morning, actually it was about 15 minutes ago, Entergy Arkansas concluded negotiations with Co-gentrics, to acquire the Ouachita Power Facility. Since we don't have a release on that for those of you who are writing that down, I will spell it. Ouachita is spelled Ouachita. Say that three times fast. Upon closing, the Company plans to investment approximately $75 million in upgrades and related costs associated with acquisitions, bringing the total capital costs to project to approximately $285 million or $361 per KW. Entergy Arkansas expects to sell approximately one-third of the plant's output to Entergy Gulf States on a long-term basis under a separate agreement. This 789 megawatt combined cycle gas fired generation facility began operation in 2002. Located near Monroe, Louisiana, this facility is well suited to load follow providing flexibility capability to meet the time-varying demands of customers. For a number of reasons, you might ask the question why Entergy Arkansas is the owner? Simply put, the system needs this type of resource and Entergy Arkansas' portfolio lacks this type of load following capacity. In fact, Entergy Arkansas demonstrates earlier this year through its capacity needs docket before the Arkansas Public Service Commission that it has a need to acquire load following capacity and the Ouachita facility located in north Louisiana meets that need.

Like other acquisitions, Entergy Arkansas may terminate the transaction in its sole and absolute discretion if any regulatory approval or cost recovery is denied or is approved on terms that are not satisfactory. Finally, in another action this morning, Entergy and GE Hitachi Nuclear Energy jointly announced the signing of a new nuclear project development agreement that includes the procurement of major advanced reactor components. While we have not yet made a decision to build a new nuclear unit, we remain committed to sound planning process for the future energy needs of our customers while protecting the environment around us. Proceeding with this order now will ensure timely delivery of scheduled critical parts preserving Entergy's option to build a new Nuclear unit. While the terms are confidential the off ramps and other provisions are intended to limit the Company's financial exposure to no more than $15 million, even if we decide not to proceed with a new plant in this time frame.

Turning to other initiative that many of you have been carefully following, yesterday, we initiated our filing seeking NRC approval by year-end for the indirect transfer control of licenses for our non-utility nuclear fleet. This is intended to simplify and centralized the ownership structure for this business. This action is not expected to result in changes to the license, operator, personnel, or the day to day operation of the facility. If approved, this action would permit Entergy Nuclear to pursue a self-sufficient financing structure like that in place for our utility operating units, with new debt financing of up a to $5.5 billion at this business. Now while the potential financing is the current focusing, a streamline structure with stand-alone financial capability naturally suggests that additional alternatives, such as a joint venture of a split, a car or spend or other structures of the transactions may be forth coming in the future. With that being said, let me emphases, that no decision on the very long list of possibilities have been made. We continue to explore alternatives that could maximize value for our stake holders. We won't take action to pursue any of these structures unless and until we determine it's in the best interest of our stakeholders to do so. There has to be real tangible value creation. We've established certain principals to guide our decision-making process. We believe it's critical to maintain the core nuclear expertise that creates a competitive advantage for Entergy and we're committed to safety and security above all else in our nuclear operations and to ongoing operational excellence for all the plants in the Entergy fleet. Consequently, in any scenario, we see Entergy employees continuing to role as the natural operators for our Nuclear facilities, and we also don't see an outright sale of the non-utility Nuclear assets, as even viable alternative at this time, not that there wouldn't be a number of interested parties. It simply doesn't meet the guiding principals and it is extraordinarily inefficient from a tax perspective. We remain on track to reach a conclusion on financing if, when, how, and how much later this year.

