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Entergy Corporation (ETR)

Q2 2007 Earnings Call

July 31, 2007 11:00 am ET

Executives

Michele Lopiccolo - VP of IR

Wayne Leonard - CEO

Leo Denault - CFO

Gary Taylor - Group President, Utility Operations

Mike Kansler - President and Chief Nuclear Officer of Entergy Nuclear

Analysts

Dan Eggers - Credit Suisse

John Kiani - Deutsche Bank

Greg Gordon - Citigroup

Steve Wiseman - Catapult Partners

Rudy Tolentino - Morgan Stanley

Michael Lapides - Goldman Sachs

Jonathan Arnold - Merrill Lynch

Andy Levy - Brencourt Advisors

Ashar Khan - SAC Capital

Phyllis Gray - Dwight Asset Management.

Jim Ferguson - AIG

Reade Griffith - Polygon Investment

Daniele Seitz - Dahlman Rose

Presentation

Operator

Good day, everyone and welcome to the Entergy Corporation Second Quarter 2007 Earnings Call. Today's call is being recorded.

Now at this time for introductions and opening comments, I would like to turn the call over to Ms. Michele Lopiccolo. Please go ahead.

Michele Lopiccolo

Good morning and thank you for joining us. We will begin this morning with comments from our Chairman and CEO, Wayne Leonard, and then Leo Denault, our CFO, will review results. And then efforts to accommodate everyone with questions this morning, we request that each person has no more than two questions. After the Q&A session, I will close with the applicable legal statements. Wayne?

Wayne Leonard

Good morning. This quarter, I am pleased to report progress on many fronts, including the actions from key strategic initiative and advancements of our financial exploration. That being said, certainly some things could have and should have gone better. For those things that didn't go so well, our focus is fixing on why we can't, enabling going forward.

Starting with the utility, we resolved storm related matters in three of the four affected utility jurisdictions. We have received securitization bonds proceeds that were approximately $370 million for Entergy Mississippi and Entergy Gulf States Texas. And in May, we achieved what many ones considered a most unlikely, but happy outcome.

Entergy New Orleans emerged Chapter 11 bankruptcy pursuant for a full compensation reorganization plan. Tomorrow we expect the Louisiana Public Service Commission to take action on its agenda item for storm related matters currently with Louisiana and Entergy Gulf States for Louisiana.

Last week the administrative laws judge in the case recommended the approval of two stipulations. The first quantify the balance of storm restoration cost for recovery and establishing reserves for future storms and the second providing for securitization.

One other noteworthy point for Louisiana storm recovery relates to the alternative securitization legislation that became a law in June. This legislation authorized the establishment of a non-profit corporation to issue it its minister the storm securitization and balance, creating potential tax benefits. This should reduce the ultimate cost for customers.

Assuming Louisiana Public Service Commission had promised an agenda item tomorrow. We anticipation securitization proceeds could be received in the fourth quarter resolving regulatory cost recovery issues for the 2005 storm season. And other utility regulatory matters, we would just made by the Arkansas Public Service Commission ruling on Entergy Arkansas rate case.

Well, there was some positive like to retention of the ECR rider for fuel and purchase power cost recovery and approval of projection cost adjustments or PCA rider for recovery of systems agreement less production cost equalization payments, most other actions were generally negative. Particularly troubling, the retroactive rate making findings associated with refurbishing and turning and for prudent storm restoration costs reflected in the storm reserve. Sunset provisions on the ECR and PCA Riders, rejection of a proposed capacity rider, disallowance of market based compensations, adoption of a 9.9% ROE one of the lowest in the country, adoptions at a hypothetical cap structure that include lower equity levels then our actual investment in the business and in position on Entergy Arkansas of an annual earnings review process yet to be designed.

From the telling of the hearing, we were concerned about aspects of the case was a commission as the expert body generally ask this questions likes that in the ROE. But we were surprised by the number of issues that were not evident on the record in the case and found their way into the final order. But you get the idea, established a low ROE, limited equity depress the real number even lower, and disallow cost, so there is no realistic opportunity to earn anything close to a fair return.

Entergy Arkansas has since filed for the hearing. And hence the hearing request Entergy Arkansas addresses multiple instances in which it believes commission actions are arbitrary without either precedent or evidenced in the case or otherwise on law full including clear instances that preemptive federal law. If APSC does not rule in 30 days, Entergy Arkansas request fully hearing is being denied. This order is decidedly unlike, but you would expect the Arkansas.

For years Arkansas has been characterized by constructive, even handed, objective regulation. Unfortunately the FERC System agreement decision to establish parameters for less production cost equalization has created a regulatory environment in Arkansas that makes it hard to be overly optimistic that we will be successful at obtaining an objectively hearing.

In the event, we are unsuccessful on the hearing, we would seek an appeal to the State Court. We will certainly attend a challenge that reasonableness of the multitude decisions that led to an order without a reasonable opportunity to earn a fair return.

We will be equally if not more aggressive and our efforts preserve our rights the due process under the law. Our consoled frustration with the system agreements payments is understandable, but that does not make it our fault. You know within the law to take it out on Entergy simply because we are the only party available for them to do so.

Regarding annual formula rate plan filings and Mississippi Public Service Commission approved to $10.5 million rate increase from its Entergy Mississippi, and final orders were expected in October for annually filings data Louisiana.

