安特吉 (ETR) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Entergy Corporation third-quarter 2015 earnings release and teleconference. (Operator Instructions). Do note, today's program is being recorded.

I would like to now introduce our host for today's program, Ms. Paula Waters, Vice President of Investor Relations. Please begin.

Good morning. Thank you for joining us. We will 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 who has questions, 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 will turn the call over to Leo.

Thanks, Paula, and good morning, everyone. Before we get started, there have been some questions about the forward-looking numbers we plan to disclose for utility, parent and other earnings at the upcoming Edison Electric Institute Financial conference. Just to give you a quick preview, they will be in line with our previous disclosures.

Regarding third-quarter results with the exception of impairments at EWC, results were largely in line with our expectations. However, some of the drivers turned out differently than we originally anticipated including stronger than normal weather that boosted earnings by $0.16 per share which was offset by lower weather adjusted residential sales and regulatory compliance costs at the Arkansas Nuclear One plant.

As we have noted previously, we currently anticipate approximately $85 million of cost at ANO for additional Nuclear Regulatory Commission inspection activities arising out of its placement in Column 4 of the reactor oversight process action matrix. These costs will impact operational results in both 2015 and 2016.

The Pilgrim Nuclear Power Station will also undergo additional inspection activities related to its placement in Column 4 by the NRC which will increase its costs in the coming years.

We realize these items while temporary, are disappointing. We will do our best to mitigate their impact. However, our longer-term objectives remain intact therefore as we work our way through the near-term operational issues at ANO and Pilgrim, we maintain our focus on our long-term opportunities.

To that end, by most any measure the last few months and October in particular have been very productive. The actions we have taken demonstrate execution on the strategy we have outlined to you for some time.

For the utility, the strategy is to grow the business by investing capital in ways that benefit our customers. This strategy is centered on our obligation as well as our opportunity to invest capital, to replace aging infrastructure, strengthen reliability, meet economic development and other growth needs, and ensure that the environmental profile of our generation fleet is in line with the evolving regulatory framework.

To facilitate execution of this investment opportunity, to enhance service to existing customers as well as adding new customers, we seek to align our objectives with our regulator's expectations so that we have the regulatory support and financial flexibility to make those investments.

During the last quarter at the utility, we have received approval for the business combination of Entergy Louisiana and Entergy Gulf States Louisiana which was completed on October 1. We closed on the transfer of the Algiers portion of Entergy Louisiana to Entergy New Orleans. We received approval of a renewable purchase power agreement in Arkansas which applied provisions from legislation passed earlier this year, advanced our generation plan through filing an application for approval to build another new combined cycle gas turbine plant in Louisiana and administering the competitive request for proposal processes for long-term capacity in Louisiana and Texas which include market testing self build CCGTs.

Completed nine transmission projects totaling $92 million in investment while being on track to complete the transmission work required to support a major customer in December ahead of that customer's plan date to begin taking transmission service and received regulatory approvals in Texas, Louisiana and from the Utility Committee of the City Council of New Orleans, our settlement to end the system agreement next year.

For EWC, the strategy rests on safe operations of our nuclear plants and managing risks so we can get the most out of that business. Execution on this strategy requires discipline and responsible decision-making in a volatile environment. We have also taken action consistent with our strategy.

We announced the sale of the Rhode Island State Energy Center CCGT for $490 million. We announced the decision to close Pilgrim by June 1, 2019 and today we are announcing plans to shut down the FitzPatrick nuclear power plant at the end of the current operating cycle in late 2016 or early 2017.

New York State officials worked as hard as we did over the past two months to reach a constructive and mutually beneficial agreement to avoid a shutdown of FitzPatrick. But our efforts were ultimately unsuccessful.

From a corporate level, we have added another new Board member, one of three this year with expertise that helps position us for the future and importantly raised the dividend for the first time since 2010. While dividend decisions will be made annually, it is our intention to provide steady and consistent growth in our dividends in the coming years.

Continuing to deliver on our strategy will be the key to meeting this objective. Earlier this year we outlined what we needed to do to execute on our strategy. Our achievements to date are listed on slide three. These significant accomplishments could not have been possible without the dedication and commitment of the entire 13,000 member Entergy team as well as the dedication and commitment of those we partner with to grow the communities we serve.

However, our focus is squarely on what is next to continue the momentum we have worked so hard to gain.

One such item we are working on at the utility is completely the planned acquisition of the nearly 2000 megawatt Union Power Station. Entergy Louisiana, successor in interest to Entergy Gulf States Louisiana, Entergy Arkansas and Entergy New Orleans have agreed to purchase this modern efficient CCGT at approximately half the cost of building a comparable new plant. Just last week, Louisiana Public Service Commission approved a settlement in support of the transaction. No parties were opposed.

