安特吉 (ETR) 2007 Q4 法說會逐字稿

Good day everyone and welcome to the Entergy Corporation fourth quarter 2007 earnings conference call. Today's call is being recorded.

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

Good morning and thank you for joining us. We will begin this morning with comments from our Chairman and CEO, Wayne Leonard, and then Leo Denault, our CFO will review results.

In an effort to accommodate everyone's questions this morning, we request that each person ask no more than two questions. After the Q&A section, I will close with the applicable legal statements. Wayne?

Thanks, Michele. Good morning.

I will begin by highlighting the events since we met with you at EEI and then turn to a discussion of our 2008 goals. Starting with utility, in December the Arkansas Public Service Commission issued an consolidated order addressing several issues. As part of its earlier rate decision, the APSC ordered parties to jointly develop and propose an annual earnings review process. Following a lack of consensus among parties, the commission determined that moving forward would likely lead to significant unintended and unanticipated complications and would be detrimental to the public interest. Consequently, the annual earnings review process will not be implemented at this time and future rate changes, up or down, will continue to come through the base rate case. Upon elimination of the proposed annual earnings review process, the APSC ruled that going forward, Entergy Arkansas may petition for extraordinary storm damage financial relief just as it has done in the past. Further, the APSC replaced the automatic sunset provisions currently in effect for the fuel and system agreement recovery riders, with the provision calling for an 18-month advance notice to Entergy Arkansas for any potential future termination which would only occur following due process including commission notice and hearing. The APSC also approved Entergy Arkansas's proposed recovery mechanism, with the capacity payments on the Ouachita interim tolling agreement. A separate rider will allow timely recovery of capacity costs, and Ouachita energy costs will be recovered through the ECR, that's the fuel clause equivalent in Arkansas. We are encouraged by these actions as they indicate a renewed intent by the Arkansas commission to fairly balance the interest of customers and owners. In Louisiana, the commission likewise demonstrated progressive leadership and constructive regulatory policy by granting approval on several portfolio transformation initiatives.

At its November meeting the APSC unanimously approved Entergy Louisiana's request to repower Little Gypsy well in advance of the June 2008 approval initially requested by the company. The Little Gypsy project is a much needed solid fuel-based old resource that can reduce customers' dependence on natural gas, a significant issue for Louisiana customers' bills. The approval cleared the way for Entergy Louisiana to order vital equipment so that components can be manufactured to keep the project on schedule. As a result, Entergy Louisiana finalized the terms of the Little Gypsy EPC contract with the Shaw Group. The target cost contract aligns the economic interest of Entergy Louisiana, its customers, and Shaw as the EPC. In another action, the APSC approved the uncontested settlement in the acquisition of the 322 megawatt Calcasieu peaking unit. As a result, Entergy Gulf States Louisiana expects to close the transaction by the end of March. And a third action, the APSC exercised its original jurisdiction and granted approval to recover costs associated with the Ouachita interim tolling agreement, preserving Entergy Gulf State Louisiana's opportunity to purchase a portion of the plant's output on a long-term basis.

In other Entergy Gulf States matters, the long-studied jurisdictional separation became a reality at the end of 2007 when the company separated into two vertically-integrated utilities now own as Entergy Gulf States Louisiana and Entergy Texas. For the first time, the newly established companies can develop and implement separate business plans consistent with local public policy direction, including any resource planning decisions. Entergy Texas also achieved constructive outcomes in fuel reconciliation and capacity cases. In December, the PUCT denied intervenor motions for a second rehearing, and the October 2007 order allowing recovery of 1.6 billion of reconciled fuel and purchase power cost became final. It is important to note that all reconciled costs are for the improvement and the ruling affirmed an exception to PUC past practice, supporting a recovery of an additional $11 .4 million in previously unrecovered purchase power capacity. In another positive development, with New Orleans recovery taking place faster than expected as evidenced by repopulation of roughly 13% ahead of forecast, in December, Entergy New Orleans announced a voluntary plan to return $10.6 million to customers through a prospective 6.15% base rate credit on electric bills. The recovery credit recognized the necessary timely and decisive actions, including rate relief provided by the city council and the support of the community during a critical period for Entergy New Orleans' survival and its efforts to exit bankruptcy.

Finally Entergy was honored by EEI for its emergency assistance and low-income advocacy efforts. Entergy and its employees have received either EEI's Emergency Response Award or Emergency Assistance Award for ten consecutive years and is the only company to be honored each year since the awards were created. For the third time, Entergy received EEI's Advocacy Excellence Award this year in recognition of Entergy's low-income initiative, including a variety of programs aimed at assisting the 20% to 30% of customers living in poverty across the four-state utility service territory. At Entergy Nuclear, the non-utility fleet turned in a solid performance record, achieving a 92% capacity factor over the fourth quarter while successfully completing the first Palisades refueling outage under Entergy ownership. As for the spin-off of the non-utility nuclear plants, we continue to take the necessary actions to complete the transaction by the end of the third quarter. Following the announcement of EEI, we established a steering committee to lead the overall process and make final recommendations on all major business and operational issues. We also established a project management office to coordinate the spin-off process across multiple functional areas, including nuclear operations, support services, regulatory fares and financial planning and execution.

