Entergy Earnings Call Insights: Earned Regulatory ROEs and Cash Generation of Assets
Entergy Corp (NYSE:ETR) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Earned Regulatory ROEs
Julien Dumoulin-Smith – UBS: Quick first question here for you. On the – given all the rate cases are coming, what was your earned regulatory ROEs across your jurisdictions, and I was specifically thinking about 2012 or those jurisdictions where you are filing?
Leo P. Denault – Chairman and CEO: Theo?
Theo Bunting – Group President, Utility Operations: In 2012, I think if you look at what the earned ROEs were, they were – actually they were within – a little above the allowed ROEs in the jurisdiction we were talking of filing, principally Arkansas and Louisiana. So, as it relates to 2012, ROEs in those jurisdictions were fairly close to slightly above the allowed ROEs.
Julien Dumoulin-Smith – UBS: Sorry, you said Arkansas and Louisiana. Then with respect to Texas, if you could just comment where that is and perhaps specifically in the back half of the year and how that’s trending given the PPA?
Andrew Marsh – EVP and CFO: I mean, obviously, as Leo spoke earlier, we have our challenges in Texas and as you would expect given the impacts we talked about realistically in the filing of our rate case, if you remember back a couple of quarters ago and the impact of not recovering that capacity cost (indiscernible) ROEs, we talked about ROEs maybe impacting earned ROEs to a level of somewhere close to 6% and obviously you’ll see that impact in 2012 in Texas. So, obviously, it’s not as nice a picture in say Arkansas and Louisiana; but as Leo laid out, we do have options in terms of how we’ll work to address that and that’s our objective and goal in 2013 is to pursue the path have available to improve that result.
Julien Dumoulin-Smith – UBS: Then just turning to the EWC segment for a quick second, obviously the New England results came out the other day. Can you indicate whether you committed Vermont Yankee into that auction and whether it cleared by chance?
Leo P. Denault – Chairman and CEO: Bill?
Julien Dumoulin-Smith – UBS: I tried.
Bill Mohl – President, Entergy Wholesale Commodities: Julien, this is Bill. We did actually commit VY and it did clear and you may ask a question why did we do that as we haven’t in the past, but now that unit has been delisted it’s not considered a reliability must run unit that takes away a lot of our relicensing risk, because it relates to the CPG issues, so that in the event that we would encounter any problems, we could replace it with a fungible product.
Cash Generation of Assets
Daniel Eggers – Credit Suisse: Leo, just kind of following-up on the comment you made earlier just you’re looking at the cash generation of the assets and now you evaluate keeping the plants and service. What do you need to see market condition why is maybe to change your opinion on whether these assets stay in services and is there some sort of timeline you guys think about to try and address some of those questions?
Leo P. Denault – Chairman and CEO: Well, as far as the timeline goes, Dan, as you might guess, it’s an ongoing timeline. We never stop and we never start, it’s just always something that we would be doing regardless of what’s going on. As far as absolute levels and we’re not going to get into the specifics around plant economics, this price with our price, but suffice it to say that it’s the kind of thing that we look at an ongoing basis. We’ve always looked at on an ongoing basis as it relates to every decision we make whether it’d be continuing operation, whether it’d be hedging or whether it be any kind of portfolio management activity that might be around those assets. So, there is no specific timeline other than making sure that we’re doing everything with our eyes wide open. The big time periods are obviously when you have CapEx that goes into it or something like that where you’ve got to make an assessment of how much money are you are going to spend going forward. And so, if there is a timeframe around, which you make more decisions rather than less, it has to do with big changes in cost structure for example, a big CapEx program or if there was something else that happened, but otherwise it just an ongoing evaluation.
Daniel Eggers – Credit Suisse: I guess in the utilities, you had weather normalized demand growth was assuming well above trend for what we saw across the country, although we did see industrial down trail off a bit in the fourth quarter. Can you just kind of talk about the mix of the 1.25% growth for ’13 and where you see the most positive signs and most concerning issues right now?
Leo P. Denault – Chairman and CEO: You really faded out there Dan, so I’m not sure, I think you asked load growth question, so I think Theo can answer that?
Theo Bunting – Group President, Utility Operations: Dan, do you mind kind of just repeating the last portion of that, as Leo said you were fading out.
Daniel Eggers – Credit Suisse: I was just wondering here with power demand growth you guys had a good 2012 weather normalized relative to the rest of the country. What do you guys see as the trend for ’13 and from a mix perspective, just is residential going to continue to be so strong or is commercial catching up or how do you guys see that evolving this year?
Theo Bunting – Group President, Utility Operations: I think when you, when we think about 2012, 2012 ended up pretty much in line with what we expected as it relates to growth not only overall, but really even amongst some of the specific customers classes particularly, residential. As we look to 2013, I think you know as we said earlier, we had I believe 2012, we ended at about 1.9% weather adjusted 2013 and believe we’ve mention on the last call, we were expecting somewhat in the range of 1.3%. So obviously you see that moving down a little bit. And I think we will obviously – it’s moving down because of things you’ll probably see with other companies primarily in the areas of residential, energy efficiency, programs that have caused changes relative to – speak to government programs on lighting and such. So, we do see some impacts in residential as it relates to that. We’re optimistic that maybe it won’t be as impacted as much as we may think at this point in time. In the industrial we tailed off second half for the year, much as we had expected, primarily because of outages. In 2012, we continue to see GDP much above the national average, which as we’ve spoken of many times, has helped to differentiate us to some extent as it relates to sales volumes. I think going to 2013, if you look at some of the projections around GDP that gap starts to close. So, we will probably tend to trim more to what you may see across other utilities in the country. But I’ll say is, we still continue to be a place for opportunities as it relates to economic development and potential new industrial customers. But we’ll continue to keep our eyes on that and obviously as those things materialize or mature, you’ll start to see the impact of those – hopefully we’ll see them in our service areas – on our service area you’ll see the impacts they may create even if they are in other service areas where they could potentially affect us through some of the impacts of changes as it relates to commercial and residential even in support of those if those industrial customers are not in our area.