Let me now turn to the action taken by the board on the dividend. Yesterday evening, the board approved a long-awaited increase in the dividend, the first one since October 2004. Specifically, the board increased the quarterly dividend to $0.75 per share, commencing with the quarterly dividend payment due September 1. As you are well aware, before this increase Entergy's dividend yield was around 2% and the payout ratio around 40%, both ranking in the bottom quartile relative to peers in the Philadelphia utility index with a medium dividend yield of 3.3% and a medium payout of roughly 53%. With earnings growth from our non-utility nuclear business and sufficient financial flexibility and liquidity demonstrated in our financial outlook, the board concluded it was appropriate to reevaluate the dividend level at this time. To move incrementally towards achieving the board's revised target payout financial aspiration. As in the past, the dividend recognition was subject to rigorous stress testing to ensure that the increased dividend is sustainable in a wide range of scenarios.

Before I close, I would like to take this opportunity to invite you to something else long overdue, an Entergy analyst conference to be held next spring on Friday, April 25, coincident with what many believe is the premier New Orleans attraction. The first weekend of the Jazz and Heritage Festival. Since Jazz Fest is the most highly attended event in New Orleans outside of Mardi Gras, we'll communicate early and often with you beginning in August about logistic for the conference and we will encourage you to make arrangements well in advance to ensure adequate flight selection for travel. Now I'll turn the call over to Leo.

Thank you, Wayne, and good morning, everyone. In my remarks today, I will cover quarterly results followed by cash flow performance, an update on our share repurchase activity, a recap of our '07 earnings guidance, and a review of liquidity going forward. I will close with brief comments on our financial aspirations. Looking first at our financial results for the second quarter, Slide 2 shows that second quarter '07 as reported earnings essentially equal to earnings one year ago. Operation earnings reflect improvement in the current period rising 8% compared to the second quarter of '06. The increase in operational earnings came from higher results in Entergy Nuclear and the Non-Nuclear wholesale business partially offset by lower results at Utility, Parent & Other. Slide 3 presents the factors that drove the quarter on quarter results. At Entergy Nuclear, increased revenue from higher pricing and the addition of Palisades were the major drivers. The scheduled refueling outages at Vermont Yankee and Pilgrim along with an unplanned outage at Indian Point 3 partially offset this revenue increase. Entergy Nuclear operation and maintenance expense was largely unchanged, other than the affect of having Palisades as part of the portfolio this quarter.

At the Non-Nuclear wholesale business, results in the current quarter were higher compared to the same quarter last year due to lower income tax expense. As is the case for each of our businesses, we periodically record tax reserves in accordance with FIN 48 for potential items that could increase our tax expense pending state and federal audit review. As issues are settled, we either increase expense for issues resolved contrary to our portion or in this quarter, reduce previously recorded reserves for favorable outcomes.

At Utility, Parent & Other, earnings were lower in the current quarter compared to results for the second quarter last year. The key factors that contributed to the decrease were higher operation and maintenance expense, higher income tax expense, and higher interest from financing costs associated with storm spending, share repurchases, and the acquisition of Palisades. The increase in O&M spending this quarter is driven by several factors. We continue to see increases in areas we expected, such as expenses associated with activities that have resumed to normal prestorm levels. Other expense increases reflect incremental expenses related to plan outages and the scope of work covered in those outages. Spending on both transmission and distribution activities compared to second quarter last year reflects more attention to long-term maintenance, such as vegetation management. We've budgeted these additional costs and expect to see increases with our work crews returning their focus to normal activities versus last year. Incremental O&M this quarter came from the expenses of an unplanned outage at our River Bend Nuclear plant. In addition, we occurred some expenses associated with work within our fossil fleet. We continue to see a downturn in O&M spending later in '07 compared to the second half pattern of '06, which we believe will move us closer to the full-year expectations. With regard to sales growth this quarter, the increase of 1.6% reflects the relatively stable growth rate we expected for full year of '07. One last component of utility operational earnings deserving mentioned is Entergy New Orleans. With the emergence of Entergy New Orleans from Chapter 11 bankruptcy during the second quarter, we are once again including that company's results in operational earnings. As you go through our full release, you will note that we have recast our key financial indicators and operational statistics to again reflect this company as part of Entergy's Utility business detail.

