安特吉 (ETR) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Entergy Corporation first quarter 2009 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. 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?

Good morning. Let me begin with the review of the numerous regulatory developments at the utility since the beginning of the year.

Starting with Arkansas, considering the magnitude of statewide damage following the recovery from the storm, that was every bit as devastating in some areas as the twin ice storms of December 2000, the Arkansas Public Service Commission approved Entergy Arkansas' request for an accounting order authorizing the deferral of the operation and maintenance cost portion of the ice storm restoration costs pending review for future recovery.

Subsequently, the Arkansas legislature passed legislation requiring the APSC to permit storm cost reserve accounting for electric public utilities when requested. Entergy Arkansas filed its request for storm reserve accounting in March and expects to file its storm ice recovery -- ice storm recovery case in the second half of 2009.

In addition, the legislature enacted storm securitization legislation consistent with the practice in Louisiana, Mississippi and Texas. And if you think back to where we were four years ago, we didn't have any of those. Moving from ice storms to hurricanes, the Texas legislature also passed storm cost recovery legislation with this legislation more comprehensive than the Texas legislation specific to hurricane Rita in 2006.

Most importantly, this legislation is evergreen, providing the Public Utility Commission of Texas broad authority to address storm recovery in the future without obtaining new legislative authority. Consistent with this legislation, Entergy Texas initiated its storm proceeding on April 21. Entergy Texas is seeking an initial determination that its recoverable storm restoration costs are $577.5 million including system restoration costs incurred through February plus certain estimates of unbilled costs or ongoing costs.

Under the new legislation, these costs are eligible for securitization through a separate PUCT order in a companion financing proceeding, along with carrying costs on approved system restoration at Entergy Texas weighted average cost of capital. The provision for carrying costs at the weighted average cost of capital is a meaningful addition to the previous legislation.

Pursuant to this legislation, the PUCT has 150 days from Entergy Texas' filing date to provide an order determining the amount eligible for recovery and securitization. Entergy Texas may, and in fact, plans to file financing order prior to the expiration of the 150-day period following which the PUCT has 90 days or until the amount eligible for recovery is resolved to issue a financing order.

This process aligns with Entergy Texas' objective to finalize storm recovery by the end of the year following a major storm. You may recall that securitization legislation is already evergreen in Louisiana. Both Entergy Gulf States Louisiana and Entergy Louisiana expect to initiate their storm proceedings in the very near future.

Finally, Entergy New Orleans resolved its plan for cost recovery as part of its comprehensive rate settlement approved by the city council in April. Entergy New Orleans will continue to draw on its storm reserve until all deferred operation and maintenance expenses have been recovered. Capital costs will be deferred and reflected in Entergy New Orleans' initial annual formula rate plan filing for the 2009 test year.

In the interim, until the cash is collected, the agreement allows Entergy New Orleans to record and collect carrying costs on the capital costs to be recovered at Entergy New Orleans' weighted average cost of capital.

To summarize, of the roughly $1.4 billion to $1.5 billion total cost estimate for Hurricanes Gustav and Ike, and the Arkansas ice storm, including both capital and non-capital, nearly 80% is eligible for recovery through securitization and another 16% has already been collected by drawing down on funded storm reserves with the balance to be recovered through the Arkansas extraordinary storm damage rider, future drawdowns against Entergy New Orleans' funded storm reserves and finally traditional rate making processes.

The comprehensive rate settlement in New Orleans also includes a $35-million electric rate reduction effective beginning June. This reduction was made possible because of the more rapid economic recovery of New Orleans following Hurricane Katrina than originally predicted. On the other hand, the ongoing costs for providing gas service in New Orleans required a gas rate increase of nearly $5 million a year.

Other aspects of the settlement include the establishment of a new formula rate plan including a special rider for recovery of capacity additions, full realignment of Grand Gulf cost recovery from fuel to base rates, implementation of energy conservation and demand programs, and gas hedging to lock in gas prices and create greater stability for the summer of 2009 power generation costs. Terms of the formula rate plan include, an 11.1% electric ROE and a 10.75% gas ROE with a plus or minus 40 basis point bandwidth for electric and 50 basis points for gas.

In the event earnings fall outside of the band, earnings will be reset to the midpoint ROE. After Katrina when Entergy New Orleans was in bankruptcy proceedings, the city took timely and extraordinary action to assist the Company's financial recovery and obtained the credit metrics necessary to exit bankruptcy in only 20 months, to attract the capital required to rebuild the system and maintain service reliability on an ongoing basis.

There was some concern from some that after the emergency passed, the importance of credit quality would be forgotten by our regulators, the city council. That was not the case. The council should be commended for the settlement of some very difficult issues that fairly balance the interests of all parties and maintains the financial viability of Entergy New Orleans.

