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Entergy (NYSE:ETR)

Q4 2010 Earnings Call

February 08, 2011 11:00 am ET

Executives

Gary Taylor - President of Utility Operations

J. Leonard - Chairman, Chief Executive Officer and Chairman of Executive Committee

Leo Denault - Chief Financial Officer and Executive Vice President

Richard Smith - President of Entergy Wholesale Commodity Business

Paula Waters - Vice President of Investor Relations

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Greg Gordon - Morgan Stanley

Paul Patterson - Glenrock Associates

Ashar Khan - SAC Capital

Marc de Croisset - FBR Capital Markets & Co.

Steven Fleishman - BofA Merrill Lynch

Operator

Good day, everyone, and welcome to the Entergy Corporation Fourth Quarter 2010 Earnings Release Conference Call. [Operator Instructions] At this time, for introductions and opening comments, I would like to turn the call over to Vice President of Investor Relations, Ms. Paula Waters. Please go ahead, ma'am.

Paula Waters

Good morning and thank you for joining us. We'll begin this morning with comments from Entergy's Chairman and CEO, Wayne Leonard; and then Leo Denault, Entergy's CFO, will review results. In an effort to accommodate everyone with questions this morning, we request that each person ask no more than two questions. After the Q&A session, I will close with the applicable legal statement. Wayne?

J. Leonard

Okay, thanks, Paula. I'll begin today with our most frequently asked question, what's the latest in New York and Vermont?

Starting in Vermont, at the end of October, the Atomic Safety and Licensing Board denied a late filed contention on hard-to-access electric cables, finding that reopening the case was not likely to lead to a different outcome. The petitioner, the New England Coalition, appealed that decision to the Nuclear Regulatory Commission. In parallel, we continued to supply the NRC staff information on related issues to assure the safety valuation report remains complete as time continues to pass. And as you know, we are over five years since our original filing.

Regardless, once the expected supplement to that safety valuation report is issued, we're expecting a positive decision from the NRC on VY [Vermont Yankee] license renewal application. Importantly, NRC regulations allow for the commission to issue the license during a pending appeal.

We are committed to maintaining open and timely communications in Vermont, however great the challenge is for gaining public support in disproving the negative put in the public's mind that the age of the plant is determinant of its condition. That is essentially the position Governor Shumlin took last month when he said, "It was designed to be shut down in 2012, and that 40 years is up in 2012." He went on to say, "It's old, it's tired, and it should be retired." In fact, he has encouraged New York to take the same position.

States or governors are certainly free to voice their opinions, but the NRC, which has jurisdiction on these matters, must deal with the facts. The truth is, what those in the industry already know to be true, that the 40-year license was based on the expected economic life, not the physical life, the nuclear plants were designed for. Recognizing this fact, the NRC set two principals in reviewing license renewal applications. First, that all operating plans provide and maintain an acceptable level of safety; and secondly, each plant's licensing basis is required to be maintained during the renewal term in the same manner and to the same extent as during the original licensing term. To that point, with the constant replacement of equipment and design upgrades, most of the 1970s vintage plants are in excellent operating condition, and Vermont Yankee's operating records certainly supports that fact.

For example, during the first 30 years of its life, Vermont Yankee's average capacity factor was below 78% and it never had a breaker-to-breaker run. Over the last five years, the capacity factor has been above 94% and it has had two breaker-to-breaker runs. In fact, Vermont Yankee has been evaluated in the excellent category as compared to its peers.

Efforts also continue to secure a new power purchase agreement with the Vermont Utilities. Negotiations had been ongoing for some time now, and we have made progress toward reaching agreement on key terms and conditions that would provide citizens of Vermont continued access to clean and affordable power. However, while we would certainly prefer to sell power in state, that is not a necessary condition, of course. We expect to have clarity by around the middle of 2011 on all the open issues we are pursuing, including but not limited to securing a PPA with the local utilities.

Importance of Vermont Yankee's continued operations to Vermont was highlighted in a presentation given last month by ISO-New England to a Vermont incentive committee. The system operators' assessment of reliability of the Vermont electric system found what you would expect; that with that amount without Vermont Yankee, existing state reliability risks increase. ISO-New England studies on the performance and costs of transmission solution alternatives to VY are expected in first half of 2011.

But not only would reliability likely deteriorate, studies have shown power rates would also rise as supply is reduced. To that point, on January 26, 2011, IBM, the major employer in Vermont, said, "It takes about $35 million a year in power to power its Vermont facility, and the company estimates those costs will go up by 25% if Vermont Yankee goes offline." And in an open letter to Governor Shumlin on February 3, 2011, community leaders representing industry, labor and energy stakeholders expressed concern that the window of opportunity was closing to allow the Public Service Board to complete its docket of Vermont Yankee's continued operations beyond 2012 and emphasized the serious economic consequences for Vermont if the plant is not allowed to operate under a renewed license.

One final note on Vermont Yankee, in early of November, we announced the process to explore potential sale of plant. The confidential nature of the process does not allow me to provide any updates today, but all our actions remain consistent with the objectives of keeping the plant open and meeting stakeholder needs.

