Entergy Corporation
Q4 2007 Earnings Call Transcript

Published: 29 Jan 2008

[Operator:]

Good day everyone, and welcome to the Entergy Corporation Fourth Quarter 2007 Earnings Conference Call. Today's call is being recorded. At this time, for introductions and opening comments, I would like to turn the call over to Ms. Michele Lopiccolo of Investor Relations. Please go ahead.

[Michele Lopiccolo:]

Good morning, and thank for joining us. We'll begin this morning with comments from our Chairman and CEO, Wayne Leonard; and then Leo Denault, our CFO, will review results. In an effort to accommodate everyone's 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 statements. Wayne?

[J. Wayne Leonard:]

Thanks Michele. Good morning. I'll begin by highlighting event since we met with you at EDI and then turn to a discussion of our 2008 goal. Starting with utility, in December the Arkansas Public Service Commission issued a consolidated order addressing several issues. As part of its earlier rate decisions, the APSC ordered parties to jointly develop and propose an annual earnings review process. Following a lack of consensus among parties, the commission determined that moving forward would likely lead to significant unintended and unanticipated complications and would be detrimental to the public interest. Consequently, the annual earnings of new process will not be implemented at this time and future rate changes, up or down, will continue to come through a base rate case. Upon elimination of the proposed annual earnings review process, the APSC ruled that going forward, Entergy Arkansas may petition for extraordinary storm damage financial relief just as it has done in the past. Further the APSC replaced the automatic sunset provisions, currently in-effect, for the fuel and system agreement recovery riders with the provision calling for an 18 month advanced notice to Entergy Arkansas for any potential future termination, which would only occur following due process, including commission notice and hearing. The APSC also approved Entergy Arkansas' proposed recovery mechanism with a capacity payments from Ouachita Interim Tolling Agreement. A separate rider will allow timely recovery of capacity cost and Ouachita energy cost will be recovered through the ESR. That's the fuel calls equivalent in Arkansas. We are encouraged by these actions as they indicate a renewed intent by the Arkansas Commission to fairly balance the interest of customers and owners. In Louisiana, the commission likewise demonstrated progressive leadership and constructive regulatory policy by granting approval on several portfolio transformation initiatives. At its November meeting, the APSC unanimously approved Entergy Louisiana's request to re-power Little Gypsy, well in advance of the June 2008 approval initially requested by the company. The Little Gypsy project is a much-needed solid fuel base hold resource that can reduce customer's dependence on natural gas

[Leo Denault:]

