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Entergy Corporation (ETR)

Q3 2006 Earnings Call

October 31, 2006 11:00 am ET

Executives

Michele Lopiccolo - IR

Wayne Leonard - Chairman and CEO

Leo Denault - CFO

Richard Smith - Group President Utility Operations

Analysts

Dan Eggers - Credit Suisse

Dick Hayden - Deutsche Asset Management

Ashar Khan - SAC Capital

Michael Lepides - Goldman Sachs

Paul Patterson - Glenrock Associates

Andrew Levi - Bear Wagner

Steven Rountos - Talon Capital

Neil Stein - Eleven Capital

Jonathan Arnold - Merrill Lynch

Shalini Mahajan - UBS

Presentation

Operator

Good day everyone, and welcome to the Entergy Corporation Third Quarter 2006 Earnings Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Michele Lopiccolo of Investor Relations. Please go ahead.

Michele Lopiccolo

Good morning and thank you for joining us. We’ll begin this morning with comments from our Chairman and CEO, Wayne Leonard, and then Leo Denault, our CFO, will review results. After the Q&A session, I will close with the applicable legal statements, Wayne.

Wayne Leonard

Good morning. We know many of you are preparing for the financial conference. We’re also aware that many [of you] are releasing earnings and holding teleconferences this week. With these activities in mind, I will try to keep to the highpoints, particularly on storm recovery. As a result of Governor Barbour's decisive timely actions, Entergy Mississippi has received Community Development Block Grant Funds in the amount of $81 million. The money is now officially in the bank. That’s equivalent to $0.90 on the dollar for Katrina's restoration cost just as Governor Barbour promised from day one.

Further, the Mississippi Public Service Commission approved our storm cost securitization request. Pursuing to the terms of the securitization order, the state of Mississippi will issue general obligation bonds for approximately $48 million. $8 million for remaining Katrina restoration cost after applying the $81 million of Community Development Block Grant Funds, which we've already received and an additional $40 million to increase the storm reserve.

We anticipate receiving securitization proceeds around the end of the year. Together these actions substantially benefit Mississippi customers by holding the line on necessary rate relief to not only recover from the aftermath of Katrina, but to also pre-fund restoration costs associated with future storms that may come Mississippi's way. We applaud the unwavering commitment of Governor Barbour, the Mississippi Public Service Commission, and other Mississippi officials to constructive regulation, protection for customers, and promotion of the public good. I'll also convey our appreciation to the Governor for personally following the Community Development Block Grant request through the HUD to make sure it wasn’t derailed by others outside of HUD.

Turning to Texas, hearings on storm recovery will begin tomorrow. We are encouraged by developments in the storm recovery process, particularly the PUCT staff's expected willingness to advocate for strict implementation of the will and the intent of the Texas legislature as outlined in the storm cost recovery legislation they passed last spring and as evidenced by the staffs own pre-filed testimony in the case.

And in New Orleans, two major milestones were reached last week when Entergy New Orleans filed its proposed plan for reorganizations with the US Bankruptcy Court and reached agreement with the New Orleans City Council on a rate plan.

Starting with the plan of reorganization, I'm particularly pleased to report that it anticipates full compensation to all Entergy New Orleans stakeholders. The proposed plan represents the combination of extensive efforts with federal, state, and local regulators, and law makers to gain support for Community Development Block Grants, rate relief, and insurance proceeds, each of which is critical to Entergy New Orleans emergence. The plan would enable Entergy New Orleans to emerge in a manner that ensures Entergy New Orleans customers are served by an ongoing financially viable entity, pay those creditors, and protects the rights of investors. Certainly, the plan is approved by the Bankruptcy Court and the creditors, Entergy New Orleans could emerge from bankruptcy before the end of 2007 following the completion of the precedent that are set forth in the plan. Perhaps the most important of these conditions is the receipt of the $200 million of community development block grant that was approved in mid- mid October by Louisiana Recovery Authority. We are pleased that Govern Blanco and members of the LRA recognized that community development block grants will help make Entergy's New Orleans customer rates more affordable than otherwise it would be, something that is clearly is important to the economic recovery of the city and of the state.

