Entergy Corporation
Q4 2011 Earnings Call Transcript

Published: 31 Jan 2012

[Operator:]

Good day, everyone, and welcome to the Entergy Corporation Fourth Quarter 2011 Earnings Release 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 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:]

Okay, thanks, Paula. Good morning, everyone. At our Analyst Conference last April, and since then, we have discussed the plans and strategies to positively resolve overhang issues that are negatively influencing your view of our future prospects. At EEI in November, I made a number of personal predictions on how I felt the future playing out. One was, that we would find the right partner and financial structure to allow a divestiture of our transmission business in a way that is in all stakeholders' best interest. Another was that Vermont Yankee will not be shut down. While neither of those are closed issues as of today, we are pleased with our progress. As for other viewpoints I expressed, I standby those as well. And while we don't have specific outcomes to report today, we have been equally active in making them a reality. Starting in Vermont. Consistent with our in-depth analysis on January 19, the U.S. District Court for the District of Vermont declared unconstitutional the state of Vermont's attempts to force the Vermont Yankee nuclear plant to close on March 21 of this year. The court ruled that Vermont Act 160 and a provision in Vermont Act 74 were preempted by the Federal Atomic Energy Act because they were enacted with radiological safety concerns in mind. Act 160, passed by the Vermont Legislature in 2006, required legislative approval for continued operation after March 21, 2012, before the Vermont Public Service Board to decide whether to grant a Certificate of Public Good or CPG to Vermont Yankee. The provision struck down and Act 74 had required legislative approval for storage and suspend nuclear field from operations after March 21, 2012. The court found that "There is overwhelming evidence in a legislative record that Act 160 was grounded in radiological safety concerns and the strong commitment desire to empower the legislature to act on those concerns and deciding the question of Vermont Yankee's continued operation." Similarly, the court concluded that, "Radiological safety concerns were the primary motivating force for enacting Act 74, in particular the requirement for a permanent legislative approval for Penfield storage after March 21, 2012." Furthermore, the court founded the issuance of the CPG for continued operations and not be conditioned on the below wholesale market power purchase agreement with Vermont or the Vermont Utilities, or Vermont Yankee selling power to the Vermont Utilities at rates below those available to wholesale customers in other states. Over the last few years, there has been a nearly constant Entergy bashing in Vermont. And among other things, our company's integrity and our trustworthiness. We had chosen to not engage those attacks in the media. However, Judge Murtha's meticulous 102-page order rejects the state's assertion, "Entergy comes to the court with unclean hands." By stating, "Dependents have offered no evidence Entergy acted inequitably or in bad faith. And the court holds this argument unpersuasive." The court's decision is good news, good news for our 600 employees at Vermont Yankee, the environment and the community, and also supports the proposition that the rule of law applies to everyone. The American justice system's blind in this application to see some facts beyond the surface in getting to the truth. Since the ruling was issued a little over a week ago, the #1 question being asked is, "What are the next steps?" We do not know what Vermont's next step will be. If they plan to appeal Judge Murtha's decision to the Second Circuit, Court of Appeals, they are required to file a notice with the Court by February 21. As for us, we are considering our options for recovering from the state of Vermont the costs and attorney's fees incurred in the case thus far. In addition, today, we filed a motion with the Vermont Public Service Board, asking the Board to take action in existing CPG docket without further proceedings, to grant a new CPG or amend the existing one, to permit operation of VY through March 21, 2032. As a reminder, in March 2008, we filed a request with the Board to issue a CPG for operation past March 2012. Hearings were held in the second quarter of 2009, followed with the filing of proposals for decisions and initial brief for the parties in July 2009. With the judge finding that no nuclear safety or power contract issues can be the basis for denial, we believe there is nothing standing in the way of initialing the CPG. We believe the evidence is complete and supports the decision to allow it's continued operation. The law does allow the plant to continue to operate past March of -- March 21 if the decision on a new CPG has not been made. Now there may be arguments that the issuance of the CPG is premature and so the state decides whether to appeal the decision and if so, the appeals process is exhausted. But nonetheless, the record indicates it's complete now. In other license renewal news, the Pilgrim Nuclear Station came one step closer to obtaining the 20-year extension of its operating license. On January 11, the Atomic Safety and Licensing Board or ASLB dismissed the last pending late-filed contention and formally terminated proceedings before them with the words "Denied and Terminated" in capital letters. 5 appeals of ASLB decisions including the most recent one have been filed with the commission. As we've stated, in our August 23 motion, NRC regulations allows for the staff to issue Pilgrim's license renewal with appeals pending. That motion remains pending with the NRC. However, issuance of Pilgrim's extended operating license might not occur until all appeals are resolved. As we have stated repeatedly in the past, the NRC's timely renewal doctrine allows for continued operations past June 8 if our application remains unresolved at that time. In the state of New York, preparations have began for hearings before the ASLB on Indian Point license renewal application. There are currently 14 consolidated issues admitted into preceding that will be the subject of the hearings which are expected to begin in the third quarter. On a parallel path, hearings continued from October 2011 to January of this year before Administrative Law Judges of the New York State Department of Environmental Conservation or DEC, were completed for the designated first set of issues. Issues covered in its first phase were

