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Entergy Corporation (NYSE:ETR)

Q4 2005 Earnings Conference Call

January 31st 2006, 2:00 PM.

Executives:

Michele Lopiccolo, Investor Relations

Leo P. Denault, Chief Financial Officer

Richard Smith, Group President of Utility Operations

Curt Hebert, Executive Vice President

Gary Taylor, Chief Executive Officer

Analysts:

Greg Gordon, Citigroup

Ashar Khan, SAC Capital

Kit Konolige, Morgan Stanley

Steve Fleishman, Merrill Lynch

Daniel Ford, Lehman Brothers

Michael Lapides, Goldman Sachs

Neil, Asset Management

Terran Miller, UBS

Paul Patterson, Glenrock Associates

Zack Schreiber, Duquesne Capital

Presentation

Operator

Good day everyone and welcome to the Entergy Corporation’s Fourth Quarter 2005 Earnings Conference Call. Today’s call is being recorded. At this time for introductions and opening comments, I would like to turn the call over to the Investor Relations, Ms. Michele Lopiccolo. Please go ahead ma’am.

Michele Lopiccolo, Investor Relations

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

Leo P. Denault, Chief Financial Officer

Thank you Michele, and good morning. Let me begin by offering Wayne’s sincerest apologies for not being able to participate in the call this morning. Unfortunately he has completely lost his voice so he can’t address you today. Therefore I will attempt to incorporate some of what he was going to cover in my remarks, and between me and the rest of the management team we will do our best. I will begin then by providing you with an update of our recent accomplishments before moving into my typical explanation of quarterly and full year results, then I’ll close with the discussion of earnings guidance and I’ll try to put that guidance in the context of the goals we are working to achieve in ’06 and beyond. Before summarizing our recent accomplishments, I would like to start by reminding you where we were headed before the storms.

In mid-summer we are actively executing on a major share repurchase program and we were evaluating another staple activity in the increase. Our utility was pursuing cost management initiatives in both healthcare and support service areas while also pursuing generation acquisitions under its buy plan. In Nuclear, we were continuing to demonstrate operational excellence with the goal of applying our expertise to newly acquired or contracted plan. In addition, we were completing a multi-year productivity improvement initiative in executing our contracting and hedging strategy. Then the two hurricane struck our utility, putting many although not all of these initiatives on hold. I provide these context to emphasize that everything we accomplished in the fourth quarter and what we hope to accomplish in the coming quarters is aimed at getting us back to where we were.

From our perspective, getting back to where we were requires focus on three areas: stability, recovery and growth. And I am pleased to report we made progress in all three fronts. In the area of stability our most important fourth quarter achievements were operational. We successfully navigated through accomplished challenges to stabilize and repair our utility system so that we could again provide service to our customers. At the same time we stabilized our headquarters operations by relocating 1500 employees to safe work location with minimal disruption or productivity loss. From a financial perspective, we restored stability to our balance sheet by executing the financial plan that we announced in November. This plan provided need of liquidity, also providing excess capacity should another two-sigma event occur in the future. As part of that plan we completed a new $1.5 billion corporate revolver for the parent, we issued $500 million of operating company debt, we marketed $500 million of equity units. You might recall this amount is at the lower end of half a billion to a billion dollar range we were considering.

And finally we infused $300 million of equity into Entergy Gulf States. This infusion helped the subsidiary with the highest overall restoration costs, to maintain its liquidity and its investment grade credit rating in anticipation of obtaining some form of cost recovery. During the fourth quarter we began advancing our storm recovery initiatives, the second focus area that we view as key to getting us back to where we were before the storms. At the federal level, the Gulf Opportunity, its own legislation; and the Katrina Relief bill were both passed. The Go Zone legislation as it is generally called permits public utilities to elect a 10-year net operating loss carry back for casualty losses due to Katrina. This will allow the utility to accelerate the timing of certain income tax deductions on future tax returns.

The Katrina Relief bill provided $11.5 billion of community development block grants and included language that permits funding to be provided to publicly owned utility. The Department of Housing and Urban Development has allocated specific amounts to each of the states affected by Katrina, Rita and Wilma who in turn will administer the grants. We intent to pursue CDBG funding in Louisiana, Mississippi and Texas during the first quarter, and we are working with state leaders on behalf of our ratepayers to make the case for federal assistance through support of the operating companies in the affected area.

At the state level we made filings to request interim recovery of nearly $600 million of storm cost in Louisiana and Mississippi, and we obtained important decisions in Entergy New Orleans Chapter 11 proceeding. In December the bankruptcy judge granted Entergy’s request that are debt financing for New Orleans. The debt financing currently stands at $90 million. In addition, the judge confirms that the insurance proceeds can be used as determined by Entergy New Orleans. Both of these decisions were important to analyze overall goal of emerging from bankruptcy as a viable entity.

Outside of storm related activities there were several other fourth quarter achievements that were important to our long-term growth. In the Utility for example the Mississippi Public Service Commission approved its own recovery of the Attala acquisition paving the way for the January ’06 closing. The federal energy regulatory commission issued a final order in the system agreement case essentially a firming in ’05 decision. And at Entergy Gulf States, Texas, two new riders were approved. The first allows us to collect $18 million of annual capacity cost while the second allows for interim recovery of $18 million three-year of transition to competition cost while our TTC case is pending.

And finally in Nuclear, our contracting efforts were successful in solidifying incremental revenue sources for the future. We executed a major multi-year contract at attractive market price. This contract along with others closed during the period increased our sold forward positions in ’07, ’08 and ’09 by an average of 10%. Over the same years our average sold forward price for the portfolio of contracts increased $3 to $7 per megawatt hour.

Now turning to our financial results for the quarter. Slide 2 shows that fourth quarter ’05 as reported results were lower compared to one year ago. The reason for the decrease is attributed to the special items reported in the fourth quarter of 2004 compared to those reported this year. In 2004, we reported a net positive special of $0.18 per share. This special included the impact of tax benefits on restructuring, partially offset by a loss at Entergy coke and an impairment reserve. In 2005 special items had a negative impact on earnings, the specials reflected an impairment reserve and results from discontinued operations following our decision to sell the Texas retail business. The differences in these special items created a $0.34 per share decline quarter-over-quarter as reported result.