On regulatory matters, in December, Entergy Nuclear supplemented its filing with the NRC to incorporate the spin-off. Yesterday, Entergy Nuclear made regulatory filings, taking the necessary approvals in New York and Vermont, primarily related to the request to transfer control and the issuance of debt and the [coverage] of assets. We expect to file a [fork] in February. SpinCo's Form 10 filing will follow our 10K filing this spring, enabling Entergy Nuclear to include audited 2007 financial statements. While we are making progress, there is still much to be done. And completing the spin-off by the end of the third quarter is our number one strategic priority for the year. To illustrate the value proposition we tried to articulate at EEI in November, we are beginning to see price discovery for the fleet in 2012 and fundamental indicators support our express directional point of view. Since EEI, foreign prices have been as high as around $78 on an average formality basis for our 31terawatt-hour opening 2012 position, compared to the $75 average foreign price estimate for the market used in our EBITDA analysis that we showed you at EEI. As a general rule of thumb, a $5 power price move equates to an additional $150 million of EBITDA on our open position in 2012 for this fleet. That provides increased support for the point of view we provided at EEI for market prices and the market capitalization of SpinCo. But perhaps more importantly, the fact that we have seen this momentum over only three relatively uneventful months, this illustrates the option value of this transaction and the importance of providing owners a separate liquid tradeable financial instrument where you get to make the call whenever prices align with your point of view. The important thing to keep in mind is this is unlike a merger where the value, if any, is not achieved or realized until closing. You already own these units. And the underlying value continues to add to shareholders' wealth every day.

As for other goals for 2008, Entergy remains committed to safety, security and operational excellence for its nuclear fleet. In fact, demonstrating these capabilities is the key to supporting license extension in nuclear plants. With respect to the non-utility nuclear plants, we expect to receive license extensions in 2008 with approval expected first Fitzpatrick followed by Pilgrim and then Vermont Yankee. And we will continue to aggressively move forward on efforts to obtain license extension for for Indian Point. We recognize it is frustrating for you, as owners and customers in many cases, to hear the unfounded rhetoric on the safety or the need for these units. I assure you we are redoubling our efforts for these counterproductive and self-serving attacks. We still believe the great majority of people just want the right answer and they are open-minded about that. Fact-based education, not more noise, is the key. We are engaged at all levels and have put in place substantial outreach and educational programs, working with civic-minded organizations across the region. And the plain, cold facts point to only one answer as being in the public interest, as well as actually being consistent with the applicable law of regulators and the courts must follow for license extension.

Since purchasing Indian Point, the level investment has transformed the plant into one of the most reliable plants in the region with a capacity factor of 93% over the last three years alone. Indian Point supplies 10% of the state's electric energy without emitting any greenhouse gases or sulfate aerosols or contributing to ozone or acid rain problems. Without Indian Point, the installed reserve margin in New York state would immediately fall to about 12% below the 16.5% level currently called for by the New York independent assistant operator requiring -- requiring New York -- and I say that, requiring New York to rely more heavily on out-of-state resources to meet the minimum reserve requirement, resources that are not as clean and not as reliable. The [NISO] '08 reliability needs assessment issued in December also indicates generation and transmission resources even including Indian Point -- including Indian Point, are expected to be insufficient by 2012, and that the need will become acute by 2017. Again, that is with Indian Point. Further, based on physical location of the plant, the voltage support that Indian Point supplies to the grid is essential, if not critical, in maintaining the ability to move power down states through the transmission system. And a final note on Indian Point, let me assure you that we are taking NRC deadlines to have the new state-of-the-art firing system officially declared operational most seriously. It is important to understand throughout this whole period, public health and safety has never in any way been jeopardized. As the NRC acknowledges, the original firing system remains in place and continues to be fully operable and capable of providing the necessary public warnings should any emergency occur. We continue to work with FEMA and other stakeholders to ensure that the remaining issues will be resolved and the system approved by FEMA as quickly as possible.

