安特吉 (ETR) 2014 Q2 法說會逐字稿

Good day everyone and welcome to the Entergy Corporation second-quarter 2014 earnings release conference. Today's conference is being recorded. At this time I would like to turn the conference over to the Vice President of Investor Relations, Miss Paula Waters, please go ahead.

Good morning. Thank you for joining us. We'll begin today with comments from Entergy's Chairman and CEO, Leo Denault, and then Drew Marsh, 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.

In today's call, Management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in the Company's SEC filings. Now I'll turn the call over to Leo.

Thank you Paula. Good morning everyone. As many of you know, at Entergy delivering safe, secure, reliable power underpins everything we do. Our work is especially exciting during periods of growth. No one wants to hinder economic development or job creation. And everyone wants to be part of a brighter, more prosperous future.

I'm pleased to say that in the second quarter of 2014 this focus allowed us to deliver our commitments to all four of our stakeholders: our owners, customers, employees, and the communities we serve. Weather aside, results in the second quarter were largely consistent with our expectations and I suspect with yours. The state of Entergy's business is strong.

At the utility, we saw strong industrial sales growth. All of our operating Companies improved by several points in the annual JD Power Residential Customer Satisfaction Survey. River Bend earned an excellence rating for its operations joining Indian Point, which are in the same rating in the first quarter.

At EWC, the nuclear fleet delivered fewer outage days, allowing us to provide extended periods of uninterrupted power to the market. This kind of excellence which we see from our plants to our corporate operations, is driven by the determination and dedication of Entergy employees, and I'd like to take a minute hereto acknowledge that hard work and to say thank you.

Many of you on this call heard us present our growth objectives at analyst day on June 5. We continue to see a path to achieving each of these, including the consolidated earnings-per-share compound annual growth rate of 2% to 4% through 2016, which is based on our point of view of market prices. In the second quarter, we continue to position the Company for this growth.

Let me address how we did so, beginning with the utility. The big story for us is utility continues to be the economic growth in our service area. And all of us at Entergy are doing our part to both drive and leverage this growth. As I mentioned earlier, industrial sales increased quarter over order, resulting in a growth rate of more than 5% which included expansions.

At analyst day, we said that we believed the opportunity of 1,700 megawatts through 2016. At the end of the second quarter we had completed negotiations of approximately 1,200 megawatts. This includes about 100 megawatts signed since June. We expect to see this trajectory continue through the end of the year and well into decade's end.

We anticipate that meeting this growing demand will require significant capital needs over and above current levels. But it will also require a focus on four areas, first as I said earlier, safe, secure, and reliable power. Second, an efficient operation responsive to customer needs. Third, financial strength and stability. And fourth, regulatory frameworks that allow us to expand the system to meet anticipated demand.

Starting with the first item on the list, we continue to invest in our infrastructure to ensure that we are able to safely deliver power to all of our customers even in difficult circumstances. As we've said before, we'll be deploying nearly $6 billion through 2016 on generation transmission and distribution systems throughout the utility. We intend to make this investment while keeping electricity affordable. As many of you know, historically Entergy's rates have been about 20% below the national average. And these low rates benefit our industrial customers just as much as families and the communities that we serve.

Moving to item two on the list. We continue to look for ways become a nimbler, more efficient organization; this was the impetus behind the Company-wide restructuring we announced last year, which by 2016 we'll have removed $200 million to $250 million in cost Company-wide. We're also working hard on all fronts to support load growth and utility infrastructure needs.

For example, as part of that restructuring, we created a new department whose sole mission is to manage capital projects to ensure that they're planned, implemented, and finished in a timely and efficient manner. We are expanding resources for functions central to our strategy of economic development and nuclear oversight. We are also streamlining back-office functions.

Partly as a result of this reinvigorated focus, our plans at the utility remain on track, as are efforts to make our business even more reliable, effective, efficient. For example, in May to ensure reliable, affordable power as well as to respond to the state's evolving generation landscape, Entergy Arkansas issued an RFP for 200 to 600 megawatts of long-term resources beginning in 2017. No self-built options are being considered, and selections are targeted for November.

In July, we issued an RFP for 650 to 1,000 megawatts beginning in 2020 in the Amite south planning region in Southeast Louisiana. As part of the RFP, we will be testing a self-built option at our existing Little Gypsy site. Proposals are targeted for November.

