安特吉 (ETR) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entergy Corporation second quarter 2008 earnings conference call. Today's call is being recorded and at this time for opening introductions and remarks

I would like to turn the call over to Ms. Michele Lopiccolo. Please go ahead, Ma'am.

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

Thanks, Michele. Good morning. I will begin by highlighting that since we last met with you at our analyst conference in New Orleans. Starting with the utility, I am pleased to report that today the Louisiana Public Facilities Authority is closing $688 million of system restoration bonds with bond proceeds earmarked for Entergy, Louisiana. Louisiana authorities are also in the process of marketing an additional $279 million of bonds for Entergy Gulf States Louisiana Storm Restoration with closing expected in the near future.

Louisiana officials steadfast efforts to pursue this alternate securitization path will yield a minimum of $40 million in customer savings over and above those that would have been achieved at a traditional securitization approach. The near term receipt of these proceeds close to $1 billion closes the book on regulatory recovery for hurricanes Katrina and Rita. In addition, the utility also settled its other excess insurer on its Katrina claim and in July received $71 million of proceeds completing recovery from the two excess insurers. Relatedly, in its December consolidated order the Arkansas Public Service Commission indicated that it was also open to consideration of alternative extraordinary storm restoration cost methodologies. In June Entergy Arkansas filed a joint application with other Arkansas utilities that would enable the use of storm reserve accounting. Utilities requested a secure and consent a procedural schedule that would allow resolution of this proceeding no later than December 15. So that the calendar year 2008 would be included under the proposal.

In rate proceedings Entergy Texas reached a nonunanimous settlement with the broad coalition of customers represented by seven interveners as core signatories. The settlement calls for a $59.5 million two-step base rate increase. The customer coalition represents virtually all of Entergy Texas' retail customers. At the same time a competing nonunanimous settlement was introduced by the Texas Commission staff and three interveners. Hearings on Entergy Texas nonunanimous settlement began at the end of June and the briefing process is currently under way. We remain optimistic that the Commission will provide a reasonable opportunity to earn a fair return. Essentially after 17 years of a rate freeze.

Regarding 2007 test year formula rate plans or FRP filings, Entergy Mississippi reached a settlement for an increase just under $4 million with the Mississippi utilities staff that is pending commission approval. In May Entergy Gulf States Louisiana and Entergy Louisiana made their final filings under the current FRP frame work seeking FRP increases for revenue deficiencies both in the 5 million to $6 million range. Ultimate rate changes will also reflect true ups for capacity payments. Later this fall the Louisiana companies will make the decision to either pursue extensions of the FRP framework or to initiate new base rate proceedings. Pursuant to its rate settlement Entergy New Orleans will file its required rate case later this week.

In other regulatory matters Entergy Mississippi responded to inquire some of the commission regarding the 28% overall rate increase in the third quarter of fuel adjustment filing resulting from escalating natural gas costs. Earlier this month the commission held a two-day hearing regarding all Mississippi utility fuel adjustment clauses. The hearing was recessed in order to allow the commission time to review the information supplied and is scheduled to reconvene next week. Rising natural gas prices have received the attention of not only the regulators in Mississippi but also the lawmakers. This spring Governor Barber signed into law new base load generation legislation to help meet the state's growing energy needs while encouraging diverse sources of energy. This legislation gives new authority to its commission to allow utilities to seek pay-as-you-go financing during the planning, licensing, design, development, and other early stages of construction for approved new base load facilities constructed in Mississippi. The new legislation in Mississippi similar to the May 2007 Louisiana Public Service Commission general order presents opportunities for significant savings for customers in meeting the energy needs of the future. As one of the utilities necessary conditions for moving forward with a potential new nuclear facility.

In nuclear. At the end of June Entergy Louisiana petitioned Louisiana Commission to replace two steam generators. The reactor vessel closure head and the control element drive mechanisms at Waterford three at an expected cost of approximately $511 million. The long lead time to design, manufacture, and transport certain equipment to the site requires approval now in order to complete the project in 2011. The need to replace the equipment is consistent with normal degradation and equipment chutes for life. Actually, due to careful maintenance, Waterford three is one of the last nuclear plants of its type to replace its steam generator. Of the 14 plants in the United States with similar pressurized water reactor designs, only one other plant has not replaced the equipment already. Entergy Louisiana is also seeking the approval of the procedure for synchronizing permanent base rate recoveries when the project is placed in service. Providing the kind of certainty needed for major construction projects in order to solidify the utilities excess of capital markets.

