Entergy Q2 2006 Earnings Conference Call Transcript (ETR)

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Entergy Corporation, (NYSE:ETR)

Q2 2006 Earnings Conference Call

August 8, 2006, 11:00 am ET

Executives

Wayne Leonard - Chief Executive Officer

Leo Denault - Executive Vice President and Chief Financial Officer

Analysts

Greg Gordon - Citigroup

Daniele Seitz - Dahlman Rose

Rudy Valentino - Morgan Stanley

Michael Lepides - Goldman Sachs

Ashar Khan - SAC Capital

Greg Gordon - Citigroup

Shalini Mahajan - UBS

Operator

Good day everyone and welcome to the Entergy Corporation Q2 2006 Earnings Conference Call. As a reminder today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Miss Michele Lopiccolo. Please go ahead.

Michele Lopiccolo - Vice President, Investor Relations

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

Wayne Leonard - Chief Executive Officer

Thanks Michele. Good morning everybody. I’m pleased to report solid progress since Q1 on our 2006 agenda. Including the continued growth of our unregulated nuclear business to the power phase acquisition announced last month. At the utility we continue to advance our hurricane recovery efforts. We traveled many, many steps forward since hurricanes Katrina and Rita last fall. And well the past recovery may seem incredibly complicated and far too long, we never expected or predicted anything else.

The storm damage was unprecedented and we knew recovery of the dollars spend by Entergy will take considerable time given the fact that only the Federal Government can print money and gain state and local consensus on the obligations and the rights. Our investor-owned utilities as exposed to these types of catastrophic risk would not be simple. Given the limited funds and the virtually time-limited needs in the devastated areas that we serve, thus our plans remain unchanged.

First of all, we want to collect all the insurance policies we are entitled to. Secondly, we want to secure our fair share from the Federal funding initiatives, like the gulf opportunities on the legislation and community development block grant funding which are critical to mitigating the right impact on our customers. Third, we will seek to achieve securitization for reimbursement from cost from 2005 and to add a safety net storm reserve in our jurisdictions for future storm damages. Lastly, we will continue to work with our regulators to implement right plans and to mitigate the uncertainty and the volatility that customers, owners, the vendors all experience in 2005. I would start with priority one, Insurance.

We submitted our first Katrina proof of loss claim in Q1 2006 and received the partial payment. We are continuing to actively pursue remaining payments from our insurers. I would like to report that we expect to resolve remaining claims and questions in relatively short order once again few things are simple when big dollars are involved. It appears that the insurance academies will continue to extend the process in order to resolve the issues.

In spite of a time line that will continue beyond 2007, we remain confident about our $382 million estimate for insurance recovery based upon our own insured damages assessments. On our second initiative, Federal funding, we indicated in Q1 that we had received a $344 million income tax refund as a direct result of the Gulf Opportunity Zone legislation pass at the end of last year. This legislation accelerated the timely tax deductions and the related tax refunds that was already entitled to, they had a substantially positive effect on the quality of the system particularly and we are starting to see progress in security and community development block grant money.

We applaud Mississippi Governor Haley Barbour’s commitment to provide community development block grant funding to Mississippi utilities to mitigate the storm’s financial effects on the Mississippi right pier and we have remain steadfast in our efforts to build the consensus for a similar commitment in Louisiana. In particular, community development block grant funding is crucial. For New Orleans bankruptcy as a financially viable entity that can attract needed capital to rebuild the utility infrastructure and to provide excellent service at reasonably rate level.

On a securitization front, on June 30th we file our petition for financing order in Mississippi authoring the state bond commissioned issue system restoration bonds for Entergy Mississippi system restoration and related cause as a result of hurricane Katrina. In addition, we requested financing for an $80 million increase in the storm damaged reserve. In Louisiana Governor Kathleen Blanco signs securitization legislation on May 22nd. This legislation establishes the framework by which the LPSC would permit securitization, a system restoration cost, and securitization to build the reserve for future storm. In Texas, securitization legislation was passed and signed by Governor Perry in a special legislated session called.