We also continue to explore settlement options with the advisors in New Orleans. And in Arkansas, a decision by the Arkansas Public Service Commission is pending which we asked for by December 1. An industrial group is the only opposing party.

We remain on track to close the transaction by year-end subject to pending regulatory approvals and other customary closing conditions.

We have also been working with the APSC and other public officials to give Entergy Arkansas the financial flexibility it needs to make investments and help attract new business to the state. After passage of legislation providing for a platform for progressive rate regulation, we are now focused on the pending rate case. In addition to the Union acquisition, a significant component of the rate case is the approximately $800 million of added investment since the last case.

In late September, staff filed testimony recommending a $217.9 million rate increase and 9.65% return on equity, an increase over the current 9.5% authorized ROE. As a reminder, Entergy Arkansas is seeking a $268 million base rate increase and a 10.2% ROE. Factoring in rider offsets, the net increase request is $167 million.

While we continue to work through the process we view the staff's testimony as constructive and look forward to working with all of our stakeholders toward a result that aligns us all for growing the economy in the state. The settlement deadline is December 31 of this year.

In September, Entergy Texas filed with the Public Utility Commission of Texas for rider recovery of nearly $140 million of incremental transmission and distribution rate basis since the 2014 rate case. These rider filings seek nearly $20 million in new revenue requirements. Decisions are expected by early next year.

Another area where we have worked diligently to align with our regulators is on the subject of the Entergy System Agreement. The System Agreement has been a long-standing source of frustration and disagreements among our regulators. Entergy Arkansas exited in late 2013 and Entergy Mississippi is preparing to exit within a week's time. We are now well on our way to ending this arrangement altogether by September 1 of next year. After gaining approval by the LPSC, the PUCT and the Utility Committee of the City Council of New Orleans, the settlement is expected to be taken up by the City Council this week leaving the Federal Energy Regulatory Commission as the final outstanding approval.

Ending the system agreement next year is not expected to have a significant financial impact to ongoing consolidated earnings. The benefits are twofold. It simplifies our business and allows us to focus on jurisdictional specific matters especially the utility's role and economic growth in our regions and it allows interactions with our regulators in all jurisdictions to be squarely focused on investing to improve operations to grow our business to benefit customers.

At EWC, our top priority (technical difficulty) is also an important objective for the future. In October, we began the process to obtain the necessary approvals to support a close of RISEC CCGT sale by year-end. We have also begun the process toward an orderly shutdown of Pilgrim and will soon begin the process for FitzPatrick.

These decisions are difficult knowing the effect a plant's closure will have on our employees and the surrounding communities. We are committed to ensuring we are fair to all of our employees as they go through this difficult time.

The sale of the RISEC power plant and the closing of Pilgrim and FitzPatrick are the right business decisions. Each meet our criteria for assessing strategic options around the EWC fleet. They are positive NPV decisions over the long-term. They improve cash flow in the near-term and help to derisk the Company.

That said, I can tell you they are some of the most difficult decisions we as a management team as well as our Board of Directors have ever made. So while the decisions themselves are clearly appropriate, we all had hoped there could have been a different outcome.

With the closure of FitzPatrick and Pilgrim, we will have two remaining nuclear generating facilities in operation within EWC, Palisades and Indian Point. Palisades has a power purchase agreement for virtually all of its output until April 2022. For Indian Point, we will continue to work through the license renewal process.

We will also continue to advocate for reforms to wholesale market designs. Wholesale electricity markets are failing to produce accurate price signals to reflect true marginal costs of providing energy and capacity challenging the long-term sustainability of these markets.

The FERC issued an order on energy market price formation in September following a series of technical workshops to discuss issues regarding price formation in energy and ancillary service markets. FERC indicated this is the first step in the energy price formation initiative. We will continue to participate actively for fair market designs that compensate all generators for the attributes they provide to the market.

Through this time of opportunity and change, we need strong governance, advice and leadership at the highest levels of the Company. This year we welcomed three new Board members, Patrick Condon, Karen Puckett and most recently, Philip Frederickson. Pat, Karen and Phil bring valuable experience to our Board with expertise in utility, regulatory and financial matters, commodity markets, business strategy and leading businesses undergoing transformational change.

Last week we promoted two new members of the executive leadership team, Paul Hinnenkamp, Senior Vice President and Chief Operating Officer, and Tim Mitchell, acting Chief Nuclear Officer. Paul's experience in nuclear and fossil generation and most recently leading our capital projects management organization will be instrumental in supporting the utility's growth strategy with safe and reliable operations and disciplined fiscal and project planning for our capital spending plans.