Entergy Louisiana formula rate filing indicates the 7.6% earned return on equity. Despite the fact that this ROE is well below the bottom of the FRP bandwidth Entergy Louisiana's filing called for an overall rate reduction of approximately $7 million. The reduction is driven primarily by elimination of the interim stock storm recovery and reduction of the annual storm reserve accruals both expected to be securitizing full.

Likewise, we expect the rate reduction of approximately $23 million for the same reasons at Entergy Gulf States for Louisiana, which earned a 10% return on equity and we will file the long overdue rate case for Entergy Gulf States Texas, by the end of the third quarter. We expect filing no share with substantial revenue deficiency as base rates have not been increased in over 16 years.

As a final point we are also on track implement jurisdictional separation for Entergy Gulf States by year-end having received some of the necessary approvals from port.

At Entergy Nuclear, things didn't go perfectly either. This quarter we not only had more planned outage than the last year, but also more unexpected outages and are acceptable under the Entergy's standard of performance. We have two high end refueling outages at Pilgrim and Vermont Yankee, compared to one at Indian point last year resulting in an 82% capacity factor over the second quarter of this year.

As you all know, refueling outages are inevitable, is simply a matter of timing. That's one of the reasons, why we don't get too excited one way or the other about quarter-on-quarter comparisons in nuclear. But every hour counts whether it's during the refueling or whether it's been an unplanned outage. We are aggressively focusing on the root cause of the unplanned outages.

We are recently experienced to eliminate them going forward. Some of which were outside the plant itself like the expanded transformer related outage in Indian Point 3. That one of them resulted in approximately $32 million in lost revenue and replaced the power, plus another $17 million to replace the transformer for which we expect the recovery just under $12 million through insurance.

I would note on that outage there was some opportunity to mitigate the financial effect by starting to gain its backup earlier using the other transformer the plants and running at a lower capacity factor. We did not attempt to do that because it was not consistent with the Entergy Nuclear Standards for safety, redundancy, reliability and risk management. As we've said and demonstrated many times, there are things more important than simply short-term profits.

On a more positive note, I'm very pleased to report that (inaudible) completed Entergy's second in the last year break for the record continuous run for 548 days, an even more noteworthy accomplishment considering the 20% power upgrade implementation course. Previously ANO Unit 2 completed that record run last September.

Our license extension program received its final safety evaluation report and environmental impact statement from the ARC and the ARC accepted has complete. The ending point applications for license renewal for another 20 years.

Turning to key strategic initiatives, we realized progress on portfolio transformation initiatives on three parts. Entergy Louisiana completed updated cost settlements for Little Gypsy repowering project with the Shell Group, the project EPC contractor, and maybe it's regulatory filing with the Louisiana Public Service Commission seeking after dates to begin the project.

The filing seeks approval in two steps. Step one, request a ruling at the November commission meeting enabling Entergy Louisiana to initiate vital equipment, long lead orders before final project certification to occur next year. And to certify $225 million for this phase borrowing on improved findings, Entergy Louisiana also seeks contemporaneous recovery of cash earning fund clear, starting no later than July or next year.

Step two, six final authorizations by June of next year for the project including certification, as it amounts to complete the project at accretive term and agreed level of costs against volume and imprudent finding. And secondly preapproval of the process by which Little Gypsy will be reflected in cost of service simultaneously with the plants in service date.

Step two, also seeks the approval for monitoring plants, including quarterly reporting within continuing update of the company's assessment and the economic fundamentals of the project, the process would require the LPSC staff to concur or provide an exception on the quarterly report within 30 days. The updated cost estimates will approximate as $1.55 billion or $2875 per KW.

Approval of current recovery of the financing costs with cash is expected to produce the capital amount, when the plant goes online for $2,453 per KW. This request has been characterized by some as an attempt to eliminate all risks go pass undue risks to customer. As you know, we would not do that. Instead the regulatory plans simply formalizes on the front, what is the law? The regulatory margin consistent with allowed and not limited return, per state reform what you've should have known and when made in for the financial integrity of the business and avoiding regulatory lags and impairs the financial integrity or the opportunity to earn a fair return.

While the detailed constructing cost estimate increased from the original engineering estimate submitted for the long-term RSP in May 2006 due to escalation, price and volume of commodities or it just will remains the most economically attractive summer II option for Entergy for Louisiana to pursue, with substantial segment expected for customers over the life of stabilizing fuel prices and reducing the price volatility of customer bill.

Another late breaking announcement, earlier this morning actually, was about 50 minutes ago. Entergy Arkansas concluded negotiations with Cogentrix to acquire the Ouachita power facility. Since we don't have a relief on that for those of you who writing that down I will spell it. Ouachita is spelled, Ouachita, say that three times back.

Upon closing, the company plans to invest approximately $75 million and upgrade and related cost associated with acquisitions bringing the total capital cost to project to approximately $285 million or $361 for KW.

Entergy Arkansas expects to sell approximately one-third of the plant software to Entergy Gulf States on a long term basis under a separate agreement. This 789 megawatt combined-cycle gas-fired generation facility began operation in 2002, located near Monroe Louisiana. This facility is well suited, low travel, providing flexible capability to meet time varying demands with customers. For number of reasons, you might ask the question why Entergy Arkansas is the owner. Simply because the system needs this type of resource and enter the Entergy Arkansas portfolio lack this type of low filing capacity.

In fact Entergy Arkansas demonstrated earlier this year for its capacity need docket before the Arkansas Public Service Commission that it has a lead to acquire load filing capacity and the Ouachita facility located in North Louisiana meets that need.