In a Phase II filing Entergy Louisiana will seek cash earnings of construction work in progress. On portfolio transformation initiatives Entergy Louisiana filed for a limited reopening of the little gypsy air permit to conduct an additional layer of environmental analysis in order to demonstrate that the (inaudible) plant will meet the maximum achievable control technology standards. With its modern redundant and state of the art image technologies, Entergy Louisiana fully expects that the Louisiana Department of Environmental Quality will find that those standards are met. Assuming the air standard permit is issued in the first quarter of 2009, and spring levels cooperate, construction could commence by mid-2009 and the project could be in service by mid-2013. The delay is expected to increase the total project cost from approximately 1.55 billion to 1.76 billion primarily due to price escalation on non-contracted equipment and material and increased carrying costs due to the extent of the construction period. The economics of the project remain compelling for customers particularly given that natural gas prices are even higher than when the project was approved last year. Entergy Louisiana expects to supplement and resume its Little Gypsy Phase II filing in the fall seeking cash earnings on QUIP, and approval for the procedures synchronizing permanent base rate recovery when placed in service.

Regarding the [Watchitaw] acquisition, both the Arkansas and Louisiana Public Service Commissions granted approval for this transaction. Entergy Arkansas expects to close in the fall on the acquisition of this highly efficient 789-megawatt load following resource at a cost of approximately $325 a KW including generation upgrades and transaction costs.

At Entergy nuclear the nonutility fleet turning the solid performance achieving a 92% capacity factor for the second quarter which included the remaining 19 days from the previous quarter's refueling outage at [8.2]. On license renewal we're pleased to report that last week the New York State Department of Environmental Conservation issued the Fitzpatrick water permits necessary for the NRC to proceed with license renewal. In addition, the New York Department of State concurred with the consistency certification for the coastal zone management program setting up a clear path for the NRC to renew Fitzpatrick's license in the near future. At the recent legislative hearing not a single party, not a single party spoke in opposition to the plant, to pending permits, or to license renewal, also last week the Atomic Safety Licensing Board conducted hearings for the three remaining contentions for the Vermont Yankee license renewal application.

Given the Board's plans to issue its petition around the end November, Vermont Yankee now anticipates NRC license renewal in the first quarter of 2009. Further, in a recent statement the Atomic Safety and Licensing Board indicated that a decision will be made by late July on which if any hearing dimensions will be admitted for the Indian Point license renewal process. Finally, we understand that the Indian Point Independent Safety Evaluation panel has completed its work and will hold a public hearing on Thursday, in New York, to present their findings and recommendations.

As for the spin off of the nonutility nuclear plants, all senior executives have been named including Dean Keller, Executive Vice President and Chief Financial Officer, and (inaudible) General Counsel and Chief Legal Officer. Keller joins Enexus after more than a decade of financial markets experience at Citigroup Global Markets, most recently as Managing Director of Investment Banking and co-head of the North American Power Group where he advised a wide range of energy focused clients and participated in transactions exceeding $100 billion. [Agresta] comes to Enexus from [Alstonberg LLP] of Washington, D.C. where he lead the energy group. His experience includes working with foreign and domestic energy companies on activities ranging from nuclear construction and operation to deregulation of electric markets to power marketing, and on mergers and acquisitions.

Progress also continues on the regulatory front. We're particularly pleased to report that yesterday the NRC approved a license transfer for the Enexus nuclear plants. More specifically the NRC approved a proposed structure with EquaGen Nuclear as the operating licensee and the Enexus companies as licensed owners of the plants. NRC approval follows FERC approval received earlier in the quarter.

Just to review, NRC criteria for approval requires a determination that in Enexus and EquaGen meet the rigorous standards for financial stability, technical qualifications, and maintenance of decommissioning funds to safely maintain and operate the plants. FERC approval ensures the transaction will have no adverse effects on competition, wholesale or retail rates and federal and state regulation. FERC also determined that there will be no cross subsidization by or pledge or encumbrance of utility assets for the benefit of a nonutility associate company.

At the state level, last week the administrative law judges in the New York proceeding issued a ruling concerning discovery and seeking comments on a proposed process and schedule. Throughout the New York proceeding has been conducted in a professional manner and the ALJs remain steadfastly committed to their obligations to provide for, quote, the orderly and efficient completion of this proceeding in a manner that, quote, will ensure that an adequate record is established for a commission decision. To accomplish these (inaudible) objectives the ALJ's proposed a process for completing a limited proscribed discovery process, followed three weeks later by the filing of initial comments addressing defined issues with reply comments in two weeks after the initial comment deadline. Following receipt of all comments, a ruling will be made on whether and to what extent an evidentiary hearing is required. That being said, the LJ's acknowledged that the proposed process will not facilitate a commission decision in September consistent with Enexus request but left open the very real prospect of a decision shortly thereafter. In Vermont hearings begin today.