Operational earnings in the fourth quarter of ’05 were $0.59 per share, $0.09 increase over fourth quarter ’04. The increase coming from higher results at both Entergy Nuclear and the non-Nuclear wholesale assets business. Slide 3 shows utility parent in other earnings declined compared to fourth quarter of last year. Lower revenues were the primary driver, including revenues at Entergy New Orleans, which are reported in other income due to the deconsolidation of that business.

Industrial sales in particular were down significantly quarter-to-quarter. We still have two large refineries, customers at Entergy Louisiana that have net returned the full service, two large industrial customers remain out in New Orleans. In addition, the chemical plant in Entergy Gulf States, Louisiana service areas suffered severe damage and will not reopen, with the resulting loss of about $2.5 million of annual revenue. This is the only major industrial customer we are aware of that was a permanent casualty of the storms. We expect that one of the refineries currently down should return to full service by the end of the first quarter. However, the timing of the return of the other large customers hit by the storms is still in question. Continuing outages of these customers will reduce revenues $3-4 million for the quarter.

Lower O&M expense partially offset the overall decrease and resulted to utility. We saw the continuation of storm restoration work, which lowers over now along with backend loaded expense reduction that we discussed with you early in 2005. Entergy Nuclear’s operational earnings per share reflected higher results compared to the same period of last year. The increase is due primarily to higher generation due to one less refueling outage and higher contract price. In addition, lower O&M due primarily to timing and the positive impact of accretion also contributed the higher results at Entergy Nuclear.

Closing out the discussion of quarterly results, we look at the non-Nuclear wholesale assets business. Results in the fourth quarter of ’05 were higher than a year ago, reflecting the sale of SO2 allowances in the current period. This business has been generating assets with operating attributes that had produced excess allowances. Therefore, we can periodically create value by monetizing a portion of these allowances.

Slide 4 includes as reported an operational results for the full year ’05 compared to ’04. As reported earnings reflect an increase of 7% with improved results coming primarily from Entergy Nuclear. Full year operational earnings increased by 16% with higher contribution from each of Entergy’s three business segments. Favorable weather and accretion from Entergy’s share repurchase program were the primary contributors to the higher operational earnings at the utility in ’05. These positives were largely offset by $0.26 per share negative effect due to the storms, additional $0.16 per share is associated with Entergy New Orleans alone.

Entergy Nuclear’s full year operational results improved $0.26 per share over 25% due primarily to higher contract pricing, higher generation, lower O&M and the impact of accretion. And finally operational results for the non-Nuclear wholesale assets business improved year-over-year due to lower costs and gains on the sale of SO2 allowance. The results of this business exceeded the goal we set several years ago to achieve a breakeven position by the end of ’05.

As reflected in Slide 5, net cash flow from operating activities was down significantly compared to fourth quarter of 2004. The absence of sale proceeds from Entergy Coke, which came in during the fourth quarter of last year account for more than $500 million of the decrease. In addition, spending and lost revenue due to the storm stripped away another $300 million. Lastly, working capital fluctuations at the utility decreased cash, but were essentially offset by higher revenues and lower refueling outage costs at Nuclear.

In spite of these effects, however, we ended the year with more than $580 million of cash and our gross liquidity position stands at $3.1 billion due to the success of our financing plan. Further, we now expect to have 2.3 billion of cash available for investments, repayment of debt or equity or dividend increases over the next three years. This level of cash availability assumes recovery of significant amount for differed fuel costs, which is cash we’ve already spent. The $2.3 billion also assumes realization of higher market prices from unsold nuclear generation, an incremental debt capacity that could be tapped toward the end of the period while remaining within our stated debt targets.

Moving now to earnings guidance. Slide 6 reflects the major components of our as reported and operational expectations for the current year. We see’06 as reported earnings in the range of $4.78 to $5.08 per share, with operational earnings in the range of $4.50 to $4.80 per share, both excluding results from Entergy New Orleans. We have excluded New Orleans because we are not in a position to provide near-term estimates for that business. The city’s repopulation and the bankruptcy process both have uncertainties associated with them and we cannot predict those outcomes today.

Continuing on Slide 6 we show how ’06 earnings estimates build from an operational base of $4.46 per share. In the second and third bars we isolate two of the ’05 variances, which provide more visibility of the forward-looking driver. The $0.10 of weather is deducted in the ’05 storm effect $0.10 exclusive of the NOI is added back. This gets you back to a starting point of $4.40 per share. ’06 utility drivers then follow in the next three bars. These include non-storm related rate actions and normal sales growth at the utility partially offset by the continuation of storm-related outages at Entergy Louisiana were approximately 31,000 customers remained unable to accept service.

Higher operating and maintenance expense due to benefits, inflation, operating expenses for the Perryville and in California, costs will incur to implement our independent coordinator of transmission and higher interest expense that results from the $1.6 billion increase in debt at the end of ’05, and our expected increased usage of the corporate revolver during ’06.

In Nuclear, the key ’06 guidance drivers are higher contract and market energy pricing, higher generation from operates in fewer outages, higher operating and maintenance expense due to inflation and benefits expense, and increased interest expense due to market price driven collateral requirements. As our release shows, we added specific pricing assumptions based on published market prices for purposes of setting guidance for our 9% open position. In addition, we provided sensitivity so you can estimate how consolidated earnings will change as market prices moved throughout the year.