You may remember that a few years ago the 550 megawatt Ninemile 6 plant was selected through a similar process. Barring unforeseen circumstances, this, the first new combined cycle natural gas fired plant to be built by the utility, should be completed by the end of the year. We want to be in a position to replicate the success and are working to ensure that we will be.

In transmission, we're in the process of evaluating potential projects to help us connect new industrial customers, expand our capacity to serve the load and enhance the economics of providing safe, secure, reliable power. We're also working to finalize our annual long-term transmission reliability plan for submission to MISO.

Moving to the third area, financial strength. Gives us the flexibility to expand our system to meet step-out industrial growth. For example, last month Entergy Louisiana and Entergy Gulf States Louisiana filed a study that included a preliminary analysis of combining the two Companies. As we expected, the study showed that a larger Company would improve the financial flexibility of the Louisiana Companies and help finance investment required to serve new industrial customers.

For our regulators, a combined Company would save millions of dollars in administrative costs. The added geographic and customer diversity of a consolidated Company will also help it withstand storms and sector-specific economic downturns.

This leads me to the fourth area of focus, regulatory frameworks. For some time now we've been working with our regulators to find ways to streamline processes and identify new regulatory mechanisms to benefit current and potential customers, as well as Entergy. Two examples of these would be riders and certification mechanisms that our regulators have had in place for many years, and regulatory tools used in other utilities like forward test years.

We're pleased to say that our second quarter saw progress on this front. In June for the first time in 12 years, Entergy Mississippi filed a general rate case. This multifaceted plan is designed to position our Mississippi service territory for economic growth and development by improving reliability, modernizing the grid, stabilizing rates, and implementing new technologies.

From a rate-making perspective, Entergy Mississippi's proposed revisions to the formula rate plan is to use a forward test year, which will help bring transmission service to some of Mississippi's most attractive industrial sites. EMI has also proposed several rate incentives for industries and small businesses, all of which are designed to support job creation. All these items, safe, reliable power, operational efficiency, financial strength, and regulatory frameworks are just some examples of how we are executing our plan to support economic growth across our four-state utility service territory.

Turning now to EWC. As I mentioned earlier our financial results for the quarter reflect strong operational performance as well as higher power prices. As you know, our strategy is to preserve the optionality and manage the risk in this commodity-based business.

As we saw again, commodity prices are volatile. Overall for March 31 through June 30, average 2015 and 2016 forward prices for New York's zone G and New England's Mass Hub increased an average of $3.81 per megawatt hour, peaking on June 3. Since June 30, prices for those two years are off by 9%.

While short-term power and natural gas markets have not been constructive due to recent production gains and mild summer weather, long-term market fundamentals, as discussed in analyst day, remain sound. In addition to a robust long-term demand picture for natural gas, starting next year we see a wave of older coal unit retirements, coupled with higher pricing for CO2 under the Northeast Regional Pact, continued power volatility during constrained periods, long-term load recovery, and the potential for lower-than-expected energy efficiency gains. All of these factors will likely lift power prices to higher levels than indicated by current forwards in 2016 and beyond. For these reasons, among others, we remain both resolute and optimistic about the future.

On the capacity side. ISO New England is implementing a downward sloping demand curve in next February's auction for the 2018 to 2019 capability. This will help provide appropriate incentives to ensure that existing economic capacity continues to operate and that new capacity is constructed to ensure reliability.

With respect to Indian Point, in June, the New York ISO released a draft of its biannual reliability needs assessment. For the fourth report in a row, the ISO found that Indian Point is critical to maintaining the reliability of the grid in New York, and that its closure would cause transmission problems and worsen existing risk of outages beyond acceptable levels. It should be no surprise to anyone that for a variety of reasons Indian Point is and will remain a critical part of the generation mix of New York. And we are committed to ensuring its continued safe, operation.

I'm now going to turn to some significant developments on the environmental front. The past three months have seen a lot of activity on issues ranging from air to water quality.

In April, the US Supreme Court upheld the US Environmental Protection Agency's cross-state air pollution rules, which were introduced in 2011. In May, after several delays, the EPA issued the final 316 B Cooling Water Intake Regulation Revisions, and in June, the agency released the proposed rule on carbon emissions from existing units. The CSAPR in 316 B rules will have some effect in our operations. And while we are still studying the specifics, we believe them to be manageable.