Other conditions call for reaching acceptable agreement with the New Orleans City Council on post storms filing that were made in June including creating a storm reserves to provide liquidity to meet future potential needs and receiving assurances that expected insurance claim proceeds of approximately $250 million for New Orleans.

On the regulatory recovery front, Entergy New Orleans reached a settlement agreement that was unanimously approved by the New Orleans City Council last Friday on a phased-in electric and gas base rate plan to be fully implemented by January 1, 2008, consistent with the [traditions] of the plan of reorganization that have been filed with the bankruptcy court.

The council also approves the creation of a $75 million storm reserve to be collected over a period of 10 years and establish emergency rate relief provisions to ensure that Entergy New Orleans will obtain a expedient rate relief to have the means, to maintain liquidity, and receive timely payments should a Hurricane Katrina-type event occur in the future, let's hope not.

Importantly after considering the total effect of phased-in rates, typical Entergy New Orleans electric rates will be comparable to neighboring utilities and almost 35% lower than cities like Houston and Dallas where many evacuees still reside. Another utility development, we concluded hearing in Arkansas earlier this month related to Entergy costs recovery rider investigation and post hearing briefs have since been filed. The [APSE] does not have a deadline to file an order in the case. We remain confident that our fuel and purchase to energy expenditures will be found appropriate and that the ECR writer will not be replaced with an alternative recovery mechanism.

Finally we saw progress at the Federal level. First of the -- the fed ruled our power purchase agreement case essentially approving all of the PPAs with some modifications and supporting our RFP process. Our independent coordinator of transmission procedure in September were denied various request for hearing and in October accepted the operating company’s compliance filing with some modification and directed the operating companies to install SPP as the ICT within 30 days of the order. We are pleased to finally be implemented in the ICT deposal and are working closely with SPP to insure that we have a seamless transition to the ICT.

We expect to implement the ICT oversight functions within 30 days of the order and anticipate implementation of the enhanced weekly procurement process by next May. Closing out the update on federal regulation, late last week Entergy Arkansas received a FERC order that completely reversed an earlier ALJ decision. That was an extremely surprising and disappointing development because FERC concluded that a co-op, one of the co-owners of two Entergy Arkansas coal units was entitled to a refund under its interpretation of certain provisions covering replacement power when the unit's output is constrained or reduced.

Previously, the administrative law judge, who actually heard the case found that the plain terms of the agreement require Entergy Arkansas' systems operating constraints when returning the amount of energy the co-op is entitled to, just as we what do for Entergy's ownership percentage, and there is no evidence that Entergy Arkansas violated terms of that provision whatsoever. As a result of this very recent event, we recorded a regulatory charge that is reflected in the third quarter financial statement issued today causing them to differ from the earning pre-released we issued to the market on October 17th.

While we strongly believe the FERC heard this decision, the fact that the FERC reversed the administrative law judge's decision on the issue of a contract interpretation which is pretty straight forward, indicates that Entergy Arkansas that maybe difficult to overturn on a rehearing. Nevertheless, we believe our interpretation is correct and is clearly consistent with intent of the provisioning question. For its decision acknowledges the benefits of ownership but fails to acknowledge the risk of ownership as a co-op should bear. We intend to seek rehearing on this decision.

In the event we are not successful, we will consider whether to seek release in the courts.

Once again our Nuclear business demonstrated outstanding operational results, Northeast's fleet ran at a 99% capacity factor and Arkansas Nuclear Unit 1 completed the equivalent of a perfectly pitched game in baseball. ANO 2 shut down on September 19, begin its eighteenth reviewing outage after a continuous 527 days of operations since its last refueling outage, Entergy's Nuclear 1 uninterrupted breaker-to-breaker run. We also achieved positive results for our Northeast fleet in the form of additional forward contracting for the output and we received notification from the Nuclear Regulatory Commission as a license extension application for Fitzpatrick has been reviewed and accepted enabling the Entergy's staff to proceed with its review.

Finally, we continue to work towards working in our newest plant Palisades to our fleet. All filings for key approvals have been made and are moving forward. We anticipated second quarter closing given the current regulatory schedule in Michigan.