Turning to Slide 7, we showed the key initiatives we are working on to shape our company’s future. A few comments, no surprise that each of these initiatives has been either stability, recovery, growth or some combination of the three. This is because as I noted at the beginning, a lot remains to be done in all three areas to get us back to where we would have been in the absence of storms. We view ’06 as the year of rebuilding for the utility, while the infrastructure restoration is largely behind us, our utility will focus on rebuilding or resolving issues at Entergy New Orleans and beginning storm recovery. Other key objectives we will pursue include redefining corporate headquarters and rebuilding our balance sheet to restore credit rating strength. These are not tasks that we can complete on our own, rather ’06 would be a year where we must demonstrate our ability to work in a cooperative and productive manner with government officials, our regulators and the rating agencies, achieving success in these efforts is critical as we work to protect customers, shareholders, bondholders and employees from the costly effects of past and future storms.

’06 would be a defining year for our nuclear business as well. With initial productivity and fleet alignment improvements in place, Nuclear will demonstrate it has the talent, capability, drive and discipline to operate in a highly competitive commodity-based business. Challenges in nuclear will come in the form of taking measured market risk to capture upside while aggressively managing cost to increased margin. In addition, nuclear will implement to be operated from our Yankee, while also initiating life extension approval processes for VY and to build them.

We are successful in both of our core businesses, our goal of getting back to what we would have been in ‘07 and in ‘08, absence of storms is well within reach. Now I know you will probably be quick to ask what the success mean in terms of EPS growth, ROIC, the dividend and share repurchase. Let me assure you that all of our aspirations remained squarely in place. In fact we acknowledge that it may become necessary to revise some of them upward in the future particularly given the market price opportunities that exist in our nuclear business. But now I simply have the time to get ahead of ourselves. This is because our media priorities to work with government and regulators to recover 1.5 billion in utility storm cost. Further this recovery must be done in a way that allows us to begin paying down the $2.5 billion of financing that we effectively advanced with little more than a moment’s notice.

It goes without saying our ’06 agenda is filled with challenges. Let me share with you that we are focused on achieving timely resolution of these issues that are before us. And we intend to do so while continuing to create value and drive growth, fairly for that will be clearly evident in ’07 and ’08. We now turn to our Q&A session and our senior team is available to respond to your questions.

Questions-and-Answer Session

Operator

Thank you. Operator Instructions We will go first to Greg Gordon with Citigroup.

Q – Greg Gordon

Thanks. Good morning Leo. Two questions. First is on the utility and the milestones that we are looking for in terms of Go Zone benefits, block grants being directed to the company and getting a window into how much and over what time period the individual states will allow for a recovery from customers? You know why don’t we going to start to get sort of tangible numbers around those three or four areas?

A – Leo Denault

I will let Rick go ahead and start off with that.

A – Richard Smith

Good morning Greg. We are in the process right now of working with the various state committees and the legislatures and the different states on really the CDBG growing ups. And internally we have started the process of developing the applications for the CDBG and I think our expectation is, you know, we may see something out of that around mid-year, kind of the result of those efforts. On the Go Zone grants those would be part of any filing that we would make out of 2005 tax returns and that’s really a situation what we are giving back the loss the number of years. So again I think that’s probably sometime this summer we know the results around that. And you know the ratemaking mechanisms that you’ve seen, we have filed in Mississippi and Louisiana Phase I of two part filings. And in Phase I we are looking for really interim relief, it really starts from cash to come into the utilities that were significantly affected by the storm and hearings on those that are going to happen over the next couple of months and we hope to get some results out of those probably in the second quarter of this year. We’ll follow-up later in the year, you know Phase II filing, when I think there is, the costs will have solidified at that point in time and we will know where we stand with the CDBG, CDBG growing up insurance and we will follow-up with filings later in the year in Phase II overall so the discussion with the commission’s securitization around any additional amounts that CDBG requests at above the Phase I level, and also to be talking to them about securitization or what we look to build up a larger storm reserve than we had in the past.

Q – Greg Gordon

So insurance is also expected by mid-year?

A – Richard Smith

I think we’ll have a fair idea of what it might be and we will probably have to have some kind of regulatory mechanism that truce it up on an ongoing basis, how those funds might come in.

A – Leo Denault

Greg, this is Leo, I mean you are right, there is several ways to attack the issue here: insurance, the federal relief efforts that we are going to make as well as rate recovery. And on the insurance front, we will be starting to make preliminary or outgoing proof of loss for the insurers pretty soon but that will start to come in overtime, but we should have a pretty good idea by mid-year or so exactly where we are going to be on the insurance. And then we will continue to pursue the CDBGs and then the rate recovery as well.

A – Curt Hebert

Greg, this is Curt Hebert, just finish up on what Rick talked about with the CDBGs: the community development block grants. I think it’s important to kind of go back to the setting we were in the last time we talked in November. And if you remember that our point of view was that due to Stafford we really had no opportunity here so what we were trying to do is go to Washington DC, work with our leaders there, work with our state leaders and create some type of opportunity. Obviously that was done from tax initiatives the Go Zone and the community development block grants in the form of the 11.5 billion that was set down through the $29 billion package. Now, you know those opportunities we are having to work through and we are working with HUD or working with the states or working with the local recovery, efforts as well as the CDBG coordinators in Mississippi, Louisiana and Texas, but what we have done is found an opportunity now to go after some of these things and again we are hopeful that in the spring it would be some other opportunities and our work is not done in Washington, we are going to continue those efforts, not to mention continue and to try and make some changes at Stafford.

Q – Greg Gordon

Thanks. Switching to the Nuclear front, overall, this has been the nuclear story is obviously turning into a revenue growth story but over the last several years it was also a cost reduction story but in ’05 and now for your projections for ’06 we are seeing reasonably substantial increases in operating costs in our last visit to your Nuclear northeast headquarters, we came away with the impression that in the long run that was still operating efficiencies to be gained at the nuclear fleet. So why are we seeing sort of a systematic increase in operating costs? That’s my first question on that front.

A – Leo Denault

I will start out with that Gary. One of the things we have done is that in, we are showing you the A&G side of this as well. The same cost increases inflation in benefits costs that we have seen throughout the business are also impacting Nuclear. At the same point in time we still see cost reduction efforts. Some of the things that we have been fighting against that we didn’t have to fight against when we first started were areas of security and things like that that it has increased overtime, but we still do see some opportunities to lower cost and to continue down that path. I would like Gary to go ahead and complete that.