Like other acquisition the Entergy Arkansas may terminates the transaction in its sole and absolute disgust, if any regulatory approval or cost recovery is denied or is approved on terms that are not satisfactory.

Finally in another action this morning, Entergy and GE-Hitachi Nuclear Energy jointly announced the signing of a new nuclear project development agreement. That includes the procurement of major advanced reactor components. While we have not yet made a decision to build a new nuclear unit, we remained committed to a sound tiny process for the future energy needs of our customers while protecting the environment around us.

Proceeding with this order now, we will ensure timely delivery as scheduled, critical cards, reserving Entergy option to build a new nuclear unit. All the terms are confidential, the up fronts and other provision are intended to limit the company's financial exposure to not more than $15 million, even if we decide not to proceed with the new plant in this timeframe.

Turning to another initiative that many of you have been carefully following, yesterday we initiated our filings seeking NRC approval by year end for the indirect transfer controlled licensees for our non-utility nuclear fleet. This is intended to simplify and centralize the ownership structure for this business. This actually is not expected result in changes in the license operator personnel or day-to-day operations utility.

If prudent, this action would permit Entergy Nuclear to pursue a self sufficient financing structure like that in place for our utility operating unit. With new debt financing above to $5.5 billion at this business and while the potential financing is the current focus a streamline structure with standalone financial capability naturally figure out with additional alternatives, such as the joint venture of splits, cars, spin or other structural transactions maybe forthcoming in the future. That being said, let me emphasize that no decision on the very long list of possibilities have been made.

We continue to explore alternatives that could maximize value for our stakeholders. We won't take actions to pursue any of these structures unless and until I mean it's in the best interest of our stakeholders to do so. There has to be real tangible value creation. We have established certain principles to guide our decision in making process. We believe it's critical to maintain the core nuclear expertise that creates a competitive advantage. And we are committed to safety and security above all else on nuclear operations, and to ongoing operational excellence for all of the plants in the Entergy fleet.

Consequently in any scenario, we see Entergy employees continuing the role as natural operators by nuclear facilities. We also don't see an outright sale of the non-utility nuclear assets as even viable alternative at this time. Now that there wouldn't be a number of interested parties. It simply doesn't meet the guiding principles, and it is extraordinarily inefficient from the tax prospective. We remain on track to reach the conclusion on financing if, when, how and how much later this year.

Let me now turn to the actions taken by the Board on the dividend. Yesterday evening, the Board approved along weighted increase in the dividend the first one since October 2004. Specifically the Board increased the quarterly dividend to $0.75 per share commencing with the quarterly dividend payment due September 1. As you are well aware, we report this increase Entergy dividend yield was around 2% and the payout ratio around 40% both ranking in the bottom quartile relative to peers in the Philadelphia Utility Index with the median dividend yield of 3.3% and the median payout of roughly 53%.

With earnings growth from our non-utility nuclear business and sufficient financial flexibility and liquidity demonstrated in our financial outlook, the Board included it was appropriate to reevaluate the dividend level at this time. To move incrementally towards achieve the Board's revised target payout financial aspirations. As in the past, the dividend recommendation was subject to rigorous stress testing to ensure the increased dividend is sustainable in a wide range of scenario.

Before I close, I would like to take this opportunity to provide you to something else long over due, and the Entergy Analyst Conference to be held next frame on Friday, April 25th coincident with what many believe is the premier (inaudible). The first weekend of the Jazz and Heritage Festival.

Since Jazz Heritage is the most highly attended event in New Orleans outside Mardi Gras, we will communicate early and often with you beginning in August about logistics for the conference and we will encourage you to make the arrangements well in advance to ensure adequate flight selections to travel.

Now I will turn the call over to Leo.

Leo Denault

Thank you, Wayne, and good morning everyone. In my remarks today, I will cover quarterly results followed by cash flow performance, and update on our share repurchase activity, a recap of our '07 earnings guidance, and a review of liquidity going forward. I will close with some brief comments on our financial aspiration.

Looking first at our financial results for the quarter, slide 2 shows that second quarter '07 as reported earnings essentially equaled earnings one year ago. Operational earnings reflect improvement in the current period rising 8% compared to the second quarter of '06. The increase in operational earnings came from higher results at Entergy Nuclear and the Non-Nuclear Wholesale business partially offset by lower results at utility, parent and other.

Slide 3 presents the factors that drove the quarter-on-quarter results at Entergy Nuclear. Increased revenue from higher pricing and the addition of power fails were the major drivers, which scheduled refueling outages with (inaudible) program along with an unplanned outage nearly at point three partially offset this revenue increase.

Entergy Nuclear operation and maintenance expenses largely unchanged other than the effect of having power outages as part of the portfolio of this quarter.

At the non-nuclear wholesale business, results in the current quarter were higher compared to the same quarter last year due to lower income tax expense. As this is the case for each of our businesses, we periodically record tax reserves in accordance with 1048 for potential items that could increase our tax exempt spending state in federal audit review. As issues are settled, either increased expense ratios results constitute to a position where in this quarter reduced previously recorded reserves for favorable outcome.

A utility planned in other earnings were lower in the current quarter compared to results for the second quarter of last year. The key factor is that contributed to the decrease were higher operational and maintenance expense, higher income tax expense and higher interest from financing cost associated with storm spending share repurchases and the acquisition of Palisades.