Thank you, Wayne, and good morning everyone. In my remarks today I will cover quarterly results followed by cash flow performance, an update on our share repurchase activity and a recap of our '08 earnings guidance. I will include then close with some brief comments on our post-spin financial aspirations. Looking first at our financial results for the quarter, slide two shows that fourth quarter '07 as reported earnings were lower compared to one year ago. This decrease was attributed to the variance in special items recorded in the fourth quarter of '06 compared to those recorded this year. The details of our special items are shown on slide 2 and are also included in appendix B3 of our earnings release. Turning to operational earnings, we see an improvement of 42% for fourth quarter '07 compared to the comparable quarter one year ago. The increase in operational earnings came from higher results at Entergy Nuclear and the non-nuclear wholesale business, partially offset by lower results at utility parent and other. Slide 3 presents the factors that drove the quarter-on-quarter results. At Entergy Nuclear, increased revenue from higher pricing, the addition of Palisades and lower income tax expense were the major drivers. With regard to tax expense, the primary factor producing the lower expense was a step up in the tax basis of our non-qualified decommissioning trust fund for Indian Point as a result of restructuring the trust. Lower income tax expense was also due to the annual fourth quarter consolidated income tax adjustment allocated to Entergy Nuclear. This item reflects the effect of allocating consolidated income tax adjustments across all of our businesses. Each fourth quarter we determine the individual business contributions to consolidate the taxable income and record the necessary adjustments to align tax liabilities. The process often has a significant effect on individual business results across years. However, there is no net effect on consolidated results. Also in Entergy Nuclear, we note that operational and maintenance expense was largely unchanged other than the effect of nuclear alignment expenses and having Palisades as part of the portfolio this quarter. The non-nuclear wholesale business, results in the current quarter were higher compared to the same quarter last year due to lower income tax expense. The lower tax expense was primarily associated with the annual income tax adjustments allocated to this business. Our utility, parent and other earnings were lower in the current quarter compared to results for fourth quarter last year. Significant factor contributing to the low results of this business was higher income tax expense. The increase in tax expense is due primarily to two items, which included the absence in the current quarter of tax benefits realized in the fourth quarter of '06 associated with tax and audit settlements, and higher income tax associated with the annual consolidation income tax adjustments allocated to utility, parent and other in '07 compared to '06. The other factor that contributed to lower results in the fourth quarter of '07 was the absence of a constructive regulatory settlement that contributed to earnings in the fourth quarter last year. Positives at utility, parent and other this quarter include higher sales revenues coming from warmer than normal weather, higher transmission revenue and increased recovery of capacity cost. In addition, operation and maintenance expense for the fourth quarter was basically in line with our expectations. Moving to full year results, slide 4 shows as reported and operational results for '07 compared to '06. As reported results were higher in '07 with Entergy Nuclear and the non-nuclear wholesale business each contributing, and looking at the full year operational earnings we see improved results with nuclear and non-nuclear wholesale contributing to a 22% increase in consolidated earnings year-over-year. Entergy Nuclear's 88% earnings increase in '07 compared to '06 was driven primarily by higher pricing on energy sold, increased generation available and lower income tax expense. The higher output was made possible by the addition of Palisades acquired in April of 2007. Operational results for the year at the non-nuclear wholesale business were higher compared to its contribution in '06, increased due primarily to lower income tax expense associated with the favorable resolution of tax audit issues and the annual consolidated income tax adjustment process. The last item that contributed to higher consolidated results this past year was the accretive effect of our share repurchase program. Sales growth, the effect of regulatory actions and higher transmission revenue at utility, parent and other were offset by higher income tax expense, higher operation and maintenance expense and higher interest expense. In reflecting on our financial accomplishments in '07, we believe the proper context is to review results against our objectives as outlined on slide 5. First, we achieved our $1 per share earnings growth aspiration and did so in a challenging economic climate. We initiated a new $1.5 billion stock repurchase program in 2007 and returned nearly $1 billion of cash to our owners, doubling our repurchase aspiration of $500 million. In addition, we increased the dividend in July by 39%, long overdue since the last increase in 2004 and consistent with our aspiration to achieve a 60% target payout ratio. And our operational return on invested capital increased 8.5% from 7.7%. It's important to emphasize that these financial accomplishments were realized without sacrificing our solid credit metrics. In fact, we removed the negative outlooks triggered by the '05 storms. We never lose site of our point of view had a strong balance sheet as a fundamental component of long-term financial success. Perhaps most importantly, we positioned our business to take a major step forward in our continuous endeavor to create shareholder value through the spin-off transaction. Slide 6 includes a recap of our cash flow performance this quarter, which shows a decrease compared to the same period last year. Several items contributed to the reduced level of cash flow, including working capital requirements of $130 million, reduced collections of deferred fuel cost, totaling $65 million. The absence of $81 million of CDBG storm funding received by Entergy Mississippi last year and the absence of Entergy cash proceeds from final disposition of the sale of assets, $96 million of which was reflected in OCF last year. On the positive side, the cash benefits of higher net revenues in Entergy Nuclear served to partially offset those items that reduced the operating cash flow in the period. We made good progress in our share repurchase program during the quarter, the details of which are on slide 7. We repurchased 1.6 million shares in the fourth quarter with approximately 65% of those repurchases coming to our $1.5 billion program. At the end of '07, we had approximately $500 million of repurchases already remaining, and as Wayne indicated the Entergy board granted authorization for $500 million of the anticipated post-spin program. This action enables us to consider opportunistic purchases given the current volatile equity market conditions. We continue to see our '08, as reported and operational earnings guidance in the range of $6.50 to $6.90 per share. Slide 8 includes the components of guidance. As we would expect at this point in the year, the main drivers of guidance are essentially unchanged, and keeping with past practice we've adjusted a few line items to reflect actual '07 results including the impact of weather. In reviewing all current data available, we continue to believe that our current guidance range is appropriate. We have and will continue to gauge our success against a range of objectives and meeting our financial aspiration is undoubtedly on the top of your list. Moving into '08, a year when we expect to reshape our company, we are encouraged by our demonstrated performance across key financial aspirations that I described earlier. As our company evolves towards the new businesses, it will be become post-spin to recognize that our financial aspirations must evolve as well. Our financial aspirations after the spin-off is completed have not changed from those Wayne discussed at EEI, as reflected on slide 9. We will continue to strive to achieve top quartile shareholder returns. We accomplished that goal in each of '06 and '07; and it remains our overarching objective. More specific to SpinCo, which is shown on slide 10, EBITDA of $2 billion by 2012 continues to be achievable. We believe the expansion in EBITDA will come through a combination of factors including our open position and forward prices for both energy and capacity, key rate expansion, and the positive effect of carbon legislation given our clean nuclear portfolio. We have been asked often since November, whether we believe our EBITDA estimate is a realistic number. Our response has been and continues to be yes. And based on recent upward movement in market prices for 2012, as noted earlier by Wayne, EBITDA at this level certainly remains achievable. SpinCo also expects to have the cash capacity to support annual share repurchases in the $500 million to $1 billion range. Finally SpinCo expects to maintain strong merchant credit relative to others in the sector. Our financial aspirations for Entergy post-spin are on slide 9 as well and reflects solid earnings growth in the 6% to 8% range. We believe the underlying business can produce about half of this growth with the other half coming from the accretive effect of the post-spin repurchase program, part of which may come ahead of the spin-off with the balance to be initiated immediately after the spin-off transaction is finalized. The second element of our financial aspirations for Entergy is maintaining a dividend payout target in a range of 70% to 75%, and finally with respect to credit quality, investment grade credit with a lower risk profile relative to today continues to be our objective. In closing, we see '08 shaping up to be one of the most exciting and perhaps challenging years in our Company's recent history. We look forward to sharing the excitement with you. We are prepared to be challenged as we work to create long-term shareholder value. Our senior team is now available for your questions. Question And Answer