A – Gary Taylor

Yeah this is Gary Taylor, and to build on with what Leo said, I think we have in our efforts really materialized on the things that we said we would do, as has he said but specifically mentioned benefits, increase in security costs to offset some of those, but we haven’t completed our first Phase and we do see some opportunities looking forward, and we have initiated internally what that next step maybe but we still believe there are some opportunities for efficiencies going forward.

Q – Greg Gordon

Okay, then the last question is on the depreciation increase, what does that related to? Is that related to the Vermont power plant operates and will that potentially reverse out when we get license extensions, can you explain what’s going on there?

A - Curt Hebert

It is associated with the upgrades and other capital expenditures we’ve had at the plants. I really wouldn’t see that that change in much going forward.

Q – Greg Gordon

Okay thanks guys.

A - Leo P. Denault

Thank you Greg.

Operator

Our next question comes from Ashar Khan with SAC Capital.

Q - Ashar Khan

Good morning.

A – Leo Denault

Good morning Ashar.

Q - Ashar Khan

Leo, I just wanted to understand this appendix, which was attached to the presentation No.9, you’ve mentioned that the storm effect was $0.26 for the year, 14 and 12 for the third and first quarter. And you also reported I guess when you reported earnings that because of this you are doing lower O&M, and hence ’06 O&M is I guess in the budget is hitting by about $0.25 or so ’06 versus ’05. Could you quantify how much lowering O&M was in ’05 because of the storms and all what was doing so, you know what is the normal license fees in O&M going from ’05 to ‘06? Or is it caught up in the storm effect number, so I am a little bit, if you could just clarify that?

A – Leo Denault

Some of it is caught up in storm effect numbers as well because what you see is a redirection, a redirecting of O&M to storm cause, and so as we go through and calculate that $0.26 overall impact, there is a benefit I guess for a lack of a better work, two O&M for the fact that some of those hours are going into the storm part. I would say that if you look at that $0.25 increase in 2005, about 50% of that is inflation and benefits costs and things like that, we also got some added costs in there for Attala, which is probably another 25% of it and some for Perryville, which is maybe think like another 10% of that O&M number. So there is a lot, there is a few things going on in there, and then the balance of that would be redirection of O&M, you know, back to O&M as opposed to storm cost.

Q - Ashar Khan

Okay, and then getting back to I missed this, you mentioned regarding the free cash flow projection from 2006 and 2008. You mentioned that it was also dependent on certain recovery of certain cost, could you quantify what that number is?

A - Leo Denault

Really the recovery that we have got in that is for deferred fuel.

Q - Ashar Khan

How much is that?

A – Leo Denault

That’s probably about $400-500 million of that we voted. And as I said we have already spent that money in ’05 as deferred fuel balances rose due to regulatory process going forward where we covered those dollars.

Q - Ashar Khan

Okay, and Leo can I just ask you if one was to, you know, we are trying to do a little bit comparison of what you were before and what this cost, how much of the ’06 guidance, which is, has been impacted by the higher borrowings or the new equity stature, convertible stature kind of issued, and so you know as you look out and you get these proceeds throughout the year and you know you have the flexibility of buying back some stuff. So could you quantify to us that how this higher borrowing cost associated with all that went on in 2005, whether through the convertible instrument or the straight debt cost, how much is costing you in your ’06 plan because of that?

A – Leo Denault

Well primarily that $0.10 of increased interest cost that you see is related to that.

Q - Ashar Khan

Okay.

A – Leo Denault

Because as we go through time and we collect, you know, deferred fuel and things like that, we’ll be able to reduce that burden but $0.10 is how we are quantifying what that impact is.

Q - Ashar Khan

But should I look at that $0.10 in the utility, why don’t the nuclear site is there $0.05 for increased interest expense, can I know?

A – Leo Denault

The nuclear site is really related to what the company charges nuclear for the use of capital and collateral requirements, so its offset it to parent.

Q - Ashar Khan

Okay.

A – Leo Denault

It nets out in terms of where it goes from nuclear to the parent but those are guaranteed fees, we have a disappointment around how we charge the business units for the capital they consume for the corporation and that’s nuclear’s piece of that.

Q - Ashar Khan

Okay, thank you very very much.

Operator

We will go next to Kit Konolige of Morgan Stanley.

Q – Kit Konolige

Hi guys. Just to follow on the nuclear a little bit and I apologize if this is obvious to other people but on Page 7 where you are discussing the forward-looking assumptions in the nuclear segment, there is a bullet point that refers to $20.15 per megawatt hour, non-fuel O&M expense reflecting inflation of higher benefits; $19 per megawatt production cost. What’s the difference between those two numbers and I mean, why am I looking at two different numbers there?

A – Leo Denault

Okay, the basic difference is fuel and A&G. We take fuel out and A&G back in to get the O&M number versus the production costs. So production cost never included A&G expense.

Q – Kit Konolige

So the one is a cash and the other is a book cost, is that how I should look at it or?

A – Leo Denault

Not exactly, I think that they both are elements of cash and books and how you look at amortizing the fuel and the like.

Q – Kit Konolige

Right.

A – Leo Denault

So it’s really what’s classified as O&M versus the way we’d classify production cost. Production costs don’t include the A&G component.

Q – Kit Konolige

Okay, okay so the 20.50 as A&G, and the $19 doesn’t?

A – Leo Denault

Right.

Q – Kit Konolige

So when you are talking about rising costs, is it all across the 20.50 or is it A&G in particular?

A – Leo Denault

I am sorry, could you repeat that Kit?

Q – Kit Konolige

The rising cost over the last couple of years at nuclear?

A – Leo Denault

Yeah they have been a little both but A&G is probably the bigger component, yeah.

Q – Kit Konolige

Okay but it sounds like I should use the 20.50 going forward with some increases possibly as the incremental cost of as you sell more megawatt hours?