The increase in O&M spending this quarter was driven by several factors. We continued to see increases in areas we expected, such as expansion associated with activities that have been resumed normal pre-storm level, other expense increases reflect -- incremental expenses related to the plan outages in the scope of works covered in those outages.

The spending number transmission and distribution activities compared to second quarter of last year reflects more attentions to long-term maintenance such as legislation management. We budgeted these additional costs and expect to see increases with our work crews returning their focus to normal activities versus last year. Incremental O&M this quarter came from the expenses of an unplanned outage of our River Bend Nuclear plant. In addition, we incurred some expenses associated with work within our copper field.

We continue to see a downturn in O&M spending later in '07 compared to the second half pattern of '06, which we believe will move us closer to the full year expectation. With regard to sales growth this quarter, the increase of 1.6% reflects relatively stable growth rate we expected for full year of '07.

One last component of utility operational earnings that are being mentioned is Entergy New Orleans with the emergence of Entergy New Orleans from chapter 11 bankruptcy during the second quarter. We are once again including net company's results in operational earning. As you go through our full release you will note that we have recap of key financial indicator and operational statistics to again reflect this company as part of Entergy utility business detail.

Slide 4, includes the recap of our cash flow performance this quarter. The decrease in cash flow during the current period reflects the mix of pluses and minus. On the plus side, we have received CDBG funding as Entergy New Orleans reduced our non-capital storm spending in the quarter and realize the cash benefits of higher net revenues in Entergy Nuclear. However all of these positive contributors to cash were more than offset by two items, higher income tax payments spread among the various Entergy companies, particularly Nuclear, and reduced collection with deferred fuel cost.

Slide 5, reflects progress during the quarter on our share repurchase program and shares that we have repurchased $2.3 million shares in the second quarter. Approximately 65% of the repurchases came through our $1.5 billion program leaving with us approximately $820 million the facility remaining at the end of the second quarter. We continue to see our '07 has reported in operational earnings guidance in the range of 540 to 570 per share.

Slide 6, includes the components of guidance with details that should be familiar to you. As we have reviewed the first half of '07, many of the items coming through our results are in line with our original projection are use of the range per earnings guidance assumed that there will be a combination of pluses and minuses with flow to actual result. This quarter again includes such a mix with unplanned outages and additional O&M with minuses well Entergy New Orleans earning stable tax audit and accretion per share. Considering all of these factors, we continue to believe that our current guidance range is appropriate.

Looking back to slide 5 for a moment, you will see our current estimate of cash available. After factoring in the increase in the dividend announced today as well as portfolio transformation initiatives, we still see $500 million of cash available for the '07 to '09 period.

We always consider the dividend increase is one of the potential uses of our cash available. We are confident that we can fund the increasing dividend and retain a very solid liquidity position. Our goal has been to ensure that we retain a high degree of financial flexibility and that goal remains unchanged.

In addition, we continue to pursue other opportunities to further enhance our financial flexibility. We are very close to completing our efforts to restructure our corporate lines of credit. The two existing corporate revolvers totaling $3.5 billion will be replaced with a new five year credit facility of equal amount.

In addition, we expect to put into place new bank lines of credit Entergy Louisiana and Entergy Gulf States each of $200 million. We had no credit facility in place at Entergy Louisiana and only a $50 million line of credit at Entergy Gulf State. With these new facilities create significant liquidity for us.

Also, as Wayne mentioned earlier, our filing with the NRC to simplify the structured Entergy Nuclear could facilitate new stand-alone financing for that business of up to $5.5 billion. I do not want to get too far ahead of ourselves on this initiative, but I can offer some insight as towards some of the products. The first step, get on pre-approval that we can opt to feed it efficiently until we have that in hand. However, we are doing statutory work as we await the NRC decision.

We continue to analyze the appropriate level of financing for this business. We have also engaged an outside accounting firm to audit the financial statements of the nuclear business. I want to emphasize that the $5.5 billion noted in the NRC filing is the top end number and maybe more than we ultimately feel is appropriate for a variety of reasons including cost, credit quality and overall business needs.

As we look ahead, we continue to concentrate on opportunities on whether can support our aspirations and those aspirations remain impact. The Utility remains focused on customer service reliability at the lowest cost factor, and to that end including Ouachita. We have added 2300 megawatts of high quality generation in an average cost of less than $275 of KW. We have advanced the Little Gypsy repowering project and final agreement with GE's Hitachi to maintain the new nuclear office.

At the Non-Utility Nuclear business, we continue to be focus on providing safe, reliable and secured power for customers, and to that end we have closed the Palisades acquisition this quarter, pursued market opportunities, which create and enhance portfolio values, rolled out our free line of plan, and initiated our plan to enhance risk management and optionality through the NRC filing announced today.

Each of these efforts, share the common goal of producing value for our customers, while enhancing your investment and interest. Your investment has been entrusted to us with the expectation that we will grow it and then distribute that growth to you. The dividend action announced today was still short of our ultimate goal reflects our commitment to distribute value of goods throughout that you investment.

We must preserve the capability to attract capital in the future as it enables us to invest in our business to meet our customer's need. Therefore we give dividend growth and share repurchases, as an element of continued process, the benefits all of our stakeholders.

In closing, I can tell you that we are motivated by the success we have achieved to-date and our motivation is fueled by the opportunities that lay ahead. And now our senior team is available for your questions.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions). We will take our first question from Dan Eggers with Credit Suisse.