For the pessimists, and I know there may be a lot of you out there on this issue, one thing you should know is, and it may not have been well, but over the last few years, VY's earnings contribution to Entergy at best has simply covered its fully allocated overhead. Some of that is fixed and some of that is variable.

Turning to New York. On December 3, a significant milestone was achieved when NRC issued the final supplemental environmental impact statement. In short, the NRC staff concluded that there were no environmental impacts that would preclude another 20 years of operation for new deployed units. The ASLB will now hold hearings on these new contentions which begin at the end of this year or early next.

Also in December, the Administrative Law Judges with the New York Department of Environmental Conservation issued a ruling and schedule in the water quality certification and the State Pollutant Discharge Elimination System or SPDES water permit proceedings. The schedule is set for hearing to begin June 14 before the ALJs on a number of issues, including the threshold issue, regarding whether Entergy could even obtain air permits necessary to build and operate cooling towers in Indian Point, given the Air Quality's [National Ambient Air Quality Standards] non-attainment status in the area. Related issues in force include the effectiveness of our proposed best technology available alternative, Wedgewire screens. A decision by the ALJs on the issues to be tried starting this summer could be referred to the commissioner of the New York Department of Environmental Conservation by the end of this year or early next.

As you know, on January 18, President Obama issued an executive order based upon the principles that the regulatory system, "must protect public health, welfare, safety and our environment while promoting economic growth, innovation, competitiveness and job creation; and must promote predictability and reduce uncertainty; and must identify and use the best, most innovative and least burdensome tools for achieving regulatory." He went on to say, "A government-wide review of the rules already on the books to remove outdated regulations and stifle job creation and make our economy less competitive." The executive order was issued to make clear, "that this is the operating principle of our government."

Certainly, the cooling tower versus Wedgewire screens matter at Indian Point and similar cooling water intake issues around the nation would seem to be a good opportunity to meet the President's stating operating principle for government as EPA moves toward issuing new intake structure rules.

Then on January 27, Chairman Fred Upton of the House Energy and Commerce Committee called on the NRC for greater transparency and certainty in the license renewal process. He stated that, "Gone are the days of reasonable expectation for a stable and predictable regulatory process, and that this uncertainty and lack of transparency in the process is needlessly putting plants and thousands of jobs at risk."

In particular, Chairman Upton sited the applications for Pilgrim and Vermont Yankee, saying, "Today marks an unfortunate milestone for the Nuclear Regulatory Commission as the timeline for the reactor renewal process has now doubled without explanation, eclipsing 60 months with no end in sight." And just yesterday, on the Senate side, in their own letter to the NRC, Senators Inhofe and Vitter referenced Chairman Upton's letter as well as President Obama's Executive Order, questioning the extended timeframe to review license renewal applications for plants in some areas of the country and the need to protect the rights of the applicants, as well as the public or local citizens in the process. They requested responses to their specific questions by February 24, as well as such things as e-mails and phone logs supporting the activity to date.

The mounting press rates on these issues seem to be driven by the fact that federal government has cleared jurisdiction on these issues and Congress is questioning whether that is being exercised as intended. In any event, we're hopeful that this increased attention will bring expedited resolution.

Moving on to the utility. When we announced the [indiscernible] spin-off in 2007, a lot of people questioned who would want the utility stock when EWC or Enexus at the time, was so attractive. We answered those questions with our belief that the utility was still a work in progress or unfinished business.

Part of our strategy back in 1998, when we changed management, was to make it the premier utility in America. But between dealing with operational issues and the cost to rebuild the system after five of the six of the largest hurricanes in the history of the company and the fallout from numerous System Agreement disputes, we have never achieved the full potential that we had envisioned for the utility. But today, it is a lot closer than it was then, and it's a lot closer that some may have noticed.

In October of last year, we raised our long-term net income outlook for the Utility segment to 6% to 8% compound average growth through 2014 from the previous 5% to 6%, one of the fastest-growing utilities, if not the fastest in the country. As you know, we have secured recovery of $2.4 billion of storm costs and established cash reserves of nearly $330 million today, something that you wouldn't have imagined even possible five years ago.

One of the two key drivers of the industry-leading outlook is earning our allowed ROEs in all jurisdictions, particularly Arkansas and Texas. The rate actions approved in both states in 2010 were constructive, but there's still more work to be done. Looking ahead, timely recovery of increasing capacity costs is expected to be a significant risk, affecting Entergy Texas' future financial performance.

To that end, we are working with our state legislators on legislation to be introduced in the near future that would give the PUCT explicit authority to implement streamlining measures such as distribution cost recovery writers, purchased power capacity writers and formula rate plan. Another substantial aspect of utility growth plans are additional investments that are consistent with our obligations to maintain effective and efficient operations.

In January, the Louisiana Public Service Commission approved the acquisition of 580-megawatt Acadia plant with cost recovery beginning immediately after purchase. With this final regulatory approval now in hand, closing is targeted by March 31. After the Acadia acquisition closing, four of the utility operating companies will have acquired five plants since 2005 to a well-developed, highly regulated and disciplined procurement process, the same we expect to use and continue to use going forward.