A – Leo Denault

Yeah that’s all in, it just depends on how you are handling, I can’t tell you how we are handling A&G and all that outside of it so, that’s the core below. And I think you got it right Kit, I mean that has A&G component that was missing from there.

Q – Kit Konolige

Well luckily they are pretty close.

A – Leo Denault

Yeah.

Q – Kit Konolige

Okay, well we will leave that at that, and then you mentioned looking forward at Nuclear that you may be looking to the cost control which I think is discussed already but you talked about measured risk and I assume that, suggest that you may to part at least a little bit from what looks like an ongoing this year of hedging program that was pretty much all unit contingent?

A – Leo Denault

Well it’s a combination as we discussed before, Kit, about our hedging strategy as you know we’ve provided ourselves the flexibility to leave a greater portion of it open, and fell into the stock market, maybe if you look at our sold forward tables that’s why this year is the first year we are going into the year with a 9% open position. And we’ve provided ourselves the flexibility to leave more than that open if we choose to, so that’s the risk we are talking about and that’s why we have actually provided you with a little more information around what the market looks like when we put this together and what the sensitivity of the portfolio is to changes in market prices.

Q – Kit Konolige

And can you give us a sense that 9% that’s open for ’06, is that by – can you give us an idea by season or by on-peak and off-peak which parts are open?

A – Leo Denault

That’s kind of the balance of the year, come on average, rather not get into too much detail about what’s open during what market etc.

Q – Kit Konolige

Okay, alright thanks.

A – Leo Denault

Thank you Kit.

Operator

Our next question comes from Steve Fleishman of Merrill Lynch.

Q – Steven Fleishman

Hi good morning.

A – Leo Denault

Hi good morning Steve.

Q – Steven Fleishman

First, Leo to clarify, your cash flow table, cash available over the next three years, you are excluding any storm recovery in there?

A – Leo Denault

Yes.

Q – Steven Fleishman

Okay, so in theory since you are asking for 1.5 billion, the 2.3 cash available could be 1.5 billion higher if you get storm recovery?

A – Leo Denault

You know it always going to depend on how we use that unwind the financing plan, what we all going forward as well.

Q – Steven Fleishman

What do you mean by that?

A – Leo Denault

Well in terms of, we put the 2.5 billion out there already in terms of increased revolver, the equity units and the like and basically we have committed ourselves to - as I said we use that as an advance on getting storm recovery. And our plan is as we go forward to use the storm recovery to put ourselves back in the same position, so its going to depend on when it comes in and how it comes in, and how we use to unwind the financing plan.

Q – Steven Fleishman

Okay, and then secondly on the new nuclear contracts, rough estimates looks like they were down in the low to mid $70 area, is that correct?

A – Leo Denault

Yeah that’s roughly correct.

Q – Steven Fleishman

Okay, and then the $83 number you are using for non-hedged ’06 power, is that – that’s kind of a full year average price at some time beginning of this year?

A – Leo Denault

Yes, that’s looking at the strip across the year.

Q – Steven Fleishman

And that’s kind of a mix of RMP cost peak?

A – Leo Denault

Right, around the clock, throughout all the zones where we’ve got plants.

Q – Steven Fleishman

Okay, and then lastly on the storm recovery cases, it seems like the one stay where there’s been some at least intervener, public oppositions been the Louisiana, could you discuss a little bit of what’s going on with the Louisiana Phase I recovery, what staff and interveners are seeking and their arguments, I guess they are maybe arguing that some of this should be offset by, you know related to your on returns?

A – Richard Smith

Yeah, Steve, I think as part of their argument it is is that, running through the FRP, which kind of has been a fallback position but our point is that we’ve incurred a lot of cash and we need to get started on really collecting this cash to give you guys some comfort, the rating agency comfort that we are going to be treated fairly here, so we push forward with Phase I, and Phase II is really what I discussed earlier, an opportunity, I mean the increase in rates is less than 2% in the Louisiana of what we have filed and that doesn’t is in securitization. So our sense is we can stay around 2 to 3% increase and accomplish everything through the storm reserve and it would be difficult to unwind an FRP filing to securitize this cost and that’s really where I think both our interest lie and also the commission and the customer’s interest lie.

Q – Steven Fleishman

Just so I understand, in the FRP as it stands, what I think this is supposed to be kind of a big exogenous cost that was forced measure in the FRP as I recall.

A – Richard Smith

That’s right.

Q – Steven Fleishman

Were those supposed to be treated as separate items from kind of ROE calculations under the plan?

A – Richard Smith

I mean that’s where this would be, typically the normal reserve is not, so we have had a normal reserve within the context of the base rate change, and then evaluate that through the FRP, but in this event its so large and significant of an impact, we are really suggesting the better way to handle is outside the FRP. And from an interim basis lets get to cash started so that we can improve the financials of those operating company, and then the thing is two, which will be six to nine months down the road, we’ll true all that up and look at the benefits of securitization against that.

Q – Steven Fleishman

Okay so all you are suggesting is just an earlier timing?

A – Richard Smith

Okay, I think I understand that. Okay thank you very much.

Q – Steven Fleishman

Thanks Steve.

Operator

We will now move next to Daniel Ford of Lehman Brothers

Q – Daniel Ford

Thank you, I was just wondering, could you talk about the SO2 allowance sales and what all your expectations for next year?

A – Leo Denault

The SO2 allowance of sales in some of the units that we have as I mentioned in my remarks I have attribute with a generate allowances, SO2 allowances during the year. And we look at the production out of those units and the market price and we make a determination about whether or not we should or shouldn’t so market prices for SO2 allowances has moved significantly during 2005, and so not only did we have what was generated in ’05 but we had some from previous periods that we were able to sell into the market. Going forward its difficult to say its going to depend on how much those units run, in pursuit the allowances that they get but I think in the aggregate there maybe around a couple of thousand to 2500 allowances that are available, the markets running about I think $1000-1500 a ton at the moment, so just depending on how we utilize those units versus the market price, that’s how that decision will come. It shouldn’t be a significant going forward as it was in ’05.