Dan Eggers - Credit Suisse

Hi, good morning. On the dividend increase, guys congratulations on moving that up, but where you are now still a little behind of that appear you are been in Asia do you want to move grow it at top quartile type of levels. Is that mean plus 5% could be higher to keep pace with EPS growth or you just kind of grow it top quartile and what that relative yield to mineral to payout ratio, continue to be a bit low kind of a group average?

Leo Denault

Dan, this is Leo. Obviously the earnings growth that we have going forward is, could be crisper than 5%. The ultimate goal is to hit the target payout ratio with 60% over time. So that's really the end game that we’re going after and now and the 5% is really the price holder on average over a long period of time. 5% dividend growth is top quartile. So at some point we might get a little bit, I guess earnings growth in the near term being greater than that would probably precipitate something more than 5% move to the near term.

Dan Eggers - Credit Suisse

Okay. Thank you for clarifying that. And then on the obviously the nuclear recapitalization process I understand that is really, but can you just give us a feel for your philosophical thoughts between investment grade versus a high yield type of credit rating for that business and the need for financing over an ongoing basis and the flexibility that would come from investment grade versus high yield.

Leo Denault

I guess you started that, Dan with the good point it's early that's a kind of thing that we continue to investigate and look at first and foremost what size, when and what credit rating we would want to achieve at the nuclear business as well as what impact that would have on the parent company and what impacts the parent company relating as on the nuclear business. So all of that is what we are in the process of investigating right now and certainly the market cost. The need for the business. The need for the other business that we have the parent well they take where we go. So, it's too early to tell one way or the other.

Certainly, investment grade has some advantages as it relates to kind of pretty clear collateral issues in the light, but those can be managed around our focus, because right now if you think about that is a merchant businesses it would be one of the only merchant businesses that is an investment grade credit to begin with. So all of those things have to go into the consideration where we ultimately end up.

Yeah Dan this way; I mean just as follow up on that, your two questions with regard to the 60% payout, the credit rating up and restructuring the nuclear business. And those are probably at the Board meeting last week, I would say that on those two topics were the most active in terms of the discussion with the Board. So it's something I think your focus on those, are the right things because its only focused of our Board of Directors and what the best answer is --

Dan Eggers - Credit Suisse

Got it. Thank you, guys.

Operator

Thank you. And we will now hear our next question from John Kiani with Deutsche Bank.

John Kiani - Deutsche Bank

Good morning.

Wayne Leonard

Hey John.

John Kiani - Deutsche Bank.

Can you provide a little bit more color on the year-over-year increase at non-nuclear wholesale please?

Wayne Leonard

John, the non-nuclear wholesale year-over-year increase is primarily due to lower income taxes if the resolution of commodity issues from the 2002, 2003 audit we had some positions that we got a favorable revenue agent reports.

John Kiani - Deutsche Bank

Great. And then on the potential leverage recap option, understanding that you do have multiple strategic options and that it is still somewhat early. Has the cost of borrowing in the high yield market changed your view at all? I know you said that is pretty early on and you have lot of different directions you can go in. But can you give you a little color for how that might influence the decision?

Wayne Leonard

Well obviously there has been a lot going on in the last month or so in the high yield market. Certainly we looked to go on in the mortgage business, and the housing market and descriptive change with lot more volatility in rates all of that's going to be part of the decision we make. Certainly, we are always away from taking actions. So, thing should settle down between now and then but it's something that we are certainly watching and you would anticipate that the cost capital at this moment has gone up anyway. Given what's happened in the markets with backlog of what's going on in the high yield market, I think there is $270 billion of high yield debt kind and about on the calendar right now but as that shakes out we will continue to watch the market and see where the things go and certainly that will be part of the decision making process.

John Kiani - Deutsche Bank

It sounds like time is on your side and that because this is a little bit of a lengthy or strategic decision making process, and also with the NRC review that perhaps by that time, if you are through some of that, that's still a viable option, if the cost is more reasonable?

Wayne Leonard

That's correct.

John Kiani - Deutsche Bank

Thank you.

Operator

Thank you. Next we'll move to Greg Gordon with Citi.

Greg Gordon - Citigroup

Thanks. Good morning gentlemen.

Wayne Leonard

Good morning Greg.

Leo Denault

Hi Greg

Greg Gordon - Citigroup

With the market acting in the way it is we really appreciate the dividend increase. The earnings growth outlook that you guys have articulated over the last several months, since basically November last year, obviously things have evolved both in the power and capacity markets as well as on the regulatory front.

Is there anything that would cause us to have concern that you could meet your 2010 earnings growth aspiration at this point, where you are meaningfully off track on the plan you laid out? Then on the flip side, is there anything, where you feel encouraged by being let's say, ahead of your sort of notional plan versus that bat earnings for the aspiration?

Leo Denault

He will point to me, I'm point at him. I think, Greg, I think that since we laid that out on the non-utility front certainly I think little bit more bullish probably the most of the aspects of that and maybe where even, we are at that point in time, and whether its carbon prices responds to plants and capacity payments or just about anything.

In the operation of our plants again we've had a little blithe this quarter that we feel very good about where we headed there. We have the Arkansas issue to deal with, that it's not a huge issue relative to our growth aspirations. But that's finding the most disappointing thing is occurred in the last year since we articulate that, but I would say we are probably as bullish or more so then we were at that time.