Finally, Entergy New Orleans was pleased when the Louisiana Supreme Court overturned a Louisiana appeals court ruling and reinstated the rulings previously made by the New Orleans City Council in the Gordon proceeding involved Entergy New Orleans. In other rate case developments, the Public Utility Commission of Texas approved the unanimous settlement of Entergy Texas rate case.

The $46.7 million base rate increase represents the first base rate increase since 1991. The formula rate plan matter, the Entergy Mississippi filing made in March, shows an actual earned return on equity during the test year of 7.41% calling for a $14.5 million rate increase. The Supreme Court also issued a briefing schedule for Entergy Mississippi's appeal of its 2007 test year FRP ruling whereby the Mississippi Public Service Commission rejected the stipulated settlement between the Mississippi public utility staff and the Company of just under a $4 million increase.

Finally in Louisiana, Entergy Louisiana and Entergy Gulf States Louisiana continue ongoing discussions with the Commission staff on the extension of their formula rate plans. In other utility matters, last week Entergy Texas also filed its transition of composition proposal that it is agreeable to either staying in CERC or moving to ERCOT, depending on the Commission's policy direction.

However, Entergy Texas concluded that given the available options, ERCOT is the only qualified power region capable of supporting full customer choice in the reasonably foreseeable future. At the same time, legislation has also been introduced requiring Entergy Texas to cease all transition and competition activities. Thus Entergy Texas is at a crossroads and needs a decision.

More immediately, Entergy Texas must choose whether to go forward with its Western region generation project which is needed if Entergy Texas stays in CERC but not if Entergy Texas joins ERCOT. And, again, the main reason to join ERCOT is if the state intends for Entergy Texas to move to full customer choice, but there's a bill in the legislature that would prohibit that. But regardless, Entergy Texas needs a decision if it is to best serve its customers in an effective and efficient manner.

Regarding utility supply plan matters, in response to a Commission order, Entergy Louisiana recommended that it continue the temporary suspension of the Little Gypsy power project and make a filing with the LPSC seeking a longer term suspension of three years or more until more clarity can be obtained on project economics. This action was based on a number of factors including the uncertain costs of environmental issues, the recent decline in natural gas prices and changes in the capital and financial markets.

The order approving the project allows for the recovery of prudently incurred costs in the event of a material change in the project's need or economics. Given the fact Entergy's regulated utilities remain short of capacity on a long-term basis on March 31 the system posted notice that it intends to proceed with another long-term RFP.

In addition, outside the formal RFP process, the system continues to hold discussions with various suppliers for resources that may provide compelling benefits to customers consistent with the utility's portfolio transformation strategy and needs. As a reflection on the utility's operating capabilities, Entergy's operating companies receive both the emergency recovery and emergency assistance awards this spring from the Edison Electric Institute.

Entergy is the only Company to be honored every year since the awards were first presented 11 years ago. Entergy also received Chartwell, Incorporated's best practices award for serving low income customers for its exceptional commitment and innovative approach to helping poverty stricken customers move towards self sufficiency.

Another testament to Entergy's operating capabilities, the Arkansas Nuclear One site proved that safety first is more than just a saying. Nearly 23 million hours worked over a span of almost nine years without a lost-time accident is a remarkable feat for any industrial facility. That is exactly what Arkansas Nuclear One employees have accomplished and the meter is still running.

The Occupational Safety and Health Administration recently approved ANO's continued participation at the voluntary protection program star level, the program's highest rating, a status ANO has maintained for 12 years and a nuclear industry record. Solid operations also characterize quarterly performance for the non-utility nuclear fleet with the fleet delivering a 92% capacity factor and two planned refueling outages commencing during the quarter totaling 30 days. Excluding planned refueling outages this result was roughly on par with the 97% capacity factor achieved a year ago.

Entergy Nuclear also announced that it was teaming with Intercom to offer distinct nuclear development services ranging from existing plant relicensing to full service new plant deployment. The new venture will join the combined expertise of both industry leaders allowing a full spectrum of customer focused services that further the Company's leadership in the nuclear arena.

Intercom has decades of experience in providing engineering, environmental, technical management services in a highly competitive field. Coupled with Entergy Nuclear's leadership in operations and new plant deployment, this team has the potential to benefit the industry in many ways.

Finally, Entergy Nuclear continued to pursue license renewal efforts and was pleased that the U.S. Supreme Court recognized in Entergy versus Riverkeeper, in what may well be a landmark case for the nuclear industry and industry more generally, that the Clean Water Act does allow a balancing of costs and benefits. Success in this case followed a long struggle up and down the federal court system.

The U.S. Supreme Court's ruling was certainly a positive step toward the rational regulation of cooling water intake structures at electric power plants. The decision does not in any way leave the nation's waters without the necessary or substantial protections under the Clean Water act and parallel state programs.