Tim has the deep technical knowledge and strong leadership capabilities to lead the nuclear organization through the challenges in our nuclear fleet and drive towards excellence in operating all of our facilities safely, securely and reliably.

At the same time, we thank Mark Savoff, Executive Vice President and Chief Operating Officer, and Jeff Forbes, Chief Nuclear Officer, for their leadership and accomplishments. They both recently announced their upcoming retirements and we are grateful for their contributions and continued consultation and advice through this transition period.

We are looking forward to seeing you next week at the annual EEI Financial Conference. Our accomplishments and the plans for the future are foundational to consistent utility, parent and other earnings growth and steady dividend growth. We have started down the path of providing clarity around the future of EWC. Whether it is day to day operations of the business or in making strategic decisions, our sense of purpose and resolve remains on finding solutions that provide long-term benefits for our owners, customers, employees and communities we serve.

Now I will turn the call over to Drew.

Thank you, Leo, and good morning everyone. I will begin my remarks today with a review of our third-quarter results which are summarized on slide four of the presentation.

Our operational results of $1.90 per share excluding special items related to the impairment of EWC Pilgrim and FitzPatrick nuclear plants and the decision to close Vermont Yankee were up from third quarter of 2014.

As Leo noted, this was in line with our original expectations overall but not in line with the expected drivers as strong weather made up for ongoing ANO Column 4 expenses and lower than expected residential sales growth.

As reported earnings were a negative $4.04 for the quarter driven by the impairments of Pilgrim and FitzPatrick. Details of the impairments and the related accounting were provided in the Form 8-K filed on October 16.

Moving to slide five, utility, parent and other results were up quarter-over-quarter. Contributing to the increase was net revenue which added $0.36 per share. A large portion of this was from weather with the remainder from higher industrial usage, recovery of productive investments such as Ninemile 6 and items offset in operations and maintenance categories.

Though net revenue was higher, we originally expected an additional $0.05 per share in net revenue from sales growth but missed this target with lower weather adjusted residential sales volume, down 0.1% quarter over quarter.

Also contributing to the favorable variance is an asset write off of $0.23 per share related to the settlement of the Mississippi rate case that was included in 2014's third-quarter results. The impact of these favorable variances was partly reduced by higher utility nonfuel O&M expenses of $0.16 per share. Roughly $0.04 of this variance is offset in net revenue. Of the remaining variance, $0.07 was due to NRC inspection costs for ANO and the balance primarily due to higher distribution and reliability expenses.

Sales volume from industrial customers increased quarter over quarter by 4% as shown on slide six adding nearly 300 gigawatt hours to our sales this quarter were new and expansion industrial projects mostly from ramp ups in the core alkali and petrochemical sectors. Volume from our existing customers recovered from the second quarter decline and came in above third-quarter 2014 levels as petroleum refineries ran at high utilization levels.

For next quarter, one of our largest customers is already in an extended outage so we currently expect industrial sales to be less robust in the fourth quarter. Recall that lower sales due to short-term outages of existing customers can be less impactful due to demand charges.

EWC third-quarter operational results on slide seven were $0.18 in 2015, $0.05 lower than in the third quarter of 2014. Though the closure of Vermont Yankee added $0.09 to operational results this quarter, this was more than offset by a decrease of about $5.80 per megawatt hour, the average price earned by the nuclear plants still in operation.

Operating cash flow on slide eight shows overall lower cash flow this quarter as compared to the third quarter of 2014. Cash flow at the utility was lower primarily due to $300 million of Hurricane Isaac securitization proceeds received last year. Declines in EWC net revenue also contributed to lower cash flow.

As we move past our third-quarter results, we will take one more look at our overall 2015 expectations relative to guidance. Beginning on the right side of slide nine, utility parent and other adjusted EPS is expected to be lower than anticipated driven primarily by $0.17 of O&M expenses from ANO Column 4 management, $0.06 of incremental reliability spending, and $0.07 lower than expected total weather adjusted sales primarily residential. This brought us below our adjusted EPS expectations which is disappointing.

As on slide five, adjusted utility, parent and other EPS removes the effects of special items, weather and tax items. However, with both favorable weather and income tax variances as well as the operational income effect of impairments for Pilgrim and FitzPatrick on the left side of the slide we expect to exceed the original 2015 guidance range and are adjusting the range to $5.50 to $6.10. Currently we are tracking to around $6.00.

We mentioned before that we have been working on tax items which could be recognized toward the end of this year. One of those is connected with the recently completed business combination of ELL and EGSL. After a guaranteed sharing of $107 million with our customers, we will recognize roughly $1.50 per share in the fourth quarter. Although there could still be other tax items resolved and recognized in the fourth quarter, we expect our 2015 tax position to exceed our original guidance expectation.