Greg Gordon - Citigroup

Thank you. And then I apologize, if you answered this question already. When we look at the $5.5 billion sort of maximum financing that you filed with the NRC, you think about little over $2 billion of debt that you have Entergy Corp. Should we be thinking about, you first sort of displeasing and/or replacing the entirety of that debt before you would add new leverage at this nuclear company? Because buyback is, only a $1 billion of that debt is sort of directly allocable to the nuclear business at this point. So is it actually a lower number or can you talk a little bit about how we think about the overall corporate debt?

Leo Denault

Greg, at this time I think that's a safe assumption that the new financing and new evolver that we might put in place for that nuclear company were first offset existing corporate level there and then we just start over in terms of what the corporate financial structure looks like in terms of the evolver capacity experience and how we use that.

Greg Gordon - Citigroup

So the entire $2.2 billion would be sort of first be placed?

Leo Denault

Yes. I think that's a safe assumption your going in assumption obviously all of that is what we're looking at right now in terms of the level and timing and what we might do and how might be structured.

Greg Gordon - Citigroup

Okay. Thank you.

Operator

Thank you. And next we will hear from Steve [Wiseman] with Catapult Partners.

Steve Wiseman - Catapult Partners

Hi, guys.

Wayne Leonard

Hi, Steve.

Steve Wiseman - Catapult Partners

Can you hear me? Couple questions first on the guidance for this year, could you clarify I think you say that New Orleans is now in the guidance, is the share repurchases now in the guidance or not, and is this tax audit benefit in the guidance or not. Could you just still show a loss at non-nuclear?

Leo Denault

Yeah, Steve, if you look at the guidance table that we put out, it's the same guidance table that we started with.

Steve Wiseman - Catapult Partners

Right.

Leo Denault

When we put the range out obviously we have a view that things that we got and they are going to go right and some of them can go wrong, new things are going to show up on both sides. So as we review that every quarter what we are really looking at, is on balance we still in the range and we are.

As far as New Orleans, New Orleans was not in the guidance when we put that out, in other words the share repurchase that works something in our estimates for the audit issue is actually wasn't in the non-nuclear wholesale business we shown up in our numbers impairment in audit. So would have been utility impairment in other side.

But so that's kind of on balance between the things that have gone are it was a little bit smaller than what had actually turned out. So on balance we still feel served in the range and so we have actually gone through in line-by-line change those range including the share repurchase including New Orleans including the audit issues some of which aren’t some of which won't. But also within the house the outage is in the 0.3 and there an unplanned outage. As Wayne did mention it has been a little bit higher than we expected. So all of those things on balanced we still see ourselves in the range.

Steve Wiseman - Catapult Partners

Okay. And my other question is on the NRC filing and timing I think by this time I saw you talked about it, typically being maybe like a six month process, but not sure have you gone any clarity from the NRC on how long it would take for them to review this?

Leo Denault

No, we were haven't got anything. We still think that is something that could be done within six months timeframe generally it will be after then how quickly they move other resources are spread in the light, but that still seems like the way timeframe for us.

Steve Wiseman - Catapult Partners

Thank you.

Leo Denault

Thanks, Steve.

Operator

Thank you. And next we'll go to Rudy Tolentino with Morgan Stanley.

Rudy Tolentino - Morgan Stanley

Hi, can you and just refresh me on what your plans are for your non-nuclear wholesale assets. I know in the past you talked about selling it. Kind clear us stories that you may or may not be selling it. Can you just kind of give me an update?

Wayne Leonard

Yeah really that state is pretty much exactly like it's been for quite sometime. We keep trying to get as much as value out of those assets as we can. In some instances that's gone through responding to our fees like the ones that's introduced to other people are selling power into the market, whoever selling pieces of those plants are all of them, all those things is still on the table.

We still aggressively perusing them all and try to come up with the best value we can. So things, really hasn't changed. We would probably like to find the way to monetize that as best we can, but we are not going to do, if the value is not there.

Rudy Tolentino - Morgan Stanley

Okay. And can you just give a quick update on the ERCOT integration of Entergy Gulf State's in Texas?

Wayne Leonard

I ask Gary Taylor, who is the new head of our Utility Operation as you recall Rick Smith is moved over as President of the Company and Gary now is over the utility, Gary?

Gary Taylor

Hi, good morning. As when house fuel systems 67 was put out, one of the things that required us to do is to file such to define qualified power regions that would determine, be able to move to retail open access. We did that filing in the December of 2006, and those hearings had been ongoing. Hearing basically concluded last week with the two days set of hearing that basically allows for free options in our plan that we proposed.

One of those options would be in all cases going to ERCOT by the Entergy plan; one, we would just add the ability to address our reliability. The second would allow us to also add an economy component, which will allow us to bring power in from the ERCOT region.

And then there was two variations that the commission was interested in that. Has we have gone through that hearing now they had set the timeframe with the ALJ for brief, which will then begin at the end of August and we will ask for five, which are in the middle to end of September, and we would expect to have a decision. The commission has said they do intend to rule on the plan. Our preference would be to go to ERCOT, and we would expect to have that ruling sometime in the October timeframe.

Rudy Tolentino - Morgan Stanley

Okay. Thanks for the update.

Operator

Thank you. And now we'll move to Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs

Hey, guys, congratulation. It's so nice to have an Entergy conference call or storm cost recovery isn't the first half that got everyone's mouth. Easy question on the non-regulated nuclear side, can you talk a little bit about when your specific Northeast assets might have exposure to capacity market auction? I know it's good ways off, but just curious?