On that point, utility operating companies continue to negotiate on potential acquisition of two gas-fired generation resources and an approximately 500-megawatt PPA proposal of a third-party supplier identified in the summer of 2009, long-term RFP that concluded last summer. While no definitive agreements have been reached today, we remain in active discussion, targeting conclusion at around the end of the first quarter.

Regarding the Ninemile self-build project, a fourth resource selected with the RFP valuation process that was certified by the independent monitor, project development activities are ongoing with the definitive announcement estimated in the first half of 2011. This 550-megawatt combined cycle natural gas plant is targeted for completion no later than the summer of 2015.

On a less positive note, Westinghouse has informed us that they will be unable to deliver Waterford 3's replacement steam generators for installation this spring as originally planned. After hydrostatic testing, which is the last step in the fabrication process, Westinghouse found separation of stainless steel cladding from the carbon steel base metal in the channel head on both replacement steam generators in areas beneath and adjacent to the divider plate. For those who do not have a Ph.D. in engineering, let's just say that would be a bad thing. Westinghouse continued its analysis to determine the root cause and develop repair options.

Meanwhile, back at Entergy, spring 2011 refueling activities will include extensive inspections to validate preliminary engineering analysis that supports Waterford 3 operating safely for another full cycle before replacement of the steam generator. In transmission, the FERC approved in interim extension of the independent coordinator transmission arrangement in November 2010 and in certain enhancements to that arrangement in December 2010, providing for analysis of longer-term structures.

Charles Rivers Associates has completed the cost/benefit analysis studies on the Entergy system showing the Southwest Power Pool, as well as Entergy's Arkansas joining the Southwest Power Pool on a standalone basis. They're expected to complete comparable cost/benefit analysis on the Entergy system or Entergy Arkansas standalone joining the Midwest ISO by the end of February. The results of these studies will be critical factors for retail regulators, including the Entergy Regional State Committee, or what we all call the ERSC, on evaluating alternatives for the current transmission structure. Under the procedural schedule established by the Arkansas Public Service Commission, Entergy Arkansas' assessment of its post-System Agreement strategic options is due in May.

Last October, Charles Rivers and Associates' final report on the cost and benefit for the Entergy Arkansas joining SPP on a standalone basis found that the modest tower exchange of variable economic benefits were not sufficient to offset the fixed cost of Entergy Arkansas joining the SPP RTO. The Arkansas Public Service Commission has set a target date of October 7, 2011 for a final order on Entergy Arkansas' post-System Agreement structure.

We need look no further than the most recent System Agreement issue to illustrate why their current agreement has been the source of so much dispute. An initial decision by the FERC ALJ issued last December found an increased accounting for wholesale opportunity Entergy sales violated the System Agreement and ordered refunds to utility operating companies. This case concerned the limited amount of short-term, wholesale energy sales, less than 0.5% of the total system to third parties from 2000 to 2009.

In previous orders, the FERC rejected arguments that these sales were inconsistent with the System Agreement and that the other operating companies had a right of first refusal on these assets markets. Subsequent to the ALJ's initial decision, the FERC staff filed briefs on exceptions in January supporting the company's actual practices and consistent with utility operating company rationale, filed its own briefs. We continue to believe we and the FERC staff are on the right side of this issue, and given past practice and supporting FERC decisions and FERC staff positions, we were very surprised by the ALJ's initial decision.

Turning to 2011, we have numerous goals at the utility, particularly with regard to the regulatory calendar. In addition to the annual formula rate plan filings in Louisiana, Mississippi and New Orleans, the utility will address potential timing in future rate filings and continue to pursue other regulatory mechanisms like riders and formula rate plans in Texas and Arkansas and the future regulatory processes and structures, plans for Louisiana and Entergy Louisiana, given that the FRP framework expires with the 2010 test year.

Achieving resolution on long-standing issues regarding transmission structure and System Agreement is another aspiration. For this to happen in 2011, it will require parties to put the scars of numerous years of litigation behind them and focus on what is important now. There are numerous things that we believe that we can agree on, but achieving total agreement among the retail regulators on every issue is highly unlikely. But we clearly believe it is in everybody's best interest to come to a self-determined mutual agreement on as many of the issues that we can agree on as possible.

Operationally, during 2011, the Utility will focus on managing major projects in its capital plan, consistent with cost and scheduled objectives, including plant fossil fuel, fossil generation acquisitions and the self-build CCGT plant, Nuclear's grand gulf upgrade and a revised plan to install the Waterford 3 replacement steam generators and ongoing transmission and generation of the projects. Completion of a majority of these projects is planned for 2012 and beyond.

Regarding EWC's goals in 2011, EWC will continue to focus first and foremost on maintaining safe and secure operations for its generating fleet. But I can't emphasize enough the importance and the effort we put to resolving lingering uncertainties on license renewals. The NRC operating licenses expire next year not only at Vermont Yankee, but also at Pilgrim. While the prices and renewal process will extend beyond 2011, EWC will focus on encouraging the federal and state regulatory processes to move toward an expeditious conclusion.