In other tax matters, our third-quarter Form 10-Q will discuss a recent settlement with the IRS from the 2008, 2009 audit. The agreement on treatment for our 2009 position regarding nuclear decommissioning liabilities will reduce our federal net operating loss carryforward or NOL from $12.3 billion to approximately $1.9 billion.

Having said that, there are a couple of points I would like to make about the settlement. First, the settlement has no material cash consequences or impact on net income due to low utilization of the NOL. Second, while it reduces our net NOL today, we continue to pursue our tax strategies. We expect our cash tax rate to remain below statutory rates at about 10% for the next few years.

Turning now to EWC, as Leo discussed in his remarks, we have reached an agreement to sell Rhode Island State Energy Center for $490 million and expect to close the deal by the end of the year. We have also made the difficult decisions to close Pilgrim and FitzPatrick. Each of these decisions provides greater clarity on the future of EWC.

The rating agencies have reacted positively to the focus in improvements of the Utility and the difficult decisions we have made for EWC.

Following the Rhode Island and Pilgrim announcements, S&P noted the reduction of exposure to merchant generation in support of our credit quality and Moody's viewed the developments along with the Utility Supportive Regulatory Environment and improving rate design as credit positive. A summary of our credit metrics and credit ratings can be found on slide 10.

At the Utility, we were pleased with the successful completion of the Louisiana business combination on October 1 and are confident that the newly combined Entergy Louisiana entity will bring benefits to our stakeholders.

Moody's assigned the combined ELL a rating of A2 for senior secured first mortgage bonds. At the same time, Moody's affirmed credit ratings for Entergy Corporation and raised the outlook to positive and ratings for Entergy New Orleans were also upgraded. These positive credit rating actions acknowledge the strong financial footing of the Company and in doing so help preserve our ability to access the capital needed to finance investment in the business at low cost for the benefit of our customers.

As noted on slide 11, we will have more information at the EEI Financial Conference next week where we will continue the discussion of our business strategy, longer-term outlooks and 2016 drivers. This will include more detailed information for EWC, utility sales and the opportunities and risks for our 2016 expectations.

As Leo said at the outset, we still see our utility parent and other EPS for 2016 and 2017 consistent with our previous disclosures. We will provide detailed guidance for 2016 during our fourth-quarter earnings call.

As we continue to lay the groundwork for growth, we look forward to moving ahead with our strategies to create value for our customers, our owners and our employees in the communities we serve. And now the Entergy team is available to answer questions.

(Operator Instructions). Praful Mehta, Citigroup.

I have a quick question on the cash taxes given the change in the NOL position down to $1.9 billion, I know you clarified that you will still have a pretty low cash tax rate. Could we just understand what is the driver or what helps you get to that low cash tax rate given the NOL position change?

Sure, Praful, this is Drew. As we have talked in the past and we have a portfolio of strategies out there that we are pursuing and those strategies are still intact. Over time we could see the NOL start to move back up again but right now we just settled and so the NOL is back down to where it is at $1.9 billion. We just want to make sure that when you saw it come down you would know what the driver was and what the settlement was. The important thing is that our tax team is still here, they are still working hard on new ideas and new strategies and we expect that those will continue to bear some fruit going forward.

Got it. Thank you. Then in terms of the FitzPatrick retirement, from a decommissioning perspective, do you expect there to be any impact from a cash flow perspective to Entergy or is the decommissioning fund fully funded and how do you see that playing out?

This is Drew again. So the decommissioning fund meets all the NRC requirements and consistent with how Vermont Yankee did we would expect the same kind of approach for FitzPatrick going forward. So we wouldn't see or anticipate any cash contributions to the decommissioning trust fund as associated with decommissioning the plant.

Got you. Thank you, guys.

Paul Patterson, Glenrock Associates.

Yes, hi, how are you. Just in terms of the tax rate, the 10%, that is the cash tax rate. Is that correct?

Yes, sir.

And what is the expected book tax rate that we will see in earnings?

The book tax rate as you know, we don't usually give out a forecast for book tax rate until the prompt year. There are definitely some things that could improve over the statutory rate that we have used in our forward-looking expectations. But at this point, we are not prepared to say exactly what those are. There are too many things going on in conversations with Federal Tax Authorities, State Tax Authorities, State Regulators to be able to successfully pin that down until we get closer to that time.

Okay. And then with respect to slide 36 and it looks like you guys are going to be expensing the fuel and other things associated with FitzPatrick and Pilgrim as special items. I'm wondering how will you guys be treating the revenue?