Utility, we are entering the year with a full regulatory agenda. In January, Entergy Arkansas filed briefs on its appeal of the rate case order issued last summer. Entergy Arkansas is seeking to reverse the commissioner's decision on 16 different issues. Apparently, we will file briefs in March and rulings are expected later this fall. Procedural schedules call for hearings in Entergy Texas' rate case in the latter half of May with new rates effective in September. And hearings on Entergy Louisiana's formula rate plan filing is around the end of April with interim rates already in effect that are subject to refund. Additional rate filings will occur in Mississippi and New Orleans. Entergy Mississippi will make its 2007 FRP filing in the spring, and follow with a rate case in the fall. While interim measures have afforded rate relief for Entergy Mississippi, an overall rate reset is still needed given the rate-based growth and other changes since Entergy Mississippi's last base rate case in 2002. Entergy New Orleans will also file a rate case this fall, consistent with the post-Katrina rate agreement. In Louisiana, the commission is expected to rule on the needs of the continuation of the formula rate plans. In December, the APSC staff found that in many respects, the commission's objectives for the FRP regulatory oversight initiative such as more efficient rate review and greater rate stability have been achieved. In addition, subsequent rulings on rate-making treatment for capacity purchases and extraordinary cost change provisions have proven effective in addressing unexpected or unusual items. Consequently, the staff recommended that the user commission agree to a one-year extension of Entergy Gulf States Louisiana's FRB to synchronize with the finally year of Entergy Louisiana's FRP or alternative stand longer period. Entergy Gulf States Louisiana has indicated its amenable to the one-year extension.

In other regulatory matters, Entergy Texas will seek resolution on the appropriate qualified power region and plan to transition the competition. the SBP study ordered by the PUCT is in process and we expect the resolution on this matter late in the year. In Louisiana, we will conclude efforts to execute the securitization process, to collect roughly $1 billion of storm-related proceeds already approved by the commission. The company is still pursuing an alternative securitization path, creating potential tax benefit that should reduce ultimate costs for customers. In the interim, Entergy Louisiana and Entergy Gulf States Louisiana will continue to accrue carrying charges, with the commission having taken constructive action just this month to continue this charge. On the portfolio transformation front, Entergy Louisiana will conclude its Little Gypsy phase 2 regulatory proceeding in June. The two matters to be addressed are recovery of cash earnings on [quip], and the procedure for synchronizing permanent base rate recovery when Little Gypsy is placed in service, that is eliminating potential regulatory lag. Entergy Louisiana is encouraged by the direction of previously indicated by the commission finding that, "permitting cash return on [quip] for a large base load project may be in the public interest under certain circumstances. " And we believe we can make that case Little Gypsy. Entergy Louisiana will take action and meet conditions outlined by the commission in November when it voted to certify the Little Gypsy project, including developing and implementing a construction monitoring plant. Again, that is intended to eliminate any surprises or any 2020 hindsight reviews in the future. As for the generating facility acquisitions, Entergy Gulf States Louisiana expects to close on Calcasieu by the end of March, and Entergy Arkansas and Energy Gulf States Louisiana will seek to obtain the requisite approvals and regulatory recovery tree to complete the Ouachita acquisition earlier this year. To preserve the new nuclear option for its customers, the utility will file its first combined construction-and-operation license application for the Grand Gulf site in the first quarter to be followed by a second application at the River Bend site around midyear.

On the Federal front, utility operating companies will continue to evaluate a replacement for the current system agreement, one that balances the need to achieve economies and efficiencies for its utility customers while eliminating the disputes and litigation that characterized the period since the system agreement was adopted more than 20 years ago. In light of the initial notice of withdrawal by Entergy Arkansas and recent notice of withdrawal by Entergy Mississippi in January, the LPSC unanimously voted to [record staff] to begin evaluating potential for a new agreement. Likewise, the New Orleans city council opened the docker to gather information on progress toward a successful agreement. It's apparent this year we will complete our current $1.5 billion share repurchase program. In addition, given current volatile market conditions, there will likely be various periods this year for opportunistic purposes of Entergy stock. In anticipation of this, yesterday the Board authorized $500 million of the expected $2.5 billion stock repurchase program planned for post spin-off, providing Entergy the increased capacity to capture long-term value for our long-term owners before the spin-off takes place depending upon market conditions.

And finally, Entergy's Board remains committed to growing the dividend system with our financial aspirations. Along with the struggling economy, 2008 will undoubtedly hold the typical challenges, but our financial aspirations remain unchanged and our focus will remain on the principle to sustainable growth that has successfully served us in the past.

Before I close, I would like to add that we hope you will all join us on our Analyst Conference in April where we intend to explore in more detail what will become known as "the value trilogy." Since the conference is being held coincident with what many say is the premiere New Orleans attraction, the first weekend of the Jazz and Heritage Festival, please be sure to make your travel arrangements now if you haven't already done so since all flights into the city will likely sell out during this period of time. We look forward to seeing you here in the spring. And now let me turn the call over to Leo, who looks very eager to get started. Leo?

Thank you, Wayne. Good morning, everyone.

In my remarks today, I will cover the quarterly results, followed by cash flow performance and update on our share repurchase activity and a recap of our '08 earnings guidance. I will then close with some brief comments on our post-spin financial aspirations.