I know that the proposed rule on carbon has been getting a lot of attention, so let me spend a little bit of time on that. As you know, Entergy's overall fleet of utility and EWC is one of the cleanest in the nation. In fact, our fleet exceeds EPA guidelines for new build power plants, which mandate that new natural gas plants emit no more than 1,000 pounds of carbon dioxide per megawatt hour. Today, Entergy's fleet emits about 580 pounds per megawatt hour, driven largely by the prevalence of nuclear power, clear evidence that carbon reduction goals cannot be met without maintaining the nation's nuclear generation capacity.

The proposed rule governs emission state-by-state and for this reason, is arguably the most complex regulation EPA has proposed in recent history. We continue to study it and its potential implications, and we continue to have productive discussions with EPA staff. However, our concern is that the implementation of the rule, that is its impact, would not match the agency's stated objectives. So at this point we have more questions than answers. And I think it's fair to say this is a point that is shared across the industry.

The public comment period on the proposed rule closes October 16, and by that time we expect to have a crystallized point of view. We plan to present that perspective to the EPA as well as our stakeholders, including those of you on this call, so stay tuned.

In closing, I want to reiterate that we believe the future of our business is strong. Our plans are structured to facilitate growth at our utility and to take advantage of the optionality inherent in our nuclear fleet. At analyst day we detailed are near-term objectives, what we believe we can achieve financially and operationally to help grow our economies, support job creation, help maintain and improve the environment, and enhance and replace infrastructure to improve reliability.

There are a number of building blocks to this vision, some we control, some we do not. So it's worth noting that our business is by nature volatile in the short term. However, the short-term volatility should not and does not change our confidence in the long-term fundamentals.

A classic example is the recent steep drop in natural gas prices, driven mainly by weather. This has not changed our longer-term, bullish views. As such, we continue to see a line of sight to our three-year Entergy EPS growth outlook.

Other factors affecting our business include the timing of complex industrial projects, evolving policy landscapes in our states, as well as in Washington, and of course the weather. Again the fundamentals are strong even with this uncertainty.

At the utility with respect to industrial projects that support growth, some will move more quickly than anticipated and some may be delayed. For example, Big River Steel got its financing and permitting this past quarter, and is moving ahead. We had originally anticipated Big River to be completed in 2015, now it looks like it will be 2016.

At EWC, rising demand for natural gas, shrinking reserve margins, combined with infrastructure constraints, and the region's growing need for environmentally and economically sustainable, reliable power point to higher value for EWC nuclear portfolio. Despite such uncertainty, we know the shale revolution will continue for far into the foreseeable future to drive competitive US natural gas prices and liquid prices relative to the rest of the world. So we can be confident as indeed we are, that whatever the particulars, in our service territories the stage is set for significant economic growth. And as I said a number of times already, we're doing everything we can to make that growth happen.

So today as it has been for more than a century, Entergy's business is a long-term play. Over the years we have prided ourselves on delivering strong value for our stakeholders, including a long history of dividend payments and growth to our owners. Results in the second quarter are further evidence of this and the progress we've made on many fronts over the past 18 months.

But I also want to say that we are committed to ensuring that short-term volatility does not compromise the long-term health of the business, or that of our stakeholders. A lot of the initiatives we undertook during the second quarter are also a good demonstration of that. With that, I'll turn the call over to Drew, who will review our financial performance for the quarter and update you on our three-year outlook

Thank you Leo, and good morning everyone. Today I will review the financial results of the quarter as well as our forward-looking outlook.

Starting with slide 2, our second-quarter results for the current and prior years are shown on an as-reported and an operational basis. Operational earnings per-share were $1.11 in the second quarter 2014, compared to $1.01 in 2013. Operational results excluded special items from the decision to close Vermont Yankee, HCM implementation, and the transmission spin-merge effort last year.

Turning to operational results on slide 3. Entergy's operational earnings increase was driven primarily by higher earnings of EWC, payer and other earnings were flat. And at the utility operational earnings per share were $1.17, $0.01 lower than a year ago. There are a few key offsetting drivers.

For the quarter utility net revenue was a positive driver. Retail sales for growth for the quarter was 2.1%, or 2.6% on a weather-adjusted basis. Industrial customer class had the strongest gains of 5.3%. Industrial growth was broad-based across multiple segments, led by our refining, chemicals, and small industrials, and aided by several expansions.

Increases within ETI and EGSL service areas drove industrial growth. Sales growth was offset by the effects of weather, including milder than normal weather in this quarter's unbilled period. The quarterly net revenue increase also reflected higher price resulting from rate actions. A portion of the price increase was offset by other line items.

Despite the spending increases offset in net revenue, nonfuel O&M was favorable quarter over quarter, reflecting our cost management efforts. Improvements from net revenue and O&M were offset by higher depreciation expense and higher effective income tax rates.