Indeed, given Entergy's long support of the rigorous protection of our nation's air and water, what this decision really does is confirm that a rational, sustainable, regulatory system must also consider and balance the costs of environmental protection against the people's needs for efficient energy resources. This means difficult choices may need to be made. That is what the process, the regulatory scheme needs to posture.

Turning now to strategic initiatives, our strategy remains unchanged. We're a point of view based Company, seeking to create value for owners through a business model focused on operational excellence and portfolio and risk management. We continue to see value in pursuing a spinoff of Enexus which will have our non-utility nuclear assets.

We're committed to maintaining the balance sheet and the financial headroom to provide the flexibility to manage risk and act on opportunities, particularly during distressed times. The utility's portfolio transformation strategy may well include more asset acquisitions or may rely on long-term power purchases if the risks can be appropriately managed or some combination of both of those.

The Enexus long-term growth strategy always envisions some consolidation of that sector and value added from turning standalone assets into an integrated portfolio with a business purpose. Simply getting bigger is not a legitimate business purpose. We've said many times we constantly re-evaluate our point of view as the market, legislation or competitive issues evolve, seeking new opportunities that may not have existed before, and eliminating those that have diminished with the passage of time or subsequent events.

Our interest in acquiring generation assets both nuclear and fossil is one of those timeless opportunities. And we transact when the timing is right, meaning the necessary criteria for investment are satisfied. We also recognize that the market seeks certainty even in these very uncertain times. Owning a Company that relies upon a dynamic market based point of view may otherwise be inconsistent with why you own a more predictable cost of service regulated utility.

Given that, let me just say as to our point of view, in these uncertain times we believe today's environment is more ripe for potential acquisition opportunities. To some extent, this applies to certain assets that are currently perceived as out of favor. Some of that is for good reason.

And some of that is simply due to capital market constraints and the paralysis that comes with uncertainty like the lack of good information on the state of the economy or the likelihood of climate change legislation and its ultimate design. Regardless of whether the market is better and returns are attractive, any potential transaction must meet many other tests, not the least of which are certain financial integrity metrics and the ability to employ adequate risk management strategies before and after the transaction would close.

Given the market opportunities, we have had a busy schedule the last few months, actually, ever since we announced the spinoff in November of 2007. But again, just so we are as clear as we can be in these uncertain times, outside of ongoing utility portfolio transformation initiatives, we are not currently in active discussions with any party on a transaction.

Again, that's not that we haven't scrubbed the market. It's not that we haven't had exploratory discussions when there was an interest by the other party and the transaction was interesting on paper. We are a point of view Company. That's what we do. It's part of the price discovery process as well as the value creation process.

There will always be rumors but be mindful, this Company and its Board places a priority on credit quality and financial flexibility. Any consideration of any transaction starts and ends with the assurances that we are not putting the financial integrity of the Company at peril or unnecessary risk.

And I emphasize, that is when it ends. That is our practice. That is my personal experience. That has been our record. We have the right checks and balances in place to ensure we are appropriately balancing risk and reward, stability and growth.

While we may not be able to predict what comes next or even be entirely predictable from the outside looking in, there is one thing you can count on. We will be relentless in seeking value and managing risk. And we will be well prepared to seize whatever opportunities may ultimately come our way in these uncertain times.

Now, let me turn the call over to Leo. Leo?

Thanks, Wayne. And good morning, everyone. In my remarks today, I will cover quarterly results, our liquidity position and cash flow performance, the status of our share repurchase programs and our 2009 earnings guidance. Looking first at our financial results on slide two, we are about where we expected to be after the first quarter. Even though results were below last year, many of the business factors turned out as we expected.

At Entergy Nuclear, results reflect two planned nuclear refueling outages commencing in the quarter compared to only one a year ago and a reduction in the scheduled revenue amortization of the Palisades below market PPA.

Other expected quarter-over-quarter variances include increased other taxes after the inclusion of a favorable tax audit settlement in the first quarter of 2008, incremental costs for the planned spinoff of the non-utility nuclear business, lower utility and Entergy Nuclear sales because of 1% fewer calendar days in the quarter after the 2008 leap year, and pressure from the economy on utility sales which we had considered in our expectations.

The nuclear spinoff costs have two components. Expenses for third party services to complete the spin and incremental dissynergies we are incurring to maintain a position of rolling readiness for the spin. Both of these are classified as special items and thus are excluded from operational results.

While we projected a softer first quarter, some things happened that are not part of the normal planning assumptions. These generally relate to external factors beyond our control such as milder than normal weather and financial market underperformance that resulted in the impairments on certain decommissioning trust fund investments.

Our earnings guidance assumes normal weather and does not incorporate assumptions predicting decommissioning asset performance. In fact, were it not for weather and the trust impairments the quarter would have been ahead of our expectations.