In addition, EWC will continue to execute on opportunistic but disciplined portfolio and risk management activities and transactions like the sale of the Harrison County power plant which closed on December 31, 2010.

Before turning over to Leo, I want to recap a strong year of operational and financial accomplishments. Not only did we set another record for the sixth year in a row and 10 out of the last 11 years since 1999 for the highest consolidated operational earnings per share in company history, we also had the highest ever operating cash flow in company history. 2010 operational achievements are just as impressive.

At the Utility, we achieved a number of constructive utility regulatory outcomes and improved customer service metrics across the board compared to 2009. At Nuclear, we delivered the highest utility fleet capability factor ever at 94.1%, completed two breaker-to-breaker runs at factory and at Vermont Yankee, set new plant records in consecutive operations at Fitzpatrick and Waterford 3, while Pilgrim and Cooper record runs continue today and recorded the highest plant production for a cycle at Indian Point 2 and for a refueling year at Palisades.

2010 ended with more than half of our nuclear plants evaluated in the excellent category as compared to its peers. Despite this, strong operational financial performance total shareholder returns for 2010 was negative. The overhang or uncertainties in New York and Vermont that I discussed earlier are certainly significant contributing factors. As is expected, depressed power prices compared to previous expectations of the market as evidenced by 2010 total shareholder return in which the bottom two quartiles in the Philadelphia Utility Index were dominated by the so-called hybrid or merchant generators.

Having said that, we have to do a better job of driving the pace of favorably resolving the outstanding issues that we can influence, while continuing to enhance our market base point of view on power prices and expediting the execution of our hedging strategies, but maintaining the same discipline that we always have had in that regard.

Just as we have not been waiting on operational regulatory issues to resolve themselves, we have not lessened our resolve on achieving the aspirations we have previously articulated. Despite going from leader to laggard on stock price growth, we believe we have made substantial progress in meeting our aspirations going forward. Utility is one of the fastest growing in the country. The EWC is one of the better hedge merchant generators relative to near-term commodity prices in a very uncertain market. Operationally, new records have been set in almost every aspect of the business. At the same time, our Board of Directors and management's commitment to seek and act on transactions that create value has not changed.

The golden strategies I discussed today are the same ones we've talked about for a long time now. If at times it seems we have changed course or are saying something inconsistent with what we may have indicated on months earlier, it's only because we are a market-based point-of-view company, and that's how our strategies developed. Nobody knows better than you all that markets are dynamic. Given the realities and uncertainties of markets, a static point of view will inevitably lead to warehousing greater risk, lowering the probability of success and ultimately will endanger the financial viability of the firm.

Options and optionality are good things, and we've strived to create and preserve them in the same way we think about generating free cash flow. In particular, in times of economic stress, if you have enough cash and have preserved your options, the future can look and can turn out very differently than if you're locked into a one dimensional course of action or strategy. You can rest assured we continue to refine our point of view everyday and to position the company with the flexibility and financial and operational strength so that we can and will execute on transactional opportunities at the appropriate time consistent with the realities of the marketplace.

In regards to the Board, I am pleased to announce that former Senator Blanche Lincoln was elected to serve at the last meeting. She was one of the most respected members of Congress, and will bring immediate insight to the Board and management on virtually all the issues I discussed today. We will look forward to seeing you at the Analyst Conference in April, and we will continue to establish the groundwork for our strategies to capture opportunities for future success.

Speaking at the analyst conference, we strongly encourage you to book your travel reservations now if you have not already done so, because all flights into or out of the city have sold out in past years for the Jazz & Heritage Festivals. We're in the planning stages now to make our conference the most informative and the most memorable event that we've ever hosted.

And now I'll turn the call over to Leo.

Leo Denault

Thank you, Wayne and good morning, everyone. In my remarks today, I'll cover fourth quarter and full year 2010 financial results, our cash performance for the quarter and the full year, an update on our share repurchase programs and a review of our 2011 guidance, including some comments on quarterly timing of results.

Before we turn to results, I'd like to note that we have revised our business segment disclosures to reflect the internal reorganization announced last June. Entergy will now report these three business segments: Utility, Entergy Wholesale Commodities or EWC and Parent & Other. EWC is made up of all non-utility generation, a portion of which was previously reported in Parent & Other. The Utility segment has not changed.

To assist in 2011 analysis, our release includes restated 2009 and 2010 financial statements on a comparable basis.

In reviewing 2010 results, a few things stand out. As Wayne mentioned, we achieved record operational earnings per share for the sixth year in a row; we completed the $750 million share repurchase program as scheduled; utility EPS grew nearly 23%; and EWC completed the planned sale of its interest in the Harrison County power plant, which resulted in a pre-tax gain of $44 million. At our nuclear plants, we completed two breaker-to-breaker runs and set two new records for consecutive operations.

Before I talk about the full year, I'll quickly review the financial results for the quarter. First, we completed the business unwind of the infrastructure we had put in place to support the non-utility nuclear spinoff. As such, this will be the final quarter that results will include the special item associated with this effort.

Slide 2 summarizes fourth quarter 2010 as reported in operational earnings, showing a decrease compared to one year ago.