Now moving on EWC. EWC's operational earnings per share of $0.18 was higher than the $0.07 earned a year ago. EWC EBITDA for the quarter, summarized on slide 4, was $84 million higher than last year.

The increase is due to higher net revenue from improved sales volume, following continued operational improvement in our merchant nuclear fleet. This is illustrated by a stellar 95% nuclear fleet capacity factor for the quarter, versus 82% in 2013. Unplanned outage days were dramatically reduced by 37 days. And there were no refueling outage days in the second quarter of this year.

The average realized price for EWC's nuclear fleet also improved to just under $50 per megawatt hour, compared to $46.40 a year ago, or about 7% higher. The price increase was largely due to capacity prices, while energy prices were relatively flat.

Now moving on to operating cash flow shown on slide 5, OCF was $761 million in the current quarter, up $189 million from 2013. Higher net revenue from EWC was the largest driver.

I'll now turn to forward-looking information. In today's release we affirmed our 2014 operational earnings per share guidance range of $5.55 to $6.75. Based on results through the second quarter in June 30 forward prices, our current expectations point to just below the midpoint of the range, due largely to mild weather in the second quarter.

As we think about the remainder of 2014, there are a few things we are paying close attention to. For EWC, we have seen market forwards for the balance of the year come down since June 30; there are also open regulatory proceedings that could see resolution this year at the utility. For example, the Waterford 3 Steam generator prudence review is currently in process.

On the call last quarter we also discussed expectations for incremental opportunistic 2014 O&M spending aimed at accelerating projects, improving top-line growth, and improving operation performance and reliability to benefit customers. Identified opportunities do fall more into the improvement categories, but are generally consistent with the amounts outlined last quarter. EWC spending is a little lower than discussed last quarter while utility spending is a little higher.

Now let's turn to 2015. For the past several years on this call, we've provided a few thoughts for prompt-year earnings. Following that practice, slide 6 summarizes considerations for next year. The issues are probably what most of you expect.

A few things of note. At the utility drivers include a full year of rate action in 2014, including ELL's $10 million rate increase in December of this year, and potential rate actions in 2015 including the EMI rate case which is in progress.

Also recall that last quarter we noted that some of our utility tax benefits originally expected in 2014 are now more likely to fall in 2015. And at EWC note that the EBITDA expectation includes the full-year benefit of DOE waste fee set at zero.

At our analyst day we also provided three-year long-term outlooks for the utility business net income, EWC operational adjusted EBITDA, and consolidated earnings per share growth. As Leo indicated earlier, the precise building blocks for how we achieve those outlooks are likely to change due to the nature of our business. The utility outlook is to achieve $1 billion to $1.05 billion (sic - $1.5 billion) of operational net income by 2016.

Unique industrial growth opportunity is the cornerstone of utility's earnings outlook. We continue to develop new levers to grow the top line and make productive investments beyond the discussions at the analyst day to ensure we meet those expectations. At EWC, operational adjusted EBITDA estimates that we provide in our webcast appendix materials are based on market prices as of a certain point in time.

2016 prices from our analyst day were consistent with both our point of view, and April 30 forwards, but were about 4% higher than market prices as of June 30. This had led to lower June 30 mark to market EBITDA around the bottom of our stated point of view range for 2016. While our point of view development is an evergreen process, our point of view evaluates longer-term fundamentals and it's not as volatile as day-to-day market prices.

Despite some near-term gas market headwinds, we still expect to see natural gas demand pickup over the next five years and drive marginal natural gas drilling toward slightly higher-priced dry gas areas. Meanwhile, we continue to see tightening reserve margins in key northeast power markets. With these considerations, we reasonably believe that we can meet our consolidated 2016 growth targets even with volatility in the underlying earnings drivers.

Our analyst day in June is barely in the rear view mirror, we laid out then and reinforce today, how we intend to create sustainable value for our four key stakeholders; our owners, customers, employees, and communities. And while the building blocks will evolve overtime, we still intend to achieve the over-arching goals that we communicated at our analyst day as we look to aggressively grow the utility and actively preserve the optionality and manage the risk at EWC. And now the Entergy team is available for questions.

Thank you.

(Operator Instructions)

Dan Eggers at Credit Suisse.

Good morning guys. Just following up on the point of view conversation which is obviously getting a lot of attention. If the point of view was consistent with where prices were earlier in the second quarter, can you talk about the other lack of additional hedging that happened from the first quarter to the second quarter, and how you guys are going to kind of approach the hedging strategy for the remainder of the year?