Turning to our regulatory recovery initiatives, Mississippi held fast to their aggressive schedule to resolve Katrina related effects on utility to service citizens. On June 28, Mississippi public service commission issued an order authorizing recovery of Hurricane Katrina cost incurred through March 31st 2006, in the amount of $89 million. It’s important to know that no cost would disallow the Mississippi proceeding.

The dollar difference between the earlier storm filings and the authorized amount for recovery in this proceedings, primarily related to insurance recovery referring certain costs for later recovery, like those related to Hurricane d Rita and the difference in estimates versus the actual. For example, we’ve since lowered our storm cost estimate for Hurricane Katrina and Rita and Mississippi $530 million. But again, no disallowances.

On July 5th, the powerful storm cost recovery in Texas, picking $393 million for cost incurred through March 31st 2006 in connection with Hurricane Rita. Pursuing to the recently passed securitization legislation, the public utility commission of Texas has 150 days to rule on the storm filing. Consequently we expect the decision no later than December 4th at which time our securitization request.

In Louisiana, pursuing to our phase one interim storm recovery order, it was approved in February. We have recovered $20 million of storm cost, there is a fuel adjustment costs for Entergy Louisiana and Entergy Gulf State Louisiana. In September, will shift the base rates of the combined rate just under $3 million per month for the two of the Louisiana companies and will continue until phase two levels are determined.

On July 31st, we initiated phase two of our storm recovery process in Louisiana on detail support and testimony for $467 million of storm cost at Entergy Louisiana and $200 million of storm cost at Entergy Gulf States Louisiana both incurred through May 31st 2006. We are also seeking the build storm reserves in the amount of $132 million for Entergy Louisiana and $81 million for Energy Gulf State Louisiana.

The current procedural schedule on Louisiana call for testimony from the LPSC staff and intervenors in early October. Ultimately in the public hearings in Q1 of 2007 We’ll seek, that Louisiana securitization and financing order, once we have a storm recovery order in hand, which is scheduled to indicate in early Q2 of next year. And in New Orleans, we continue to work towards the reorganization plans to emerge in chapter 11. The critical part of that plan is our regulatory filings made on June 30th with the New Orleans City council. In those filings, we requested a recovery over a ten-year period with two separate right writers.

One for $139 million of storm restoration and related costs incurred in March 31st 2006 and the second, to build a $150 million reserve for future storm. We still anticipate total storm restoration rebuilt off for approximately $275 million plus $355 million for accelerated replacement of the gas distribution system. That replacement will occur over a number of years. As requested our storm filing, we anticipate making simultaneous filings in June and December of each year to update for and recover through the right writers that additional storm costs incurred beyond March 31st 2006.

Finally, we also submitted our annual formula rate plan filing for Entergy, New Orleans for the test year ended 2005. Well, several alternative FRP filings were submitted. We believe the filing adjusted to reflect the current customer base, and to recover all grant gulf cost to the Entergy New Orleans fuel adjustment cost instead of recovering some to base rates is the most reasonable pass forward. But as I said we have provided other alternatives for the council’s consideration, that’s the regulatory plan for Entergy the financial recovery. As additional costs we were incurred they are recovered through the writer.

As insurance policies or community development block grant money is received they are credited to the customer side of the ledger. As a customer account grows the formula rate plan will automatically account for those revenues. Nonetheless we continue to strongly believe that community development block grant money to mitigate the rate impact of the storms just like Mississippi proposes is a sound and prudent use of the money provided to the state and benefits all customers, by increasing their disposable income and supporting the economic development in job growth. In the event community development block grant funding does not materialize, municipalization remains an alternative for the city of New Orleans in order to lower the overall cost of capital and excess federal money available for future storm damage.

In June Governor Kathleen Blanco signed legislation paving the way for the city of New Orleans to municipalize the distribution system and the event this staff was determined to be the most optimal outcome. In any event we have the ground work done securitization and municipalization bills passed, insurance and community development block grant money applied for regulatory filings made through out for a variety of outcomes that are consistent with the shareholder rights under the law for mitigating the impact on our customers.