Turning to Slide 3, the factors that drove the quarter-on-quarter results are outlined in more detail. Starting with EWC, operational results were down versus fourth quarter 2009. The decrease was due to lower net that revenue and higher income tax expense. EWC's net revenue declined largely as a result of lower nuclear generation.

During the fourth quarter this year, EWC's nuclear fleet experienced 72 outage days, compared to only six outage days in 2009. This quarter's outages included scheduled refueling outages totaling 43 days at FitzPatrick and Palisades as well as unplanned events, but most notably the extended outage at IP 2, when the main transformer had to be replaced. EWC also had some positive items in the quarter, including the gain on the sale of EWC's interest in the Harrison County plant.

Now turning to the Utility. Earnings in the fourth quarter 2010 were lower than last year. The major drivers were an increase in nonfuel operation and maintenance expense due largely to higher fossil outage spending, the timing of liability spending and higher compensation and benefits costs, partially offset by the net effect of higher other income and net revenue.

After excluding the effect of regulatory item that was offset in other income in the absence of 2009 adjustments, net revenue increased $0.08 during the quarter. Sales in the fourth quarter 2010 were higher than last year, and the effective regulatory actions also contributed to higher revenue.

Overall, Utility retail sales grew by 5.2% or 3.3% on a weather-adjusted basis. We continue to see economic recovery across our service territory that mirrors national trends with slow, but steady gains in employment and the continuation of healthy industrial sector growth.

In Industrial segment, sales grew 7% quarter-over-quarter. The positive benefits of facility expansions in the economic rebound continue, although the growth has slowed somewhat as the recovery matures. Expansions accounted for about half of the growth.

Looking at specific industrial segments, the trends from the first three quarters of 2010 continued. Chemicals, refining and miscellaneous manufacturing remain the strongest sectors. Our refinery customers continue to run at high utilization rate in spite of the challenging operating environment. Some of the refineries in Entergy's service area are among the largest in the country and to date have fared better than the average for their sector.

The Chemicals segment has also done well with improvements in demand from exports and domestic end users of chemicals in the automotive and general manufacturing industries. On the flip side, wood products continues to be a soft spot due to troubles in the housing market, but the segment is a small portion of Entergy's overall sales.

We are encouraged by the steady improvement in Utility sales for all of our customer classes throughout 2010, and we continue to expect 2011 retail sales growth in the 2% range or about 1% when you exclude industrial expansions and cogeneration losses. Finally, Parent & Other results declined in the fourth quarter due to several individually insignificant items.

Slide 4 provides a recap of our cash flow performance for the fourth quarter. Operating cash flow in the current quarter was $761 million or approximately $160 million below the same quarter last year. This change was due to higher pension funding, lower net revenue at EWC and an increase in refueling outage costs for EWC's nuclear plants due to two refueling outages in this quarter versus none last year. These decreases were partially offset by lower working capital requirements at the Utility.

Moving to full year results. Slide 5 compares 2010 as reported and operational earnings to 2009. High earnings at the Utility were partially offset by lower results at EWC. Parent & Other results were essentially unchanged.

On an operational basis, 2010 earnings per share ended the year at $7.10, up 6.4% over 2009. The main drivers for this increase were higher utility net revenue, the absence of significant impairments on decommissioning trust investments recorded in 2009, accretion associated with Entergy share repurchase programs and the gain on the sale of our interest in the Harrison County plant, partially offset by the absence of the gain recorded on land sale last year. Items providing a partial offset include lower net revenue at EWC, higher nonfuel operation and maintenance expense at the Utility and EWC, as well as an increase in taxes other than income associated with strong Utility revenue growth.

Slide 6 provides a recap of our cash flow performance for the full year. For the year 2010, operating cash flow was the highest in company history at $3.9 billion. The $1 billion increase is due primarily to the receipt of roughly $700 million of proceeds associated with storm-related debt issuances for 2008 hurricanes in Louisiana, the absence of hurricane and ice storm restoration spending at the Utility and higher utility net revenue. Other factors including higher pension funding and lower net revenue at EWC provided a partial offset.

I'll now turn to an update on our share repurchase programs summarized on Slide 7. During the fourth quarter, we completed roughly $213 million of share repurchases, requiring a total of 2.9 million shares at an average price of $73 per share. Of the repurchases made during the quarter, $209 million were applied to complete the $750 million program. We also have available the $500 million share repurchase program we announced last October.

As with any investment decision, execution is subject to our ongoing evaluation of business and financial conditions, including evaluation against other potential opportunities. While we did not include this program in the midpoint of our 2011 guidance, execution of it would fall within the overall range.

Slide 8 details our 2011 earnings guidance, which we are affirming today. 2011 guidance ranges from $6.35 to $6.85 per share on both an as reported and operational basis. The details shown on Slide 8 should be familiar to you, as they have not changed since we initiated guidance last October. In keeping the pace with past practice, we have, however, adjusted a few line items to reflect actual 2010 results.