Regarding SEC and IRS approvals the first amendment to Enexus Form 10 is expected to be filed soon incorporated among others changes to address the comments provided by the Securities and Exchange Commission. We also expect to receive a private letter ruling very soon from the Internal Revenue Service indicating the transaction qualifies for tax retreatment. As you may recall, we consider both the filing of the amended the Form 10 and receipt of the IRS private letter ruling prerequisites for issuing any pre-spend debt which Leo Denault will address in his remarks. As we have indicated, completing the spin off remains our number one strategic priority for the year. While we are making good progress including the critical NRC approval received yesterday, the state approvals are now the critical paths.

Considering the New York ALJ ruling last week we now expect the state completion to occur in the fourth quarter. Given that remaining approvals could be forthcoming early fall, let me outline the sequence of activities you should expect once we have received the state regulatory approvals.

Within roughly a week of approvals a special Entergy Board meeting will be conducted to seek final approval of the spin off. In week two the Securities & Exchange Commission will declare the Enexus Form 10 effective with when issued trading beginning the following day. Shortly thereafter a record date will be established for the Enexus spin off, and finally, Enexus stock will be distributed to Entergy holders on the closing date which will occur on a month end. Note that the current transaction close occurs on a month end. Given the practical limitations in closing the books for financial reporting purposes.

That being said, unlike a merger the closing date is not nearly so critical to the value of your holding. If you already own these units then the underlying value continues to accrue to you during the period required to close the transaction. With that given the recent trends in the gas market we've already seen pricing in 2012 achieve levels consistent with or exceeding in excess of $2 billion EBITDA aspiration. As further evidenced by entering into a 2012 contract for over $100 a megawatt hour during this quarter. At 8 to 12 times EBITDA that provides strong support for a point of view we continue to provide for market prices and market capitalization for Enexus.

Before I turn it over to Leo, I want to summarize the obvious. There seems to be an overwhelming number of legal, regulatory, and operational activities and initiatives under way at Entergy this year. We realize we set aggressive goals for both the timing and the result of all of these initiatives consistent with those goals and objectives thus far this year has been essentially noneventful. Meaning we continue to move forward aggressively on all fronts, and we have not suffered any significant setbacks on any of our initiatives despite the volume of activities or the height of the bar that we have set. At the same time we remain committed to other things that matter like achieving our $1 per share annual earnings growth aspiration, and operational excellence with 2008 on track to set new standards of excellence.

In particular, in safety which is our most important assignment every minute of every day. Given everything we're trying to achieve, that represents a very, very good year so far. Perhaps more importantly, the momentum we've seen since announcing the spin off illustrates the option value of this transaction and the importance of providing owners a separate, liquid, tradable financial instrument where you get to make the call whenever prices align with your point of view. We're committed to making that happen. Now let me turn the call over to Leo.

Thank you, Wayne, and good morning. In my remarks today I will cover quarterly results and update of cash flow, the latest on our share repurchase activity and brief comments on our '08 guidance. I will close with an update on our current thinking around Enexus financing options.

Looking at our financial results for the quarter slide two showed the increase in second quarter '08 as reported earnings compared to a year ago. This increase was achieved even though the current quarter included expenses in connection with the nuclear spinoff transaction. These expenses reflected as a special item in the current period are for a range of services from third parties assisting in the transaction.

Turns to operational earnings we achieved strong results in the second quarter '08 compared to the comparable quarter one year ago. The increase in operational earnings came from higher results at utility parent and other and Entergy nuclear partially offset by lower results at the nonnuclear wholesale business.

Slide three, presents the factors that drove the quarter on quarter results. The 20% increase in utility parent and other came primarily from higher revenues due to sales growth including the effect of warmer than normal weather partially offsetting higher revenues was an increase in operational and maintenance expense. The expense increase came primarily from storm costs, expensed at Entergy Arkansas, increased loss reserves and higher benefits expense. While year-to-date operation and maintenance expense has trended over prior year, we expect this trend to reverse in the second half of the year as certain known reductions materialized and timing differences align year-on-year.

At Entergy nuclear we achieved an increase of 35% in operational earnings with the primary contributors being increased production due to fewer planned and unplanned outage days, the additions of Palisades, and increased revenue from higher pricing. Also in Entergy nuclear we experienced an increase in operation and maintenance expense as we recorded an impairment for certain decommissioning trust fund investments. The primary reason for the O&M increase was due to lower plant spending deferred for future amortization as a result of fewer planned refueling outage days during the quarter. In addition, the increase reflects the effective expenses associated with including Palisades as part of the portfolio for the full quarter this year.

The decommissioning impairment recorded this quarter reflects sustained under performance in certain investments within our decommissioning trusts. Accounting standards require continuous assessment of individual investment performance. These standards require that sustained unrealized losses must be recognized. I believe it is important to consider a couple of points relative to this item. First, the impairment reflects the under performance of certain individual investments in a large portfolio and is primarily associated with assets acquired and priced in April of 2007 as part of the Palisades transaction, and also the impairments are noncash charges to earnings.