Looking first at our financial results for the quarter, slide 2 shows the fourth quarter '07 as-reported earnings were lower compared to one year ago. This decrease is attributed to the variance in special items recorded in the fourth quarter of '06 compared to those recorded this year. The details of our special items are shown on slide 2 and are also included in appendix B3 of our earnings release. Turning to operational earnings, we see an improvement of 42% for fourth quarter '07 compared to the comparable quarter one year ago. The increase in operational earnings came from higher results at Entergy Nuclear and the non-nuclear wholesale business partially offset by lower results at utility, parent and other.

Slide 3 presents the factors that drove the quarter-on-quarter results. At Entergy Nuclear, increased revenue from higher pricing, the addition of Palisades and lower income tax expense were the major drivers. With regard to cash expense, the primary factor producing the lower expense was the step-up in the tax basis of non-qualified decommissioning trust fund for Indian Point as a result of restructuring the trust. Lower income tax expense was also due to the annual fourth quarter consolidated income tax adjustment allocated to Entergy Nuclear. This item reflects the effects of allocating consolidated income tax adjustments across all of our businesses. Each fourth quarter, we determine the individual business contributions to consolidated taxable income and record the necessary adjustments to align tax liabilities. The process often has a significant effect on individual business results across years. However, there is no net effect on consolidated results. Also at Entergy Nuclear, we note that operation and maintenance expense was largely unchanged, other than the effect of nuclear alignment expenses and 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 lower income tax expense. The lower tax expense was primarily associated with the annual income tax adjustments allocated to this business. At utility, parent and other, earnings were lower in the current quarter compared to results of fourth quarter last year. A significant factor contributing to the lower results of this business was higher income tax expense. The increase in tax expense is due primarily to two items, which included the absence in the current quarter of tax benefits realized in the fourth quarter of '06, associated with tax audit settlements and higher income taxes associated with the annual consolidation, income tax adjustments allocated to utility, parent and other in '07 compared to '06. The other factors that contributed to lower results in the fourth quarter of '07 was the absence of a constructive regulatory settlement that contributed to earnings in the fourth quarter of last year. Positives at utility, parent and other this quarter include higher sales revenues coming from warmer than normal weather, higher transmission revenue and increased recovery of capacity costs. In addition, operation and maintenance expense for the fourth quarter was basically in line with our expectations.

Moving to full-year results, slide 4 shows as reported operational results for '07 compared to '06. As reported, results were higher in '07 with Entergy Nuclear and the non-nuclear wholesale business each contributing. In looking at full-year operational earnings, we see improved results with nuclear and non-nuclear wholesale contributing to a 22% increase in consolidated earnings year-over-year. Entergy Nuclear's 88% earnings increase in '07 compared to '06 was driven primarily by higher pricing on energy sold, increased generation available, and lower income tax expense. The higher output was made possible by the addition of Palisades acquired in April 2007. Operational results for the year at the non-nuclear wholesale business were higher compared to its contribution in '06, the increase due primarily to lower income tax expense associated with the favorable resolution of tax audit issues and the annual consolidated income tax adjustment process. The last item that contributed to higher consolidated results this past year was the accretive effect of our share repurchase program. Sales growth, the effect of regulatory actions and higher transmission revenue at utility, parent and other were offset by higher income tax expense, higher operation and maintenance expense, and higher interest expense.

In reflecting at our financial accomplishments in '07, we believe the proper context is to review results against our objectives as outlined on slide 5. First, we achieved our $1-per-share earnings growth aspiration and did so in a challenging economic climate. We initiated a new $1.5 billion stock repurchase program in 2007 and returned nearly $1 billion of cash to our owners, doubling our repurchase aspiration of $500 million. In addition, we increased the dividend in July by 39%, long overdue since the last increase in 2004, and consistent with our aspiration to achieve a 60% target payout ratio. And our operational return on invested capital increased to 8.5% from 7.7%. It is important to emphasize that these financial accomplishments were realized without sacrificing our solid credit metrics. In fact, we removed the negative outlooks triggered by the '05 storms. We never lose sight of our point of view with a strong balance sheet as a fundamental component of long-term financial success. Perhaps most importantly, we positioned our business to take a major step forward in our continuous endeavor to create shareholder value through the spin-off transaction.

Slide 6 includes a recap of our cash flow performance this quarter which shows a decrease compared to the same period last year. Several items contributed to the reduced level of cash flow, including working capital requirements of $130 million, reduced collections of deferred fuel costs totaling $65 million, the absence of $81 million of CDBG storm funding received by Entergy Mississippi last year and the absence of Entergy [cash] proceeds from final disposition of the sales of assets, $96 million of which was reflected in OCF last year. On the positive side, the cash benefits of higher net revenues at Entergy Nuclear serve to partially offset those items that reduced the operating cash flow in the period.