One last point on earnings guidance as it relates to quarterly results. While we do not provide quarterly guidance, Slide 9 outlines some key events to keep in mind when considering the quarters. Utility net revenue can be affected by the timing of regulatory rate actions such as the Entergy Arkansas and Entergy Texas reactions that were affective around mid-2010. For EWC, scheduled refueling outages varied from year to year in both the timing and the number of outages. Overall, we expect one less planned refueling outage in the fall of 2011 compared to 2010.

Quarter-over-quarter non-fuel O&M variances are affected by both the timing of spending and the occurrence of the core absence of specific events. Finally, tax items are lumpy by nature. Significant tax benefits in 2010 will be realized in the third and the fourth quarters.

In closing, I'd like to recap some accomplishments from this past year that position us well for the future. We established EWC to enhance our focus in key areas of merchant generation business, including license renewal for its nuclear plants and our analytical and market-tracing capabilities.

In the near-term, EWC is among the best positioned merchants, providing certainty in a bearish environment, having executed significant hedging for 2011 and 2012 based on our point of view for those periods. Over the longer term, EWC is focused on capturing the potential upside for the business and the positive effects of ongoing economic growth and new environmental regulation.

At the Utility, we made meaningful progress on the regulatory front with rate case settlement in Arkansas and Texas. While there is more work ahead, the regulatory improvements position the Utility to succeed as we look to the opportunity for competitive infrastructure investments, including the supply planned acquisitions selected in the 2009 summer long-term RFP.

While there is no doubt that 2011 will be another busy year, we'll continue to do the necessary actions to capture the near-term growth we see at the Utility and the long-term optionality embedded in our merchant business.

And now the Entergy's senior team is available for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Greg Gordon with Morgan Stanley.

Greg Gordon - Morgan Stanley

We've had a couple of companies articulate the impact of bonus depreciation on cash flow and also talk about what they're doing to either offset or not offset the resultant rate base impact on the regulator side or the $1.99 tax deduction on the merchant side. Can you talk about what incremental cash flow you expect to get and will the impact that might be on some of your base case earnings and what you're doing to offset it?

Leo Denault

Sure, Greg. This is Leo. We are probably a little unique, I guess, in this situation. While there is benefit to bonus depreciation and, I guess, right now we've estimated it's probably $500 million or so, we'll actually see the incremental benefit from the cash flow over time later than most people would, given the fact that we have a significant NOL position right now. While the bonus depreciation does fall in line ahead of the NOL utilization, it's not going to really change the cash flow profile in the near term, because it just pushes out the utilization then of the NOLs. Because of the NOL situation that we're in, the production deduction falls behind the NOL. So that's out there a few years as well for us. So really, no earnings impact to us from it. It gives us an incremental cash flow at the back end, I guess, of our planning period if you were to think about it that way. And the rate base will follow the realized benefits and bonus depreciation. The impact in the near term on us is going to be a lot more muted than you would see across the industry, given the NOL.

Greg Gordon - Morgan Stanley

So it's really, its $500 million of cash, but if that cash would have come in from other, you would have been utilizing NOL to get a commensurate amount of cash had you not gotten the bonus depreciation, so it's basically a status quo situation. Is that...

Leo Denault

Well, it is more money. That is a good thing, but it's just going to be -- it will fall in line in front, but then it will add that $500 million basically to the back end.

Operator

And next we'll go to Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates

My first question has to deal with some news reports out of Vermont about some speculation that even if Vermont does not approve the relicensing, that you guys might opt to continue to run the plant and to sort of challenge that and the federal jurisdiction, so to speak. And I was wondering if you could sort of comment on that.

J. Leonard

Rick, do you want to -- anything to say?

Richard Smith

I don't think we would comment on what's reported out of the papers in Vermont. There's something reported every day out there and speculating what might happen probably isn't helpful for any of the situations. Right now, we're currently still working with the Utility get the PPA in place, and we expect to file something with the commissioner around the Certificate of Public Good. And then we'll see what the legislature tells the Commission they can do with that.

Paul Patterson - Glenrock Associates

So I guess take it one step at a time sort of approach. Is that how we should read it?

Richard Smith

Yes, I think that's right.

Paul Patterson - Glenrock Associates

The EPS guidance for 2011, you mentioned in the prepared remarks that there was potential to do the Harrison County sale perhaps or something of the sort in terms of your flexibility. I was wondering if anything like that was in 2011 guidance. And also just for the nuclear decommissioning trust, what's your expectation for the performance of that, whether that was in 2011 guidance, if you can sort of elaborate on that?

J. Leonard

As far as Harrison County, I guess, that was -- are you asking if there is. . .

Paul Patterson - Glenrock Associates

If it's a similar -- I got the impression that -- maybe I heard it wrong, but I got the impression that there might be similar opportunities in the future for you guys to do similar things like what you do with Harris County and I was wondering if that was in EPS guidance for 2011? And second question was what's the expectation for 2011? What the decommissioning trust earnings would be?