Sure. Dan, this is Bill. A couple of things. As we look at what's happened in the shorter-term market as mentioned, we've seen moderate weather increasing storage, obviously the front of the curve has dropped down. However when you look at 2015, we are still -- our point of view is consistent with market, and in fact in the second quarter we executed about 750 megawatts of hedges or converting placeholder hedges into more fixed-price hedges, which represents about 17% of the portfolio. So at this point in time, we believe we have got 2015 adequately hedged.

As you look out into the future, 2016 and beyond our point of view is largely unchanged. Perhaps 2016 was reduced from a point of view perspective, but remember that as we talk about the ability to hedge, there's a couple things to consider. One primarily is the liquidity out in the marketplace. So as we look at hedging 2016 to 2018, we're seeing much less liquidity than we do for 2015.

Obviously our point of view is higher than current market prices, and increasingly higher as you go further out on the curve really due to the drivers both from a heat rate perspective, heat rates being compressed, and our point of view on demand for natural gas. So we remain bullish on natural gas because of addition of gas generation, shut down of coal units, incremental industrial load, additional exports to Mexico, and LNG expansion.

So really the challenge we face 2016 to 2018 is just a lack of liquidity and the fact that our point of view is substantially higher. The other piece of that is if you remember I think we were pretty clear at analyst day, volatility in the markets has been substantial since the polar vortex, therefore making structured products, options, et cetera, much more costly and really we don't believe now is the time to put those hedges on.

Thank you for the explanation. And then Leo, there seem to be a couple of utility properties for sale in the region, can you just remind us how you guys think about M&A and how it prioritizes against the CapEx program you guys have internally?

Sure Dan. The whole M&A question for us has not changed in terms of how we think about it. We have our objectives as a Company that we're trying to meet in terms of growing the business. And if we can do transactions that will facilitate that objective, we'll do that. So something with a growth opportunity, something with a balance sheet opportunity, something with a cash flow opportunity, things like that.

The capital decision that you're talking about for us is probably a little bit unique in that we have significant amount of growth opportunities that reside within the utility itself. The organic kind of growth. So that just I guess would tend to potentially make the bar higher. If we were looking to deploy capital, deploy balance sheet towards something, it would have to be a superior way to grow the business than the objectives or the opportunities that we have within the business itself.

And again, as we've talked about a lot of times. The size of the customers that we look to add -- that 1,700 megawatts is between now and kind of the foreseeable future. But as long as oil to gas ratio stays where it is, as long as the opportunities remain out there from a manufacturing standpoint, that was just a point in time estimate. We go out beyond that, we continue to see that growth opportunity.

So nothing's changed. If you think about our objectives, grow the utility business, and preserving the optionality within EWC. If we can help manage that with a transaction, we'll do it. But the thing we have to be mindful of is the capital deployment opportunities we have within the business as well.

Great. Thank you guys.

Michael Weinstein with UBS.

Hi good morning, it's Julien here actually. First question on the EWC side, if you could comment with regards to what's going on in New York, not just the highway, but the rev, how do you see that impacting the future of Indian Point? And perhaps more broadly, what are your latest thoughts on the lower Hudson Valley pricing, and sustainability as a construct? If you could comment.

Sure. This is Bill. As it relates to our point of view on New York. If you look at where they stand, obviously they're in a situation where they've got declining reserve margins.

In fact as Leo mentioned, if you look at their projections as they go into the future, they really need Indian point. In fact if they tried to pull Indian Point out of the portfolio, even with some of the resource additions proposed, they violate reliability limits. So we believe that projects or policies such as rev are certainly something that can be implemented over time, but it will take a substantial amount of time to implement those.

And if you look at a lot of the proposed projects in New York, and the timing associated with those projects, you really have to question the viability of those projects and if they can meet the actual commercial operations date. So our point of view is that Indian Point remains critical for reliability, economic sustainability, and also environmental sustainability.

As it relates to lower Hudson Valley zone, we feel confident that FERC will uphold its decision on that zone; prices can change in that zone as resources are added, as we look out into the future we include some of that in our forecast. Obviously Danskammer on the front burner right now, and so we're watching that very closely. Our point of view on that is that maybe part of that unit may become commercially viable within a reasonable period of time. The rest of that unit may take longer as it relates to the larger units at that facility.

But we in general we believe that the pricing associated with LHV will be maintained and that FERC will uphold its prior decisions.