Weather and financial market outcomes are outside of our control and difficult to predict, particularly in the broader financial markets in uncertain times. Though some companies treat such impairments as a special item, we report them within our operational results.

Slide three presents the factors that drove the quarter-on-quarter results. Utility, parent and other declined primarily as a result of higher other taxes and depreciation and amortization expenses. The absence of the first quarter 2008 favorable tax audit settlement and higher ad valorem and franchise taxes in the current quarter contributed to the unfavorable other tax variance.

A portion of the 2008 tax audit settlement was incurred at System Entergy and, therefore, was offset in net revenue at the time. Higher depreciation and amortization expense is associated with increased utility rate base. While utility sales were down for all customer classes reflecting the weak economy and fewer days in the current reporting period, net revenue was essentially flat.

The largest sales reduction was seen in the industrial sector. Lower demand from large industrial customers was led by weakness in chemicals, primary metals and refining sectors. Overseas competition also weighed on small and mid-sized industrial customers. Facility charges paid by industrial customers that do not vary with volume tempered the revenue effect of the reduced sales.

Also contributing to net revenue was the rate increase implemented at Entergy Texas in January of 2009, the first base rate increase in 18 years, and the absence of the negative net revenue adjustment last year for the tax item previously discussed. Absent the effects of the 2008 hurricanes and planned industrial expansions, utility sales are forecasted to be nearly flat for the year in our 2009 guidance.

In the first quarter, weather adjusted sales for residential and commercial customers were about where we expected them to be, and industrial demand was softer than forecasted. Although we are seeing some delays, to date no large industrial expansions have been cancelled. However, sales for the rest of the year will depend in large part on weather and how fast the economy can recover.

Moving to Entergy Nuclear, quarterly results were below the prior year due primarily to lower revenue and an impairment recorded on certain decommissioning trust fund investments. Lower quarterly net revenue resulted primarily from quarter-over-quarter timing differences in planned refueling outages for our non-utility nuclear fleet.

Three refueling outages are planned this spring compared to one last spring. Two of these refueling outages began in the first quarter, resulting in 23 additional outage days compared to the first quarter of 2008. The reverse will occur this fall.

We do not have any plants scheduled for refueling outages compared to two plant refuelings, mostly in the fourth quarter of 2008. Additionally, fewer days in the quarter resulted in reduced sales volumes compared to the same quarter last year. The non-nuclear wholesale business recorded operational results this quarter about equal to the first quarter of 2008.

Slide four recaps our cash flow performance for the first quarter 2009 which shows a decrease compared to the same period last year. The major items that contributed to lower operating cash flow include spending on system repairs for the January 2009 ice storms in Arkansas, and the September 2008 hurricanes totaling $314 million, increased working capital requirements at the utility of $113 million, and $23 million of nuclear dissynergies and spinoff costs.

The primary offset was an increased contribution from deferred fuel at the utility in the amount of $471 million. As reflected on slide five our current liquidity position and outlook for 2009 remains very solid. At the end of the first quarter, we had more than $2.5 billion of ready liquidity. This is made up of nearly $2 billion of cash and the remainder in untapped revolver capacity.

For the year, our net liquidity resources are on track to exceed $2 billion over the planned uses of cash. Turning next to the status of our share repurchase program, a potential use of our liquidity position. As detailed on slide six we had roughly $600 million of repurchase authority at the end of the first quarter. As we've indicated previously, we're taking a measured approach to share repurchases this year. Our approach balances current liquidity requirements with potential investment opportunities including our own stock.

Applying this disciplined approach to capital deployment we did not make any share repurchases during the quarter. Our 2009 guidance assumes share repurchases are back-end loaded in consideration of the spring refueling outages and upcoming hurricane season.

As we go through the coming months, we will continually monitor our liquidity position to maintain financial strength and flexibility as we evaluate opportunities to execute on our share repurchase program. Slide seven details our current 2009 operational earnings guidance of $6.70 to $7.30 per share assuming business as usual operations. As reported, earnings guidance ranges from $6.56 to $7.16 per share reflecting $0.14 of spinoff dissynergies.

We are affirming these guidance ranges today. However, if economic conditions and Northeast power prices continue for the remainder of the year we would expect earnings to approach the lower end of the range. Since initiating guidance, near term Northeast power prices have continued to decline with the steepest decline occurring in the front end of the curve.

Forwards for the balance of 2009 on a per megawatt hour basis now average around $40 versus the $58 average price we assumed in guidance. In addition, the impact of the current economic weakness remains a key uncertainty. In spite of the challenges in today's market and today's economic climate, we remain committed to achieving positive outcomes on variables we control.