[Operator:]

The question-and-answer session will be conducted electronically. [Operator Instructions] We will go first to John Kiani with Deutsche Bank.

[John Kiani:]

Can you please talk about how the nuclear spin timeline could change if Vermont decides to go to full hearings, please?

[J. Wayne Leonard:]

Rick, why don't you go ahead and take that?

[Richard Smith:]

Well, I think if they go to full hearings we'll have to wait a couple of month to see what the procedure own schedule will be that doesn't mean that we can't close a transaction still by the third quarter. But we are probably a good month away before we really know what that impact of the detail procedure on schedule will be.

[John Kiani:]

Okay, thanks. And then, Leo, I guess with the plan to do, at least at this point, about $4.5 billion of debt in conjunction with the SpinCo, I guess, in part to refinance some debt and also to fund the remaining $2 billion of the buyback. Can you talk a little bit about options there considering the current state of the high yield credit markets?

[Leo Denault:]

Well, John, the overall plan remains the same as what it was when we first announced this at EEI. We continue to monitor what's going on in the financial markets and the credit markets. Obviously as we get closer to the spin-off date, we will have to size up the right way to go about financing, both, in terms of sizing and in terms of methodology. But right now, we don't see... we're still optimistic that things will shape up to where we are able to do the financing in the way that we've set out. We anticipate doing unsecured financing for the most part around the SpinCo financing, and then as we get closer to it, we'll see what the spreads looks like, what the cost structure looks like, on an absolute basis and also on a relative basis, and then look at if there is different ways to go about it. But right now, we would see it going the same way that we have planned all along.

[John Kiani:]

Okay. Thanks Leo.

[Operator:]

We'll go next to Greg Gordon with Citigroup.

[Greg Gordon:]

... Vermont is a little bit uncertain, is there a statutory timeframe that we need to look at in from a date as well, give us any guidelines on what the outside balance of that process might look like?

[J. Wayne Leonard:]

Greg, unfortunately you're breaking up here a bit, so

[Greg Gordon:]

Sorry. Can you hear me now?

[J. Wayne Leonard:]

Yes, it's clear, good.

[Greg Gordon:]

Sorry. I was wondering if you could give us sort of the outside balance of what the timing on the New York process might be as well.