In closing momentum is strong. We are continuing to make strides on all fronts, coming out of a very difficult year in 2005. Happily for everyone, the 2006 storm season is uneventfully drawing to a close. That means another year for infrastructure bolstering of pumping stations, flywheels and floodwalls, and for more progress in some of our own goals; like resolving storm recovery processes and securitizing strong cost and establishing reserves.

It also means returning capital to our owners, for we are seeing many of our stated goals and plans put on hold for over a year now. While we were able to demonstrates some modest progress on this front by initiating action on existing share repurchase programs that were suspended after Katrina, I am obviously disappointed that we weren’t able to do the same on the quarterly dividend.

By now you undoubtedly saw that last Friday, the Entergy Board voted to continue to maintain the quarterly dividend at its current level of $0.54 per hare. This action was an obvious, yet frustrating decision, since the Board takes seriously its aspiration to grow the dividend and is well aware that the current level is well below the average relative to our peers. But this was the recommendation that management brought to Board. Yet as you know, just like we committed to restore the system in order to put customers back in service such that the storms had never hit, we remained committed to those that provided the money to do so, to catch up to where we expected to be on key measures like earnings, dividends, debt ratios as that the storm had never hit also and to deliver top quartile shareholder returns as we have been accustomed to doing.

We look forward to seeing all of you DEI to discuss moving beyond the storms at Entergy. It's been too long since we've been able to do that. And with that, let me turn the call over to Leo Denault. Leo will outline earnings and cash projections for 2007 and beyond, and I hope you'll agree with reflective of our commitment to catch-up to where we expected to be, Leo

Leo Denault

Thank you Wayne and good morning everyone. In my remarks today, I will cover quarterly results, recent progress in nuclear contracting, third quarter cash flow performance, 2007 earnings guidance, and I'll close with a review of a new long-term cash available projections.

Turning to our financial results for the quarter, slide 2 shows that third quarter '06 as reported earnings increased by 11% compared to one year ago. Operational earnings in the current period were 7% higher compared to the third quarter of 2005. The increase in operational results came from a strong quarter performance at Entergy Nuclear. Lower results, the utility [parent] and other served partially offset the increase at nuclear, while the non-nuclear wholesale business was nearly flat quarter-to-quarter.

Slide 3 shows the decline in utility parent and other earnings compared to the third quarter of last year. The factors producing this decline included higher operation and maintenance expense, higher interest expense, lower interest income, and the regulatory charge Wayne mentioned that was recorded due to a forked decision rendered late last week. Partially offsetting these factors where additional revenue from sales growth and rate actions implemented since third quarter last year and the lower income tax expense.

In reviewing the components of results this quarter, some additional detail may be helpful. Starting with the utility, several factors materially impacted operation and maintenance expenses this quarter. One factor was the absent of a benefit realized last year in connection with the low level radioactive waste compact settlement. This settlement reduced O&M by $0.04 in the third quarter of '05. Another item related to the effective storm recovery efforts. Because our workforce was concentrated on storm restoration in the wake of Hurricanes Katrina and Rita in the third quarter of 2005, the shift and focus moved resources away from many O&M activities thereby reducing these expenses in the quarter. To returns to more normal expense pattern this year increased labor and benefits costs producing an increase in O&M on a quarter-to-quarter comparison. The third factor relates to increased costs associated with the additions of Perryville and Attala plants and higher storm reserves, all of which are being in recovered in rates.

Finally, we did experience higher legal and regulatory costs as well as higher insurance expense. Higher interest expense during the quarter is another item associated with the continuing storm effects at the utility. Additional borrowings for ramping up in the third quarter of '05 to fund storm recovery and they remain outstanding today.

Lastly, lower income -- lower interest income also reduced utility results due to the absence of last year's compact settlement, a portion of which was recorded here. On a positive note the utility experienced an improvement in sales across all customer classes this quarter. Improvement which exclude [inaudible] primarily reflects the returns of service of the Mississippi customers who were hit by storm outages in the third quarter of 2005 and a portion of the Entergy Louisiana customers. The improvement in industrial sector also reflects a storm-related rebound. However, the overall recovery of this sector is trailing our original expectations and chemical manufacturers in particular have been hampered by high energy prices.