As I said earlier, some things in the quarter worked out as we expected and some did not. Looking across the entire year, our view of the quarterly spread of earnings has not changed significantly. Specifically, we expected our 2009 earnings to be back-end loaded in the third and fourth quarters.

As detailed on slide eight, factors affecting earnings include utility sales growth driven by the effects of the third quarter 2008 hurricane, and timing of industrial customer expansions later in the year, the absence of the significant fourth quarter 2008 charge at Entergy Arkansas and no planned nuclear refueling outages this fall at Energy Nuclear versus 16 days for one plant in the third quarter, increasing to a total of 32 days for two plants in the fourth quarter of 2008.

In addition, share repurchases are likely to be more back-end loaded this year as we balance liquidity needs to maintain financial flexibility and capital deployment opportunities. In closing, we continue to be focused on the aspirations for both the utility and merchant businesses that we've set out for this year and beyond.

At the utility, the portfolio transformation initiative presents a significant strategic opportunity in today's market. You will recall last fall we delayed our long-term procurement efforts to reevaluate the utility's long-term needs in light of uncertain economic conditions and rapidly changing financial markets. This analysis confirmed the need for additional generation in key parts of the system.

Today's economic and financial climate could enable opportunistic purchases just like the Perryville, [Itala], Calcasieu and [Washita] plant acquisitions in recent years. Regarding the spin, we believe the strategic benefits in separating the utility business from the non-utility nuclear business remain compelling.

The good news here is that the credit markets have steadily improved as we work through the regulatory processes in New York and Vermont. So far this year, more than $20 billion in high yield new issuances have been placed at rates ranging from 8.25% to 12.5% for BB-rated credits.

More encouraging, recent financings have been accomplished at the bottom end of the range. Granted, the credit markets remain volatile and rates will depend on many factors including the offering size, whether it is secured or unsecured, and whether it is a new issue or a follow-on issuance.

Since the beginning of the financial crisis we have seen multiple windows favorable to financing Enexus and we will maintain our readiness to do so at the appropriate time. Economic conditions today present challenges and opportunities, but we are just as ready to step up to those challenges as at any point in the past. And now the Entergy team is available for your questions.

Thank you, Mr. Denault. (Operator Instructions). Our first question comes from Paul Patterson with Glenrock Associates.

Good morning.

Good morning, Paul.

Good morning.

I wanted to sort of touch base on exactly where we were with Enexus. What sort of holding -- what the regulators in New York and Vermont sort of want or sort of what's the hold up there?

Rick, you want to address that?

Yes. I'll take a shot at that. Good morning, Paul.

Good morning.

It's a consistent issue between them. It's been a little bit of their view that they're checking Entergy Corp. against Enexus and really the financial viability, are they losing a little something as they move from Entergy Corp. to Enexus. And we've been working through those issues with them.

I mean, it's known that we're in settlement negotiations with the staff in New York. We've done a lot of work with them over the last couple of months, providing them really stress scenarios around Enexus and how the liquidity is as strong going forward as it has been with Entergy in the past, and different items related to the balance sheet.

Similarly, you get the same thing going on with the staff up in Vermont. So I think we've made quite a bit of progress with both the staffs over the last couple of months and we're honing in on some key issues with both of them that I think at the end of the day will satisfy their concerns.

Okay. So going forward, what should we think about as being sort of the near term catalyst happening in those states and sort of the timing around them?

Well, it's probably going to take an additional couple of months to get through those discussions with them and we hope to reach some resolution with both of them that will be able to be filed with both commissions.

So we're talking, like, July?

I think that's a fair date, when we might be able to wrap up our conversations with the staff.

Okay. Thank you very much.

Our next question comes from Jonathan Arnold with Merrill Lynch.

Good morning. Hello?

Hello.

Can you hear me?

Yes, good morning.

Had a quick question on the little begin Little Gypsy proceeding and how it relates to Waterford 3 and the steam generator. I think those proceedings were locked together. Is there any reason why they would continue to be locked together or will we need to just wait and see what you file in response to the request that you file, something longer term around Little Gypsy?

We'll let Gary Taylor, the President of our Utilities, to address that one. Gary?

Good morning. Yes, as far as Little Gypsy, the proceeding that was tied together was the portion that dealt with CWIP that tied in part of those proceedings. Clearly, we'll file, as Leo talked about earlier, going on with the long-term or temporary suspension in the three-year time frame of Little Gypsy and be making that filing, discuss specifically the costs that have been spent to date and the recovery and the wrapping up of that project and putting it into long-term suspension.

We'll see how that decision goes. Since they were tied together, we do already have approval for the Waterford 3 steam generator project going forward. And I think we'll see as that decision is made, whether the PSC accepts putting that into long-term suspension as to whether or not we will withdraw that portion of the CWIP with Waterford 3 steam generators.

You might still have to apply for CWIP on Waterford 3 separately; is that correct?