Well, the revenue will be operational. What we are going to be treating as special items are things that would otherwise have been capitalized. So any significant capital expenditures or in the case of Pilgrim, refueling outage costs or feel costs that would have normally otherwise been capitalized and amortized over coming cycles, those will be considered special items.

And I think just for the sake of making clear which pieces are part of the ongoing operations and which pieces aren't, that is the same approach that we used with Vermont Yankee and we think it is more helpful that way. We will try to be as transparent as possible about all of the moving parts in there.

Okay, then just in general with the economies of scale, you have shut down three nukes in a pretty short period of time in the Northeast. Is there an impact on the economies of scale of what is left, meaning in the allocation of expenses or any thoughts on that?

So there definitely is some lost economies of scale. We manage our nuclear fleet as a fleet across the north end, the southern utility nuclear assets so we have a lot of economies of scale but it will be shrinking over the retirement schedule over the next few years. Depending on how far you go with the retirement schedule depends on how much of an impact that economies of scale has. For the Northeast, we do have about $35 million of plant overhead, of overhead at each plant and about half of that is direct costs. And so beyond that we will be targeting a level of cost that are prudent for the business size and the size of the fleet going forward to make sure the plants stay safe and reliable.

Okay, thank you.

Jonathan Arnold, Deutsche Bank.

Good morning, guys. Just to clarify, you have said very clearly that you expect the 2016 and 2017 utility parent and other outlooks to be unchanged or at least I think that is what I heard. But are you also saying that you are guiding [prompt] year -- beyond the prompt year, your guide to statutory tax rate so is 2016 still good assuming a statutory tax rate or is that one of the things that might shift as you give us the drivers?

It is assuming the statutory tax rate. We are trying to hold quite frankly, Jonathan, the forward-looking stuff to EEI and we just removed it from this to do it at EEI next week. But it seemed to raise some questions so the previous disclosure that was at the statutory tax rate, that is what we were talking about.

And so you expect that to still be the case? Okay, great. That was my question. Thank you.

And to the earlier question about the effective tax rate I guess, we would hope to do better than the statutory tax rate in 2016 but we are not prepared yet to identify that. But taking that aside, we still are at the current disclosure that we put forth previously.

If I may just on one other issue around guidance, the ANO costs that you referenced those as I think $85 million which is the same number between 2015 and 2016 that was in the 10-Q. Were those already in the guidance you showed us last quarter fully or is there an element of that being added in?

No, those are already in, fully baked in the guidance. They were not in the guidance that we set up at analyst day last year just to be clear. At analyst day last year was when we originally set up our range of where we thought the midpoint could land between 435 and 475 and it didn't include ANO at that point and it expected higher interest rates for pension benefits, etc.

So there were several things that have moved around but ANO was specifically not included at that time but it is now.

And was it included when you showed us $3.65 last quarter?

$3.65 is for 2015 just to be clear. and it was not -- when we originally set $3.65 that was at the beginning of this year, that is before we had clarity around what ANO was going to be so it was not included in the $3.65.

Okay, so that is part of the change to this $3.30 number?

Yes, that is exactly right. So the drivers between the $3.65 and the $3.30 I think it is in my script but it is like $0.17 is related to ANO and $0.06 O&M and some other stuff.

Okay. So similarly on the 2016 outlook, that was the $35 million of ANO that you disclosed in the 10-Q would not have been in that range but you are saying the range is still good so something else must have offset it?

That's right. We said the lower end of the range is what we previously had said.

But that was again without the ANO drag, am I right in that?

That is with the ANO drag.

The lower end comment included the ANO drag but it wasn't in the 2015 $3.65?

That is correct.

Okay, great.

I think I'm confusing you worse than I really need to. But our original guidance for 2016 was 435 to 475 where we said at the lower end that includes ANO. For 2015, it was at $3.65, that did not include ANO but the $3.30 does now.

Perfect. That is very clear. Thank you.

Julien Dumoulin-Smith, UBS.

Good morning. So let me actually start where you guys just left off there. In terms of weather normalized impact, the 2015 update you just provided, I know you just alluded to the ANO negative hit but you have had $0.23 if I have the year to date positive weather. What is kind of the impact of the weather normalized sales year to date if you will?

I believe that the weather normalized sales year to date -- I don't know -- I can't think of the year to date number off the top of my head. For the full-year --.

Versus the guidance update you just did?

Right, for the full-year I believe it is $0.07 which about $0.08 is residential weather so -- or not weather, just residential weather adjusted.

Got it. $0.07 negative versus the $0.23 positive weather?

Yes, that is correct.