One final item that benefited utility trend and other was lower income tax expense. The lower expense relates to a pension item reflecting the benefit of the tax deduction accounted for using the flow-through accounting. This accounting treatment matches the regulatory treatment of the item for rate purposes.

Moving to Entergy Nuclear, we recorded higher earnings as this business had an excellent operating quarter. The increase is due primarily to higher contract pricing which contributed $0.07 in the current period compared to the third quarter of '05. Other positive drivers at nuclear were increased generation from the upgrade completed at the Vermont Yankee earlier this year, increased generation due to fewer unplanned outages as reflected in the 99% capacity factor achieved for the quarter, and a reduction to the decommissioning liability to reflect timing of decommissioning at one of our North Eastern plants. [With all the] routine adjustments like this one are made from time to time similar to the ones made in the third quarter of '04 and the first quarter of '05. Partially offsetting these positive factors were increase in O&M due to higher benefits and insurance expenses.

Closing out the discussion of quarterly results, we look at the non-nuclear wholesale business. Results in the third quarter of '06 were slightly improved over a year-ago, the return to service of the Harrison County unit damaged by an explosion of a third party pipeline and reduced overhead expenses were the primary contributors to earnings increase.

Turning to slide four, we continue to pursue opportunities to contract at attractive prices on terms that are consistent with our risk criteria. We are pleased to report that significant progress was made on this front in the third quarter. Before considering the addition of Palisades, we increased our hedge positions by an average of approximately 10% over the 2008 through 2010 timeframe. The pricing on new contracts was somewhat below transactions completed earlier in the year. However, pricing on new contracts this quarter on average 33% above are prices for the portfolio at the end of the second quarter. Slide four also shows that factory in Palisades significantly enhances our hedge position for each of the years 2007 through 2010.

Slide five; includes a snapshot of our cash flow performance this quarter, which was quite solid. In the current period collections of previously deferred fuel costs, lower non-capital storm spending and higher revenues at Entergy Nuclear increased net cash flow by nearly $450 million. Today we are issuing '07 as reported in operational earnings guidance in the range $5.40 to $5.70 per share with all components of our guidance detailed on slide six.

Our Utility, Parent and Others, sales growth and improved pricing coming from rate actions are expected to make a positive contribution to earning along with accretion. With respect to growth, we are projecting some continue storm related impact at Entergy Louisiana as a portion of their customer base has not yet returned. Higher O&M, depreciation and higher interest expense along with an adjustment for normal weather will largely offset the positive drivers at the utility.

The contribution to '07 earnings from Nuclear pricing is projected to be significant at $0.70 per share and increased capacity revenue will add an additional $0.10 per share to earnings. Also we currently expect to close the Palisades' transactions in the second quarter of the year and revenue from that plant will also add to Nuclear's results.

Finally accretion will round out the positive factors including in '07 guidance for the Nuclear business. These positives are expected to be partially offset by higher O&M and the impact of two additional refueling outages including one at Palisades. The final component of our '07 is an estimate of a moderate increase in losses at the wholesale business which moves our consolidated mid-point to $5.55 per share.

Looking ahead, the combination of continued strong cash generation and financial discipline give us an ample flexibility to create long term value for our owners. As slide seven shows, our new estimated cash available for capital deployment is $3.2 billion for the period of '07 through '09. Our build up of net cash available over this three year period include solid growth in net cash flow provided by operating activities particularly at Entergy Nuclear; increased plant capital expenditures reflecting the purchase of Palisades and potential supply plant additions at the utility; a conservative estimate for dividends and stock repurchases covering options and equity units and additional debt capacity at a level consistent with triple B credit quality. The strength of our cash available going forward gives us the flexibility to cease opportunities in the market and/or to return capital to our owners.

We recognize your patience in standing bias as we work to recover from the challenges of 2005. I echo Wayne's sentiments when I say that we are focused on returning value to you in response to your continued commitment to Entergy.

In conclusion, the optimism we have shared with you in previous quarters is now taking shape in the form of strong cash flow projections and earnings growth. We will continue to assess the opportunities available and are excited about our prospects for 2007 and beyond. As we execute going forward, we will do so with discipline and with a mind toward creating value to our shareholders.

We now turn to our Q&A session and our senior team is available to respond to your questions.