Q – Daniel Ford

Okay, by factor of how for something?

A – Leo Denault

That will probably be a little bit more than that because we’d, as I said we had some from previous years when prices were a lot lower.

Q – Daniel Ford

Right. Going to the nuclear area, you do not anticipate any additional refueling or outages relative to 2005, right?

A – Leo Denault

I’ll let Gary talk about that.

A – Gary Taylor

Are you talking as far as plan refueling outages?

Q – Daniel Ford

Right.

A – Gary Taylor

And actually we have one less in 2006, we only have two in 2006, one in the spring and one in the fall.

Q – Daniel Ford

Okay, and just from a number some point, is there still some lingering effect from I mean stock repurchase or what is the program at this point, none of it is in effect, what is the statures at this point?

A – Leo Denault

We stopped the repurchase program when the storms hit, and we had about $400 million of the program left to go of the $1.5 billion program, and we obtained authority from the board to extend that program, as you recall it was supposed to expire – it was completed by the end of ’06. I mean we have got an approval from the board to complete that by the end of ’08, so depending on how things workout with the rest of the business in the nuclear northeast and the like that, that program would come back later. Right now we don’t have anything in there for ’06.

Q – Daniel Ford

Okay, so it’s likely to be after you have settled all of the recoveries?

A – Leo Denault

Right, and see what we are –

Q – Daniel Ford

Great thank you.

A – Leo Denault

Thank you.

Operator

Our next question comes from Michael Lapides of Goldman Sachs.

Q - Michael Lapides

Hi guys, couple of just questions on the regulated businesses, Entergy are consigned if I understand, I was under the impression that there would be a rate filing or rate case regarding recovery of the cost for the steam generators, where does that stay? Has that put on hold?

A – Gary Taylor

Michael, it has temporarily because of the events around the system agreement, and we are really, there is a variety of things that go into a rate request and you know although the ANO steam generator was put in place at the end of ’05, we will be looking at what does the numbers look like at the end of ’05, what they look in mid-year ’06, we have a compliance filing that we will be making effort around the system agreement so one of our issues have been to make sure that we have that compliance filing sink it up with any rate request in Arkansas, so we are still evaluating that and wouldn’t really make a definite answer here probably until later in the year.

Q - Michael Lapides

Okay, and what is the impact of rates in Mississippi of adding Attala?

A – Leo Denault

Its probably about $0.03. You are looking for the earnings impact?

Q - Michael Lapides

I was just thinking of the overall revenue requirement but.

A – Leo Denault

No, no, the revenue requirement probably be $10-15 million but I think Michele could give you the proper number on that.

Q - Michael Lapides

Okay, thanks guys.

A – Leo Denault

Thanks Michael.

Operator

We’ll move next to Neil (Ph) at Asset Management.

Q - Neil

Yeah good morning, and a few question if I could, would you expect cash flow from operations to be in ’06?

A – Leo Denault

We expect it to get back to a level of $2 billion.

Q - Neil

I guess like 2 billion was what you expected last year and then, on top of that you’ll get some fuel recovery, would that be sort of the two major pieces?

A – Leo Denault

Its pretty much yeah, but we are going to have, that’s going to be reduced also by lower, you know, that the fact we have got the storm impacts still lingering out there, just one extent but, but it should get back over $2 billion, yes.

Q - Neil

Are you getting any proceeds from the EK sale in 2006?

A – Leo Denault

Yes we are.

Q - Neil

How much would that be about?

A – Leo Denault

Probably about $100 million.

Q - Neil

Is that in cash flow from ops?

A – Leo Denault

That will show up actually in the best of cash.

Q – Neil

Okay, and then in the long-term cash flow guidance, do you assume completion of the 1.5 billion share repurchase, that is I want to confirm that?

A – Leo Denault

Yes.

Q - Neil

Okay. You know as far as the retail business, do you have a sale process in place timeline for completing it?

A – Leo Denault

We’ll probably be done with that this quarter.

Q - Neil

This quarter?

A – Leo Denault

In the first quarter yeah.

Q - Neil

Where is it valued on the balance sheet now?

A – Leo Denault

Its – I don’t know exactly, I’ll have Michele give you on that, in terms of exactly where it shows up.

Q - Neil

In the 2.3 billion 3-year cash flow forecast, do you assume any proceeds from the sale?

A – Leo Denault

From the sale of the…

Q - Neil

Retail business?

A – Leo Denault

Retail business, no that’s not in operating cash.

Q - Neil

So that will be incremental?

A – Leo Denault

No it’d be in a different, it’d probably in the best of cash.

Q - Neil

I’m talking about the 2.3 billion 3-year, you are taking into account for using.

A – Leo Denault

No, it’s not really in it.

Q - Neil

Okay. What sort of in your ’06 guidance, what sort of normalized sales growth do you assume, yeah I know I think you have 4% but adjusted for the hurricanes and all that?

A – Leo Denault

It’s about 1.5% outside of the recovery piece of that that gets you into the full range.

Q - Neil

And I guess that excludes New Orleans from the ’05 basis as well?

A – Leo Denault

Yes, yes.

Q - Neil

So do you think 1.5 to 2% is still a good long-term sales growth forecast?

A – Leo Denault

You know its difficult to say, too probably seem strong base on recent history but I’d say ’05 is a difficult one to even though we have a lot of data around where ’05 is, its difficult one to use as a balance off point because the impact of the storms in that, and the netting of people who left one jurisdiction maybe for another I think like that.

Q - Neil

I think outside New Orleans in your October presentation, you said there was revenues would be about $24 million in ’06, which took into account from lost customers offset by gains elsewhere, is that still a good number?

A – Leo Denault

Yeah I think so.

Q - Neil

Okay, what sort of tax rate do you assume for ’06?

A – Leo Denault

I think the effective tax rate is around 37% or so?

Q - Neil

Is that the same as ’05?