We continuously monitor the performance of our decommissioning trusts and remain confident in the long-term earnings opportunities of these investments. However, extended periods of under performance in the financial markets have resulted in impairments in the past, we can offer no assurance this won't occur at some time again in the future. Also, while I would expect these unrealized losses to reverse as the market improves, the subsequent gains will not be taken into income but rather directly to the balance sheet in accordance with generally accepted accounting principles.

Absent this accounting impairment, Entergy nuclear's operational earnings would have been 48% higher than a year ago and consolidated results would have seen an increase of 16% quarter over quarter. At nonnuclear wholesale business results in the current quarter were lower compared to the same quarter last year. The decrease was due primarily to the absence in the second quarter of 2008 of the benefit of lower income tax expense recognized last year when tax audit issues were resolved. The last item that contributed to higher consolidated results this quarter was the accretive effect of our share repurchase program.

Slide four includes a recap of our cash flow performance this quarter which shows a small decrease compared to the same period last year. The major items affecting cash flow during the second quarter include reduced collections of deferred fuel costs totaling $243 million, and the absence of $177 million of CDBG storm funding received by Entergy New Orleans last year. Both of these items negatively affected relative cash flow and were essentially offset by higher net revenues at Entergy nuclear producing $195 million of cash and reduced working capital requirements of $159 million at utility parent and other.

We continue to utilize our share repurchase program during the quarter, the details of which are reflected on slide five. We repurchased 1.8 million shares in the second quarter with roughly 75% of the repurchases coming through our $1.5 billion program. At the end of the second quarter we had approximately $700 million of repurchase authority remaining. We continue to see our '08 operational earnings guidance in the range of $6.50 to $6.90 per share.

Slide six includes the components of guidance, the main drivers to guidance remain unchanged with steady utility results and strong performance at nuclear keeping us on track toward achieving our earnings aspirations.

Turning to Enexus let me update on you where we stand with respect to executing our financial plan. We continue to target $4.5 billion of debt associated with the spin with $4 billion facilitating into the recapitalization and $500 million remaining with Enexus for working capital purposes. We previously discussed with you the prospect of issuing pre-spin debt for this business and we continue to view that as a potentially attractive opportunity. As we assess the benefits of pre-spin financing a crucial factor that will drive both the timing and the size of any issue is the market timing, market environment. After showing some signs of improvement and windows of opportunity for financing in April and May the high yield market has softened again. However, we believe there is still a market for good deals, the power sector continues to hold up reasonably well, and the financing backlog continues to move down. We remain confident that we can complete a successful pre-spin financing should that be appropriate. However, we are not ready today to take financing to the market and we realize market conditions continue to evolve.

One item we consider necessary to initiate the financing plan is the receipt of the private letter ruling from the IRS. We expect to receive that ruling from the IRS in the near term. Once we have the PLR in hand we'll be prepared to move quickly should we determine that financing before the spend is appropriate. Depending on timing of receipt, we also recognize that our schedule could very well move into the September timeframe as activity in the financial markets slowed considerably in the latter part of August. Again, the state of the market at any particular point is a major determinant of our tiling. We have made substantial progress through the first half of the year in advancing our financial initiatives. This progress provides a clear indication that our people are again stepping up to the plate with extraordinary effort. We know that our people are always what makes the difference, and we feel we have the very best team in the industry.

On a related note we recently named the person who will assume the CFO role at Enexus Many of you know Dean Keller and you realize what an excellent choice he is for the job. Those of you who do not know Dean, I can tell you that you will enjoy working with him, and I know Rick agrees that we're fortunate to have Dean as part of Enexus leadership team. In addition to Dean's selection we have staffed a number of the key leadership positions in (inaudible) organization. The accounting, tax, and Investor Relations leaders have all been named as well as the Chief Risk Officer for Enexus. A number of the positions within these organizations have also been filled. We are confident the talent who will be called on to deliver the value at the new Company will perform as well as the outstanding team here at Entergy.

In closing I want to mention that we have an extremely active investor calendar over the next few months including potential financing road shows activity as early as August or September, two bank conferences in September, following these bank conferences will come an additional debt road show for Enexus and equity road shows for both Entergy and Enexus and finally the annual EEI finance conference in November. As we work through this schedule you should expect us to continue our communication how Entergy plans to achieve both its near term and long-term growth aspirations. Also, as we share more details you will hear a familiar theme. That theme being our continued commitment to providing top quartile shareholder returns and reliable, affordable service to our customers. Regarding enexus we will continue to update you on our progress on the strategic, regulatory and execution fronts. Also we'll begin to introduce to you the members of the Enexus leadership team over the coming months. Now the Entergy team is available for your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question will come from Greg Gordon from Citigroup.