Before we turn into nuclear, let me address one more topic the situation in Arkansas, as you may recall from March 31st any further investigation the commission suspended the annual fuel rate increase schedule to take effect in the first billing cycle on April. On a similar note on June 7th the Arkansas public service commission filed the complaint picking the institute of formal investigation and hearings into the prudence of all the Entergy operating company’s past practices relating to a host of issues ranging from transition expansion polices, the wholesale power purchasing practices and other generation decisions to gas hedging and purchasing practices all of which are related to production cost differences and any amounts Arkansas may owe under a recent (inaudible) in the system agreement case what’s called order 480. With regard to the first issue on June 29th the Arkansas public service commission agreed to implement effective July 1st the annual fuel rate increase, it had previously suspended and to reestablish those procedural schedules resolved issues under investigation in connection with this proceeding. We are confident that our fuel and purchase energy expenditures will be found appropriate and will be recovered.

As previously indicated, the Arkansas commission staff reviewed in detail into the Arkansas 2005 actions and decisions and found no improved in action. With regard to the second issue, the prudence of past actions relative to our production cost, we believe that this complain is merely recycling allegations that other parties have previously raised and perceived before the various retail regulators clearly no new evidence was presented in the complaint and no evidence has been presented in any proceeding that would indicate our prior actions for improved. Trying the nuclear, the north east fleet delivered another quarter solid operational performance.

The way that that Leo discussed those results some more detail instead of sending -- discuss in a very positive development during the quarter. Our announcement to acquire the power-phase nuclear energy plan. As we have discussed with you in the past, our hurricane recovery as demand the attention of management in recent months we have never taken our eye of the daily operations or management business for the future and power-phase acquisition announcement that offers direct estimates to that end. Our nuclear strategy is unchanged, we seek to become the leading nuclear generator by leveraging our core expertise and nuclear plant operations through continuation of our discipline approach to risk allocation and capital deployment.

Power-phase acquisition enables us to advance the strategy by further leveraging our core expertise, nuclear plan operation. The power phase plant will become the third combusting engineering pressurized water reactor in our nuclear fleet. Expands our presence in the new investor market where we successfully demonstrated our ability to improve operations as a -- plant in our management services contract -- plan as part of the larger fleet we expected chief additional operate efficiencies for the power safe plan in the areas of purchasing inventory management and resource sharing.

Expansion of our presence to the mid western market also provides the strategic platform for increasing scale through potential acquisitions and/or management services contract. The policy’s agreement includes a 15 year power purchase agreement for 100% of the plant’s current output. Obviously the plant will be substantial -- previous earnings immediately given that the marginal cost of finance in the acquisition will be the corporate revolving credit facility. But I assure you our successful bid was made the basis of earning above a project risk adjusted marginal weighted average cost of capital. In closing, let me state that while we were extremely pleased with our progress since Q1, we recognize that much work remains to be done through the end of the year. We remain committed to our mission to catch up to where we expect it to be. On key measures like earnings, dividend ratios as if the storms that never hit and deliver top quartile shareholder returns as we have been accustomed to doing in the past. The path is becoming clear and the finish line is moving in this side as result of the many steps we’ve taken throughout the year and because obstacles never before encountered are being worked around over time and now I will turn the call over to Leo.

Leo Denault

Thank you Wayne and good morning everyone. In my remarks this morning I will cover quarterly result. We do our recent progress in nuclear contracting, and discuss our current thinking on our ‘06 operational earnings guidance, which we are reaffirming to be in the range of $4.50 to $4.80 per share. I will then rap up with our -- an update on our current cash flow and longer term cash available position.

Turning to our financial results for the quarter slide 2 shows the Q2 ‘06 as reported earning which include the gain on the sale of the competitor retail business, equal results of one year ago. However, operational earnings in the current period were lower compared to Q2 of 2005. The decrease in operational results came -- lover earnings and utility current and another, while Entergy Nuclear is a non nuclear wholesale business each demonstrated quarter over quarter improvement.