J. Leonard

As far as the Harrison County, certainly that is something that we have in the works already in 2010. If you think about the way we've managed the Non-Nuclear Wholesale Assets business which is where Harrison County fits, now under EWC. Since we got out of the IPP Development business, the ongoing strategic and operational efforts there have been to capitalize on operational improvements, to enter into a contracting strategy similar to what we would do with any asset that we have, but also restructuring of those plants and their ownership as well as sales. And we've had sales in 2006 and 2008 at some of the properties that we owned in that business as well. I'm not going to really comment about what is or isn't in guidance similar to last year. Last year, we did have some opportunities there with Harrison County we were looking at, but certainly they were confidential. Right now, as we look at 2011, there's really nothing on the horizon, but there could always be some sort of transaction around assets in that business. There's other plants in that business. There's a district energy business. It falls under there with some combined heat and cooling assets. So I guess right now there's nothing in the works, but at any point in time we could have some transactions around some of those facilities. As far as the decommissioning earnings, we don't really make public estimates about what may or may not be going on in there in terms of the way that works. As you know, it's a lot more draconian in terms of the accounting if the market really deteriorates. As you recall last year in 2009, we had some significant other-than-temporary impairments on some of the assets within the decommissioning trust funds. And as we go forward, there are more or less, just as investments are made and securities are turned over inside those funds, that's when we recognize some of those gains. So its a lot different going down than it is going up, but we don't really specify too much about what's in that. It's not significant most of the time.

Operator

Next we'll go to Steve Fleishman with Bank of America.

Steven Fleishman - BofA Merrill Lynch

I apologize to ask for this clarification, but just on the RFPs at the Utility, can you just go through the detail again on potential? The different acquisition versus new build and timing of those events?

J. Leonard

Gary, you want to try it this time?

Gary Taylor

Steve, I hear you understand is you want to say if we have acquisition versus new builds and the relatively timing for those. Those basically, we said we're still in negotiations with two of the counterparties we would hope to hear in the first quarter. We would expect to come to conclusion with that. The self-build itself is actually scheduled and will not go into service until the fourth quarter of 2014 to 2015. In each of those, they have their cases that we would bring in front of the LPSC for their portions of the ones that we consider or the other utilities and depending on those, they are typically an individual proceeding not so in this cover to the RFP process.

Steven Fleishman - BofA Merrill Lynch

So the self-build is already pre-approved?

Gary Taylor

No. We will have to file for that in CCN as well, and then we basically would go through positional rate making for it.

Steven Fleishman - BofA Merrill Lynch

And the two parties, would those be two separate plants or two parties vying for one plant?

Gary Taylor

I cannot really elaborate on that until we really conclude the negotiations.

Steven Fleishman - BofA Merrill Lynch

One other question, I guess, for Wayne. We're starting to see more large-scale M&A in the sector. Does that make a difference in any of your strategic thinking? And should we take the view that given that you've been pretty aggressively hedging at least your near-term power price exposure that you're more inclined to be comfortable on the regulated side of the business, strategically?

J. Leonard

I think the opportunities on the unregulated side are pretty risky at the current time, not only in terms of the outcome, but with the rating agencies also were putting a little more pressure in our capital structure our ability to execute the more commodity driven we appear to be. There would be some benefits to adding to the regulated side, I think, in terms of credit quality and bringing out cash flows and maybe optimizing balance sheet. The real issue with regard to, I think, large-scale transactions that really hasn't changed a lot. You know the difficulty. We're already in multiple states. Other possible combinations would be multiple states. It could be tied up for quite some time even if you had transactions that made sense. And the difficulty in a transaction like this is a transaction is more than just stapling two business plans together. It had to create real value. And we articulated and executed in a way that shareholders actually can see what the strategy is other than just getting bigger and allowing any cash flows to go into organization slack and the organization is there to see it. That's tough to do. It's tough to find somebody that's like-minded and also has the right set of circumstances where you can pinpoint what the strategy would be and where the additional cash flows or opportunities will be from that. The fact that you have other companies out there getting bigger, and you have other companies out there that's very focused on that, as a strategy doesn't really changes our own point of view. Frankly, I do have a point of view that these companies can get too big. There's a lot of issues to manage and these companies, regulatory-wise, but at some point in time, I think they're beyond scale. Or the regulatory issues are or being managed to long in the company and are not being managed as well. Maybe as it might be if the company was a little smaller, a little focused. Their current size, [indiscernible] schedule around this place to keep track and keep our best people on top of these issues. Other people may just do it better than we do, but that's a lot of jurisdictions to manage for a lot of these companies. Having said that, like we told you before, we continue to look at small transactions, large transactions all the time; we have for the last 12 years. And sometimes they make sense, they look like they make sense and you may have exploratory discussions and realize they make no sense from the same point of bad data or you just see the world differently and it's a potential train wreck. Nonetheless, we haven't stopped trying to find one that works large scale or small scale, but if you like -- I think, as you indicated, at this point in time, given the way the world looks, you probably would err on the side of trying to find something more on the regulated than the non-regulated, but that's very hard to do.

Operator

Next we'll go to Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs Group Inc.

One high-level question, one granular one. High-level question, do you guys give out EPS growth expectations for the Utility? But just curious, kind of looking at the forward curve, what do you think just overall consolidated EPS growth looks like over the next couple of years? That's the high-level question. Granular one, can you refresh us in terms of just how much cash inflow you expect from deferred tax benefits over the next few years?