A – Leo Denault

It’s roughly the same yeah.

Q - Neil

Last year you got a benefit from the Jobs Act, which was around $0.07 or so. Does that sort of go away or are there other things that keep the tax rate lower?

A – Leo Denault

In terms of what we’ve got going forward in terms of – I don’t think there was anything in ’05, Neil I think that’s…

Q - Neil

I believe in the first quarter you had a $0.07 benefit from repatriating cash?

A – Leo Denault

Okay, yes yes, that’s correct, I am sorry, but there isn’t any in’06 because that’s really going to be that production credit, that we are going to get and we are going to start to see that in future period.

Q - Neil

And that will be more in ’07 and beyond, right?

A – Leo Denault

Yes, yes.

Q - Neil

Is there anyway you could quantify that?

A – Leo Denault

Not really right now.

Q - Neil

And then in ’06 you have like $0.08 decommissioning, or in ’05 you had $0.08 decommissioning gain, anything like that in ’06 guidance?

A – Leo Denault

That’s difficult to say, there really there is nothing really knew in there, it’s just a continuation of what we did in those previous decommissioning study. So its not going to be play as large as it was going forward previously but there is still some lingering impact going forward.

Q - Neil

Okay. And just I wanted to clarify a question I think Steve Fleishman was asking regarding the 3-year cash flow forecast and, you know it doesn’t assume any recovery at the storm cost but I think in your analysis where you look at debt capacity at 800 million of incremental debt capacity over the period assuming a staple of 50% debt, that assumes al the storm laid debt stays on the balance sheet, correct?

A – Leo Denault

Yes.

Q - Neil

It does?

A – Leo Denault

Yes.

Q - Neil

Okay, those all are my questions, thank you.

A – Leo Denault

Thanks Neil.

Operator

We will now go to Terran Miller of UBS.

Q – Terran Miller

My questions has been answered. Thank you.

Operator

Moving on we will go to Paul Patterson of Glenrock Associates.

Q – Paul Patterson

Good morning guys, most of my questions had been answered, but I just wanted to touch base with you on I think Greg’s question about the license extensions, you indicated that they were not expected to have an impact on depreciation going forward, is that right?

A – Leo Denault

It’s already factored in.

Q – Paul Patterson

You guys already have factored into it, you are already carrying your depreciation that you are going to get the extensions, is that right?

A – Leo Denault

To some effect, yes.

Q – Paul Patterson

And just finally on the Vermont Yankee operate, I know you guys have accomplished a lot there with the NRC and also with the state but it always seems that the state has some issue, could you just briefly go over what the Vermont Yankee situation actually is with respect to the upgrading, what have you?

A – Gary Taylor

I think, its Gary Taylor, as you said, we accomplished quite a bit, we did get the atomic commission on safeguards that rules unanimously on all the issues as well as the NRC issuing their notes, you can have this report, so we would expect to hear from the NRC this quarter, we do have a CPG from the state, I know that the state itself has to look at that in relation with some conditions that they had put on it as far as the NRC’s evaluation but that NRC report was very very clean and the ACRS reiterate that, so we fully expect to be able to inform with that by the end of the first quarter.

Q – Paul Patterson

Okay so just to recapture on Vermont, because that’s where it gets a little bit confusing to me or at least that OE seems to be more of an issue than what one might expect, where are we with Vermont, and when do you expect that to be sort of resolved? And when do you think will actually see the upgrade?

A – Gary Taylor

Well, we have a to get a public good, which is what’s required by the state of Vermont, and we have to wait on the license amendment coming from the NRC, which we would expect the latter part of this quarter, and with those we fully intent to be able to increase power at the plant.

Q – Paul Patterson

And how much will that increase terawatt hours?

A – Gary Taylor

95 megawatts upgrade and off the top of my head, I don’t have that number but Michele will get that for you.

Q – Paul Patterson

Because when we look at the Entergy Nuclear numbers on Page 5, there doesn’t seems to be much of a change in terawatt hours, I was just wondering if its factored in or how?

A – Gary Taylor

It is factored in.

Q – Paul Patterson

Okay, thank you very much.

Operator

We’ll go next to Zack Schreiber with Duquesne Capital.

Q - Zack Schreiber

Hi guys, its Zack Schreiber from Duquesne, can you hear me?

A – Leo Denault

Yes Zack we can.

Q - Zack Schreiber

I just wanted to follow-up on the hurricane recovery issues and the community block development grants, in terms of the process, has the $11 billion that was in the DOD spending bill yet been allocated to the Department of Housing and Urban Development, yes or no? And then has the State of Louisiana yet filed with its applications with the HUD? And have you guys yet filed your own applications? And then lastly and relatively when the enabling legislation was passed in the State of Louisiana to effectively allow community block development grant dollars to flow from state coffers into private corporations, was there either an explicit or implicit agreement amongst yourselves and various Louisiana politicians and stakeholders as to how much money the corporation would be receiving?

A – Leo Denault

Kurt, why don’t you go ahead.

A – Curt Hebert

Thanks Zack, glad to talk to you about that. It’s a process as far as community block grants, is moving forward, as you know the appropriation has been approved by Congress to go to HUD, you know the term allocation is not one that I would use, the money is there, it has been appropriated by Congress, it will be there, the states will be applying entities like ourselves that are interested in getting monies to offset charges to customers, will be presenting their stories and their issues and their cost to those states, some as you had mentioned, maybe sending some of that to private authorities like local recovery groups or something that maybe similar to the Manhattan situation that you had after 9/11 in New York, all of those things are moving forward. Now exactly how much money any entity be it a homeowner or Entergy Corporation may or may not get is just something that is unknown at this time. As I’ve said earlier when I was kind of presenting this, you know the setting we were in back in November, the important thing I think for us to look at right now is the setting we were in at that time, where due to Stafford, we had no opportunity, had we been a public power system or one of the electric power associations, we would have had the opportunity to go get you know $0.70, $0.80 or $0.90 on the dollar, and keep that cost from being pushed to our customers. Here what we had to do is we had to work with our leaders in Washington and the state leaders to try to present some type of opportunity to our customers so that we can offset what otherwise would be required to put in the rate basis prudently incurred storm cost. So, I can’t give you an exact number, I know you would like to have that. I think the important thing for us to realize right now Zack is that an opportunity has been created.