Slide 3 shows the decline in utility, parent and other earnings compared to Q2 of last year. The fact is that produced this decline included lower unbilled revenues. The absence of Entergy New Orleans in operational results this period and higher interest expense. Several item served partially offset these factors including additional revenue from sales growth and great action implemented in ‘05 and early ‘06. Warmer than normal weather, lower operational maintenance expense and lower income tax expense. Let me provide a few comments on the most significant drivers during the quarter. Starting with unbilled revenues important to keep in mind that this is a normal accrual of revenue for sales not build to customers at the end of each period. Several factors including price volume customer makes and billing cycle changes effect the amount of unbilled revenue recorded. Over the time seen wide variations in the effect unbilled revenue can have on our result and these variations have been both positive and negative.

We anticipate that the Q2 unbilled variance will be partially offset over the rest of this year. Turning to sales, let me remind you that our sales data in the release excludes Entergy New Orleans. Looking first at the residential and commercial segments, we saw increases in both even after adjusting for one weather effect. This occurred in all of our jurisdictions this quarter except Louisiana where we are continued to see slower than expected recovery in the areas hardest hit by the storms. Industrial segment was down once again apparently we have seen since hurricanes Katrina and Rita. The decrease was just under 1% compared to last year. All but one large industrial customers back on line. However the refining sectors experiencing extended routine maintenance and we continue to see to the storms affect among our pipeline customers. In addition, high energy prices are squeezing most of the sub segments among the chemical producers such as the (inaudible). Two other items worth noting on our utility plant and the results this quarter are higher interest expense and lower income tax expense. We continue to see higher interest expenses a direct result of increased debt incurred in connection with the funding of storm reservation cost. A lower income tax expense reflects the benefit of the tax deduction taken on an item that is accounted for using closure accounting. This accounting treatment matches the regulatory treatment of this item.

Moving out Entergy Nuclear has recorded higher operational earnings per share compared to the same period last year. The increase is being primarily for higher contract pricing which contributed $0.5 in additional earnings Q1 compared to Q2 of ‘05. Also additional generation made available from the uprate completed at Vermont Yankee earlier this year added to result in the nuclear business. Partially offsetting these factors was higher O&M due at the timing of refueling outage. Outages at two side last year had the affective of lowering O&M at those locations, while there was only one refueling outage in the current quarter. Refueling outage has effected nuclear results in another way as well. Of the refueling outage today’s quarter to quarter were comparable to the outage in the Q2 of 2006, is at a large unit resulting in decreased generation available during the current period. Closing out the discussion on quarterly results, we look at the non-nuclear wholesale business.

Result for this business in Q2 ‘06 were higher than a year ago. The increase came primarily from the gain recognized during the quarter on the plant modernization of Entergy’s interest in a power development project. We have been active recently in our nuclear contracting efforts so, it is appropriate to share some additional thoughts on this topic. As reflected on Slide 4, our sold forward profile shows we are well positioned over the next few years. For example looking at ‘07, we were able to increase our average price to a megawatt hour by approximately $4 with only a 13% increase on our contracted position. We are comfortable with the level of output this is locked up as it is consistent with our risk tolerance and we’ve reserved some opportunity should prices strengthen. While you notice there ‘07 position stands in 94% contracting, that does not indicate a shift in our hedging strategy. As always we strive to optimize the value of our position. We have done so by considering market conditions and the opportunities available and by contracting when we believe the price in terms available meet our threshold criteria.