We made good progress in our share repurchase program during the quarter, the details of which are on slide 7. We've repurchased 1.6 million shares in the fourth quarter with approximately 65% of those repurchases coming to our $1.5 billion program. At the end of '07, we had approximately 500 million of repurchase authority remaining. And as Wayne indicated, the Entergy board granted authorization for $500 million of the anticipated post-spin program. This action enables us to consider opportunistic purchases given the current volatile equity market conditions.

We continue to see our '08 as reported in operational earnings guidance in the range of $6.50 to $6.90 per share. Slide 8 includes the components of guidance. As we would expect this point in the year, the main drivers of guidance are essentially unchanged. And keeping with past practice, we have adjusted a few line items to reflect actual '07 results, including the impact of weather. In reviewing all current data available, we continue to believe that our current guidance range is appropriate. We have and will continue to gauge our success against a range of objectives in meeting our financial aspirations as undoubtedly on the top of your list. Moving into '08, a year when we expect to reshape our company, we are encouraged by our demonstrated performance across key financial aspirations that I described earlier. As our company evolves toward the new businesses it will become post-spin, we recognize our financial aspirations must evolve as well. Our financial aspirations after the spin-off is completed have not changed from those Wayne discussed at EEI as reflected on slide 9. We will continue to strive top quartile shareholder returns. We accomplished that goal goals in each of '06 and '07 and it remains our overarching objective.

More specific to SpinCo is shown on slide 10. The EBITDA of $2 billion by 2012 continues to be achievable. We believe the expansion in EBITDA will come through a number of factors, including our open position and forward prices from both energy and capacity, heat rate expansion, and positive effect of carbon legislation given our clean nuclear portfolio. We have been asked often since November whether we believe our EBITDA estimate is a realistic number. Our response has been and continues to be, yes. And based on recent upward movement in market prices for 2012 as noted earlier by Wayne, EBITDA at this level certainly remains achievable. SpinCo also expects to have the cash capacity to support annual share repurchases in the $500 million to $1 billion range. Finally, SpinCo expects to maintain strong merchant credit relative to others in the sector.

Our financial aspirations for Entergy post-spin are on slide 9 well and reflect solid earnings growth in the 6% to 8% range. We believe the underlying business can produce about half of this growth with the other half coming from the accretive effect of the post-spin repurchase program, part of which makes him ahead of the spin-off with the balance to be initiated immediately after the spin-off transaction is finalized. The second element of our financial aspirations for Entergy is maintaining a dividend payout target in the range of 70% to 75%. And finally, with respect to credit quality, Investment grade credit with a lower risk profile relative to today continues to be our objective.

In closing, we see '08 shaping up to be one of the most exciting, and perhaps challenging, years in our company's recent history. We look forward to sharing the excitement with you. We are prepared to be challenged as we work to create long-term shareholder value. Our senior team is now available for your questions.

(OPERATOR INSTRUCTIONS) We will go first to John Kiani with Deutsche Bank.

Can you please talk about how the nuclear spin timeline could change if Vermont decides to go to full hearings, please?

Okay. Rick, why don't you go ahead and take that.

Well, I think if they go to full hearings, we will have to wait a couple of months to see what the procedural schedule will be. That doesn't mean that we can't close the transaction still by the third quarter, but we are probably a good month away before we really know what the impact of the detailed procedural schedule will be.

Okay. Thanks. And then Leo, I guess with the plan to do, at least at this point, about $4.5 billion of debt in conjunction with the SpinCo, I guess, in part to refinance some debt and also to fund the remaining $2 billion of the buyback, can you talk a little bit about options there, considering the current state of the high-yield credit markets?

Well, John, you know the overall plan remains the same as what it was when we first announced this at EEI. We continue to monitor what is going on in the financial markets and the credit markets. Obviously, as we get closer to the spin-off date, we will have to size up the right way to go about financing, both in terms of sizing and in terms of methodology, but right now we don't see -- we are still optimistic that things will shape up to where we are able to do the financing in the way that we've set out. We anticipate doing unsecured financing for the most part around the SpinCo financing. And then as we get closer to it, we will see what the spreads look like, what the cost structure looks like on an absolute basis and also on a relative basis and then look if there's different ways to go about it. But right now, we would see it going the same way that we had planned all along.

Okay. Thanks, Leo

We'll go next to Greg Gordon with Citigroup.

Vermont is a little bit uncertain. Is there a statutory time frame that we need to look at in New York state as well? Or can you give us any guidelines on what the outside bounds of that process might look like?

Greg, you're -- unfortunately, you are breaking up here a bit so...

Sorry. Can you hear me now?

Yes, it's there.

Good. Alright. I was wondering if you can give us sort of the outside bounds of what the timing of the New York process might be as well?

Rick, where are you with that?