[J. Wayne Leonard:]

Rick, go ahead with that.

[Richard Smith:]

I think it's the same answer as Vermont. I mean, we are going to have the scheduling order out of them, and we will probably get that within the next month also. So, until we really have that information; we are not really going to know if there is a net worth down. They have a procedure where transfer of ownership, these type of merchant generation can go through pretty quickly and that's the way we have filed the request. And we are hopeful they will take it up that way.

[J. Wayne Leonard:]

Yes, Greg, as I know that everybody is a little anxious about the schedule and what it's going to look like. And that I am glad, because that tells me that people really are interested in the spin, and they want that piece of paper. But as you know the value of that option isn't going down between now and then. It's just going to continue to increase, and whether it's September 30 or October 1 or before or after, that you own those... like I said, you own those assets and that option value, which you can't... won't be able to pull the trigger on until actually we close, but the value is going to continue to go up between now and then. So, I don't want people to get too nerves about that.

[Greg Gordon:]

On that front, my second question is regarding RGGI, Regional Greenhouse Gas Initiative. From your perspective when you look at the structure, you have a 36 months compliance window beginning in '09, I am sort of fishing around, as I have seen I think offers for offsets in the market are offered around $5.50 a ton. Do you... where do you see the bid-ask [ph] spread on RGGI pricing coming, and do you think that's already reflected in forward curves or not?

[J. Wayne Leonard:]

Leo.

[Leo Denault:]

It's... Greg it's difficult to say exactly where it will play out until it gets implemented. But I think that the estimates that we've seen in the past that are in that range that you mentioned that can range anywhere from $1 to $3 or $4 a megawatt hour are still in lines with what we would anticipate as probably going to be the, at least, starting point there.

[Greg Gordon:]

But the billion dollar question is whether part or all that's already baked into forward curves, so whether that's an upside that we will capture, want just more clarity.

[Leo Denault:]

You are breaking up again, but if I heard you right, it's... how much of that we think is embedded in the forward price curves. And as we look at it out in the 2009 and beyond timeframe, we would say very little.

[Greg Gordon:]

Thank you.

[J. Wayne Leonard:]

Thanks Greg.

[Operator:]

We'll go next to Steve Benjamin with Canaccord capital Management [ph].

[Unidentified Analyst:]

Thanks.

[J. Wayne Leonard:]

Hello Steve.

[Unidentified Analyst:]

Hi. Hi, Wayne? Can you hear me, okay.

[J. Wayne Leonard:]

Yes, that's good.

[Unidentified Analyst:]

Could you, on the... in 2007 looking, I was trying to clean up the year for some items that might be non-recurring and you do a good job comparing '07 to the '08 guidance. I see... I think there was obviously, you had a lot of net tax benefits in '07, and then favorable weather. Were there other items when you do the '07 to '08 that are not recurring, for example, you are showing O&M '08 versus '07? Did you have some higher O&M in '07?

[J. Wayne Leonard:]

We got the big brain and big computer, both, so I'll let him handle this.

[Leo Denault:]

The computer is probably a lot bigger than the brain. We did have some items that showed up in O&M in 2007 that shouldn't show up going forward to minimum bill credits that we provided are one of the larger items going forward. We actually... we have... our benefits cost, we anticipate going down, also, we have got some actuarial adjustments, pension and things like that that will have some reductions that should show lower O&M going forward and storm reserves as well that we were accruing in the past that we won't have to do. Now the way we have got those set up, because those going to be securitized instead. So, there is a number of factors that go into actually at the utility have been lower O&M going forward than what we saw in 2007.

[Unidentified Analyst:]

Okay. And just thank you by the way, probably, Michelle for the detailed regulatory review on the milestones for the spin. I guess, I would ask, if you look at all these different milestones, what would you say is the critical path for getting it done on the time line that you are targeting?

[J. Wayne Leonard:]

Steven, Michelle is smiling. That's the first thank you she has got, I think all year, she appreciates that. Rick has not got a thank you until this thing closes, Rick, what is the answer there?