Excellent. Could you just clarify little bit on the last question, when it comes to your 2% to 4% range in the context of the latest commodities, can you clarify, do you see any improvement on the regulated side to offset the commodity, or are you effectively saying status quo we're moving forward on the plan on the regulated side and we have a view on the commodities that is different from the commodity is today.

This is Drew, it's more of the latter. The utility, we continue to look for ways that we can -- and look for levers that can help us maintain the $1 billion to $1.50 billion, and if the opportunity is available, maybe go above that. But right now what we're talking about is at the utility is $1 billion to $1.50 billion, and then our point of view is the part at EWC that gets us back to the 2% to 4%.

Excellent.

Kit Konolige with BGC.

Good morning guys. I wanted to ask a little bit about your mention Leo of the carbon rule. I noted that you said that the implementation may not match the EPA's objectives if I can quote or misquote you, but can you give us a little more detail on what you think the development of that situation might look like.

Sure, Rod will handle that.

Behind the comment is the observation, we're not going to make a formal statement beyond it, is the observation that the state-by-state limits that have been -- at least that are evident in the EPA proposed rule, remember it is just a proposal, suggests to us that we are not -- it's not going to be an easy path to achieve across-the-board emissions if we just limit it to a state-by-state approach.

Our fear is that the marginal cost of compliance across-the-board is ultimately going to wind up working against EPA's objectives to reduce carbon and have a greater impact on, for instance, jobs, the cost of electricity for customers.

Here is where we see the chaos creating problems for EPA's objectives. If we aren't able between now and October, to arrive at let's just call it a consensus position for EPA given industry, given the respective states, we're just going to force EPA to wind up having to go square against Congress and as a forcing mechanism to try to get at a comprehensive energy plan. We don't see that as being realistic within EPA's timeline.

And what we're trying to figure out between now and October is whether or not there's a path that allows us to get there, and so we're taking a very cautious approach by recognizing the complexity of this rule alone is just making it really difficult for us to see a path where EPA's actually achieving their stated goals of achieving through its four what we call building blocks, to achieving any realistically achievable, enforceable rules at the end of the day.

And Entergy has been at the forefront of greenhouse gas reductions from 2000 to 2012, and just from our limited perspective given where we are today, we really don't see how beyond EPA's stated goals how they get there from here. And it's just -- we're trying to remain optimistic, we're trying to remain engaged with the EPA in figuring out whether the rule can be modified between now and October, but we're having a hard time finding a reason to be optimistic that this ultimately works for us.

Kit if I could just add, as Rod said, there's stated objectives about the reduction, stated objectives about the flexibility, stated objectives about types of technology and everything, and then there's a lot of math behind the rule. And we're not sure that the math and the stated objectives all mesh up as well. But as he said, proposed rule through constructive dialogue, through those sorts of things maybe we get there.

But it's kind of drawing that line as Rod said between all those objectives. The complexity of the state-by-state issue and then the math that goes behind it that might not support it. But it's still early in the process.

Right. Okay. And then the follow-on one, particular state New York has there been any indication that the folks who matter in New York, say at the governor's office or other high-ranking officials, that the possibility of the carbon implementation has changed their thinking at all, or led them to reassess how they think about Indian Point?

This is Bill. I would say at this point we have not seen any -- we haven't had any significant dialogue associated with that; we've had some conversations with the PSC, but I think like us, everybody is still in the process of trying to evaluate this and understand how it practically gets implemented. So it wouldn't be fair to say we've seen a change in their position at this point in time.

Great. Okay, thank you.

Steven Fleishman at Wolfe Research.

Morning. Leo I know you guys have been a point of view Company for as far as I can ever remember, but I don't recall initially having the point of view as part of the guidance. So just when we're thinking about future quarters and periods, how are you going to be updating the point of view so to speak? Just so we -- I'm sure you're updating it somewhat all of the time but just as more of like an annual thing, quarterly thing, how should we think about that?

Well I'd say that in continuing with past practice we're not putting our point of view in guidance. In continuing with past practices, we've got it over-arching in our decision-making process and in our outlook. So when we look at guidance, with the exception of the fact that I think last year when we were given -- we had to put something in on lower Hudson Valley and there was no market, and so we're clear about imputing that. Our guidance is inclusive of market, not our point of view.

Now our outlook of what we think is achievable and where we'll be, that's based on what we think is going to happen, and in a lot of situations that includes an assumption about the price power and that's where we put our point of view in where we think we'll be at that point in time. But we would distinguish that different from guidance and that's I don't think different than our past practices.