Question-and-Answer Session

Operator

The question and answer will be conducted electronically. (Operator Instructions) Our first question comes from Dan Eggers with Credit Suisse.

Dan Eggers - Credit Suisse

Hi, good morning.

Wayne Leonard

Good morning, Dan.

Leo Denault

Good morning Dan.

Dan Eggers - Credit Suisse

First question on, I guess share repurchase activity, you are looking at the employed share count reduction for next year and the fact is that you guys are in the market. Are you assuming that you will announce an expenditure repurchase for 2007 and beyond the residual pre-Katrina amount?

Leo Denault

We are not in those estimates Dan. What we have got in there is completion of the $1.5 billion program and the offset of employee ownership plan issuances.

Dan Eggers - Credit Suisse

And that number is included -- that is included in the numbers before you get to the $3.2 billion of incremental available cash; is that correct?

Leo Denault

Correct.

Dan Eggers - Credit Suisse

Okay, and you guys -- you said that you are in the market already or you have been in the market in 2006; is that correct?

Leo Denault

That’s correct.

Dan Eggers - Credit Suisse

Do you want to give any thoughts on how much of that you are going to get done in 2006?

Leo Denault

We typically don’t disclose what we have done but our estimate would be that we would finish up the $400 million by the end of the year.

Dan Eggers - Credit Suisse

Okay. On the guidance you guys gave today, what is the implied power places on the unhedged component at Nuclear?

Leo Denault

That’s in the release Dan, I believe it's $69 (inaudible).

Dan Eggers - Credit Suisse

Okay, I apologize about that. And then you said, the last question and I will let somebody else go, but on the CapEx side you said there were some inclusion of capital being spent at the utility as part of that CapEx program. Can you give some color on how much you guys expect to spend on the generation front?

Leo Denault

We will give more detail on that as we go forward into the disclosures of the 10-K, we will have that same three year projection in hose Dan, but there are some dollars in there for assumptions around the supply plan as well as some transmission investment and from environmental cost. We'll give more detail of that as we go forward in beginning of next year.

Dan Eggers - Credit Suisse

Okay, thank you guys.

Operator

Our next question comes from [Dick Hayden] with Deutsche Asset Management.

Dick Hayden - Deutsche Asset Management

Yes, thank you. Wayne and Leo, could you comment about your -- when you are contracting for nuclear power, where is your fuel contracting, how are we matching the two?

Leo Denault

I'm sorry Dick, what was the last part of that?

Dick Hayden - Deutsche Asset Management

The matching of your nuclear contracting for power against your fuel purchase for nuclear fuel?

Leo Denault

Wayne will give you that.

Wayne Leonard

Yeah, Dick, we’re already hedged by an large out through 2008 into 2009 with our fuel, and we've been actively looking at and hedging portions out further than that. As you would call, we've stated for a while that we've been out through 2008 into 2009 with our contracting previously as we saw the run-up in nuclear fuel prices, but we’ve been working quite actively on -- out through 2010 and beyond even.

Dick Hayden - Deutsche Asset Management

Is there a concern that this nuclear fuel cost might rise beyond your current expectations?

Wayne Leonard

There's always a concern that it could rise beyond our current expectations. We’ve been watching that very closely and certainly it's something that over the course of the last couple of years has gone up tremendously. As you know, the cost of nuclear fuel itself, while it was only about 25% of the cost of fuel, is actually uranium price, as it gets fabrication and other aspects of it to go into that. So, it's not a tremendously significant change in the overall production cost when that goes up, but it's something that we’ve been paying a lot of attention to, and that’s why we've been actively trying to manage it going forward.

Dick Hayden - Deutsche Asset Management

Okay. Thank you.

Wayne Leonard

Yeah, basically, we just by nearly, we do -- we try to manage that going forward to keep the cost as low and stable as possible, but as you know these plants don’t trade off of uranium. They trade more closely to gas. So our point of view relative to gas and the relationship there between power prices is much more important. The margin -- we're not like the gas plant where it's critical, so we could end up with a contract that’s below water because we have matched up the two. The few we manage as a kind of separate item and to increase the margin as much as we can, but as far as having a (inaudible) money contract, that’s really not an issue because the margins are big.

