Entergy Corporation (ETR)

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Entergy Corporation (ETR)

Q2 2010 Earnings Call Transcript

August 3, 2010 11:00 am ET

Executives

Paula Waters – VP, IR

Wayne Leonard – Chairman and CEO

Leo Denault – EVP and CFO

Rick Smith – President, Entergy Wholesale Commodity Business

Mark Savoff – COO

Analysts

Greg Gordon – Morgan Stanley

Paul Patterson – Glenrock Associates

Leslie Rich – JPMorgan

Dan Eggers – Credit Suisse

Andrew Levy – Tudor Pickering

Steve Fleishman – Banc of America/Merrill Lynch

Presentation

Operator

Good day, everyone, and welcome to the Entergy Corporation second quarter 2010 earnings conference call. Today’s call is being recorded.

At this time, for introductions and opening remarks, I would like to turn the call over to Paula Waters of Investor Relations. Please go ahead.

Paula Waters

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

Wayne Leonard

Thanks, Paula. Good morning, everybody. I’m pleased to report our second solid quarter of financial and operational performance for advancing longer term goals and objectives outlined earlier this year.

Leo will review the quarter’s financial results, and even with severely depressed commodity prices affecting the non-utility business the highest second quarter operational earnings per share in Company history.

I’ll start with progress on our business and financial objectives. At the utility, one of the financial objectives which we have consistently come up short on is to receive a reasonable opportunity from regulators across the system to earn rates of return consistent with investments of equivalent risks, and then actually realize that opportunity when it is availed.

In that regard, we have started in Texas since we first entered the state with the Gulf States utilities acquisition in 1993 and more recently in Arkansas, with the FERC system agreement order on rough production cost equalization.

I can’t say that we turned the corner yet, but I do believe we are making meaningful progress at all of our retail regulators and developing agreements on the need to solid credit metrics particularly in uncertain financial markets with the need to track capital for the changing regulatory requirements in transmission, for the environment, for the potential new investments needed for the liability, and to meet other public policy objectives.

On June 23, the Arkansas Public Service Commission approved a unanimous settlement agreement in Entergy Arkansas rate case filed last year. The settlement allows $63.7 million base rate increase effective in the first billing cycle in July, and a 10.2% ROE, up from the 9.9% allowed in the previous case.

But more importantly, it allows a greater opportunity to actually earn closer to the allowed return. It was certainly not everything we asked for or needed, but it recognizes that implementing alternative operating structures at Arkansas such as a standalone entity within the Entergy family, but outside the system agreement. We’ll require constructive regulatory treatment to track needed capital.

We remain encouraged that the APSC has the authority to improve upon this outcome through things like formula rate plans and transmission riders. There are open dockets, where these issues have been raised and can be addressed if the Commission is still inclined.

The good news for Entergy Arkansas customers in the short term is that despite this rate action, the Arkansas residential electricity rates decreased 22% compared to levels in July 2009, after factoring in lower fuel costs, continued efficient operation of our power plants, and sizable reduction in the amount collected and paid to other jurisdiction under the rough production cost equalization formula established by the FERC.

In Texas, parties in the Entergy Texas rate case are working to complete a stipulation agreement resolving all but one issue in the case. The contested issue, the competitive generation of service tariff was the subject of a limited hearing conducted in July.

Regarding this issue, legislation enacted in 2009 that Entergy Texas’s obligation to establish a competitive framework for all retail customers required the Company to file this proposal and intended that Entergy Texas be made hold for program costs and any loss of revenues from participating customers. Entergy Texas helps to get the stipulation finalized in the near future, the procedural schedule calls for a final commission order by November 1, 2010.

In Louisiana and Mississippi, where formula rate plan have been the regulatory construct for many years, each company roughly earn close to a midpoint of the earnings we had in 2009 as indicated by filings in Louisiana and a settlement in Mississippi this past quarter. The Mississippi Public Service Commission has already approved the terms of that settlement.

While the Louisiana Companies earn within their bands, pursuance of the terms of the FRPs, both companies are requesting rate adjustment outside of the FRP or capacity cost of PPA is not covered under the fuel cost.

At the LPSC’s meeting last week, the Commission approved increases effective in September and nuclear de-commissioning funding of approximately $7.8 million at Entergy Gulf States Louisiana and $3.5 million for in retail rate for Entergy Louisiana also outside the FRP.

Entergy New Orleans recent formula rate plant filing reflected over-earning electric rates during the period and under-earning in the gas distribution business. The FRP’s direct implementation of rate adjustments in the first billing cycle on October. (inaudible) Chapter 11 in May of 2007, Entergy New Orleans has reduced its total residential rates to its customers by 16.5%.

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