That would be correct. Those two were tied together by the Public Service Commission and it is possible, but I think we're evaluating it at this time to see whether or not that's required going forward. But it will also be based on the final decisions from the PSC on the longer term suspension of the Little Gypsy project.

Thank you. And if I may ask another one. Wayne, I think you've said on the last quarterly call that while your point of view was unchanged in the longer term, the sequence of events might need to shift around and seem to suggest -- and I think you said this morning, you're talking about potentially having a broader portfolio at Enexus.

Do you have a clear sense today as to whether we're still talking about a spin of a purely nuclear Company or whether it's more likely that you would have broadened the portfolio at a pre-spin or is that a post-spin event? Any shift in your feeling around sequence of events, I guess?

Like I said, we have scrubbed the market. We've placed priority on those that did seem to make most sense and where you had parties that aligned with our point of view and weren't looking for a grade or approval, were simply looking for a transaction that made sense for everybody.

We haven't found that party and given the capital market constraints at this point in time and I think how -- I hate to use the word rapidly because it doesn't feel rapid to you all, but that we are moving toward getting resolution of the spin in the various states. I would say that the -- on the last call when I said the sequence of events may change, I would emphasize back to may, may change and I would emphasize today that probably won't change.

Like I said, it's a probably and it's a may, but I would say the clearest path today is the path we started down. There may be some wrinkles when we get to the final end of all this to enhance value for our shareholders relative to the spin, but basically I think we're on track to where we were a year ago, six months ago, whatever, when we talked to you all at this stage.

That's very helpful color. Thank you, Wayne.

Next question comes from Annie Tsao with AllianceBernstein.

Good morning, everyone.

Good morning, Annie.

I have a couple questions, if I may. First, can you just walk through your acquisition strategy? I got in late, maybe you talked about it. Are you willing to take some dilution in the first couple years if it makes sense in the long run? That's my first question.

Second question has to do with your industrial load. You mentioned about industrial load was down about 13% primarily because of the chemical, mineral and refinery industry. But then you said the net revenue has no impact.

Can you just kind of explain that a little bit more detail, how should we look at that going forward for the rest of the year, if industrial demand continued to deteriorate? How should we look at that? And lastly, can you just comment on your bad debt and pension impact? Thank you.

Okay. Let me -- on the acquisition side, all of the -- I think all of the acquisitions that we made at the utility, we take it to the Commission. We get a special rider to purchase the power in the interim and then we have the mechanism generally to true that up when the acquisition is made so we don't have an attrition issue associated with the new plant being added to the utility portfolio.

I think we've been successful at all of those and that would be our intent in the you future, is to obviously in the public interest as well as our own, that those not be held back by issues of acquiring something in between rate cases or special rate cases for those types of things. Acquisitions outside of the utility, we did talk a little bit about -- and kind of without going into a lot of detail, what we talked about, those are most likely to occur at Enexus, not at Entergy, given the path that we're on toward the spin.

In analysis of that, as we thought about it over this elongated period of time that we've been in this kind of rolling state of readiness to move forward and in the process of, what I mentioned, was scrubbing the marketplace for potential acquisitions that would be helpful to Enexus upon spin.

There was a number of criteria that we used and certainly the value portion, the cash flows are the first thing that we look at and the credit metrics along with that and whether or not it endangered the credit metrics of either Entergy in the interim or Enexus ultimately and whether our transaction was big enough to make a difference and not so big that it actually did that.

We also looked at the -- considered the optionality of the portfolio, the optionality to meet Enexus' business purpose and the optionality to others who for those assets that did not fit into their business purpose, so what the liquidity would be for those other assets. And, obviously, we've considered the debt levels and the covenants around the debt levels and with the objective being not getting ourselves or Enexus into a situation where they have to refinance a bunch of debt in this marketplace.

There are a lot of ways around that that bond holders may or may not agree to. Sometimes companies have cash on hand that would allow them not to go to the market. But there are other ways that you could get around it with bond holders' consent. But there's probably ten or 15 different things in addition to straight dilution that we would look at that are probably more important to us than that.

The accounting rules, without getting into those, are changing which makes it a little bit more complicated to explain dilution issues and those will be more clear and probably if somebody does a transaction. There may be issues around how you record up front versus on an ongoing basis.

But, obviously, the transaction that we would look at is possible that it might have dilution, particularly considering the accounting rules after you record a gain in maybe year one it might be suffer some dilution as you amortize that, but on a straight economic basis under the old accounting rules the opportunities are such that you probably wouldn't have to make that choice.

But, having said that, if the transaction added enough value and had enough optionality attached to it, would we take -- would Enexus, I guess we're really talking about now, would they take dilution for a year or two in order to capture that value? I suspect that they would. But that will be their decision. Oh, yes, the other question, that's right, sorry.