Wayne Leonard

Well, in the power capacity markets in nuclear the auctions process is already beginning and so, we should start to see the value of the auction prices after I think its 2010 when those will be bid for. As it stands today, we get that ramp up in the capacity payments. We start talking about $3.05 per kilowatt month and moved its way up to $4.10 by the time it's get to the end and the middle of 2010 before that the auction values go in place.

So, we already start to see the outcome of that as they proceed through that process to get the auctions put in place in nuclear. In terms of New York, I think it's going to be a function more of just the market participants until there are some change that gets us an actual functioning markets similar to something that's going on in nuclear. And certainly if they look at those zones and they create a new zone pricing zone around where endpoint that could be favorable outcome for us as well.

Michael Lapides - Goldman Sachs

Are your specific assets and I am thinking your nuclear assets primarily. Are they actually eligible when the auctions formally start at the administrative structuring to receive whatever the auction prices or they still largely contracted at a price well below the auction level?

Wayne Leonard

No they will be available to get those if you look at here where my effective capacity would be available for that prior to the unwind way the contract-to-contract of the existing plan we can roll off I think in 2012 and then program would be subject to the capacity payments as well.

Michael Lapides - Goldman Sachs

Got it. Okay. Thank you.

Wayne Leonard

Thank you.

Operator

Thank you. Moving on we'll hear from Jonathan Arnold with Merrill Lynch.

Jonathan Arnold - Merrill Lynch

Hi good morning.

Wayne Leonard

Good morning Jonathan.

Jonathan Arnold - Merrill Lynch

The question regarding your current view on hedging in the nuclear business and how we should think about that in terms of the decisions you are making around financing as if all the scenarios where you could end up prompting for a less hedged forth structure or is your core expectation we continue to hedge quite a long way forward?

Wayne Leonard

Jonathan the correct expectation I guess we were operating right now as we are hedging forward including we are risk when it says we have outlined them. As we go forward with financing potentially at that entity. And then any other strategic moves that we makes that's part of the picture whether hedging does or doesn't enhance financing. And if there is a change in the credit rating thus hedging forward enhance the value of the company that which profile giving the collateral needs that might you required if you was more on a high yield side and the investment grade side.

So, all of that is something that we will view in the context of the financing and where we go with that. So, it's a little too early to tell it will that change. But right now we continue to do it on the same basis as we do now that supports are given in policies supports the capital structure of the company and our aspiration there and supports the credit rating of entity core. So I guess the short answer is as we look at the options there, if we got the possibility to change within hours they can with what we have done.

Jonathan Arnold - Merrill Lynch

And I got one other thing which is on the, you mentioned in the disclosure on average realized price in the nuclear business that this now excludes the or the below market PPI amortization relates to its power saves is that something you could quantify roughly how much that was in the quarter. We should be thinking about the, remind us how we should think about the profile going forward.

Wayne Leonard

I guess I don't have on top of my head what it was in the quarter. I think for the year it's about a $0.11.

Jonathan Arnold - Merrill Lynch

And it would be reasonable to assume that it was, it occur like through the first, the second, third and fourth quarters relatively?

Wayne Leonard

Pretty much, yes.

Jonathan Arnold - Merrill Lynch

Thank you

Operator

Thank you. Moving on, we will now hear from [Andy Levy] with Brencourt Advisors.

Andy Levy - Brencourt Advisors

I am answered. Thank you very much.

Operator

Thank you. (Operator Instructions). And now we will hear from Ashar Khan with SAC Capital.

Ashar Khan - SAC Capital

Good morning congrats. Leo, how can we, I wanted to go back to Greg's question what could the sources and uses of the $5.5 billion. I think we know the source, which is coming from, but what could be the uses of the $5.5 billion?

Leo Denault

There is a negative uses for the $5.5 billion and we would look at the proceeds the same way we look at our capital deployment decisions. There is some debts at parallel level that as I mentioned we would evaluate as well and that we defeated its firm or all of that.

There is also certainly the idea put investment in either the utilities on the parent or in the nuclear business, if there was some kind of acquisition or transactions that we look at there or we would look at the potential for share repurchases dividend increases, and the like given that it's a, it would be a one time financing it's more of a share repurchase type of option than dividend option. But all of that could be under consideration when we ultimately decline how much we're going to finance.

Ashar Khan - SAC Capital

Since I wish to go as you said there is about 2 billion of debt if you would just take debt and share buybacks the maximum share buyback could be about $3.5 billion. If you only use the proceeds for debt and share buyback is that a fair point?

Leo Denault

It's a fair point in terms of math, what we would have to look at is the credit rating and the cap structure and the like of the parent company. So, it's a little early to tell. We show exactly how we would do it, but 5.5 is really the stake we got out there at least initially goes as far as we go. And then use of proceed is something that we are going to look at. It's going to taking the consideration the needs of the business, the credit rating of all the businesses, and then the capital deployment opportunities that we have at that time including investments that we've got coming down to pike in the utility or share repurchases et cetera.

Ashar Khan - SAC Capital

Okay. And if I can just end up how did you decide the number to be 5.5, does that gets you investment grade are longer, what was the basis of the 5.5 number?

Leo Denault

The 5.5 is a number that we put together in terms of a lot of analysis internally with some advisers around what we thought we could reasonably do out of the box. In terms of whether it is investment grade that's the discussion that we are going to have with the rating agencies. And I think, if you got any higher than that it would be safe to say that the problem wouldn't be out of the box, but this is something that hasn't been done before, and so we are approaching it like that.

