Entergy Corporation (ETR)

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Entergy (ETR)

Q1 2011 Earnings Call

April 29, 2011 12:15 pm ET


John Herron - Chief Nuclear Officer, Senior Vice president of Nuclear Operations, Chairman of System Energy Resources Inc, Chief Executive Officer of Nuclear Operations, Chief Executive Officer of System Energy Resources Inc, President of Nuclear Operations and President of System Energy Resources Inc

J. Leonard - Chairman, Chief Executive Officer and Chairman of Executive Committee

Mark Savoff - Chief Operating Officer, Executive Vice President and Executive Vice President of Entergy Services Inc

Unknown Executive -

Leo Denault - Chief Financial Officer and Executive Vice President

Paula Waters - Vice President of Investor Relations

Richard Smith - President of Entergy Wholesale Commodity Business


Unknown Analyst -


J. Leonard

Yes. We don't have any prepared remarks. I think you've heard about enough from us from one day. So let's -- we'll open it up for questions.

Question-and-Answer Session

Unknown Analyst -

I understand Arkansas and Mississippi will both be leaving the systems agreement. But could you talk about what happens to the systems agreement under your base case scenario where all the APCos move to MISO? What happens to the rest of the other companies? Does this agreements still exist, or would that be discontinued?

J. Leonard

That's a really good question. As I was saying is, there's an eight-year termination to leave the systems agreement, of which Entergy Arkansas from leaves as of 2013 and Entergy Mississippi leaves 2015. None of the others have given a notice. So they would all go to MISO to retrieve a new transmission services under it, but then we would actually have to map that back through the other four remaining APCos, new Orleans, entering into Louisiana, entering off bases from Texas, would still actually be, from a resource point of view, to be managed under the system agreement. Though there is some questions that are in Texas, where our commissioner Anderson is asking that same question, and does it make sense going forward. And I think that's a good question to ask, but they would actually be operating as four in the system agreement.

Unknown Analyst -

In the Wholesale business, I'm curious about how you look at hedging in those 13 to 15 time frame. You talked about maybe having to have a discount in the prices that you would sign because of the uncertainty around the generation. And I kind of wonder, because you're in a binary situation, if that generation doesn't occur, you don't incur any negative effect from not hedging at the right price. So I wonder why would you go through all those machinations to try to put some calls and callers and such, why don't you just wait until there's more certainty in the prices there?

Richard Smith

And I mean, we have done that with, like, Vermont. I mean, it's too uncertain. With Pilgrim and BY, we can kind of match up how much we hedge against another unit. So any point's a good example of that. You can hedge one unit, which I think it's 3 that the license expires in '13, and 2 doesn't expire until '15. So we have a natural backup on generation. And then we're looking at some other products as around Pilgrim, and we feel pretty confident it will be relicensed. So we're not hedging up the whole output as a plan, but we're looking at -- we're utilizing some of these new products. And it isn't just that if it's not there, we've created it for where we would have to go back out in the market to cover that, it's also to take advantage of what we're seeing in this some upside here. So any point, we got a natural backup between the two dates of any endpoints relicensing. And in Pilgrim, we're just layering in a little bit there.

Unknown Analyst -

Two questions. One on the nonregulated site, one at the regulated side. New England and the FCM ruling that came out a couple of weeks or so ago, I'm not sure I understand why the base load generators would want the Florida price to continue. I would -- given the oversupply or the surplus, I would think almost that the best thing -- that the base load generators would want would be the floor to go away and to drive out some of the guys further up the stack, drive them quicker into retirement. Why is the floor a good thing?

Richard Smith

You're talking about the -- that really applies, Michael, to the out-of-market entries. And when they come in, they'll tend to collapse because they can bid in at 0, so they'll collapse that forward capacity market. So that's why we think it is important that, that generation has to come in at some floor price. And generally, the conversations are around 75% of what their new build cost is.

Unknown Analyst -

But I thought what's happening in this option is that not only are you getting new potential out of market assets having to bid in at some percent, high percent of cone, but that there's actually going to maintain the overall price floor. I mean, last time it was, what, 295 a kilowatt month or so before proration, that they're going to actually keep that in place. I also think you'd be better off letting it go to a RPO-like price, and that would hurry up the retirement of some of the noneconomic units.

Richard Smith

There's a lot of generation out there. I'm not sure I agree with the premise that it would drive out the -- an economic unit that quickly, because a lot of them are pretty old. So it's -- I mean, they're getting anything out of -- above their energy costs they're doing pretty good. So they'd probably hang on.

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