I think it's same answer as Vermont. I mean we are going to have to have a scheduling order out of them, and we will probably get that within the next month also. So until we really have that information, we are not really going to know if there is an outward bound. They have procedural or transfer of ownership, these type of merchant generation can go through pretty quickly and that's the way we have filed the request, and we are hopeful they will take it up that way.

Greg, you know, I know that everybody is a little anxious about the schedule and what it is going to look like, and that I am glad because that tells me that people are really interested in the spin and they want that piece of paper. But as you know, I mean, the value of that option is not going down between now and then. It is just going to continue to increase. And whether it is September 30 or October 1 or before or after, you own those -- like I said, you own those assets and that option value which you can't or won't be able to pull the trigger on until actually we close, but the value is going to continue to go up between now and then. So I don't want people to get too nervous about that.

I'm not in front, but my second question is regarding RGGI, regional greenhouse gas initiative. From your perspective, when you look at the structure, you have a 36-month compliance window beginning in '09. I have been sort of fishing and I have seen what I think are offers for offsets in the market that are offered around $5.50 a ton. Do you -- where do you see [bid as] spread on RGGI pricing coming? And do you that is already reflected in forward curves or not?

Greg, it is difficult to say exactly where it will play out until it gets implemented, but I think that the estimates that we have seen in the past that are in that range that you mentioned, that can range anywhere from $1 to $3 or $4 a megawatt-hour are still in lines with what we would anticipate as probably going to be about at least the starting point there.

But the billion-dollar question is whether a part or all of that is already baked into forward curves or whether that is an upside that we can -- that we will capture once there is more clarity.

You were breaking up again, but if I heard you right, it's how much of that we think is imbedded in the forward price curves. And as we look at it out in 2009 and beyond time frame, we would say very little.

Thank you.

Thanks, Greg.

Next to Steve Fleishman with Catapult Capital Management.

Thanks.

Hi. Hello, Steve.

Hi. Hi, Wayne. Can you hear me? Okay.

Yes, that's good.

Could you -- on the -- in 2007, looking -- I was trying to kind of clean up the year for some items that might be non-recurring, and you do a good job comparing '07 to the '08 guidance. I see -- I think that obviously you had a lot of net tax benefits in '07 and then favorable weather. Were there other items when you do the '07 to '08, that are not recurring? For example, you are showing lower O&M, '08 versus '07. Did you have higher O&M in '07?

Well, Leo's got some big brain and a big computer both, so I will let him handle this.

The computer is probably a lot bigger than the brain. The -- we did have some items that showed up in O&M in 2007 that shouldn't show up going forward. Some minimum bill credits that we provided are one of the larger items going forward. We actually -- we have our benefits costs, we anticipate going down also. We have got some actuarial adjustments in pension and things like that that will have some reductions that should show lower O&M going forward and storm reserves as well that we were accruing in the past that we won't have to do now that we've got those set up because there's going to be securitized instead. So, there is a number of factors that go into actually the utility lower, having lower O&M going forward than what we saw in 2007.

Okay. And just -- thank you, by the way, [probably] Michele, for the detailed regulatory review on the milestones for the spin. I guess I would just ask if you look at all these different milestones, what would you say is the critical path for getting it done on the timeline that you are targeting?

Steve, Michele is smiling. That's the first thank you she has gotten all year. She appreciates that. Rick, who has not got a thank you until this thing closes, Rick, what is the answer there?

Well, I think it goes, Steve, to previous questions. It is going to be Vermont and New York. And, I mean, within a month we will know what those scheduling orders will be. And that will really set the time frame and how hard or easy it will be to meet that third quarter close. I think the NRC in the fourth quarter is pretty comfortable and will go fairly easily.

Okay, thank you.

Thanks, Steve.

We will go next to Jonathan Arnold with Merrill Lynch.

Good morning.

Hi, Jonathan.

I just wanted to clarify one thing on the way you've laid out the tax items in the walk between 2007 and 2008 guidance. Are those purely tax line items? Or are they -- does it include the tax impact of all the other items above? So, I guess, to ask another way, are all the other items shown on an after-tax basis?

All the other items are in after-tax basis.

Thank you. If I can just on one other thing. Can you, Leo, perhaps quantify what the income sharing was under the various arrangements of the non-reg nuclear in 2007?

That is something that we all have to come up with, but my [vote], it should be about $72 million and that's really all there is for 2007 but that's per the settlement that we have with them.

Great, thank you very much.

Thanks, Jonathan

We will go next to Andrew Levi with Brencourt.

Hey, guys. How are you doing?

Good morning.

Just to try to get an idea of the timing of the buyback. Does it have to do with stock price or does it have to do with something else?

Yes, stock price will have a bearing on it. We did have -- obviously, we had a special meeting of our board yesterday to discuss this, and we have a point of view already with regard to the stock price. You all have a point of view relative to the underlying value. And the -- where we set -- just without getting into the details of that point of view, obviously, the board felt that it was important to put the $500 million in place given the market conditions that exist today and they will even be more volatile as we go forward.