Q - Zack Schreiber

No doubt.

A – Curt Hebert

I think lots of people saw that at that time as a long put, so if you want to see that we’ve made one long put while working with a good group of people and I have to congratulate Congress, you know, we are really working on our game here and we are trying to make certain that we’ve got every opportunity, I just can’t give you a number.

Q - Zack Schreiber

But to make sure I understand when I think Rick had said you know a few months, six months, I think mid-year ’06, that was to be to actually have money in the bank from the whole community block development grant process playing itself out or was that to be at some more sort of a developed milestone along or much longer community block development grant road, what was happened by mid-year ’06, help with that?

A – Curt Hebert

Are you asking me will we have a complete answer?

Q - Zack Schreiber

I think we could say we expect some clarity or some resolution of the whole community block development grant by mid ’06?

A – Curt Hebert

Yeah I think optimistically we would like to have some type of indication by mid ’06, again I just can’t give you a timeframe to say by the end of July am I going to have an absolute up or down or an absolute amount for you? We have done everything within our power, making certain that we’ve got consult at some board from the very beginning that we were through this process because what we did, as soon as we knew about this situation, as soon as we knew that we had the chance to create an opportunity, we brought people in who had worked through the 9/11 process, who had worked with HUD, who had worked with OMB, and so we are well ahead of the process as being prepared to give our application, and that’s what Rick’s talking about us having our application ready to give to the states so that states will know what our needs are and so they can act on that appropriately. I would hope by mid-year that we have some clear signal that we are going to get some dollars and hopefully what those dollars would be, I just can’t tell you what they are at this point, and I can’t tell you if it would be completely nail down by that point.

Q - Zack Schreiber

Got it, and just to make sure that we understand that the process, the process is that Congress has given the money to HUD and then the states have to then file with HUD for certain amount of money and file plans with HUD after how they intend to allocate that money and its subject to HUD Zido (Ph) and then you guys along that same timeframe file your plans with these to be created local development corporations, which will then be making the filings at HUD, is that – the process is, are there other steps that are missing?

A – Leo Denault

Well, not every state will have a local development authority, as a matter of fact I don't know that Mississippi is, it sounds like they may not, they may just work through their state, as far as Louisiana that decision is yet to be made, but you know as far as how it works in the application process, that is pretty much how it works. HUD has already given pretty much its guidance as to what it’s asking the states to do, and what its asking the states to give them. Again, by looking back and seeing what happened at 9/11, what we were able to do is go back in and get some lessons learned because last thing we wanted to do is to get into the timeframe that they talked about there, we wanted to speed up the process so hopefully you are going to see some of that showed space here in result and not only in opportunity but something that we can close a door on in and find success in, but I just can’t give you a firm date on exactly when that is, but many lessons have been learnt since 9/11 and we’ll see exactly how that works through the process.

Q - Zack Schreiber

Now you had passed that, he Sate of Louisiana had passed a legislation to sort of enable via transfer at the state level. Is there other legislation that has to be passed in other states like Mississippi to allow the community block development grants to pass from the state coffers to a private corporation or does enabling legislation in the stature to each one of your states that met with a hurricane right now exist to allow the transfer of federal dollars in the state coffers and then into private corporations?

A – Leo Denault

Well, I mean you are right, each and every state kind of has its own flavor of how it deals with private corporations, but the one thing Zack its gets important to understand to focus on, is it, you know, community development block grants in dealing with private corporations who may or may not seek direct or indirect benefit from there, its something that these states are accustomed to dealing with. Almost every – well every state has a community development block rank coordinator that I am aware of, because they are continually trying to get help from the federal government in areas that they see help is needed in, so we don’t see any, if the – your question is, do we see any issues there and any problems with us getting allocations? We do not.

Q - Zack Schreiber

Got it. And then just a small question on Louisiana and the Phase II of the recovery, a follow-up on Steve Fleishman’s question, do you plan on the Phase II process going through the full FRP process or is it just in the Phase I you want to avoid, the FRP so its really just the timing issue or is it sudden that you want this whole process to be outside of the FRP?

A – Richard Smith

Zack, this is Rick, we’d want the whole process to be outside the FRP.

Q - Zack Schreiber

Great, and then second last question, actually last question, I think Leo you had mentioned that we have these fees aspirations and they are all the aspirations that folks like myself and other investors were looking forward to pride the hurricanes and, you know the whole ghost been to get back to that aspiration level in the stock buyback and dividends and higher earnings, you mentioned that Leo, I thought heard you say that it’s possible that you’d be exceeding your aspirations based on where power prices are and back in the gas curve, could you elaborate on that, I want to make sure I heard that right, you kind of threw it in there?

A – Leo Denault

No, I mean I think Zack its since prior to the storms, between that and now there’s been a marked move in power price.

Q - Zack Schreiber

Right.

A – Leo Denault

And so that, you know what I found, certainly changes are picture going forward as it relates the nuclear northeast and what the opportunities are there, we’ve got a balance that against all the other work we’ve got to do in terms of the utility and the regulatory process and the like, but that’s certainly out there now an opportunity that didn’t exist prior to the storms.

Q - Zack Schreiber

Got it. Okay, thanks so much guys, good luck.

A – Leo Denault

Thanks Zack.

Operator

And that does conclude today’s question and answer session. Ms. Lopiccolo, I’ll turn the call back over to you for closing remarks.

Michele Lopiccolo, Investor Relations

Okay thank you operator, and thanks to all for participating this morning. Before we close we remind you to refer to our release in 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 is 3816450. This concludes our call, thank you.

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Source: Entergy Corporation Q4 2005 Earnings Conference Call Transcript (ETR)
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