Entergy Corporation (ETR)

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Entergy Corporation (ETR)

Q3 2010 Earnings Call

October 21, 2010; 11:00 am ET

Executives

Wayne Leonard - Chairman and Chief Executive Officer

Leo Denault - Chief Financial Officer

Paula Waters - Investor Relations

Analysts

Steve Fleishman – Bank of America/Merrill Lynch

Jonathan Arnold – Deutsche Bank

Paul Patterson – Glenrock Associates

Vedula Murti - CDP US

Marc De Croisset - FBR Capital Markets

Rudy Tolentino – Morgan Stanley

Ashar Khan – Visium Asset Management

Paul Ridzon – Keybanc

Tom O’Neil – Unidentified Company

Presentation

Operator

Good day everyone and welcome to the Entergy Corporation Third Quarter 2010 Earnings Conference Call. Today’s call is being recorded. At this time for openings and introductions, I would like to turn the call over to Ms. 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 result. In an effort to accommodate everyone with questions this morning, we request that each person ask no more than two questions. After the Q&A session, I will close with the applicable legal statement. Wayne?

Wayne Leonard

Thanks Paula. Good morning everybody. With the EEI Financial conference just over a week away, our earnings release and our comments today will be limited to significant briefs and events in 2010 financial performance. We will provide you with an update on our longer term financial outlook with EEI. Starting with Utility, the Public Utility Commission of Texas is scheduled to discuss Entergy Texas rate case at its next open meeting on November 10, 2010. At that meeting, the commission will review the ALJ recommendation regarding the competitive generation service or CGS tariff and the unopposed stipulation settlement agreement addressing all other matters in the case.

To recap how we got here, in October the ALJ issued a proposal for decision recommending that the CGS tariff we rejected due to the potential for a substantial shift in cost from a limited class of eligible and participating customers to remaining customers, thus violating the basic principle of cost-causation. As a reminder, legislation initially enacted in 2005 and modified in 2009 required Entergy Texas to propose a tariff and offer eligible customers the ability to contract for competitive generation.

As proposed by Entergy Texas, eligible customers will be limited to those with a minimum of 2500 kilowatts of demand. In the proposed decision, the ALJ recognized that the law is clear, that Entergy Texas be made whole for program costs and any loss of revenues from participating customers. The decision whether to proceed with a CGS tariff, and if so under what terms is now before the commission to complete it’s review as required by the Texas legislation, and then to approve, reject or modify it. The unopposed rate case settlement filed in early August reflected a $68 million rate increase and 10.125% allowed return on equity. An initial $59 million rate increase was implemented effective August 15 that is a refund, up from the $17.5 million increase implemented at the beginnings of May.

If approved, the final step-up to achieve the full $58 million increase will take effect the first billing cycle in May 2011. As part of the unopposed settlement, the parties also stipulated to the current level of transmission of investment of $464 million that will serve as the baseline for future annual filings for a transmission rider. That includes full return of and on additional investment above that level.

Entergy Texas expects to make its first filing to implement the transmission rider around the end of 2010 or the beginning of 2011. The settlement agreement represents tangible progress of provide Entergy Texas a real opportunity to earn its allowed return. However, Entergy Texas intends to continue to work with Texas stakeholders to achieve rate recovery mechanisms that permit full recognition of Entergy Texas cost structure and that’s the power needs to the growing customer demand. Aligning the economic interest of customers and shareholders will require efficient rate making mechanisms by formula rate plans and capacity riders.

Consistent with that reality, Entergy Texas filed a petition on September 17. This is generally supported by the other non-ERCOT utilities to initiate a rulemaking allowing for a purchase power capacity rider to address regulatory lag by recovery of those costs outside continuous filings of base rate cases. The PUCT has 60 days to decide whether or not to pursue the proposed rulemaking, Entergy elects to proceed, must reach a decision within six months of publishing the rule.

In New Orleans, the City’s Advisors reached a settlement with Entergy New Orleans on the 2009 formula rate plan filing providing for an $18 million electric rate decrease, retroactive to the first billing cycle of October 2010, and no change in gas rates. This outcome resulted largely from a continued increase in the New Orleans customer base as rebuilding the neighborhood in the aftermath of Katrina and return of customers continue to see projections.

The New Orleans City Council is expected to consider this settlement at its meetings today. Turning to transmission, at a recent Entergy Regional State Committee meeting, Charles River Associates reported the results of the FERC funded independent cost-benefit study of the Entergy and Cleco regions join the Southwest Power Pool RTO.

For the 10-year period starting 2013, the study projects the Entergy region including the Entergy’s outside the Entergy operating companies would realize anywhere from a net cost of $438 million to a net benefit of $387 million, primarily depending upon transmission cost allocation issues. There is addendum cost-benefit study also being conducted by Charles River’s including the Entergy system joining the Midwest ISO and standalone studies for Entergy Arkansas joining the SPP RTO or Midwest ISO are expected to be completed before the end of the first quarter 2011.

Read the rest of this transcript for free on seekingalpha.com