So I guess it would be fair to say that yes, at this price you guys feel it is an attractive buy here that we probably see in the markets sooner rather than later, I guess.

If the price stays down at these levels.

Yes, well, Leo, we have considerable amount still left to go under our existing authority, and this is above that. But obviously, as we have indicated in the past and as those shares are traded in the past, this is not a good market right now and our strategy maybe is not completely understood by marketplace or is well quantified or as quantified in the same way that we do. I'd see comments from a number of different utilities in similar positions, and -- who have said they have talked to their investment banks and others about these kind of things and they don't see a compelling story or compelling strategy or compelling reason to do what we are doing. For whatever reason, we don't agree with that. We don't typically get our numbers from bankers or anyone else. We run them ourselves and then bankers confirm them, argue about them or whatever. But our numbers are compelling to us with or without the spin. And I think we have made that pretty clear for some time, but I will just confirm that. Leo, do you want to add?

No, I think everything Wayne said is right. Like you said in the script, we have noticed a lot of volatility in the overall markets and we've noticed volatility in Entergy stock itself and when those -- with volatility comes opportunity, and so having significant amount of authority to act when we deem it is prudent is just good business practice.

One of the things that -- without prolonging this, is to keep in mind with the volatile market, potential recession and things of that nature. You look at all aspects of how are your values and why you are valued. And there is some relatively small impact on our cash flows that could come from a recession, and we have certain risks of revenues in territory, but a lot of that is, given the nature of our customers, is relatively minor. It is an energy sector. It is up to capacity. And it is not really expected to change. And then you look at the discount rate you are going to apply to your cash flows. In the past, when this industry has been through very tough times, a discount rate had changed. The interest-free rate has changed and its volatility through the market has changed or the event risk or whatever has concerned investors.

As you have seen I think in our regulatory filings, we worked very hard with our regulators to some of the event-type risk things like 20/20 hindsight reviews. We are trying to get those consistent with what the law provides. And with regard to our plans, they run as well. They are clean. The big event out there is greenhouse gas controls, which is one that benefits our plans most certainly. So for Vermont standpoint, unless you are looking at 10% inflation and things of that nature, your discount rate really isn't going to change a lot and the revenues may have a little more volatility, but not a lot. There is no real underlying reason to look at this company and say, "Well, it was trading for 125 and now all of a sudden 107.52." It's -- the screen is right. So, let me see. You know the facts better than I do, but the Board took the appropriate action.

Great, thank you very much.

We will go next to Carrie St. Louis with Fidelity.

Hi. I just wanted to ask a couple of questions regarding the nuclear spin-offs and the credit markets. I appreciate the comments that you think that right now the markets aren't much changed from when you announced the spinoff, but I think that might be slightly naive and I wanted to kind of further question you on what some of the sensitivities are if you were not able to raise the amount of financing that you previously contemplated? And I guess where my line of thinking is going is that I was a little surprised that you went ahead and announced an additional buyback without knowing how the spin-off would proceed. And as a bondholder, how am I supposed to think of that in relation to your commitment to keeping strong investment-grade credit metrics at the current Entergy Corp?

Leo was even more eager to grab the phone. I am just kidding. Those are good questions, Carrie, and I will let Leo take that up.

As far as the buyback goes, Carrie, the -- it's not -- I guess, it is additional to the authority that we have today but I wouldn't characterize it as additional. It's no different than the authority that we would anticipate getting post-spin. It just takes a portion of it and gives us that authority today, given the potential opportunities that we may see in the market. So we haven't come out and said we are going to do any more than we would have done had we -- once the spin is completed. And in fact, it is just kind of a technicality of when the authority from the board shows up for management to execute. So the way you can think about it is whatever authority we would seek post-spin, we now have you to see 500 million less than we would have otherwise. So it's not additional to the overall plan. The overall plan is exactly as it was anticipated at the outset.

As far as the question about why would you do it without the spin actually occurring, at $500 million, if you were to even look forward under the unlikely event that there is no spin, cash flows of the company, the credit capacity of the company, '08, '09, '10 and beyond would continue to support $500 million worth of repurchase authority. So it is not taking away from anything that has to happen to give us that capability. And as Wayne mentioned in his remarks, the spin doesn't have to happen for us to own the nuclear plants. The spin doesn't have to happen for us to benefit from the roll-off of the existing contracts into a higher-priced market. The spin doesn't have to occur for the value of those assets to show up in large part just based on movements in the forward price of power. So all of those things that contribute to the value of the business, the fundamental underlying value will be there whether we spin it or not. There is just incremental value to owners through the separation, through the option value, and through the change in the costing capital through the ability to manage them separately and to get the optimal cap structure at both firms, as opposed to trying to do it as one together when your policy decisions at the utility and the parent might be different than the point of view that you have at the nuclear business. So all of those go to say that the $500 million should -- is not a strain on anything whatsoever, whether you are a bondholder or not. It is just an added authority that we have in -- to be able to utilize in times like these. It doesn't mean we have to use it going forward. And as far as the -- as the credit markets. I didn't say that the credit markets haven't changed. I said our plans haven't changed. The credit markets change every day. And what we are looking at, however, is that the spin-off is going occur in the third quarter of next year.