Slide 4, includes a recap of our cash flow performance this quarter. The decrease in cash flow during the current period reflects a mix of pluses and minuses. On the plus side, we received CDBG funding at Entergy New Orleans, reduced our noncapital storm spending in the quarter, and realized the cash benefits of higher net revenues at Entergy Nuclear. However, all of these positive contributors to cash were more than offset by two items, higher income tax payment spread among the various Entergy company's, particularly Nuclear, and reduced collections of deferred fuel costs. Slide 5 reflects progress during the quarter on our share repurchase program and shows that repurchased 2.3 million shares in the second quarter. Approximately 65% of the repurchases came through our $1.5 billion program, leaving us with approximately $820 million of authority remaining at the end of the second quarter.

We continue to see our '07 as reported and operational earnings guidance in the range of 540 to 570 per share. Slide 6 includes the components of guidance with details that should be familiar to you. As we review the first half of '07, many of the items coming through our results are in-line with our original projections. Our use of our range for earnings guidance assumes that there will be a combination of pluses and minuses that flow through actual results. This quarter again includes such a mix with unplanned outages and additional O&M as minuses while Entergy New Orleans earnings, favorable tax audit outcomes and accretion adds to earnings per share. Considering all of these factors, we continue to believe that our current guidance range is appropriate.

Looking back to slide 5 for a moment, you will see our current estimate of cash available. After factoring in the increase in the dividend announced today as well as portfolio transformation initiatives, we still see $500 million of cash available for the '07 to '09 period. We always consider a dividend increase as one of the potential uses of our cash available. We are confident that we can fund the increase in dividends and retain a very solid liquidity position. Our goal has been to ensure that we retain a high degree of financial flexibility and that goal remains unchanged. In addition, we continue to pursue other opportunities to further enhance our financial flexibility. We are very close to completing efforts to restructure our corporate lines of credit. The two existing corporate revolvers totaling $3.5 billion will be replaced with a new five-year credit facility of an equal amount. In addition, we expect to put into place new bank lines of credit for Entergy Louisiana and Entergy Gulf States, each at $200 million. We had no credit facility in place at Entergy Louisiana and only a $50 million line at Entergy Gulf States, so these new facilities create significant new liquidity for us.

Also, as Wayne mentioned earlier, our filing at the NRC to simplify the structured Entergy Nuclear could facilitate new stand-alone financing for that business of up to $5.5 billion. We do not want to get too far ahead of ourselves on this initiative, but I can offer some insight into our current process. The first step is to get NRC approval, as we cannot proceed as efficiently until we have in that hand. However, we are doing preparatory work as we await an NRC decision.. We continue to analyze the appropriate level of financing for this business. We have also engaged an outside accounting firm to audit the financial statements of the nuclear business. I want to emphasize that the $5.5 billion noted in the NRC filing is a top end number and may be more than we ultimately feel is appropriate for a variety of reasons, including cost, credit quality, and overall business needs.

As we look ahead, we continue to concentrate on opportunities that are in support of our aspirations and those aspirations remain in tact. The utility remains focused on customer service and reliability at the lowest cost practical and to that end, including Ouachita, we'll have added 2300 megawatts of high quality generation at an average cost of less than $275 a KW. We've advanced the Little Gypsy Repower Project and signed an agreement with GE Hitachi to maintain the new nuclear option.

At the Non-Utility Nuclear business, we continue to be focused on providing safe, reliable and secure power for customers and to that end, we have closed the Palisades acquisition this quarter, pursued market opportunities which create and enhance portfolio value, rolled out our fleet alignment plan, and initiated our plan to enhance risk management and optionality through NRC filing announced today. Each of these efforts share the common goal of producing value for our customers while enhancing your investment in Entergy. Your investment is entrusted to us with the expectation that we will first grow it and then distribute that growth to you. The dividend action announced today while still short of our ultimate goal reflects our commitment to distribute value as good stewards of your investment. We must prefer the capability to attract capital in the future, as this enables us to invest in our business to meet our customers' needs. Therefore, we view dividend growth and share repurchases as elements of a continuous process that benefits all of our stakeholders. In closing, I can tell you that we are motivated by the successes we've achieved to date and our motivation is fueled by the opportunities that lay ahead. Now our senior team is available for your questions.