Thank you, gentlemen. Just, I hate to dance on the head of a pin here, but let's talk a little about the New York schedule. From my reading of the ALJ they extended the initial timeframe to August 8, and so you're saying there is basically five weeks added on to the end of that and then after that there is the potential for hearings; is that correct?

Rick, go ahead.

Greg, that would be the outside. He gave additional days for the interventions of the Attorney General and the staff to respond to all the discovery that we filed with them last Friday, so practically I don't think it is going to get us to August 8, and so--.

Whenever that ends there is another five weeks?

Yes, that's true.

And then there will be hearings, and hearings would generally only last a couple--?

No.

There could potentially be hearings?

Potentially could be hearings.

And then so if there is hearings, there may or may not be hearings, and then I guess my question is is it protocol for an ALJ to write a proposed decision in this type of case or not because from my perspective that could add another three to four weeks before you get a window for the commission to rule?

Well, if you got all the way through that, that could be, but our anticipation is still that we'll get through this briefing process, that all the discovery -- I mean, it's kind of reading his order, I think he is pretty comfortable and the staff weighed in on that when we had to file briefings on whether to extend the discovery period, that he did a pretty good job of laying out that there has been a significant volume of discovery, many questions answered, and the only reason he gave a couple more days is to make sure that we got all our responses in and they had an opportunity to ask follow-up questions, but I think there is plenty on the record in front of him, and now we're in the process of kind of summarizing our different positions through this next three weeks and then we'll have an opportunity to reply to those different positions.

But will he or won't he write a decision because that generally takes a couple weeks to turn around?

Yes. I would stick that on the end of that five-week period.

Okay. And then as it pertains to the NRC approval, can you talk about the different standards that the NRC applied to their approval process and how they relate directly to some of the issues that New York has and it seems to me that the NRC directly or indirectly addressed in their approval a lot of the issues or at least a big chunk of the issues that New York is also considering? Is that a fair read through or not?

I think that's a fair read, Greg. Probably the biggest outstanding issue is the value sharing payments which the ALJs did raise which is more of a concern in New York than it would be to the NRC.

So if you did a side by side analysis of the issues being considered at the NRC and the issues being considered at New York, the one that sort of hasn't been addressed indirectly is the value sharing payment .

I would say that's right.

Thank you, gentlemen.

Yes.

Our next question will come from Dan Eggers with Credit Suisse.

Good morning. Just to follow-up on what Greg was asking, in this period of glass half empty, what could delay into the end of the fourth quarter or roll into next year as you look at the schedule or do you think that even with the New York delays comfortably mid fourth quarter to get resolved?

Rick, go ahead.

Well, I think that would be right, Dan. We would look and will be filing something this week to comment on the process, and obviously we're not going to push on September based on what is there, but we'll give them arguments of why October doesn't, that this doesn't neat to trail into October, but we're real comfortable we'll get through this at the end of that five-week period.

Okay. I guess just shifting gears at the utility, can you just give a little bit of color if you guys are seeing anything as far as conservation or demand elasticity or response to higher fuel inputs rolling through into bills and any commentary on customer bad debt expense?

I guess, this is Gary Taylor, no, we haven't really seen a large impact as far as like price elasticity. We do count that in our sales forecast when we look at that, but we have not seen that. We monitor a write off and we have not seen an increase in write-offs to date. Clearly that's something we have to continue to monitor as we watch the increase in fuel price but the relief we've seen here recently is a positive.

Good. Thank you very much.

Thank you.

We'll move to SAC Capital's Ashar Kahn.

Good morning. I was just trying to a little bit elaborate as to how are you looking at your hedging policy in light of this transaction? If I heard Wayne right, he said you bought something in 2012, so I was trying to understand why 2012 not '10 and '11? I am just trying to understand the hedging policy as we look forward?

Okay. We'll let Rick speak to that.

Ashar, we've always been kind of open to transactions that are in a range that we think kind of hit our point of view, so over the last quarter there has been a few of those show up, and we have other counter parties that have broached us about locking in some additional sales, so we're open to locking them in once they kind of reach a level that we're pretty comfortable where we see prices going based on what we've laid out in the aspiration, whether that be heat rate expansion or Co2 or also gas prices. So I mean we hit some of those prices out in that period.

So it's basically, if I am right, you're saying you have a price target which lies at your aspiration and if someone is coming and giving you a contract on similar bases, you're ready to enter into those contracts?