Moving now to earnings guidance, Slide 5 reflects the components of our operational guidance for ‘06. The key drivers have not changed. The utility, parent and other sales growth and improved pricing are expected to make a solid contribution. However higher O&M and higher interest expense will largely offset these positives. The contribution to earnings from nuclear pricing will likely be significant with additional earnings coming from higher volumes of generation increases from pricing and volume and expected to be partially offset the higher O&M interest and other expenses. We realize that the actual effects of each of these items on a full year result may vary somewhat from the mid point estimate shown on Slide 5. However, we continue to see overall operational earnings in the range $4.50 to $4.80 per share and as a final point on Slide 5, I remind you that the result of Entergy New Orleans are excluded from our operational guidance for ‘06. Slide 6includes a snap shot of our cash flow performance this quarter which was quite solid. In a current period collections of previously deferred fuel cost and higher revenues of Entergy Nuclear increased net cash flow by approximately $200 million. Over the longer term our cash position continues strong as Slide 6 shows our cash available for deployment is nearly $2 billion in the ‘06 to ‘08 period after reflecting the recently announced policy of acquisition. In conclusion you may recall that closed financial goals were focused on stability recovery in end grow. As you know we declared victory in our stability efforts before the end of ‘05. Stability came to our successful work to source $2.5 billion of new capital in debt and equity investment. This was crucial funding to pay for strong restoration and provided with a liquidity. We then turned our attention to recovery and Wayne reported on many encouraging developments in this area in his remarks. We have more work to do however as evidenced by the fact that today we’ve collected only $35 million of the estimated $1.5 billion with more restoration call. We are cautiously optimistic that our recovery efforts will ultimately be success, which will allow us to focus our attention on growth as we move into ‘07. We have already taken a significant step forward in pursuit of our growth goal with the purchase of policy and we intend to build upon this progress. You can rest assure that we remain committed to executing our business model with discipline and won’t the the side of the importance of financial flexibility and we are committed to consider all capital deployment alternative that contribute creating long-term value. And now I turn to our Q&A session and our senior team is available to respond to your question.

Question-and-Answer-Session

Operator

Thank you. [Operator Instructions]. We’ll take our first question from Ashar Khan with SAC.

Ashar Khan - SAC Capital

Good morning, I just want to go over this cash -- does this cash flow forecast include the 100% recovery of the storm proceeds or no?

Leo Denault

It does not.

Ashar Khan - SAC Capital

It does not, so if you get that back -- that would be an additional billion dollars over the?

Leo Denault

Correct and but it also doesn’t include financing plans and thinks like that. So the schedule that we have shown consistent with the way we have been showing and for the last year does not include storm recovery.

Ashar Khan

Okay, can I ask you, I guess these numbers indicate that a buy back like earlier you guys had previously $500 million a year or so, just looking at the earnings level and all that, that kind of a buy back seems to be -- you could that put that back in that level, $1.5 billion over three year period from these cash flow numbers, am I looking at that right, if I go back to the previous buy back and say could you initiate a similar one that is durable with these numbers?

Leo Denault

Well, that the start out the original buy back is actually reflected back in there in terms of finishing the 400 million we have remaining as you recall and then the rational for putting the table out there is to identify that for capital deployment opportunities or there be dividends, buy backs, new nuclear plants like power acquisition or supply assets all of those are possible with that $2 billion that you see on that day.

Ashar Khan - SAC Capital
Okay, and then Leo, just I was just doing some maths on the numbers that you provided and if I assume you will get you know market on your unhedged portions of your capacity, is it fair to say that the -- if you put market prices in right now on the curves going out to ‘09, ‘10, is it fair to say that nuclear earnings reach a plateau in ‘09, ‘10 level is that a fair assumption or no?

Leo Denault

That’s a fair assumption given where prices are today as we go forward into 2009 and 2010 that’s when we get to the bulk of the unhedged positions being available, and so if market prices remained unchanged, absent other cost initiatives that we have in the like that’s when the bulk of those dollars will show up, as when we get out into those -- where the currently unhedged portions around 2009 and 2010.

Ashar Khan - SAC Capital

Okay, and Leo can I just ask you when you expect to share with us your ‘07 guidance and I guess some reflection of returning of this cash flow either in new investments or to the shareholders. When the new plan could be tabled toward -- to your shareholders, timing of that?

Leo Denault

You know we will probably be looking at what’s going on with storm recovery. I think a lot of things go inside with going into the end of this year, the beginning of next year as we get priority around where we are with nuclear pricing and you see we’ve done a lot in the ‘07 timeframe already this year, what’s going to happen with storm recovery and where the business looks around the end of the year.

Ashar Khan - SAC Capital

Okay, and what about ‘07 guidance?

Leo Denault

Probably be on the Q3 calls or in the Q4.

Ashar Khan - SAC Capital

Thank you very much.