(OPERATOR INSTRUCTIONS) We'll take our first question from Dan Eggers with Credit Suisse.

Hi. Good morning. On the dividend increase -- congratulations on removing that out, but where you are now is still a little bit behind of the peer group. I know you wanted to grow it at top quartile type of levels. Does that mean that plus 5% could be higher to keep pace with EPS growth, or are you just going to grow it top quartile and let that relative yield and relative payout ratio continue to be a bit low, kind of a group average?

Dan, this is Leo. Obviously, the earnings growth that we have going forward is going to be crisper than 5%. The ultimate goal is to hit that target payout ratio of 60% over time. So that's really the end game that we're going after now. The 5% is really the placeholder on average over a long period of time, 5% dividend growth is top quartile. So at some point, we might get to there, but earnings growth in the near-term being greater than that will probably precipitate something more than 5% moves in the near-term.

Okay. Thank you for clarifying that. Then on the -- obviously, the nuclear recapitalization process, I understand that it's early, but can you just give us a feel for your philosophical thoughts between investment grade versus a high-yield type of credit rating for that business and the need for financing, both on an ongoing basis and the flexibility that would come from investment grade versus high yield?

I guess you started that, Dan, with a good point. It's early. That's the kind of thing that we continue to investigate and look at, first and foremost what, size, when, and what credit rating we would want to achieve at the nuclear business as well as what impacts that would have on the parent company. And what impacts the parent company rating has on the nuclear business. All of that is what we're in the process of investigating right now and certainly the market, the cost, the needs of the business, the needs of the other business we have at the parent will all dictate where we'll go. So it's too early to tell one way or the other. Certainly, investment grade has some advantages as it relates to counter party credit, collateral issues and the like, but those can be managed around also because right now if you think about that as a merchant business, it would be one of the only merchant businesses that is an investment-grade credit to begin with. So all of those things have to go into the consideration of where we ultimately end up.

Dan, this is Wayne. Just to follow-up on that, your two questions with regard to the 60% payout and the credit rating and restructuring the nuclear business, those were probably at the board meeting last week, I would say those were -- on those two topics were the most active in terms of the discussion with the board. So it's something that I think your focus on those are the right things, because that's certainly a focus of our Board of Directors, what their best answer is.

Got it. Thank you, guys.

Thank you. We'll now hear -- our next question from John Kiani with Deutsche Bank.

Good morning.

Hey, John.

Can you provide a little bit more color on the year-over-year increase at Non-Nuclear wholesale please?

Sure, John. The Non-Nuclear Wholesale year-over-year increase is primarily due to lower income taxes. It's the resolution of some audit issues from the '02 -- the 2002, 2003 audit. We had some positions that got a favorable revenue agent report, so we reversed some reserves there.

Great. Then on the potential leverage recap option, understanding that you do have multiple strategic options and that it is still somewhat early, has the cost of borrowing in the high-yield market changed your view at all? I know you said that it's still pretty early on and you have a lot of different directions you can go in, but can you give a little color for how that might influence the decision?

Well, obviously, there's been a lot going on in the last month or so in the high-yield market. Certainly, with what's going on in the mortgage business, with the housing market, and spreads have changed, there's a lot more volatility in rates, all of that is going to be part of the decision we make. Certainly, we're a ways away from taking action, so things should settle down between now and then, but it's something that we are certainly watching and as you would anticipate, the cost of capital at this moment has gone up anyway given what's happened in the markets with the backlog of what's going on in the high-yield market. I think there's $270 billion of high-yield debt out on the calendar right now. As that shakes out, we'll continue to watch the markets and see where things go. And certainly that will be part of the decision making process.