As far as how often we'll update that, obviously were going to continue to give you a perspective around where we think we're going to get by 2016 et cetera, but that we'll probably just do on a quarterly basis. And while we update our book every day, we don't run all the way through all the financial models every day all the time. I hope that helps.

Yes. And just one other question on the 2015 earnings consideration slide. I think all of these were basically things that were in the outlook you gave at the analyst day, is that correct? Because none of these are really new.

No. I don't think any of these are new Steve.

Okay. And you highlight the pension discount rate a couple times, is that just because that's been a volatility item historically?

Yes. I mean as you know it gets set at the end of each year based on interest rates at that particular point in time, and so it is uncertain as to what it will actually become until you get to that point. Interest rates have been trending down most of the year, so there is some risk to that and I know you all are aware of that, but that's just part of the list and we want to make sure that you're thinking about all the drivers that we're thinking about.

Okay. Okay. Thank you.

Jonathan Arnold at Deutsche Bank.

Good morning.

Good morning Jonathan.

Just a quick one, there's been obviously a filing made at the New York PSC around some kind of a contract support for another upstate nuclear plant. Could you comment on that just conceptually, and any sort of likelihood or interest in a similar arrangement or request for Fitzpatrick?

Jonathan, this is Bill. We're well aware of the filing that's been made regarding that facility. Our understanding at this point in time is that is for to meet a short-term reliability need.

As it relates to Fitzpatrick, we always consider those types of options, but in general, we continue to try to advocate for improved market structures. Our general thought is that if we have the right market structure which values the attributes of specific generators, and obviously with nuclear, it's baseload carbon-free generation with on-site fuel. That is a much better long-term solution.

However, if there are opportunities to enter into other agreements based on certain other needs on the system, such as reliability, we certainly are open to that. But nothing on the table right now.

Could there be a similar reliability issue to I guess it's the Rochester one up around Fitzpatrick's location or less likely in that case?

Probably unlikely.

Thanks for the color guys.

Paul Patterson at Glenrock Associates.

Good morning.

Good morning.

I guess just back to the point of view. Could you give us what you think the reason is that the market is miss-pricing or is not accurately forecasting the issues that you see coming up in terms of reserve margin, et cetera?

Sure. I mean a couple things you have to remember that I think are constants in what we've talked about for a number of years as it relates to point of view and the forward market. Is number one is, as you look at the forward power markets, you've got to remember that there's a lot more sellers than there are buyers as it relates to long-dated transactions.

And so while we see very good liquidity in the front end of the curve, so obviously for the prompt months and for the next year, as you get beyond that you have a lot less natural buyers. As a result of that, probably one of the key drivers in the lower market prices is lower heat rates. And that's just kind of the situation that we are dealing with and we have been dealing with.

As you get closer to delivery, then you will see the markets respond, you'll see heat rates increase, and you'll see the issue such as the physical constraints that exist in the market, in the physical delivery market start to come out in the forward market.

And so I can't tie it to any specific issue; our belief is that in general infrastructure in the northeast is going to be constrained. We're seeing a lot more retirements than we are seeing resource additions. Therefore we're seeing lower reserve margins. And as we saw during the polar vortex, when you get periods of high peak demand, then you see a significant rise in the price of both natural gas and the price of power.

Okay. And so basically around this time next year, by this time next year you would expect the forward curve to come in line; is that how we should think about it?

Yes, we'll see the prompt year start to rise and as you get closer to delivery, then depending on what the actual physical conditions are, then you see much more volatility as we did this last winter.

Okay. And then turning to New York and the legislation which passed the House of Representatives to defund I guess FERC's activity regarding the new capacity zone. How should we think about A, what do you think the likelihood of that passing the Senate would be? And B, even if it does pass the Senate, what would the practical effect be considering I think pretty much FERC has already acted on this and acted on the hearings, if I understand it correctly. Just elaborate a little bit on that.

Well first let me say that this type of intervention in the markets goes to the very heart of what we're working on from a market structure perspective, and is what is actually undermining some of the markets overall, when we actually see political motives behind proposed changes that affect that market.

As it relates to this specific appropriations bill, it's not currently -- has not been initiated in the Senate at all, and our prevailing belief is that FERC has ruled on this, they've had all the information required to make their decision, and we remain confident they will maintain that decision going forward.

Okay. But I mean if they defund this, how would that actually impact FERC? Would it just be simply symbolic or would it actually have a practical impact on the capacity zone?