Ashar Khan - SAC Capital

Okay. Thank you, sir.

Leo Denault

Thank you.

Operator

Thank you. And we'll now hear from Phyllis Gray with Dwight Asset Management.

Phyllis Gray - Dwight Asset Management.

Good morning.

Wayne Leonard

Good morning.

Phyllis Gray - Dwight Asset Management.

Could you tell me if the formation of the nuclear business has any impact on the plants owned by Entergy Arkansas, Gulf States and Louisiana?

Wayne Leonard

No. It doesn't.

Phyllis Gray - Dwight Asset Management.

And are any approvals other than the Nuclear Regulatory Commission required?

Wayne Leonard

We would certainly had discussions with all of our regulatory bodies that are involved. We make filings most likely with New York Vermont as well going forward. Then since we have been evaluating if we would actually do the financing what kind of status we need with the FERC and whether we not, we need to make filing there as well.

So, we are in a process of going through and having discussions with all of those folks making filings where we think we need to, and then also looking at what other filings, we might have to make.

Phyllis Gray - Dwight Asset Management.

And with the filings in New York and Vermont are they because of the long-term power contracts with the utility companies in those States.

Wayne Leonard

No. They are just filings that we need to make for the change in structure.

Phyllis Gray - Dwight Asset Management.

Okay. Thank you.

Operator

Thank you. Moving on, we'll now hear from Jim Ferguson with AIG.

Jim Ferguson - AIG

My question was just answered.

Operator

Thank you. And now we will move on to Reade Griffith with Polygon Investment.

Reade Griffith - Polygon Investment

Thank you, I noticed the step up in the 2009 CapEx by about 300 million, is that bankruptcy primarily?

Leo Denault

Could you repeat --

Reade Griffith - Polygon Investment

The 2009 CapEx guidance is higher by about 300 million versus first quarter earnings presentation, is that primarily due to bankruptcy?

Leo Denault

It's really a combination of everything that we talked about today in terms of changing CapEx in the portfolio transformation arena. It will just got washed all the platform some dollars that when we talked about in terms of what we would put in our new nuclear even though not towards building a plant, but in the studying evaluation and preserve life there all of that embedded in those numbers now.

Reade Griffith - Polygon Investment

Okay. And could you remind us here, either trailing four months or maybe four months ended December '06, your regulatory ROVs are rep base for Louisiana, Mississippi and Gulf states?

Leo Denault

We have organic source in Gulf states, Louisiana portion entry for Louisiana others were FRP filings that we made in May and those are going to effect in September, Wayne talk to the Mississippi piece, which was filed in those into has already gone into effect in that period in May timeframe. And in Texas it's not under FRP type filing, but as Wayne has said in his opening comments we intent to file a suit case coming in the third quarter of '07.

Reade Griffith - Polygon Investment

I guess is it fair to assume that generally speaking in Louisiana and Mississippi, first year allowed ROV every year because of the FRP mechanism?

Leo Denault

That's a good assumption --

Reade Griffith - Polygon Investment

I'm sorry, you go ahead.

Leo Denault

That's fine.

Reade Griffith - Polygon Investment

Okay. So and I guess Louisiana is, I think turn the quarter allowed and Mississippi turn the half is and so ballpark that there is, you should be in and around those numbers currently speaking?

Leo Denault

In and around Mississippi are little bit lower and if you looking at Entergy Louisiana probably in the 9.5 to 10 range.

Reade Griffith - Polygon Investment

Thank you very much.

Operator

Thank you. And we have time for one final question and that will come Daniele Seitz with Dahlman Rose.

Daniele Seitz - Dahlman Rose

Thank you. And can you remind me of the life extension program for non-regulated nuclear plants and did they all get their life extension yet, or are you still filing for this?

Leo Denault

I led Mike Kansler, I may if you do know Mike, Mike is new President of all our Nuclear Operations, replace Gary. Mike?

Mike Kansler

Okay. Good morning Daniel.

Daniele Seitz - Dahlman Rose

Hi.

Mike Kansler

We basically have the applications in for Vermont Yankee, Pilgrim, FitzPatrick and Indian Point to go for 20 year life extension for all those sights, we've received a final safe evaluation reports and our final environmental impact look forwards for Pilgrim.

We're expecting those to come from Vermont Yankee in month of August, those two plants will go to SAR hearings later in the year, once that done without any contention then we should get a life renewal for 20 years. FitzPatrick is few months behind us and we just had our application for our license renewal at the Indian Point excess by the NRC and that will go into better 25 to 35 months to process.

Daniele Seitz - Dahlman Rose

Great. And this are not yet reflected in your numbers they will all be I'm assuming by 2008, 2009?

Wayne Leonard

Leo?

Leo Denault

How are you doing?

Daniele Seitz - Dahlman Rose

Hello. I mean that the low level depreciations and the financial impact of this life extension is going to be reflected in your numbers by 2008, 2009?

Leo Denault

No, we already

Daniele Seitz - Dahlman Rose

You already do?

Leo Denault

Yes.

Daniele Seitz - Dahlman Rose

Okay. Great. Thank you.

Operator

Thank you. That does conclude our question and answer session today. Ms. Lopiccolo, I will turn the conference back over to you.

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 Regulation G compliance statements. Our call was recorded, and can be accessed for the next seven days by dialing 719-4570-820, replay code 28017841.

This concludes our call. Thank you.

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Source: Entergy Q2 2007 Earnings Call Transcript
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