It sounds like time is on your side and that because this is a little bit of a lengther strategic decision making process and also with the NRC review, perhaps by that time if we're through some of that, that's still a viable option if the cost is more reasonable?

That's correct.

Thank you.

Thank you. Next we will move to Greg Gordon with Citi.

Thanks, good morning, gentleman.

Good morning, Greg.

With the market acting the way it is, we really appreciate the dividend increase. The earnings growth outlook that you guys have articulated over the last several months, basically since EI in November of last year, obviously, things have evolved both in the power and capacity markets as well as on the regulatory front. Is there anything that would cause us to have concern that you could meet your 2010 earnings growth aspiration at this point, where you're meaningful off track on the plan you laid out? On the flip side, is there anything where you feel encouraged by being ahead of your notional plan versus that earnings growth aspiration?

Leo's pointing at me and I'm pointing at him. Greg, I think since we laid that out on the non-Utility front, certainly we're more bullish on certain of the aspects of that than we were at that point in time, whether it's carbon prices or spark spreads or capacity payments or just about anything. And the operation of or plants, again, we've had a little blip this quarter, but we feel very good about where we're headed there. We have the Arkansas issue to deal with. It's not a huge issue relative to our growth aspirations, but that's probably been the most disappointing thing that's occurred in the last year, since we articulated that. I would say we're probably as bullish or more so than we were at that time.

Thank you. I apologize if you answered this question already. When we look at the $5.5 billion maximize financing that you filed for with the NRC, think about the little over $2 billion of debt that you have at Entergy Corp., should we be thinking about you first sort of defizzing and/or replacing the entirety of that debt before you would add new leverage at this nuclear company, or is there -- because by my math, there's only $1 billion of that debt that's directly amicable to the nuclear business at this point, so is it a lower number, or can you talk about how we think about the overall corporate debt?

At this time I think that's a safe assumption that the new financing and the new revolver that we might put in place at that nuclear company would first offset existing corporate level debt and then we just start over in terms of what the corporate financial structure looks like in terms of revolver capacity at the parent and how we use that.

So the entire $2.2 billion would be first replaced?

Yes. I think that's a safe assumption, going-in assumption. Obviously, all of that is what were looking at right now in terms of the level and timing and what we might do and how we might structure it.

Okay, thank you.

Thank you. Next we'll hear from Steve Fleishman with Catapult Partners.

Hi, guys.

Hi, Steve.

Can you hear me? First questions. First on the guidance for this year, can you clarify? I think you said that New Orleans is now in the guidance. Is the share repurchases now in the guidance or not and is this tax audit benefit in the guidance or not? Because you're still showing a loss at non-regular Non-Nuclear.

Yes. Steve, if you look at the guidance table that we put out, it's the same guidance table that we started with.

Right.

When we put the range out, obviously, we have a view that we've got things that are going to go right, some of them are going to go wrong, new things are going to show up on both sides. So as we review that every quarter, what we're really looking at is on balance are we still in the range and we are. As far as New Orleans, New Orleans was not in the guidance when we put that out, neither was the share repurchase. There was something in our estimates for the audit issue. It actually wasn't in the Non-Nuclear wholesale business, it was showing up in our numbers in the parent and other. So it would of been in the utility, parent and other side. It was a little bit smaller than what we had actually turn out. So on balance, we still see ourselves in the range and so we haven't actually gone through and line by line changed those ranges, including the share repurchase, including New Orleans, including the audit issues, some of which we were in and some of which weren't and we didn't have the outage at Indian Point 3 and unplanned outages as Wayne had mentioned had been higher than we expected. All of hose things on balance, we still see ourselves in the range.