This is Rod West. In terms of the actual order that FERC currently has out, the rule is in place, and so the defunding doesn't change the tariff that's ultimately in effect. You'd have to ask FERC this, whether or not they were specifically defunded, whether they would lose the ability to access resources from other sources to actually do their job.

And so from a practical matter, the rule is where it is, and in the unlikely event and we do not believe that it is a likely outcome, that the Senate would carry that amendment -- that's a question for FERC, but we have confidence that FERC's jurisdiction at the end of the day is going to be upheld and supported through the legislative process.

Okay. Thanks a lot.

Thank you.

Paul Fremont at Jefferies.

Thanks. Looking at the preliminary 2015 drivers, can you elaborate at all on the expected changes in EWC depreciation because I guess in 2014 I think your guidance had like a $0.25 increase in depreciation, and it looks like you're looking for depreciation to go up yet further in 2015.

Yes, this is Drew. That just relates to normal incremental capital, most of it above what we're depreciating right now related to Fukushima and the like. So that's just normal changes.

Last year Paul, you remember that we had that new depreciation study and that's what was driving the larger change from last year to this year. Going forward, we wouldn't expect to see such a large change. It would just be normal capital increases.

And in terms of the useful life of nuclear, that assumption, is there any type of a major change there?

No. No changes there.

Okay. And then in terms of the Department of environmental conservation, remaining hearings in New York, can you give us an idea of when the hearings are expected to end on Indian Point?

Sure, I think you saw a flurry of activities last week regarding this matter. Where we had a number of politicians, business folks, community members really speak out against the proposed capacity outages. Following that, the ALJs decided that they were going to push back the hearings associated with that topic for several months; they were scheduled to be take place in January 2015.

Our point of view on this whole process hasn't really changed since we talked to you at analyst day as we don't see any decision occurring on this matter any time before 2016, and likely may get pushed beyond that. So our point of view on that is consistent with what we talked to you about at analyst day.

So 2016 would be an actual DEC final decision?

It could be a decision at that point in time, however, remember that as we detailed there's a number of appeals processes, et cetera, that we could pursue. So that wouldn't be the final word so to speak.

Right, and that takes you to the 2018 timeframe right?

Yes sir, that's correct.

Thank you very much.

Thanks Paul.

Stephen Byrd at Morgan Stanley.

Good morning.

Morning Stephen.

I wanted talk about membership in MISO and just if there's just a general timing we should be thinking about in terms of further transmission planning. Signposts we can look to in terms of the capital that will be required to integrate Entergy into MISO?

Theo, you want to take that?

Yes, I'll start and there might be others who could weigh in on that. MISO has obviously goes through its transmission planning processes, and as I think as I talked about at the analyst day, we talked a little bit about transmission opportunities and I laid out a timeline as it related to projects that might have been submitted under MISO's MVP/MEP processes. And August, the month of August, August 14 actually is a time when we would see MISO's completing some evaluations of projects that they would consider for their MTEP 2014 process.

So we also generally have our typical MISO transmission planning process that you would go through as a part of MISO where we would submit reliability projects and that sort of thing.

As we laid out again in analyst day, I think we said we had about $1.7 billion transmission CapEx for 2016, many of the projects that would be reliability-type projects that we would submit through MISO would be part of that $1.7 billion. But again as you think about other types of projects, the MVP projects or other types of projects that might enhance economic benefits, you could see potentially spending above that level.

Okay, thank you. Just shifting gears for follow-up on Indian Point in the coastal zone management process. What is the earliest date under which the New York State Department of State could make a consistency determination? I know the deadline is at the end of this year. What would be the earliest date they could make a decision?

Well they could actually make a decision themselves by the end of the year. However, we have reason to believe that as based on previous experience that that decision could actually be further delayed. Remember consistent with our discussion at analyst day, then that would -- if it was an adverse decision, then we would take that to a Secretary of Commerce appeal process which last over a year and then there's appeal processes in addition to that. So at this point in time, everything that we mentioned at analyst day is still correct.

Okay, thank you very much.

Thank you Stephen.

That does conclude today's question and answer session. At this time, I would like to turn the conference back over to Miss Waters for any closing remarks.

Thank you Audra. And thanks to 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 on our website or by dialing 719-457-0820. Replay code 676-1108. The telephone replay will be available through noon Central Time on Tuesday, August 5. This concludes our call. Thank you

And again that does conclude today's conference. Thank you for your participation.