Got it. All right, excellent. Turning to more strategic issues. Looking at the nuclear business today, how are you thinking about Indian Point? Is this something, Indian Point Palisades, is this something you would consider continuing to own just as two standalone units given the continued portfolio benefit of owning it in the context of the regulated business or is this something that you would imagine that you could arrive at a strategic juncture on?

Julian, this is Leo. Obviously we continue to evaluate what the best thing to do with those assets is. But as we mentioned before and when they were talking about overheads a moment ago in that discussion, we still have a economies of scale and an operating capability within nuclear assets. And as Drew mentioned, we do operate the facilities at the fleet and we would continue, we can continue to do that from an operational standpoint. And so we are prepared to do that. It doesn't mean we aren't looking at alternatives but as you know, the alternatives around Indian Point are limited and then we will just have to go from here. Obviously we can do it and we will if we have to and it is not a problem for us. But the strategic options obviously become limited given the regulatory approvals required, etc.

And just a clarification therein. The spring refueling outage on Pilgrim, that is a final decision now that you intend to pursue that rather than retire going into that?

We have not. In which year?

The spring 2017 refueling outage, have you committed to doing that or is there still the thought process you could buy back the capacity?

No, we have not committed to do that yet.

Great, thank you.

Paul Ridzon, KeyBanc.

A quick question. On Jonathan Arnold's question, you referenced 3.30, is that really be 3.35 I see on slide nine?

Yes, I apologize. Yes, it is 3.35.

And year to date, [UPNO] is at 3.55 so that imply we are going to have a loss in the fourth quarter?

Is that including tax and weather, the $3.30 is tax, weather and special items adjusted. (multiple speakers) we are not anticipating a loss in the fourth quarter if that is what you are asking.

But your year to date results are $3.55 at UPNO? I'm just trying to bridge from here to there.

That includes weather and taxes I believe.

So $3.35 does not include weather?

That is correct.

Got it. Okay. And then is $50 million this year and $35 million next year is still the right split for ANO?

Yes, that is correct.

Thank you very much for your help.

Stephen Byrd, Morgan Stanley.

Good morning. I wanted to just follow up on Fitzpatrick and check whether there are any limits on being able to put the plant into safe store or if there are other approaches being discussed that would be perhaps more rapid on actual decommissioning of the facility? Should we be assuming a long-term safe store option or is that still to be determined?

Bill, why don't you go ahead answer?

Stephen, this is Bill. Yes, I think you should generally assume a safe store option. We are going to have to go through the process of getting a detailed decommissioning cost estimate put together and then file our post-shutdown activity report closer to the shutdown date. But we are assuming the same type of approach we used at Vermont Yankee.

Understood. Just on Indian Point, there has been a series of extensions of the standstill agreement with the state of New York on sort of CZM related topics. Should we be thinking given that they are having those extensions that there is very much an active dialogue going on there, active discussions. It struck me as likely that there are active discussions given the continued short-term extensions of that standstill. Any color on the dialogue there?

Stephen, we have been in some active discussions but that standstill agreement did expire so we will go back to our position on that before we executed the standstill. Again we feel very confident in our legal position that we had an effective withdrawal of that CZM application. And as always we are open to constructive discussions with the state.

Great. Thank you very much.

Steve Fleishman, Wolfe Research.

Thanks. A couple of questions. First, Leo, could you maybe give us some sense of how you kind of came at the dividend decision that you did in terms of just target payout or something of that sort?

Sure, Steve. With the growth in investment and rate base and resulting earnings growth at utility parent and other as we have been mentioning for some time, it is our objective to provide a glide path into a consistent more predictable dividend path. As we have mentioned in the past, we have taken more of I guess a lumpy approach to it where we raise it 29% one year and then we take a few years off and then we raise it $0.10 or something like that.

So as we look out into the future consistent with our expectations around the growth in the utility, parent and other segment of the business, we are kind of on a glide path so we would hope to provide a consistent growth that will work its way into that payout ratio over the next few years.

Which is the payout ratio target is at 65 to 75?

Correct, correct. At any given time we might be over or even under depending on how we are growing the business and then obviously it takes into consideration the reinvestment that we have and the opportunity in the Utility for all of the items that I outlined that we have put in the disclosures.

Okay. Different question on the nuclear, just you guys historically used to have kind of top tier of nuclear operation so kind of having the ANO and Pilgrim kind of in this Tier 4 was definitely a change. And I think there have been some changes in management and I am just curious what are the implications for the broader nuclear fleet at Entergy, overall nuclear costs, are these really just specific can issues just for these two facilities?

First, Steve, we take the operations of the fleet obviously the safe, secure, reliable operations of the fleet very seriously. We did have a couple of issues that compounded on each other at both facilities to get us into Column 4. We would anticipate that this is not going to happen anywhere else and that we will work our way out of these judiciously and expeditiously with the NRC over the coming couple of years.