Okay. My other question is on the NRC filing and timing, I think last time I saw you, you talked about it typically being a six-month process, but not sure. Have you gotten any clarity from the NRC on how long it would take for them to review this.

No, we haven't really gotten anything new. We still think it's something that could be done within a six-month time frame. Certainly, it would be up to them, how quickly they can move, how their resources are spread and the like. That still seems like the right time frame for us.

Thank you.

Thank you. Next we'll go to Rudy Valentino with Morgan Stanley.

Hi. Can you just refresh me on what your plans are for your Non-Nuclear wholesale assets? I know in the past you've talked about selling and we hear stories. Can you give me an update.

Rudy, the update is pretty much like it's been for quite some time. We try to get as much value out of those assets as we can. In some instances it's like responding to RFPs like Entergy itself has or so other people or selling into the market or selling pieces of those plants or all of them. All those things are still on the tab, we're still aggressively pursuing them all and trying to come up with the best value we can. So things really haven't changed. We'd probably like to find a way to monetize that as best we can, but we're not going to do it if the value's not there.

Okay. Can you give me a quick update on the ERCOT integration of the Entergy Gulf States Texas?

I'll let Gary Taylor, who's the new head of our Utility Operations, as you recall, Rick Smith has moved over as President of the Company and Gary now is over the Utility. Gary?

Hey, good morning. As you know, when House bill 1567 was put out, one of the things it required us to do was to file such to define a qualified power region so we could determine -- be able to move to retail open access. We did that filing in December of 2006 and those hearings have been on going. Those hearings basically concluded last week with a two-day set of hearings. That basically allows for three options in our plan that we proposed. One of those options would be in all cases going to ERCOT by the Entergy plan. One would add the ability to address reliability. The second would allow us to add an economy component, which would allow us to bring power in from the ERCOT region and there were two variations that the commission was interested in that. As we've gone through that hearing now, they have set the time frame with the ALJ for briefs, which are beginning to be the end of August and reply briefs which are in the middle to end of September and we would expect to have a decision, the commission has said they do intend to rule on the plan. Our preference would be to go to ERCOT and we would expect to have that ruling sometime in the October time frame.

Okay. Thanks for the update.

Thank you. Now we'll move to Michael Lapides with Goldman Sachs.

Hey, guys. Congratulations. It's sure nice to have an Entergy conference call where storm cost recovery isn't the first topic out of everybody's mouth. Easy question on the Non-regulated Nuclear side. Can you talk a little bit about when your specific northeast assets might have exposure to capacity market auctions? I know it's a good ways off, but just curious.

Well, as you know, the four capacity markets in NE Poole, the auction process is already beginning, so we should start to see the value of the auction prices after 2010 when those are being bid for. As it stands today, we get that ramp-up in the capacity payments. It starts at $3.05 a kilowatt month and moves up to $4.10 by the time it gets to the end and middle of 2010 before that auction takes -- the auction values go in place. So we'll already start to see the outcome of that as they proceed through that process to get the auctions put in place in NE Poole. In terms of New York, I think it's going to be a function more of just the market participants until there's some change that gets us a an actual functioning market similar to something that might go on, that's going on in NE Poole and certainly if they look at those zones and create a new zone -- a new pricing zone around where Indian Point is, that could be a favorable outcome for us as well.

Are your specific assets, and I'm thinking your NE Poole assets primarily, are they actually eligible when the auction formally start so the administrative structure ends to receive whatever the auction price is, or are they still largely contracted at a price well below the auction level?

No, they'll be available to get those -- if you look at where Vermont Yankee is, the operating capacity would be available for that prior to the unwind of the contract of the existing plant would roll off, I think, in 2012 and then Pilgrim would be subject to the capacity payments as well.

Got it. Okay. Thank you.

Thank you.

Thank you. Moving on we'll hear from Jonathan Arnold with Merrill Lynch.

Good morning.

Good morning, Jonathan.