Operator

Our next question will come from Greg Gordon with Citigroup. Mr. Gordon, your line is opened.

Greg Gordon - Citigroup

Sorry about that, can you hear me now? Guys? Sorry, just follow-up to Ashar’s question. What specific milestones do we need to see sort of knock down or pass for you guys to get comfortable with a reconsideration of increasing the dividend and/or you completing and replenishing the buy back, I know you said that earnings guidance for ’07, Q3 is a key mile is probably when you start addressing that but once we are assuming need to have find you in terms of specific storm recovery and restructuring activities to be comfortable with 432 cash to shareholders again?

Wayne Leonard

Greg this is Wayne, yeah, I’m not sure that we can define that for you in a way that you are probably satisfied with today what we often talk about is in the account like are -- I mean you kind of know what when you see it, you can target this guy what it like and that’s kind of position we are aiming with all the different states, all the moving pieces but there are some key things that I think you should look to just coming up in the future, I mean Louisiana is going to be -- interveners are going to be filing their testimony as you have seen in Mississippi, that way -- fairly quickly there were no disallowances, no major issues really raised there. If in Louisiana that tends to go roughly the same way that there is not a record trying to be created by interveners with regard to you think consistent with the law that would cause us to have to go to court to get -- to protect shareholder rights or is maybe stretching the rules with regards to prudency and things of that nature, then that would be adverse. But if the intervention goes the way it should go, like it is in Mississippi, then that would be a positive sign that is -- with regard to what kind of recovery we would expect to get.

Community development (inaudible) in Louisiana is kind of coming down to it. That’s the kind of a key event for New Orleans, we can -- if it doesn’t materialize then you know, then we have to start to ramp up other alternatives like (inaudible) if it materializes then we have a whole lot of options ahead of us, including -- if it materializes at a substantial number then we have a whole lot of options relative to moving forward with both (inaudible) or potentially securitization for the storm reserves. And as long as the public sentiment and the regulators sentiment is as constructive as it has been and I think it’s been extremely constructive over the last few months, then I don’t see any reason we have to -- I certainly don’t hope we have to get to the end of the road where we have orders in hand and all these type of things in order to start to treat shareholders in a way that will allows this company to attract capital going forward which is always in the best interest of customers.

So hopefully you know, we’re talking about getting clear line aside this year weather or not that means we are able to start doing something, this year or not depends on how clear that line exactly is as you have seen, of course, that it didn’t cost us to be timid with regard to palisades. With regards to the investment side you know, we are not going to pass up opportunities when clearly we believe we have -- we’ll have international available on any kinds of scenario. But you know where we are prepared most certainly to on this issue to take it all the way, I mean to go all the way to court or whatever it is to protect the shareholders’ rights. And we hope that isn’t the case. And right now there is no signs that will be the case. But like I said, we’re very close to it and we are going to look for a nod from Rick and on the regulatory side and a nod from Leo on the credit rating agency side that they are comfortable with where we are headed. And I think the credit rate side already having considerable discussions or plans on having them with them with regard to what they are going to want to see to make sure they are comfortable.

Leo Denault

Greg, one thing I might add, that the form of the recovery is important, community development block grant and securitization give us one profile in terms of the type of opportunities we pursue and if it’s the normal traditional rate making which recovered over a number of years is a different profile. So that’s an important aspect of how this will turns out as well. If again recovery that’s one thing because I guess the good news and bad news is, bad news is we already spent most of the money. The good news is we are well on the way to recovery. But if it comes in the form of securitization and block grant, we have one profile that comes in, 30 years of rate recovery is a different profile.

Greg Gordon - Citigroup

Thank you very much, gentlemen.

Leo Denault

Thank you.

Richard Smith

Thanks, Greg.

Operator

We’ll take our next question from Daniele Seitz with Dahlman Rose.

Daniele Seitz - Dahlman Rose

Hi, I was just wondering in your forecast, did you include all of the -- did you make any assumptions on the rates increases you should receive, and also in your 5% to 6% growth rate that you mentioned that does not include recovery, etc.?