So there is not costs like for the overall organization or the other plants related to that?

No.

Okay, great. And then a last question just in terms of the Fitzpatrick decision, there has been a decent amount of articles just on the political aspects of that potentially. Is there any sense of any reaction we might see from this not only just at Fitzpatrick but also maybe Indian Point in terms of political regulatory stuff?

I can't really comment on that, Steve. We did work to try and come up with some way to extend the life of Fitzpatrick and we weren't able to do that. It is in everybody's best interest but it just wasn't possible. But the state officials worked just as hard as we did as I mentioned in my script to come to a solution. Some things are just difficult as you saw from the disclosures, there is a lot of money lost at the facility and that is certainly a difficult thing to overcome. We certainly aren't out looking for any kind of political issues.

Okay, thanks so much.

Thank you.

Michael Lapides, Goldman Sachs.

Just curious on Fitzpatrick's decision, can you give us a view of how material from an EPS and from a cash flow accretion and dilution the retirement is for 2017 and beyond?

This is Drew, Michael. From a cash flow perspective, we are going to be cash flow positive over the next few years consistent with the disclosure there of to $225 million to $275 million and so that is the biggest piece. I think that comes from the fact that we are basically operating at a loss there and we are also -- would be incurring costs associated with capital and refueling going forward. So I think those are the biggest things from a cash perspective.

From a net income perspective, there is a lot going on. Because of the impairments you are going to see the costs associated with the refueling outages and the fuel and expense that we have, those are going to be reduced considerably obviously. The depreciation is going to come way down.

The one thing that is a little different for Fitzpatrick is the decommissioning costs, the decommissioning expense, that is currently the fund is still sitting over with NIPA and so we won't see any changes there until a point where we actually get the fund and the liability over to us.

So that is a little different than Vermont Yankee and Pilgrim going forward. So those are some of the main drivers that you will see I think as we are thinking about the income statement for that business.

Okay. But I think my question kind of focused on the materialness -- if there is such a word -- of how earnings accretive would it be if I looked at 2015 run rate versus 2017 and beyond post-retirement and how cash flow accretive. Directionally are we talking huge level of accretion or dilution to either of those, tiny, middle of the road?

I think $225 million to $275 million is -- that is materially accretive to me in terms of cash. The earnings piece is going to be accretive but it is not going to be hugely accretive up front. There will be some accretion in 2016 and then in 2017 we will start incurring the decommissioning costs and stuff like that. We are going to provide some better transparency around what we think the drivers are at the EEI Conference next week.

Got it. Okay, thanks, Drew. Much appreciated.

Neel Mitra, Tudor, Pickering Holt & Company.

Good morning. Just wanted to clarify where you are with the industrial sales growth? Obviously it was better this quarter than last quarter but still not up to kind of the 5% that you are guiding to. When do you expect to really ramp up and what are the factors that you are evaluating right now?

Neel, this is Theo. You mentioned the 5% we were guiding to. I think we started the year at about 4.4% for 2015 and what we have seen is our new and expansions have come online, they have come online as we said a little slower. Some have been delayed. The ramp ups have been slower than anticipated but what we have also seen in the first two quarters of 2015 was we saw some volumes, lower volumes with our existing customers and as you recall in the first couple of quarters, that was really had a big impact on the lower than expectations in terms of the industrial sales.

As Drew mentioned in his script, we saw a comeback relative to that in the third quarter especially in the petroleum refinery area and from that perspective in that particular segment, we expect to see that returning to the levels we somewhat expected as we go forward.

He also mentioned in the fourth quarter we have both an existing probably in the chlor-alkali sector that is going through some outages and we won't see -- likely not to see the volumetric changes in the fourth quarter that we saw in the third quarter but again, those are outage related. And as Drew also mentioned you generally don't see a relative relationship in terms of revenue change, relative to volume change when that happens with existing customers.

In terms of the drivers, I think we are seeing some things that others are experiencing, stronger dollar, kind of weaker commodity prices and it is challenging our expectations. As we said before, what we see happening primarily is delays in some cases and as I said earlier, ramp ups not happening as soon as we had thought but we will provide more color around that at EEI in terms of really diving more into what we expect to see in 2016 and going forward.

Okay. Just as a follow-up with the 2016 and 2017 Utility EPS, is that more contingent upon rate base growth or sales growth? Are the two related over the next two or three years? How are you looking at that?