Thank you.

That's okay. Cover the question on our industrial sales. Very similar to what you've seen in many of the other utilities, our industrial sales are down as we also had expected they would be down, probably a little bit more now than we originally had planned. But if you talk to the ones that Leo talked about, chemical and petroleum refining that's about 53% of our industrial sales.

The other part that I want to reiterate that Leo mentioned is the difference between leap year and this year would be about an impact of about 1% on our overall sales. And if you look at how industrial sales are collected, a large portion of those are through a demand charge and so it's not as volume sensitive as some of our other customer classes.

Those other classes have actually been fairly flat and if you look at our revenues overall, we have been basically flat to the first quarter of last year, very close to our plan and so the first quarter of this year pretty much reflects the adjustments we made in our guidance and we feel like we're right on top of it. As Leo also said, we have not had anyone say that they're going to cancel their expansions.

Some of the impacts we have seen have been either pushing those a little further out into the latter end of this year or in some cases have had some equipment problems coming up and have delayed them but some of those are back up in full operation now. So we would expect that based on what we've seen from our first quarter that we're right on top of the guidance that we set.

Okay. Annie, this is Leo. I think you had a question on the pension as well. And -- or pension funding for the year. We still believe it's about $140 million.

Obviously, as we look into the future, given what's happened in the stock market performance with plan assets deteriorating, that should have an impact. It will probably have more of an impact as we look at 2010 and beyond funding levels. And given where we sit today, there's been some relief provided by the government in terms of what interest rates to use and the like that have decreased the need for immediate near-term incremental funding around the pensions.

That should help smooth that out a little bit and, obviously, it will have a lot to do with what market performance is over the course of the next several months. Interest rates play a large part in it as well as you look at the [sediment] rate in terms of what we're talking about going forward what the plan obligation will be and as those interest rates change they change the obligation as well.

So all of those factors should go into what we look at when we get to the 2010 funding. To give you an example, in 2008 we funded $288 million. We'll fund $140 million this year. I would anticipate that that will be higher in the years going forward, 2010 and 2011.

Again, a lot of it has to do with market performance of the trusts as well as interest rates and if they rise to change them, the obligation as well.

Can you also talk about your uncollectibles?

This is Gary Taylor again. Like many, we've seen some issues with a couple of our industrial customers, but in general, if you look at most of our residential, commercial, our uncollectible has stayed a little bit higher than we've seen historically, but pretty close to what we've seen and it's relatively small, typically less than 1%.

How about industrial? Uncollectible?

The only one that's we've had is we've had two industrial customers, one that was really small in Arkansas and in Texas -- or in Louisiana that have filed for bankruptcy and again a relatively small number.

We need to move on to the next question.

Our next question is from Ashar Khan with Incremental capital.

Good morning. Leo, just wanted to understand, you said that if market prices persist you might be at the lower end of the range. If I'm right, assumption is $50 a megawatt on the unsold energy price. What would it have to be for you to be at the lower end of the range versus that number?

Well, right now they're hovering around $40 for the rest of the year. So there's a gap there already.

When we build the range, one of the major things we build into the range is why our range might be different level this year if you look at our guidance range, it's a little wider than it has been in the past and that's because we had more open position within the Northeast. So there's a lot of things that go into it other than just the price of power in the Northeast on the utility side and cost side and volume side as it relates to the Northeast. But the prices we're at now are within that tolerance of getting us down to the bottom end of that range in the Northeast nuclear position.

And you would have a better sense by the end of the third quarter, is that fair?

Oh, certainly. The third quarter, obviously, what's going on in the utility side of things as well as what might happen with power prices, they're going to be driven in large part by what happens in the third quarter as it relates to sales levels with weather, third quarter is the big part of the year for the utility. It's also going to have a lot to do with what happens with the impact of rig count declines and demand for natural gas and power needs in the Northeast to help drive those prices and, obviously, when we get into -- get through these refueling outages and we get into the third quarter with all the plants running and volume and the like.

Thank you.

(Operator Instructions). Our next question is from Michael Lapides with Goldman Sachs.

Hey, guys. Two questions. One on the balance sheet, when you look forward for the rest of the year and 2010 you'll have roughly $2 billion of cash and let's say you bring in the $1.2 billion or so from securitizations, what's your mindset in terms of how you'll utilize that and is your goal to always maintain about $2 billion of cash on the books?

The cash balance, Michael, is driven by a couple of things. As you recall, back in really around this time last year, the cash balance is when we started to accumulate a pretty sizable cash balance, probably May, June of last year, for a couple of reasons. One was certainly the liquidity needs of the business are stronger as we get into the hurricane season.