Dick Hayden - Deutsche Asset Management

Okay, thank you very much.

Wayne Leonard

Thanks, Dick.

Operator

Thank you, our next question comes from Ashar Khan with SAC Capital.

Ashar Khan - SAC Capital

Good morning, Leo could you if I read the assumptions [Palo Verde] is going to add $0.13 operational and then you said there was an accounting for the PPA which adds another seven for '07. And if I am right, the output is nearly half in '07 and then I guess you have the full year in '08. Can we then assume there is an additional $0.13 to $0.15 in '08, sorry palisades, I am getting the nuclear wrong, for the palisades in '08 versus '07?

Leo Denault

You certainly got Gary going with the reference that some one [Palo Verde], the -- we're looking at a close in the second quarter and you're right, we got about $0.13 for the plant and another $0.07 or so for the PPA. It's going to depend on where that sits when close, so its difficult to say there's also and outage in 2007 and not in 2008 so you would anticipate that we get a full year plus not and outage in 2008 around palisades, but as far as what the PPA accounting is that’s going to be set primarily at what prices look like at the day we close the plant.

Ashar Khan - SAC Capital

Okay, so basically there will be no PPA effect in '08, but there will be more generation in '08 because you have the full year and you have a less of an outage in '08 is that correct?

Leo Denault

No there will be a PPA adjustment every year of the plant. It's just that you will know -- we set it in terms of where it starts at the time we closed the plant based on the what prices are at that point in time and then, it will work its way out over the life of the plant. There will be an adjustments earnings every year that will net to zero effectively over the life of the plant, but we won't know exactly where that starts until you get to the day you close the plant, so it will show up in both years.

Ashar Khan - SAC Capital

Okay, thank you.

Operator

Our next question comes from Michael Lepides with Goldman Sachs.

Michael Lepides - Goldman Sachs

Hey guys congratulation on the quarter, two regulatory items. One, when we think about New Orleans what rate base should we be kind of incorporating in our models after 2007. I mean prior to the storm, it was around $380 million or so, I don't know kind of how the storm accounting treatment will impact rate base, that’s the first question, and second, can you provide an update in terms of level of under earning at the Texas subsidiary and the rate case timeline there?

Leo Denault

Okay, Rick Smith, President of our utility operations will I think he got both those ready ready for you.

Wayne Leonard

Mike on the first question, rate base will be about same, because of -- with CDBG funds, it's pretty much taken care of all the storm cost that were incurred. And I am sorry, I didn’t pick up those second question. Well we would expect that would get up into around 11% on a [wild] basis, we haven’t really put that case together but we would file a case that would pick up the difference between what we are earning currently and what we would ask for in that case.

Michael Lepides - Goldman Sachs

(inaudible) if we ask where you think you are currently earning or at means based on your 2005 filings at the PUCT; I mean in the end of the year filing or your annual report you file every year at that PUCT.

Wayne Leonard

Yes. I think it's around 8%.

Michael Lepides - Goldman Sachs

Okay. Thank you.

Operator

Our next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates

I am sorry. I thought I signaled that my question has been answered. It has, thanks a lot guys.

Operator

We will move to Andrew Levi with Bear Wagner.

Andrew Levi - Bear Wagner

Hi. How are guys doing?

Leo Denault

Just fine; thanks Andy.

Andrew Levi - Bear Wagner

Just to clarify something. So, the $400 million is what you are going to complete between now and the end of the year but we don’t know the missing piece which is how much have you done of that $400 million.

Leo Denault

Effectively that’s correct. We typically disclosed during the quarter -- at the end of the quarter what we have acquired during that quarter

Andrew Levi - Bear Wagner

Right, and did you disclosed that this quarter?

Leo Denault

Well the Q hasn’t come out yet for the quarter.

Andrew Levi - Bear Wagner

Okay. So, waiting until the Q comes out is kind of a mystery. And there is no other type of hint or guidance or anything like that you can give us an idea of as far as what have been done thus far.

Leo Denault

No.

Andrew Levi - Bear Wagner

Okay. Great, thank you very much.

Operator

Our next question comes from Steven Rountos with Talon Capital.