A question regarding your current view on hedging in the nuclear business and how we should think about that in terms of the decisions you're making around financing. Are there scenarios where you could end up opting for a less hedged forward structure, or is your core expectation we continue to hedge quite a long way forward?

Jonathan, the current expectation, I guess the way we're operating right now is we are hedging forward according to with our risk limits as we've outlined them. As we go forward with financing, particularly at that entity and other strategic moves that we make, that's part of the picture, whether hedging does or doesn't enhance financing, if there's a change in the credit rating, does hedging forward enhance the value of the Company, the risk profile given the collateral needs that might be required if it was more on the high yield side than the investment grade side. So all of that is something that we'll review in the context of the financing and where we go with that. It's a little too early to tell if it will change, but right now we continue to do it on the same basis as we do to support our dividend policy, supports the capital structure of the Company and our aspiration there and supports the credit rating of Entergy Corp. So I guess the short answer is, as we look at the options there, it's got the possibility to change, but for now we're sticking with what we've done.

I have one other thing, you mentioned on the disclosure on the average realized price in the nuclear business that this now excludes the or the below market PPA amortization rate at the Palisades. Is that something you could quantify roughly how much that was in the quarter, how we should be thinking about the -- remind us how we should think about the profile going forward?

I guess I don't have off the top of my head what it was in the quarter. I think for the year, it's about $0.11.

And would it be reasonable to assume that it was occur like the second, third and fourth quarters, relatively?

Pretty much, yes.

Thank you.

Thank you. Moving on we'll now hear from Andy LeVi with Brencourt Advisors.

I'm all set. Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Now we'll hear from Ashar Khan with SAC Capital.

Good morning, congrats. Leo, how can we -- I wanted to go back to Greg's question. What can be the sources and uses of the $5.5 billion? We know the source, but what could be the uses of the $5.5 billion?

There's a myriad of uses for the $5.5 billion and we would look at the proceeds the same way we would look at our of capital deployment decisions. There is some debt at the parent level that as I mentioned we would evaluate as to whether or not diffuse some or all of that. There is also certainly the idea of further investment in either the utilities from the parent or in the nuclear business, if there was some kind of acquisition or transactions that we looked at there. Or we would look at the potential for share repurchases, dividend increases, and the like. Given that it would be a one-time financing, it's more of a share repurchase option than a dividend option, but all of that would be under consideration when we ultimately decide how much we're going to finance.

As you said, there's about $2 billion of debt. If you just take debt and share buybacks, the maximize share buyback could be about $3.5 million. If you only use the proceeds for debt and share buyback, is that a fair point?

It's a fair point in terms of math. What we'd have to look at is the credit rating and the cap structure and the like of the parent company. It's a little early to tell, Ashar, exactly how we would do it, but $5.5 is really the stake we've got out there, at least initially for as far as we go and the use of proceeds is something that we're going to look at that's going to take into consideration the needs of the business, the credit rating of all the businesses and then the capital deployment opportunities that we have at that time. Including investments that we've got coming down the pike in the utility or share repurchases, etc.

If I can just end up, how did you decide the number to be $5.5? Does that get you investment grade all along or what was the basis of the $5.5 number is this.

The $5.5 is a number we put together in terms of a lot of analysis internally with some advisers around what we thought we could reasonably do out of the box. In terms of whether it is or isn't investment grade, that's discussions that we're going to have to have with the rating agencies and I think if you got any higher than that, it would be safe to say that it probably wouldn't be out of the box, but this is something that hasn't been done before and so we're approaching it like that.

Okay. Thank you, sir.

Thank you.

Thank you. We'll now hear from Phyllis Gray with Dwight Asset Management.

Good morning.

Good morning.

Could you tell me if the formation of the nuclear business has any impact on the plants owned by Entergy Arkansas, Gulf States, and Louisiana?

No, they don't, it doesn't.

And are any approvals other than the Nuclear regulatory Commission required?