That's close. We said at the time that we set the aspiration prices of course were low $80, and our aspiration was consistent with the range of our point of view like Rick said a number of variables could influence that, but it was to say that aspiration was consistent with that analytically determined point of view. So when we see -- and that point changes all the time relative to the things Rick talked about. When we see real transactions in the marketplace, we're consistent with our current point of view, and the range around those point of views with good credit quality, counter parties, that we consider entering into those contracts. But so it is not so much our aspiration which again if we were setting our aspiration today whether it would be the same number or not, I am not going to speculate on. That is kind of becoming Enexus point of view at this point in time, but the transactions we entered into are I think it's probably more correct to say consistent with our point of view, and it is nice that they happen to be equal to or greater than the aspiration we gave you a few months ago.

If I can just end up with I am assuming we will get our guidance for next year at the end of the third quarter call and I don't know Leo if you can comment, how much of buyback is still planned by the end of year assuming that the spin happens by the end of the year?

Well, the two buybacks associated with the existing programs, the $2 billion of authority or the $1.5 billion program and the additional $500 million authority that we have, that is still outstanding. The $1.5 billion program we would anticipate being completed before the end of the year for the spin potentially. The $2.5 billion associated with the spin itself will compost spend and won't all be done immediately. It will take a little while to get that out of the system, but it will be pretty front end loaded.

And we expect guidance at the end of the third quarter for next year?

When we get to the end of the third quarter depending on where we are with the spin and how guidance looks, but we would anticipate coming forward with something at that point in time I would imagine we're just going to have to look at the Entergy only guidance at that point, what Enexus will do, too, but most likely that will be when we give guidance for 2009.

Thank you.

John Kiani with Deutsche Bank, go ahead.

Good morning.

Good morning, John.

I was just looking at the appendix of your press release today. Appendix E has the planned CapEx for the Company on a consolidated basis, and the numbers for Entergy Nuclear there in '09 and beyond look higher than what I see in the Enexus Form 10 under the capital commitments line. Can you help me understand what the difference is there?

John, this is Leo. The major difference there is the inclusion in the Entergy CapEx numbers of the value sharing and the Entergy--.

Okay.

And the Entergy (inaudible) in the Form 10. As you recall that's a capital item that runs through capital, not through EBITDA.

And how should we think about that going forward based on the progress thus far in New York?

This is Wayne. Everybody is pointing at me. I guess I wish I had a real answer for you there. Let me just, since you all read the newspapers and talk to a lot of people, let me just real quickly make sure you understand what we've said. The original agreement did not contain a provision that the value sharing payments would continue if we were not the owners. That agreement was negotiated at arm's length while we were discussing the spin possibilities, and it was discussed at some length that we might not be the owners for the entire period. The counter party in negotiations which was a state, was more concerned or seemed to be more concerned in striking a deal that provided the highest number they could get and less concerned with solidifying the payments for the entire period of the agreement. What they got was a higher number than we were really thinking of negotiating at the time, and they got two year's guaranteed which they didn't have at all in the original contract, but the other period was open after the two-years expired but they did secure for themselves a higher number than we brought to the table.

So since the spin filing with all the rhetoric and everything you've read in the newspaper and all the different views on it, essentially nobody has asked us to reform the contract. They're not happy with it, but nobody has asked us to reform it. They simply tried to get us to ignore it. Most of that has not been face-to-face, almost none of it has been face-to-face. It has been through the press. What we have said in our Form 10 is the contract says what it says, and it was negotiated at arm's length and our intent was to live up to what's in the contract. If the parties that have argued that this, we believed that our reading was incorrect in the contract, then the contract calls for arbitration, not lawsuits and things like this that have been suggested. And naturally if it went to arbitration, then we would be prepared to stand by whatever decision would take place. Now, having said that, that's kind of a little bit of the history. Having said that, the ALJs are asking the question of whether or not we intend to change the language in the Form 10 that basically says that no payments are due.

It is a legitimate question, but the real question is should the contract be reformed, not should the language be changed because the language follows the contract, and like I said up until this point or up until -- throughout this process let me put it that way, nobody has came to us and said let's reform this contract, let's sit down and talk about this issue. If this did go to hearing, then obviously there would be a lot of evidence put on the table with regard to this the state believed it to be in the public interest at the time they negotiated this at arm's length and then the ALJs and the commission would have to make a decision about why it was in the public interest then versus why it it isn't now. Having said all of that, the fact is that reasonable people generally sit down and negotiate or talk about these kind of issues across the table and get them resolved. That's the way these things get done, not through the newspapers, not through the regulatory process by just sitting down and talking about it. Now, having said that, I am really not at liberty to go any further than just explain what's happened and how you these things generally get done.

That color is actually very helpful, Wayne. I appreciate it. Thank you.

We'll take our next question from [Scott Angstrom] with [Glenheim Capital Management].

Good morning.

Good morning.