Gary Taylor

Leo?

Leo Denault

As far as overall earnings growth, we really haven't necessarily put out an aspiration or anything on that. Certainly, if you look at what the forward price curve is, and look at where we're hedged, particularly in the near term, EBITDA that's coming out of the EWC business should be reasonably flat and declining as we've said in the past. And so, just to continue to offset that with the growth in Utility is what we see happening over the course of the next couple of years. So longer term, we see a lot of growth in the business, but certainly, like all of the merchants, in the near term, we've got the declining EBITDA to deal with as it relates to what's going on in the EWC business. As far as how much cash is coming out of deferred taxes, we don't necessarily get that granular with where that cash flow comes from. We still see that we're in the range to be able to return the $4 billion to $5 billion that we have as an aspiration over the next several years. And as you might guess, we're always looking to try and get more rather than less, because we believe from a financial point of view that returning the cash that you've all invested with us is the right thing to do. So that continues to be the objective. We continue to see ourselves in that range of being able to provide it, and we'll continue to work on making more.

Operator

And next we'll go to Marc de Croisset with FBR Capital Markets.

Marc de Croisset - FBR Capital Markets & Co.

It looks like you had some pretty strong cost control at EWC in the fourth quarter. In fact, I think it's an $0.08 benefit year-on-year from lower O&M. I guess I was a little surprised to see that, since you had so many refueling days in the quarter and I believe that it was 72 days. Could you elaborate on how you managed O&M with all this activity?

Leo Denault

There's a couple of things. One, as it relates to the outages. When there is an outage, you will see less O&M show up because of the way the accounting for the outages work. That's one thing working in our favor from the O&M, if you look at the cash flow statement and how operating cash was offset to some extent by the cost of the outages. So that spend actually tends to not show up as higher O&M costs necessarily. And so what we also had was we had some costs in 2009 as it related to -- we had some incremental work done actually at Harrison County that showed up in 2009 that then wasn't there in 2010.

Marc de Croisset - FBR Capital Markets & Co.

In times like some of the O&M is capitalized, would that be correct?

Leo Denault

It's deferred on the balance sheet and then amortized over the period after the outage.

Marc de Croisset - FBR Capital Markets & Co.

Second question on your capacity contracts and I don't know how material these may be, but I see some uplift in 2013 and 2014. Could you give us any color on what's happening in the capacity markets?

Richard Smith

Well, I think it's a little bit of an expectation that the economy is slowly rebounding out of the recession that we've been dealing with in the last couple of years. So with that higher low growth and your higher fee rates, I mean, there's an expectation that's converting into higher capacity prices.

Leo Denault

If you're talking about -- I think Rick got the market in general. If you're talking about our sold forward table, we did have a FERC order that would set the VY capacity price around the D list, so the dynamic D list, we went in and got that capacity prices set at capacity price that was meant for the D list, which is a little bit higher than where we were before.

Operator

Next we'll go to Ashar Khan with Visium Asset Management.

Ashar Khan - SAC Capital

Wayne, could I just ask you, you mentioned the Vermont decision would occur by the middle of the year. Could you just tell us why the middle of the year? What happens by the middle of the year that makes that decision-making process come to a conclusion?

J. Leonard

Well, there's a number of factors. Again, we're expecting the NRC will move forward and some time within this timeframe we're expecting to get a license renewal from them. That's a critical issue. At the same time, as we've indicated before, there are substantial expenditures, refueling outage and things of that nature that occur later in the year and somewhat force our hand in terms of making some decisions relative to the future of this plant. And we don't -- it's not really timely to get into what those choices are, but they're critical choices that we'll need to make probably somewhere around the mid-year. There are choices that affect all of you, there are choices that affect 650 people that work at that plant. I think maybe as some of the business leaders have pointed out, time's run out in terms of Vermont themselves, influence on the destiny of that plant. We strongly believe, and obviously the Senate does, it's a federal jurisdiction and we had choices that need to be made and we'll make them at the appropriate time.

Ashar Khan - SAC Capital

So we should not look anything in the legislature? Is that a fair point happening with the Vermont legislature from your perspective?

J. Leonard

Well, I mean we're certainly looking for support from the people of Vermont, looking for support for the utilities. We want to be regarded as good partners with Vermont. But at the same time, I mean, in some respects, we're being potentially put in a corner here. And there's a point where there's a line in the sand. We've got to make a decision whether we're pushed any further or not. But we're not ignoring the legislature, we're not ignoring the governor, we're not ignoring the -- and I'm sure they're not ignoring the IBM or the business leaders and another people also. It's a very complicated situation. But like we said, despite all of the different things that are said that may or may not be accurate, we're gonna make the right decision for all our stakeholders.

Operator

And that concludes today's question-and-answer session. I'd now like to turn the call back over to Paula Waters for any additional comments or closing statements.

Paula Waters

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 Regulation G compliance statements. Our call was recorded and can be accessed for the next seven days by dialing (719)457-0820. Replay code 2202485. This concludes our call. Thank you.

Operator

And that concludes today's conference, and we thank you for participating.

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