[Richard Smith:]

I think it goes, Steve, to the previous question that's going to be Vermont and New York. And, I mean, within a month we'll know what those scheduling orders will be and that will really set the timeframe and how hard or easy it will be to meet at their quarter close. I think the NRC and FERC were pretty comfortable, will go fairly easily.

[Unidentified Analyst:]

Okay. Thank you.

[J. Wayne Leonard:]

Thanks Steve.

[Operator:]

[Jonathan Arnold:]

Hi, good morning.

[J. Wayne Leonard:]

Hi Jonathan.

[Jonathan Arnold:]

Just wanted to clarify one thing on the way you've laid out the tax items and the warp between 2007 and 2008 guidance. Are those purely tax lined items or are they... does it include the tax impact of all the other items above? I guess, asked another way, are all the other items shown on an after tax basis?

[J. Wayne Leonard:]

All the other items are on after-tax basis.

[Jonathan Arnold:]

Thank you. And if I could just, one other thing, can you be... and perhaps quantify what the income sharing was under the various arrangements of the non-reg nuclear in 2007?

[J. Wayne Leonard:]

That's something that we don't have to come up with but neither [ph] should be about $72 million. And that's really all there is for 2007. But that's per the settlement that we have with them.

[Jonathan Arnold:]

Great. Thank you very much.

[J. Wayne Leonard:]

Thanks Jonathan.

[Operator:]

We will go next to Andrew Levi with Bancorp [ph].

[Unidentified Analyst:]

Hey guys, how are you doing?

[J. Wayne Leonard:]

Good morning.

[Unidentified Analyst:]

Just trying to get a some type of idea on the timing of the buyback, is it... does that have to do with stock price or does that have to do with something else?

[J. Wayne Leonard:]

Yes stock price will have a bearing on it, the... we did have... obviously we have a special meeting of our Board yesterday to discuss this. And we have a point of view already with regard to the stock price. You all have a point of view relative to the underlying value and the... where we sit... without getting into the details of that point of view, obviously the Board felt that it was important to put the $500 million in place given the market conditions that exist today and they will even be more volatile as we go forward.

[Unidentified Analyst:]

So, I guess it would be fair to say that down at this price you guys deal with an attractive buy here, and we'll probably see here in the market sooner rather than later, I guess.

[J. Wayne Leonard:]

Well...

[Unidentified Analyst:]

If the price stays down at these levels.

[J. Wayne Leonard:]

Yes, we have considerable amount still left to go under our existing authority, and this is above that. But obviously, as we have indicated in the past and as the shares have traded in the past this is not a good market right now and our strategy is completely understood by the marketplace or as well quantified or as quantified in the same way that we do. I think comments from a number of different utilities in similar positions, who said they talked to the investor banks and others about these kind of things and they don't see a compelling story or compelling strategy or a compelling reason to do what we're doing. For whatever reason, we don't agree with that, we don't typically get our numbers from bankers or anyone else. We run them ourselves and then bankers confirm them, arguing about... whatever, but our numbers are compelling to us with and without the spin. And I think we've made that pretty clear for some time, but I'll just confirm that. Leo, you want to add?

[Leo Denault:]

No, I think everything Wayne said is right. Like you said in the script we've noticed a lot volatility in the overall markets and we've noticed the volatility in Entergy stock itself, and those... with volatility comes opportunity and so having significant amount of it already to act when we deem it's prudent, is just good business practice.

[J. Wayne Leonard:]

You know what were the things that we think, without prolonging this, is to keep in mind with the volatile market, potential recession and things of that nature, and you look at all aspects of what your value, what your value, you didn't... there are some relatively small impact on our cash flows could come from a recession, and we have certain risk to revenues in territory. But a lot of that is, given the nature of our customers is relatively minor, it's an energy sector, it's up to capacity, and it's not really expected to change. And then you look at the discount rate you are going apply to your cash flows, and in the past, when this industry has been through very tough times our discount rate have changed. The risk-free rate has changed and its volatility through the market has changed, or the event risk or whatever has concerned investors. And as you have seen, I think, in our regulatory filings, we worked very hard with our regulators to, some of the event type risk things like twenty-twenty hindsight reviews. We are trying to get those consistent with what the law provides, and with regard to our plans they run well. They are clean. The big event out there is greenhouse gas control which is one that benefits our plants most certainly. So, from our standpoint, unless you are looking at 10% inflation and things of that nature, the discount rate, really, isn't going to change a lot. So, and the revenues may have a little more volatility, but not a lot. There is no real underlying reason that you look at this company and say well, it is trading for 125 and all of a sudden it's 107.52. The screen is right. So, I mean, you know what the fact is, you know better than I do, but the Board took the appropriate action.