Leo Denault

In terms of the 5% to 6% growth rate --

Daniele Seitz - Dahlman Rose

Yeah.

Leo Denault

I guess I would tell you that that’s what we put out there as our aspiration in terms of what believe, that we can achieve over a long term. If we go back over the history of the last 10 to 20 year period, 5% to 6% is tough growth overtime. So it really isn’t a forecast or say as much as the aspiration that we hold out there on the long-term basis acknowledging that in the near term as I think -- alluded to earlier. Nuclear pricing along could help us achieve that or better. As far as rate release you know projections for ‘06 we have -- what we had already planned you know if you go back to when we set our guidance back at the beginning of the year we had some opportunities for rate relieve that were associated with things outside of storm recovery, storm recovery is not in that ‘06 guidance range that we put out.

Daniele Seitz - Dahlman Rose

Okay.

Operator

Our next question will come from Rudy Valentino with Morgan Stanley.

Rudy Valentino - Morgan Stanley

Hi, I know it’s been tabled by -- it doesn’t appear that your projections are for actually nuclear, it includes palisades, could you kind of give us some type of idea like how palisades would affect some of those numbers?

Wayne Leonard

In terms of our sole forward, palisades for that period is completely solved. So with the add of the megawatts to the table and then just to added those in terms of putting in completely so-forward I’ll have that math done in my head at the moment, but palisades for the PPA is 15 years with all the outlet of the plan.

Rudy Valentino - Morgan Stanley

And what about their contract pricing? Can you give us an idea how that number would change?

Leo Denault

The contract price starts in about $43.50 goes up to about $61.50 over the timeframe the average of that is about $51.

Rudy Valentino - Morgan Stanley

And just out of curiosity, is there any like sharing -- like the New York plant that the sharing of your prices -- level is that in this contractor?

Wayne Leonard

No, there is not.

Rudy Valentino - Morgan Stanley

Okay, thank you very much.

Wayne Leonard

Thank you.

Operator Instructions.

Operator

We’ll take our next question from Michael Lepides of Goldman Sachs.

Michael Lepides - Goldman Sachs

Yeah, couple of the easy regulated questions for utility subsidiary areas. One on NOPSI, how is last on the deterrent position financing and -- or the other Louisiana subsidiary areas, could you talk a little bit about the items listed in the Appendix C regarding the rate increases under the formula rate plans?

Richard Smith - Group President, Utility Operations

Michael under the debt financing for -- we sit at about $50 million right now. So the board authorized that to 200 and that number has move down from the beginning of the year as we’ve implemented a variety of the regulatory strategies plus the tax refund that Wayne allotted to and then going to a Appendix C and lets see, gulf states we file the formula rate plan adjustment and that was -- let me see here, that was at the end of May and where we -- ourselves $7 million rate increase there that would be implemented in September and then the -- RELL FRP was file mid-May and there was really no changes in the earnings level per se. But we do have an adjustment at $119 million that will be rate increase to recover previously deferred capacity cost relate to -- that has already been approved by the commission that should go in effect in September or so.

Michael Lepides - Goldman Sachs

Going back to the NOPSI deterrent position financing, you say $15 million meaning that’s $15 million that’s withdrawn or $15 million that’s left on the -- on a net financing. Okay and do you expect the other 150 to be drawn on it?

Richard Smith

No I do not

Michael Lepides

Okay thank you guys

Operator

As as a reminder button “*1” to ask a question at this time. Our next questions come from Peter (inaudible) Capital.

Unidentified Participant

Good morning thank you. A couple of quick questions first on the precision analysis (inaudible) does that include any forward capital costs including potentially the -- replacement there.

Leo Denault

In terms of the accretion is first of all it’s an earnings number and it would include everything that we’ve got built into our forecast. In terms of Capex, ONM.

Unidentified Participant

Okay what is the incremental Capex from --?

Leo Denault

Well I’ll tell you that the, you know, we disclosed with the purchases prices in terms of our go forward capital plan throughout the unit in all that’s not something that we would disclose.