We would certainly have discussions with all of our regulatory bodies that are involved. We'd make filings, most likely with New York, Vermont as well going forward and then we'll be evaluating if we were to actually do a financing what kind status we need with the FERC and whether or not we need to make a filing there as well. So we're going -- we're in the process of going through and having discussions with all of those folks, making filings where we think we need to and also looking at whatever filings we might have to make.

And the filings in New York and Vermont, are they because of the long-term power contracts with the utility companies in those states states?

No. They're just filings we need to make for the change in structure.

Okay. Thank you.

Thank you. Moving on we'll now hear from Jim Ferguson with AIG.

My question was just answered. Thank you.

Thank you. And now we'll move on to Retha [Hutuffie] with Polygone Investments.

Thank you. I noticed a step up in the 2009 CapEx by about $300 million. Is that Q2 primarily?

Could you repeat that?

The 2009 CapEx guidance is higher by about $300 million versus first quarter's earnings presentation. Is that primarily due to Little Gypsy?

It's really a combination of everything that we talked about today, in terms of change in the CapEx in the portfolio transformation arena, it's Little Gypsy, it's got Ouachita in it, it's got some dollars that Wayne talked about in terms of what we're spending on new nuclear. All of that's embedded in those numbers now.

Okay. Could you remind us your either trailing 12 months or maybe 12 months ended December '06 year regulatory ROE on a rate basis for Louisiana, Mississippi, and Gulf States?

( inaudible) -- Louisiana portion and Louisiana, those were the FRP filings we made in May and those go into affect in September. Wayne talked to the Mississippi piece which was filed and goes into -- has already gone into affect and been approved in the May time frame. In Texas, it's not under an FRP-type filing, but as Wayne said in his opening comments, we intend to file a rate base case coming in the third quarter of '07.

Is it fair to assume that generally speaking in Louisiana and Mississippi you earn close to your allowed ROE every year because of the FRP mechanism?

That's a good assumption.

I'm sorry. Go ahead?

That's fine.

So I guess Louisiana is I think 10.25 allowed and Mississippi 10.5ish and so ballpark those are -- you should be in and around those numbers generally speaking.

In and around, Mississippi, a little bit lower, if you look at Entergy Louisiana, probably in the 9.5 to 10 range.

Thank you very much.

Thank you. We have time for one final question and that will come from Daniele Seitz with Dahlman Rose

Thank you. Could you remind me of the life extension program for the non-regulated nuclear plants and did they all get the -- their life extension yet, or are you still filing for those?

I'll let Mike Kansler -- I think many of you do know Mike. Mike's the new President of all of our nuclear operation, replaced Gary.

Good morning, Danielle.

Hi.

We basically have applications in for Vermont Yankee, Pilgrim, Indian Point , and Fitzpatrick for 20-year life extension. We received our final safety evaluation reports and our final environmental impact reports for Pilgrim, we're expecting those to come from Vermont Yankee in the month of August. Those two plants will go to the ACRS hearings later in the year. Once that's done without any contentions, we should get our life renewal for 20 years. Fitzpatrick is a few months behind those and we just had our application for license renewal at Indian Point accepted by NRC and that will go into a 25 to 30-month review

Great. And these are not yet reflected in your numbers. They will all be, I'm assuming, by 2008, 2009?

Leo?

Try to understand.

Hello. I mean the lower depreciations and the impact, the financial impact of this life extension is going to be reflected in your numbers by 2008, 2009?

No. We already reflect --

You will do?

Yes.

Okay, great. Thank.

Thank you. That does conclude our question-and-answer session today. Ms. Lopiccolo, I'll turn the conference back over to you.

Thank you, operator, and thanks to all for participating this morning. Before we close, we remind you to refer to our release and Web site for Safe Harbor and Regulation G compliance statements. Our call was recorded and can be accessed for the next seven days by dialing, 719-457-0820 replay code 2801784. This concludes our call. Thank you.