Steven Rountos - Talon Capital

Hi, good morning. Actually I wanted to touch on the free cash flow for one second. At the Merrill conference, there was a slide in your presentation with the projected free cash flow from '06 to '08 and that was $2.8 billion. What is the comparable number from '07 to '09?

Leo Denault

What we have disclosed in cash available was $1.9 billion and -- and that included at that point in time our previous disclosure but then it also included that we are going to acquire Palisades. What we've done now is roll forward that table from '06 to '08 time to '07 to '09 and that's the comparable number to the 19 is $3.2 billion.

Steven Rountos - Talon Capital

How were the comparable numbers to the 2.8.

Leo Denault

I will have to look at the 2.8 -- is 2.2.

Steven Rountos - Talon Capital

So, the free cash flow from '07 to '09 to 2.2.

Leo Denault

Yes, that comparable number.

Steven Rountos - Talon Capital

So, if I were to take your net cash flow provided by operating activities of 8.3 less 6.1 of plain CapEx plus 1.6 of dividend, that’s only giving me like 0.6 billion of free cash flow. What the number there.

Leo Denault

If you look at table 10 in the release, we laid that out. It is the 8.3 less 5.2 of CapEx and then 100 million of deferred dividend and investing cash flows that’s about 800 million. That strikes that total which is comparable to the 2.8 of 2.2. And then if you look at common dividends at 1.6 and then the capital structure changes which is our keeping the caps structure flat, now there share repurchases in the like that gets you to the $3.2 billion.

Steven Rountos - Talon Capital

Okay, so the free cash flow of 2.8 or 2.2 is before the dividend.

Leo Denault

It's before the common dividend.

Steven Rountos - Talon Capital

Before the common dividend, okay. That is better.

Leo Denault

You will notice we changed the title of it in that current release to subtotal, I suppose to free cash flow to try and eliminate some confusion around that.

Steven Rountos - Talon Capital

Got it, okay that’s make sense. Thank you.

Operator

Our next question comes from Neil Stein with [Eleven Capital].

Neil Stein - Eleven Capital

Yeah, good morning, couple of questions. First, any new plants for your fossil non-regulated assets?

Leo Denault

We don’t have any new plans for those Neil. Its pretty much the same plants that we have had all along, just try to find the most -- get the most value out of those as we can. As you know over the course of the last several years we have put in place long term and short term contracts after those plants we have sold, entire plants and we have sold pieces of plants and we would continue to look at all of those opportunities as we go forward but its really just trying to find the -- like we do with everything else, the highest value that we can out of those facilities.

Neil Stein - Eleven Capital

So you don’t currently have a sales process in place?

Leo Denault

I guess, I would rephrase that a little bit to, we are always looking to sell the plants or sell the power out of them.

Neil Stein - Eleven Capital

Okay, and then shifting gears to Nuclear business, the production cost are up to around 20.50 for '07. Where do you expect the trend over the next few years?

Michele Lopiccolo

I think you will see a trend within inflation as it goes along, but we continue to factor on how do we adjust these. I mean, what tends to drive it as the NRC has increased its fees, we have Palisades factored into that, as well as the earlier question, we are over the years anticipating (inaudible) integrating some increasing fuel cost. But like we said, we continue to wok with that but I would expect to stay with -- within the rate of inflation.

Neil Stein - Eleven Capital

And then are there any, I guess you've palisades now other -- between palisades and other economies at the North Eastern plants, are there any additional savings you can pickout the plans is there, you know, additional, further initiative you could do?

Wayne Leonard

Well, I think what we’re doing right now is we’re looking for those, and I think as we go forward, then further we'll discuss what we think those are. I think clearly we’re seeing that there should be more opportunities as we’re able to leverage our cost over a larger fleet of plants.

Neil Stein - Eleven Capital

Okay, and Leo, just one follow-up question on the fossil non-regulated, do you have the tax basis on those assets?

Leo Denault

Not off the top of my head. If you might follow-up with Michele, she can get you that.

Neil Stein - Eleven Capital

Okay, thanks very much, see you at [DEI].

Leo Denault

Thanks.

Operator

Our next question comes from Jonathan Arnold with Merrill Lynch.

Jonathan Arnold - Merrill Lynch

Hey guys, good morning.