Question on nuclear results for second quarter, not so much relative to the last year but relative to the real strong first quarter. One, I was wondering if you could elaborate a little bit on the size of the writedown you took on the decommissioning trust, and then just thinking about if pricing I think was down second quarter versus first quarter about 5% and given the move and natural gas and coal prices in the quarter, surprised me a little bit, and I know you're very highly hedged and you may have higher hedge prices in the first quarter than second quarter. Maybe that explains it, but maybe you could just comment on those couple of things and why net income at nuclear was down so much second quarter versus first quarter?

This is Leo. I will go ahead and start. As far as the decommissioning adjustment, that was about $0.07. That was a nontrivial number in terms of the impairment. We also had market price averaged about $87 in terms of what we sold into the market during the second quarter. You're right. We are pretty highly hedged in 2008, and then we also had the end of the (inaudible) refueling outage went into the beginning of the quarter as well. So all of those things kind of we want to get you into a situation where we had high capacity factors year-to-date, at about 95%, we were at about 92 in the second quarter, and that had a lot to do with that -- those days with the refueling outage.

Is it fair to assume that your hedge prices would have been higher in the first quarter than the second quarter?

Your overall pricing year-to-date is higher than it was in the second quarter, that's right.

Okay. And because you said you got 87 for market prices in second quarter, do you know what that number was in first quarter off the top of your head?

Not off the top of my head, no.

Then just thinking about it, were there any writedowns for decommissioning trust on the utilities in the parent side?

No.

Okay. Is it something--?

I guess I am probably was going to jump onto what your follow-up was. A lot of it has to do with in the Palisades transaction when you had acquired the plant at that point in time we mark those investments within those trust to market, so the vintage of those investments is market value in April of 2007 versus all the other trusts that we owned for a longer period of time either because we started them or because we acquired the plants in the early 2000, late 199s, though basis in those is a lot lower. It is just a function of the market performance since April as the accounting rules, it is not a long period of time to have what they consider a long period of time. It is months not years of under performance that creates that impairment, so it is really a major function of the marking to market those investments, and it is investment by investment in terms of within those trusts.

Okay. Thanks. That's very helpful. I appreciate it.

We have a question from Andrew Levi with [Rencore Asset Management].

Just going back on the New York nuclear issue, just kind of going by comments you made. I guess kind of said if it would go to hearings and the reasonable people could sit at a table and discuss things I guess in a reasonable way or whatever you said. I guess my question is with this whole team initiative going on, it seems like that that's a good kind of negotiating issue, and it seems to me that there is potential for settlement in New York. I don't know if you can give us any more than what you said already, but just comment on that, if there is an opportunity or does this need to go through a full litigated process?

This is Wayne. Again, contrary to maybe what you read in the newspapers, there are a lot of reasonable people in New York of which we've maintained good relations with, and there is a, it has been a bit of of a -- on the political front there has just been a bit of uncertainty with regard to what's going on happen in a number of different positions in the state, and that's going to I think be resolved very, very soon, and the people that can sit down and that are reasonable and have the public interest at heart, will be able to do that I think very soon and probably very quickly, frankly. Other than that, that's about as far as I can go except to say that again I do think that the people that can get this done could get it done very fast, and have demonstrated that in the past, and we understand the issue. We did from the beginning. And there was regardless of some of the things that have been said, this is not a bait and switch trying to structure a deal to get out of making payments or anything of that nature, and that was a -- just simply the way the contract read, and we're more than happy to talk about that, and, but like I said before, the number that was negotiated was a little different number than what maybe we had in mind when we entered into those, but hopefully we'll be able to sit down and talk to people about what the right answer is and get it done -- get something done very fast to give the ALJs some comfort with regard to this is not an issue.

And I guess if there was a settlement or something close to it, dos that change the schedule at all or schedule you think remains the same?

This is Rick. I don't think it will have much effect on the schedule. It might close it down a week or two earlier, but that would be about it.

Thank you very much.

Debra Bromberg with Jefferies & Co. has a question. Please go ahead, ma'am.

Hi. Good morning.

Good morning.

If you didn't receive approval for the spin in Vermont which has a higher standard than in New York, can you discuss the next steps in the process that you likely take? And also separately can you just briefly update us on the Pilgrim relicensing?

Debra, I will take on the Vermont proceeding. I will let Mike Kansler talk about the Pilgrim. I am pretty confident we're going to get through the Vermont proceedings, I mean the hearings are today, and we're working that issue pretty hard up there right now, so I think the issues that the NRC laid out and approved in their order are very similar to the issues that we're dealing with in Vermont, and I think at the end of the day we'll get -- we'll be able to resolve those issues, and Vermont Yankee will be part of the spin.

This is Mike Kansler, and I will address Pilgrim. We had one outstanding convention -- contention at Pilgrim, that's before the Atomic Safety and Licensing Board. We expect their decision in October, and that's like the last hurdle for receiving Fitzpatrick's license renewal.