This is Theo again. I will start and Drew may also have comments relative to this. But if the two are related, the growth as we all know in this business is really driven by rate base at the end of the day and from our perspective our investment thesis is still intact and we see the opportunity as we've laid out in the past to continue to make the investments that we have talked about. And it is not so much dependent upon the level of sales. Sales is an opportunity for us to mitigate the impacts of those rate base growth changes and clearly with our sales volumes, we have the opportunity to mitigate that probably much better than maybe some others that you see that don't have the level of robustness as it relates to sales growth.

Again, the volumes do help in terms of getting to ROEs and as we have shown in slides before it is really a combination of the two to some extent. But again, the growth is really tied to the investment thesis and that thesis from our perspective is still well intact.

Yes, this is Drew. I will just add that the big drivers are going to be getting the union deals done and then the regulatory actions in Arkansas and in Texas and getting those resolved primarily to get the investments that Theo is talking about and to rates.

And then the sales growth is going to be helpful but it is an element of lag reduction as we see it. And there are some O&M benefits out there, we have talked about earlier ANO rolling off hopefully by the end of next year and then we continue to see our pension expenses coming down and we do see some higher operating costs this year because of some of the nuclear compliance cost and other things that we have seen. So we expect that to moderate a bit going forward as well.

So those are the main drivers, they shift a little bit of as you go from 2015 to 2016 and then to 2016 to 2017 but they are pretty much the same.

Thank you very much.

Charles Fishman, Morningstar.

Good morning. Make sure I understand this, the ANO Column 4 enhanced inspections and the associated spending, you see a path that that would be eliminated after next year?

Yes, the goal is to get out of Column 4 and reduce the compliance costs associated with being in that regulatory situation.

Okay, and then just a second question on the lower residential sales, just an anomaly for the third quarter, are you seeing more energy efficiency, do you have any other color you can provide on that?

Charles, this is Theo. As we have talked on previous calls and I think like most other utilities, we are seeing energy efficiency impacts, Federal programs as well as programs that we have specific to our states. We have generally talked in terms of organic residential growth in the 1% area and we see that somewhat being challenged through this year and we saw it somewhat last year as well.

In terms of third-quarter, we had two years where we had fairly moderate weather last year and fairly positive weather this year and when you see those swings like that year-over-year, sometimes the adjustment in terms of weather for periods like that gets a little challenged. And so we continue to watch and monitor the residential sales volumes.

I will note also we saw 1.2% growth in commercial in the quarter as well. But it is something we pay a lot of attention to and continue to look at. I don't know from our perspective, we don't see a kind of flat to negative as a trend but it is something for us to continue to monitor as it relates to our view of our organic residential growth.

Okay, thank you. I will save my rest for EEI.

Shahr Pourreza, Guggenheim Partners.

Most of my questions were answered, just on Fitzpatrick, is there any situation where you can think of where you would have to use decomm versus safe store?

This is Drew The safe store option is the one that gives you the most time to allow the fund to grow to meet your decommissioning needs so that seems like a likely candidate but I don't know if Bill Mohl wants to add anything in?

Yes, so again we will have to go through and calculate our costs. We've got $728 million in the fund and we will go through the same process of looking and forecasting when the fund would grow to have an adequate amount to begin decommissioning. According to the NRC you have to have it fully funded before you can start. So it will be some form of safe store, probably won't go to the end of six years but depending on that cost estimate, it will be out in the future some.

And then you don't expect any indirect influence from New York to shut the plant down quicker?

No, nothing that we are aware of at this time.

Got it. And then what caused the talks to break down? Was it sort of, was it (inaudible) contract an option as a bridge, so maybe a little bit of color on that.

We are not really going to get into any of that.

We can explain the RMR issue, we are not going to obviously discuss any details of our discussion. But we previously had the New York ISO so do some analysis regarding the Fitzpatrick plant as to whether or not it qualifies as a reliability must run and that most recent analysis indicates that it does not. So we have submitted our notification, shutdown notifications to the PSC and the New York ISO as of today. They will have to update that study but we certainly do not expect that answer to change.

As Leo suggested, all of our discussions with New York are really confidential and not appropriate for us to comment on any details.

Excellent. Thank you so much.

I would like to now turn the call over to Paula Waters for any additional remarks.

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 compliant statements. We will file our quarterly report on Form 10-Q with the SEC later this week. The Form 10-Q provides more details and disclosures about our financial statements. Please note that events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the time the date of the balance sheet, would be reflected in accordance with generally accepted accounting principles.

The call was recorded and can be accessed on our website or by dialing 855-859-2056. Replay code 60315863. The telephone replay will be available through Monday, November 9, 2015. This concludes our call. Thank you.

Ladies and gentlemen, thank you very much for your participation. This does conclude the program. You may now disconnect. Everyone have a wonderful day.