Leo Denault

Good morning, Jonathan.

Jonathan Arnold - Merrill Lynch

Just a quick question on -- you made the statement that there no buybacks assumed in 2007, I guess beyond options offsets, but that in the earnings factors that you gave two years, you talked about end of year fully diluted shares in '06 being 213, and then 206 for 2007, can you kind of reconcile those two things?

Leo Denault

Well, the -- what we have and what our estimate would be today, it's probably more like 211. The 213 was what we gave at the beginning although the guidance table hasn’t changed from when we started the year.

Jonathan Arnold - Merrill Lynch

Okay.

Leo Denault

So, we would anticipate it would be lower at the end of this year.

Jonathan Arnold - Merrill Lynch

As you go to '06 and '07 without a major buyback?

Leo Denault

It’s the averaging concept, if you look at what you're looking at as average shares over the course of the year, and so you finished the 400 million plus options offsets that we didn’t have in 2006 guidance, and then you look at it going forward in 2007 and you would just have the options offsets.

Wayne Leonard

The average -- the way you do the averaging in terms of calculating the average shares outstanding is what creates that Jonathan.

Jonathan Arnold - Merrill Lynch

The way you're saying end of year fully diluted, you’re kind of meaning average for the the year?

Leo Denault

Yes.

Jonathan Arnold - Merrill Lynch

Okay, thank you.

Wayne Leonard

Jonathan it's Wayne, I don’t want to leave the impression with anybody that we've decided, there won't be a buyback program that will be extended into next year just like the dividend we haven’t made a decision to not raise the dividend next year. Those are things that are all on the table, our board started with a process of reviewing the cash flows and the capital expenditures and internal needs in some board meeting last week. They will continue that process in much more detail at the December board meeting and that would give us I think a much better feel at that point in time where we'll stand for '07. We'll also at that time have -- and actually I think we'll have a decision in Texas relative to where we are going to come out there and then, we will be -- we will have -- we'll be close to having the interveners' testimony in Louisiana. So we'll -- by the time we start the first of the year, we'll have a much stronger recommendation to the board in terms of how to play cash for next year. It is like I said that question, we have not asked the question at the board level yet with regard to what their preferences are. But that will be coming up.

Jonathan Arnold - Merrill Lynch

Okay, that’s helpful. Thank you, Wayne.

Operator

And we'll take our final question from Shalini Mahajan with UBS.

Shalini Mahajan - UBS

Good morning.

Leo Denault

Good morning.

Shalini Mahajan - UBS

Of the 5.2 billion CapEx for ['07, '09], I know Leo you mentioned there would be details in the 10-K? You mentioned there would be more details in the 10K, but could you break this into maintenance versus growth CapEx?

Leo Denault

About 2.7 billion of that is maintenance CapEx and the rest of it would be in the supply plan palisades, some transmission project that allow us to work through the supply plan etcetera.

Shalini Mahajan - UBS

Okay and then on the '07 outlooks for the utility, it's showing no growths year-over-year, how should we be thinking about earnings growth from this part of the business going forward?

Wayne Leonard

Let, Rick talk about that since I am giving an evil outlook on that.

Richard Smith

Well, I mean I think it's what we have talked about before, I mean 2007 gets everything kind of [ridded] and then '08 will have the cut through all the storm recovery and then you will see growth off of 2007, and I think we typically have been about 2% to 3% per year.

Shalini Mahajan - UBS

And you are assuming a decision on your Entergy Arkansas case by the middle of the year?

Richard Smith

Yes.

Shalini Mahajan - UBS

For '07?

Richard Smith

Yes.

Shalini Mahajan - UBS

Okay. Okay, alright thank you.

Richard Smith

Thank you.

Wayne Leonard

Thanks.

Operator

And there are no further questions, I would like to turn the conference back over to our presenters for any additional or closing remarks.

Michele Lopiccolo

Thank you operator 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 Regulations G compliance statements. Our call was recorded and can be accessed for the next seven days by dialing 719-457-0820, replay code 4496801. This concludes our call, thank you.

Operator

This concludes today's presentation, thank you for your participation and have a wonderful day.

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Source: Entergy Q3 2006 Earnings Call Transcript
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