So we always are taking a look at what's going on as it relates to our liquidity needs and we had power prices that are significantly higher than they are today so that was a liquidity need that we had. And while we had ample liquidity to draw upon, we built the cash balance last year, started doing it around this point in time, started to accelerate some of the financings that we did at the operating Company level as well as draw down the revolver, because we weren't sure that quite honestly that the financial institutions had the same level of financial strength that we did.

So we were much more comfortable holding onto the cash ourselves than allowing them to hold onto it for us. So those were the dynamics that built up the cash balance vis-a-vis, if you look at a pretty significantly draw on the revolver, for example. We're looking at that again at this point in time this year so you may see us pay down some of the revolver capacity if we believe that some of those financial institutions are going to be there when we turn it around and make sure that we can manage the business that way.

We don't like the friction that it has to have to pay for the drawn facilities but we -- it was well worth it to make sure that we had access to the money. We'll make those same calls going into this season coming out of these outages that we have going into hurricane season and looking at what liquidity needs and collateral requirements might be and you might see some trade between -- we look at what's available.

So you might see some revolver paydown and less cash on the sheet, but by the end of the year we still anticipate having over $2 billion of liquidity available, whether it's cash on the sheet at some level which would probably be less than the full $2 billion in revolver capacity at both the corporate level and the -- at the corporate level and the operating Company level and that's -- all of that plays into, as I said in my prepared remarks, our investment strategies, the buyback strategy, et cetera, as we move into those -- out of the outages that we've got into the hurricane season and review all of the liquidity needs we've got going forward.

Got it. And then a question on the New England, New York power markets and your hedging strategy. Just curious in terms of what happened to both forward gas prices and forward marginal heat rates impacted your view about wanting to remain more open at Enexus going forward?

I'll speak for the near term. As far as Entergy goes. You know, we have our hedge limits associated with how much we will and won't hedge and those are the limits.

We review those on a regular basis and as we move into the third and fourth quarter this year and we approach 2010, we'll be looking at how to put ourselves to the limits that we've set. But the limits are set to where if we decide because of our point of view, because of some other knowledge that we have or because of some other factors that we want to move that limit, we can. It's just a lot has to happen internally to allow for that.

So we'll be reviewing going into 2010 how we want to hedge the portfolio. Certainly, a lot of the financial issues that we talked about that related to the revolver capacity had a lot to do with where we've been currently as well when we look at counterparty risk and we look at the types of people that are in the market in terms of financial institutions, certainly some of the other strategic type of entities that were involved, we have to make sure we're comfortable with who we're dealing from a credit point of view with on the other side.

But we will, from an Entergy point of view continue to look at this, the same way we always have, being mindful of our point of view and being mindful of the other requirements around liquidity and capital requirements that go with hedging out the portfolio, particularly in a low market environment like this. But the liquidity piece of it is something that's going to be pretty important.

Got it. Okay. Thank you guys. Appreciate you all letting me toss two questions.

We'll take our final question from Steve Fleishman with Catapult.

Hi. I guess I made the cutoff.

(laughter). We always hold a place for you, Steve.

Thanks. Couple questions related to the spin. First, you guys didn't file the Form 10 after the 10-K was filed, an update to that, so I'm curious why you didn't and when we should expect the new Form 10 and is the debt levels going to be the same in there? And then also, just the -- do you need to get your NRC clearance extended, I guess is my other question?

Okay. As far as the Form 10 goes, to date it hasn't necessarily been the top of the priority list, but that's something that I would anticipate that you would see us start to move on a little bit more diligently at the moment going forward, so that that should come down the pike here reasonably soon in terms of an update on the Form 10.

As far as what it will have in it, we continue to look at that and that will be a function of as we're going through updating the Form 10 and updating the pro formas and updating our analysis, where we sit in terms of what's going on in the financial markets, what we think makes sense from a credit and a financial flexibility point of view and also what makes sense as it relates to the price of power and what the forecasts look like going forward.

So we'll review all of that as we put it together to determine what kind of pro formas we put in.

Okay.

And the other question was on the --

The NRC extension.

I think for the first time in history I have five lawyers actually giving me notes that says it won't be a problem.

(laughter).

Giving me the opposite opinion. So I'll take that as it won't be a problem. I think we've got six months running that have to close before that, but they all seem pretty comfortable with that, Steve.

Okay. And just maybe going back to Leo's answer on the Form 10, it sounds like you may scrub down some of the pro formas and such that you gave out as part of a new Form 10?

We always scrub them.

Okay.

It's the same process we go through all the time is that we have to -- we're constantly running the numbers on what things look like and we'll run them again. But it's the same process we've been through the last -- not only when we update the Form 10 but on a regular basis.

Okay. Great. Thank you.

Thank you.

That concludes our question-and-answer session. I'd like to turn the call back over to our speakers.

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That does conclude today's call. Thank you for your participation.