Great. Thank you.

Merrill Lynch's Jonathan Arnold is next.

Good morning. A quick question. The press release refers to potentially filing a second amendment to the Form 10. Just wondering given that you're still working on the first one, how you know that at this point and what kind of -- what you would be updating for the second time around?

Well, this is Leo, Jonathan. As we go through the process every time we get new information we have to update it every time we go through a new quarter we have to update the numbers, so as we make progress in implementation around agreements, around tax sharing agreement, agreement, around intercompany, the agreements between the Company, all of those things require updates to the Form 10. It is possible we would envision that the next one after that would be more limited in updates in terms of whether there is any further comments from the SEC which we wouldn't necessarily anticipate that there would be, and that it might be pretty close to the final if not the final update that we make.

Okay. And my second one was you have -- you said you did some hedging in the quarter that was towards or even above your being consistent with the $2 billion 2012 EBITDA aspiration for Enexus and then if I remember back to the analyst meeting you had this assumption around $78 a megawatt hour on the open position. Based off where our market is today for the blended open position you have on the plants that are open in '12, where are we on that scale between the $1.5 billion and the $2 billion and any color you can add on that given the pullback we've had I guess in prices recently? Are we still above the $1.5 billion and still below the $2 billion or somewhere else?

It is somewhere in between. Prices in 2012 have come down into the 80s. At the time we did the transaction that Rick mentioned we were over 100. So the gas price retreat that we've seen has impacted not only the near term but also the forward curve as well as you would expect, but we continue to see those items that we pointed out at the time of the analyst conference in terms of heat rate expansion capacity prices, Co2 legislation as having an upward bias on the overall price of power going forward.

You say in the 80s. What's a good weighted estimate for where prices are on your price points right now on the open position?

It has been bouncing around probably between $85 and $82, just depends on what day you look at it. John, keep in mind, Jonathan, just want you to keep in mind, this is -- we're not -- I mean, I can't say we won't, but we're not planning on transacting to these prices. We have a point of view and the prices are going to bounce around. You know how the sentiment in this market is, and the fact that prices may be up or down at any point in time when we transact is when it is consistent with our point of view, and market tends to somewhat on fundamentals on somewhat on other events or sentiment and we're talking about four years out here now, so we can I think as we've articulated we're, with the spin off we're much more likely to get prices don't move consistent with our point of view to just move more towards spot or much shorter positions, but we'll -- we have no reason to believe our point of view is not pretty accurate at this point in time regardless of what the market does day-to-day.

That's helpful. Thank you very much. Can I just -- on that specific subject, it looked like you added about 1% to the hedge position in 2012, 23 to 24% hedged versus last quarter, and then the average price was up by $3, $51 to $54. Did you sort of take out some existing hedges? I am trying to make the math make sense with that little increment and then the big increase in average price?

Look, Jonathan, the 2012 position is first of all the, before this transaction primarily Palisades and the beginning of the year on Vermont Yankee. So those are historical, reasonably low price contracts. This one was an at market at the time contract over $100. It also when you're doing 1 and 2% you get rounding impact in there as well, but it really is just that transaction that's moved it.

Okay. Thanks lot.

We have a question from Michael Lapides with Goldman Sachs.

Hey, guys, actually two questions. One on the nuclear side and one actually for Texas. On the nuclear side we're starting to see some pretty interesting proposals for major transmission build, transmission that would come online in the 2012, 2013 timeframe and for new renewables especially wind build out, both in New England and in New York. Just curious what your view is in terms of what that would mean for your nuclear assets in the region? That's the first question. The second one is on Texas. The NUS you've got, just curious what implied ROE does that enable Gulf States Texas to earn if it goes into effect?

Let me start with Gary on Texas. Go ahead, Gary.

Yes. Just quickly, and we're real pleased with the NUS we received because positions of that business to earn an ROE around 10% going forward over the next couple of years, and so that's a real plus considering where that business has come from, where it has been in the 6 to low 7%.

Rick?

Michael, on the transmission and the renewables, those are the type of things that we monitor. They're factored into our point of view on what we think prices will be out there, so these are not something that we weren't aware of and/or aren't monitoring, but like we talked before, it is still very difficult to get those things done, and in some situations I think you and I have talked before, some of these transmission projects helps the deliverability of some of our plants into key markets, so we're keeping an eye on all of it.

Thank you, guys.

That is all the time we have for questions. Ladies and gentlemen, thank you. Miss Michele Lopiccolo, I would like to turn the the call back over to you for closing or additional remarks.

Thank you, operator and thank you all for participating this morning. Before we close we remind you to refer to our release and website 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 2740813. This concludes our call. Thank you.

Once again thank you all very much for joining us today. That does conclude the presentation. Have a great day.