Entergy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Entergy (ETR)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET

Executives

Paula Waters - Vice President of Investor Relations

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

Leo P. Denault - Chief Financial Officer and Executive Vice President

Gary J. Taylor - President of Utility Operations

Richard J. Smith - President of Entergy Wholesale Commodity Business

Charles Barlow -

Analysts

Paul Patterson - Glenrock Associates LLC

Leslie Rich - J.P. Morgan Asset Management, Inc.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Dan Eggers - Crédit Suisse AG, Research Division

Presentation

Operator

Good day everyone, and welcome to the Entergy Corporation First Quarter 2012 Earnings Release Conference Call. Today's call is being recorded. At this time, for introductions and opening comments, I'd like to turn the call over to the Vice President of Investor Relations, Ms. Paula Waters. 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, our CFO, will review results. [Operator Instructions] As part of today's conference call, Entergy Corporation makes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these factors is included in the company's SEC filings. Now, I'll turn the call over to Wayne.

J. Wayne Leonard

Thanks, Paula. Good morning, everyone. The theme of our 2011 Annual Report to Stakeholders is Adapting to a Changing World. Given the schedules involve for design and illustration, each year, we must select our theme 4 to 5 months in advance of production and distribution. As it turns out, looks like -- so now it looks like we have a foreknowledge of what was to come. It would be except in philosophy 101, you learn 2 things on day 1. The first is the beginning of all wisdom is to know thyself. The second is the only constant in life is change. For some time, we've been communicating to you our plans and initiatives to address risks or uncertainties, and given our strengths and limitations with that to the coming reality that we are now facing.

Today, I'll update you on where we stand, and will provide a context for our accomplishments and our challenges. Starting with one of our key utility initiatives, the proposal for each of the utility operating companies to join a regional transmission organization, specifically, the Midwest Independent System Operator, or MISO. Events continue to move us closer to achieving that goal. In a significant development last week, the Federal Energy Regulatory Commission issued its order conditionally accepting MISO's tariff provisions regarding cost allocations for transmission projects upon introduced transition into the MISO RTO.

Just to remind you, last September, FERC denied MISO's request for tariff waiver to implement this same proposal. Moreover, FERC noted in its order that it was not making any findings on the merits of the proposal at that time. The request for the tariff waiver was just a wrong procedural vehicle to implement the proposal. In the April 19 ruling on the merits, FERC founded that it was just and reasonable for MISO and its existing transmission owners to agree to establish a transition period to ensure that no entity must bear the cost of transmission facilities from which it has not been showing the benefit, consistent with traditional cost causation principles. Prior to this FERC ruling, on March 16, Entergy Arkansas reached a settlement with its Arkansas co-owners in its coal-generating plants, including Arkansas Electric Cooperative Corporation, one of the intervenors in the FERC proceeding. The settlement will include how the plant will operate after Entergy Arkansas integrates into MISO. This agreement extends the benefits of MISO participation to all co-owner utilities if the Arkansas Public Service Commission approves the Entergy Arkansas' proposal to join MISO. Combined with Entergy Arkansas, these groups represent 80% of all Arkansas electric customers in the state.

In addressing other concerns, utilities have agreed to give the Entergy Regional State Committee, upon unanimous vote, the authority to direct the operating companies to add projects within the Entergy region to MISO's transmission expansion plan during the 5-year transition period after the Entergy utilities join MISO. This arrangement is designed to address concerns expressed by regulators. FERC freezes its seasonal transmission cost allocations along with the additional authority to add projects to help address the stated concerns on MISO and provide a wider path for the receipt of necessary regulatory approvals and for a seamless and successful integration and realization of up to $1.4 billion to projected net customer savings over 10 years. This projected cost of benefits derived from its joining in RTO with substantial scale in a mature Day 2 market.

As you know, Day 2 refers to an RTO that includes day-ahead and real-time energy markets and uses market-based mechanisms to manage congestion. The Day 2 market brings about efficiencies by using 1 central unit commitment and dispatch based on the economics of transmission and generation resources. MISO has one in place today, SPP does not, although it has plans to. Even assuming SPP will get there, further independent third-party analysis has recently undercut the arguments of those who have opposed our proposed move to MISO. In a study prepared by the Charles Rivers Associates for SPP, SPP is the one that commissioned the study, CRA estimates that SPP members would receive $22 million in trade benefits over the 10-year span from 2013 through 2022, as a result of the Entergy and Cleco regions entry into MISO. Not only that, this study projects that those same SPP members would see an increase in net production cost of $17 million if the Entergy and Cleco regions joined SPP instead. At the retail jurisdictions, tentative result in March in Louisiana, all parties, except SPP, initially support, or do not oppose at least, the move to MISO. Hearings are scheduled to begin next week in Louisiana, and at the end of May in Arkansas, with potential decisions coming in at summer.

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