Unidentified Participant

Okay, thanks, and then on the non-nuclear wholesale side. Could you help us reconcile the change in the amounts that been hedged or contracted for in the pricing.

Leo Denault

Some of that is just the change in the amounts that have been hedged is basically the role-off of some contract that we are at one plant as well as we had a plan that was out of service that we brought back. So I think by and large that’s the majority of those in terms of, you are talking about this whole forward position.

Unidentified Participant

Yes, sir, thank Leo, that’s very much.

Wayne Leonard

Peter just -- this is one thing. When Leo said we don’t really disclose that. The reason we don’t disclose that’s is -- is around these bids, we don’t have too many competitive advantages, I mean we look at some of our competitors and sometimes we just can’t get to where they are, because we just can’t get the cost of capital numbers.. Risk adjusted under our methodology is the way we look at risk, for the same place that they do. The place where we think we have the advantage is the vast experience we have in PWRs and PWRs and in the do diligence when we go into these plans, we really overwhelm the plant. And then when there are things that need to be done like capital deployed or things like that that need to be done has in that case -- next few years. We actually bring the do diligence for back and then Gary ___ and his people work a plan to do that the same way as if we already own the plant. So we are not just accepting what may be the owner gives us or what’s in the room itself with regard to future capital expenditures or when they will be made or how they will be done or whatever, well actually, that’s what our advantage is, is that we work at all the way down to, if we had to do it, we owned it. And that’s why – we don’t really get into the details of what we, the conclusions we came to in do diligence process with regard to how capital would be deployed, when it will be deployed what the alternatives are for achieving the same types of things that’s what our advantage is.

Leo Denault

That’s perfect Wayne thanks very much.

Operator

Our next question comes from Shalini Mahajan with UBS.

Shalinin Mahajan - UBS

Good morning, a few questions again on acquisition what capacity factor have you assumed for the plant?

Leo Denault

I think that’s another one of those items like Wayne was just discussing that we would prefer not to disclose.

Shalinin Mahajan - UBS

Okay, in any color on the capacity factor guarantee so the -- something you can talk about.

Gary feels there is a couple of, Gary you had mentioned.

Unidentified Participant

Yeah, I think. This is Gary -- good morning. Your second question on the guarantees in the month of July and August what we did agree to was the capacity drops below 95%, there is a $20 megawatt hour penalty that would be assessed as part of that but that is factored into the analysis and to your first question what I might add, we do have you know, general guidance as we look, how we operator our fleet and we put that out, I would say that if you look at how we operate our North east, it’s consistent with how you would see our North --.

Shalinin Mahajan - UBS

Okay and Leo then going back to your comment on why the tax rate was government PWRs and BWRs cash side and just if you could give some color, to what these active tax rates would be for the whole year.

Leo Denault

I am sorry I didn’t quite catch that question.

Shalinin Mahajan - UBS

You said that the tax rate was down in the Q2 and to give an explanation or into given explanation for that which I do not completely understand.

Leo Denault

Okay, it has to do with the regulatory treatment of the deduction that we take in the Arkansas around the replacement of the steam generator in ANO. Its traditionally you would have a differed tax that you would set up around on item like that but the way the regulatory treatment is in Arkansas we flow back through. So, as oppose to setting up a different tax including that overtime, it kind of mirrors by cash tax impact of that and you get a current deduction.

Shalini Mahajan - UBS

Of what is it just a quarter effect or would it probably -- so that --

Leo Denault

We were still in the estimate -- it may be about 36% for the year, yeah, just a quarter.

Shalini Mahajan - UBS

Okay, all right that’s all thank you.

Operator

And at this time we have no further questions from the phone audience, Ms. Lopiccolo I will turn the conference back over to you.

Michele Lopiccolo - Vice President, Investor Relations

Thank you operator and thanks to all for participating this morning. Before we close we remind you to refer to our release and website for Safe Harbor and Regulations G compliance statements. Our call was recorded and can be accessed for the next seven days by dialing 719-457-0820, replay code 6479515. This concludes our call, thank you.

Operator

And that does conclude today’s conference call. We would like to thank you all for your participation and have a great day.

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