[Unidentified Analyst:]

Great. Thank you very much.

[Operator:]

We will go next to Carrie St. Louis with Fidelity.

[Carrie St. Louis:]

Hi. Just wanted to ask a couple of questions regarding the nuclear spin-offs and the credit markets; I appreciate the comments that you think that, right now the markets aren't much changed from when you announced the spin-off, but I think that might be slightly naïve. And I just wanted to kind of further question you on what some of the sensitivities are, if you are not able to raise the amount of financing that you previously contemplated? And I guess from my line of thinking is going is that I was little bit surprised that you went ahead and announced the additional buyback without knowing how the spin-off would proceed, and as a bondholder, how am I supposed to think of that in relation to your commitment to keeping strong investment grade credit metrics at the current Entergy Corp.

[J. Wayne Leonard:]

Leo will be even more eager to grab the phone. I am just kidding. Those are good questions, Carrie, and I will Leo take that up.

[Leo Denault:]

As far as the buyback goes, Carrie, it's not... I guess, it's additional to the authority that we have today. But I wouldn't characterize it as additional. It's no different than the authority that we would anticipate getting post-spin. It just takes a portion of it and gives us that authority today, given the potential opportunities that we may see in the market. So, we haven't come out and said that we're going to do any more than we would have done had we once the spin is completed. And in fact it's just kind of a technicality of when the authority from the Board shows up for management to execute. So, the way you can think about it is whatever authority we would seek post-spin, we now have to seek $500 million less than we would have otherwise. So it's not additional to the overall plan. The overall plan is exactly as it was anticipated at the outset. As far as the question about why would you do it without the spin actually occurring? At $500 million, if you were to even look forward, under the unlikely event that there is no spin, cash flows of the Company, the credit capacity of the Company '08, '09, '10 and beyond would continue to support $500 million worth of repurchase authority. And so it's not talking away from anything that has to happen to give us that capability. And as Wayne mentioned in his remarks, the spin doesn't have to happen for us to own the nuclear plant. The spin doesn't have to happen for us to benefit from the roll off of the existing contracts into higher price market. The spin doesn't have to occur for the value of those assets to show up, in large part just based on movements in the forward price of power. So, all of those things that contribute to the value of the business, the fundamental underlying value, will be there whether we spin it or not. There is just incremental value to owners through the separation, through the option value, and through the change in the cost of capital, through the ability to manage them separately, and to get the optimal cap structure at both firms as opposed to trying to do it as one together when your policy decisions at the utility and the parent might be different than the point of view that you have at the nuclear business. So, all of those go to say that the $500 million is not a strain on anything whatsoever, whether you are a bondholder or not. It's just a added authority that we have and to be able to utilize in times like these. At presently we have to use it going forward. And as far as the credit markets, I didn't say that the credit markets haven't changed, I said our plan hasn't changed. The credit markets change everyday, and what we are looking at, however, is that the spin-off is going to occur in the third quarter of next year. The financing package that we put together is not going to be based on what credit markets were in July of last year when they were really, really favorable. They are not going to be based on what they were when we went into the credit crunch or the crisis that occurred out of the subprime market. And they are not going to be set based on what we see today in terms of whether we are or not in a recession and what that may or may not have. They are going to be set more in line with what we see closer to execution. And those scenarios have a large continuum of different possibilities in terms of whether it's secured or unsecured, whether it's done at different credit levels, but it's going to have lot to do with what the absolute cost of capital is at that point in time, as well as the relative cost of capital and different kinds of structures. All of that, we look at everyday, but to give you a stake in a ground today when... it's changed over the last couple of months and it will change over the upcoming months as well, that will be difficult to say. So, right now our plan is the same as what it was when we started down the path, recognizing that we have to keep abreast of what's going on in the market.

[Carrie St. Louis:]

Let me just follow-up on one point, are you saying that regardless of what the markets would be like in the third quarter, is that the timing that... are you still remaining committed to the investment grade rating at Corp., current Corp's entity?