The financial package that we put together is not going to be based on what credit markets were in July of last year when they were really really favorable. They'r e not going to be based on what they were when went into the credit crunch or that crisis that occurred out of the sub-prime market, and they're not going to be set based on what we see today in terms of whether we are or not in a recession and what that may or may have. They are going to be set more in line with more what we see closer execution. And those scenarios have a large continuum of different possibilities, in terms of whether it is secured or unsecured, whether it's done at different credit levels, but it is going to have a lot to do with what the absolute cost of capital is at that point in time, as well as the relative cost of capital and different kind of structures. All of that we look at every day, but to give you a stake in the ground today, when you know it has changed over the last couple of months, then it will change over the upcoming months as well. You know that would be difficult to say. So right now our plan is the same as it was when we started down the path recognizing that we have to keep abreast of what is going on in the market.

I'm going to follow-up on one point. Are you saying regardless of what the markets would be like in the third quarter, if that's the timing, are you still remaining commitment to the investment grade rating at the current corp's entity?

Yes.

Okay. Maybe you can just help us when you have looked at the spin. Can you kind of elaborate. I know you said you were contemplating unsecured financing. But did you have any brought assumptions of costs of financing that would make the transaction attractive?

An Carrie, I'm going to jump in real quick. After this, we need to be able to move on to the next caller.

That's fine.

Carrie, I am not going to give you an absolute number because again it has going to have a lot to do with the relative cost of financing across the board. It's different kinds, different credit ratings levels, et cetera in terms of the sizing and cost and the way we structure it just because at that point in time, looking at the difference between financing at Entergy and financing at SpinCo or financing at them combined is all going to go into a play as to how we execute on it.

Thank you.

Thanks, Carrie.

We will go next to Ashar Khan with SAC Capital.

Most of my questions have been answered, but I just wanted to check, Leo, if I am right, you have about $700 million of cash on the balance sheet at the end of of the year. So I am just trying to understand. We have enough cash to basically do this buyback based just on cash on hand and I guess cash flow to come in through the year. Right? There is no drawdown from the expected in the first quarter or anything from the cash balance at the end of the year. Am I correct?

Well, I guess what I would say, Ashar, is that we have the capability to execute on it or we wouldn't propose that we could.

Okay.

I think the consolidated balance sheet has $1.2 billion of cash and cash equivalents at the end of the year.

At the end of the year. Okay. That's what I thought. Okay. I appreciate it. Thank you.

You're welcome.

Thank you.

We have time for one more question. We will go for Michael Lapides with Goldman Sachs.

Just a quick question on the Texas rate case, can you provide the milestones in terms of things like staff testimony in what you see is the key risk in a Texas rate case?

Gary Taylor?

Right now we are in the discovery phase where we have been receiving since we filed in September requests for information. That will start and end here basically with -- in February, we will get testimony from our [folks] and objections, and then we'll reply to those intervenor testimonies that are due in April. May is our rebuttal. And then for implied objections and hearings are starting basically he in the May timeframe with initial briefs and high briefs coming in through the end of June with a decision coming in July.

Okay. Thank you. And in terms of any preliminary feedback that you have gotten from staff?

Since we are in a case of ex parte and not really in any kind of feedback from the staff. But I would say if you look at the decisions that have been made that Wayne referred to, is a decision where staff has come out and reviewed an objection to the JSP where they have felt that our position was correct. If you look at the decisions that the commission has made in discussions last week as regard to our storm -- or this week with a storm cost with [Humberto] and finding that I think our costs seem very very reasonable, as a matter of fact, 25% less than what you would see for a category 1 storm, if you see what the commission has done as far as hearings, with the objections that wanted to push our rate recovery from this case out in excess of 180 days and brought this back to September, I think you would see that the indications along with the fuel reconciliation that -- there is a tone I think of balance and a tone of looking at what the costs really are. And I think this commission appears in the past several months to truly be in balance in the decisions that we see. So, I mean, I think we feel like we will get a balanced hearing as we go through these proceedings.

Got it. Thank you, guys.

Thanks, Michael.

At this time I would like to turn the call back over to Michele Lopiccolo for any additional or closing remarks.

Thank you, operator. And thanks to all for participating this morning. Before we close, we remind to you 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 8984015. This concludes our call. Thank you.