[J. Wayne Leonard:]

Yes.

[Carrie St. Louis:]

Okay. And maybe you can just help us, when you had looked at the spin, could you, kind of, elaborate, I know, you said you were contemplating unsecured financing, but did you have any rough assumptions on cost of financing that would make the transaction attractive.

[Michele Lopiccolo:]

And, Carrie, I am going to jump in real quick, after this we need to be able to move on to the next caller.

[Carrie St. Louis:]

That's fine.

[Leo Denault:]

Carrie, I'm not going to give you an absolute number, because again, it's going to have a lot to do with a relative cost of financing across the board, different times, different credit rating levels, et cetera, in terms of the sizing and the cost and the way we structure it, just because at that point in time looking at the difference between financing at Entergy and financing at SpinCo or financing at them combined is all going to go into the play as to how we execute on it.

[Carrie St. Louis:]

Thank you.

[J. Wayne Leonard:]

Thanks Carrie.

[Operator:]

We'll go next to Ashar Khan with SAC Capital.

[Ashar Khan:]

Most of my questions have been answered. But I just wanted to check, Leo... if I am right, we have about $700 million of cash on the balance sheet at the end of the year. So, I am just trying to understand, we have enough cash to basically do this buyback, based just on cash on hand, and I guess cash flow to come in through the year, right? There is no draw down from the... expected in the first quarter, anything, from the cash balance at the end of the year, am I correct?

[Leo Denault:]

Well, I guess, what I would say Ashar is that we have the capability to execute on, or we wouldn't propose that we could.

[Ashar Khan:]

Okay.

[Leo Denault:]

I think the consolidated balance sheet has $1.2 billion of the cash and cash equivalents at the end of the year.

[Ashar Khan:]

At the end of the year, okay. That's what I... okay. I appreciate it. Thank you.

[Leo Denault:]

You're welcome.

[J. Wayne Leonard:]

Thank you.

[Operator:]

And we have time for one more question. We'll go to Michael Lapides with Goldman Sachs.

[Michael Lapides:]

Yes. Quick question on the Texas rate case, can you provide the milestones in terms of things like staff testimony, and what you see is the key risk in a Texas rate case?

[Richard Smith:]

Right now we are in the discovery phase, where we have receiving, since we filed in September, request for information. That will start and end here, basically with... in February, we'll get testimony from our folks and objections, and then we will reply to those, intervener testimonies are due in April. May is our rebuttal and then reply to objections in hearings, starting basically in the May timeframe with initial briefs and we will provide briefs coming in through the end of June with the decision coming in July.

[Michael Lapides:]

Okay. Thank you. And in terms of any preliminary feedback that you've gotten from staff?

[Richard Smith:]

Since we are... in the case of ex parte and not really any kind of feedback from the staff. But I would say if you look at to the decisions that have been made that Wayne referred to, is decision where the staff has come out and reviewed an objection to the JSD, where they have felt that our position was correct. If you look at the decisions that the commission has made in discussions last week, as regard to our storm, or this week with our storm costs with Umberto. And finding that I think our cost seem very, very reasonable, as a matter of fact 25% less, than what you would see for a category one storm. If you see at what the commission has done as far as hearings to the objections that wanted to push our rate recovery from this case out in excess of 180 days and brought that back to December, I think you would see that the indications, along with the fuel reconciliation, that... there is a tone, I think, a balance and a tone of looking at what the costs really are. And I think this commission appears in the past several months truly the imbalance in the decisions that we're seeing. So, I mean, I think we feel like we will get a balanced hearing as we go through these proceedings.

[Michael Lapides:]

Got it. Thank you guys.

[J. Wayne Leonard:]

Thanks Michael.

[Operator:]

At this time, I would like to turn the call back over to Michele Lopiccolo for any additional or closing remarks.

[Michele Lopiccolo:]

Thank you operator, and thanks to all for participating this morning. Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G compliance statements. Our call is recorded and can be accessed for the next seven days by dialing 719-457-0820, replay code 8984015. This concludes our call. Thank you.

[Operator:]

That does conclude today's conference. We thank you for your participation, and you may now disconnect.