[Leo P. Denault:]

Thank you, Wayne, and good morning, everyone. In my remarks today, I will cover fourth quarter and full year 2011 financial results, our cash flow performance for the quarter and the full year, and a review of our 2012 earnings guidance including some comments on quarterly timing of results. In reviewing 2011 results, a few things stand out. We achieved record operational earnings per share for the seventh year in a row. And 11 out of the last 12, Utility EPS grew more than 40%. EWC's nuclear fleet achieved a 93% capacity factor including 2 scheduled refueling outages below the 30-day targets. We successfully closed on 2 plant acquisitions, the 580-megawatt Acadia plant for the Utility and the 583-megawatt Rhode Island State Energy Center, which will expand EWC's product options in New England. Utility announced an agreement to spin-off and then merge its transmission business into ITC and we will return nearly $800 million to shareholders through dividends and share repurchases. Before I talk about the full year, I'll quickly review the financial results for the quarter. Slide 2 summarizes fourth quarter 2011 as reported in operational earnings results, which were lower at Parent & Other compared to a year ago while results were higher at Utility and EWC. On Slide 3, the factors that drove the quarter-on-quarter results are outlined in more detail. Parent & Other operational results declined in the fourth quarter due primarily to higher income tax expense. Parent & Other as reported results for the quarter included a special item, the special expenses incurred in connection with the proposed spin-off and merger of Entergy's transmission business, which we announced in December. Now turning to the Utility earnings in fourth quarter. 2011 were higher than last year. The major driver was again, lower income tax expense. After excluding the effect of prior year regulatory item that was offset in other income, net revenue was not a significant driver for the quarter. Retail sales declined 1.8% however, on a weather-adjusted basis, increased by 0.6%. Weather was negative for the quarter, versus the positive weather we experienced in the fourth quarter last year. The weather-adjusted sales growth was driven by higher industrial sales, which increased 2.5% quarter-over-quarter as the positive benefits of facility expansions continue. Sales and other retail segments declined compared to fourth quarter a year ago. At EWC, operational results were higher than the fourth quarter last year. The increase was due to a lower effective income tax rate and reduction in the decommissioning liability, which also reduced decommissioning expense. Partial offsets include the absence of the gain on the sale of our interest in the Harrison County plant, which we sold on December 31, 2010, and lower net revenue. EWC's net revenue declined largely as a result of lower energy and capacity pricing for its nuclear fleet. EWC's nuclear generation was 95% hedged for the quarter and the average price for the sold portion of the portfolio was around $52 per megawatt hour. The average energy price for the -- market energy price for the quarter was $35. The effect of these lower prices was partially offset by higher nuclear volume. Billed sales for the nuclear fleet were up 7.5% with fewer planned and unplanned outage days. The fleet capacity factor was 93% for the quarter compared to 86% in the prior year. On Slide 4, we've summarized EWC's adjusted EBITDA for the quarter and full year. While we have occasionally presented EWC's adjusted EBITDA in the past, we will now provide this view as part of our quarterly discussions on EWC's results. For the quarter and full year, EWC's adjusted EBITDA was lower than the same periods a year ago. The decrease is largely attributable to the absence of the gain on the sale of Harrison County plant and lower net revenue as I just discussed. Slide 5 provides a recap of our cash flow performance for the fourth quarter. Operating cash flow in the current quarter was just under $1 billion, about $240 million higher than the same quarter last year. This change was due to lower pension funding and lower working capital requirements. Moving to full year results, Slide 6 compares 2011 as reported on operational earnings to 2010. Higher operational earnings at the Utility were partially offset by lower results at EWC and Parent & Other. On an operational basis, 2011 earnings per share ended the year at $7.62, up 7.3% over 2010. The main drivers for this increase were an income tax settlement with the IRS recorded in the third quarter of the current year, which reduced income tax expense $382 million, less $199 million regulatory charge to reflect a regulatory agreement to share a portion of the tax benefits with customers. Higher Utility net revenue after excluding the effect of the regulatory charge just mentioned, accretion associated with Entergy's share repurchase program and a reduction in the decommissioning liability at EWC, which reduced decommissioning expense. Items providing a partial offset include lower net revenue at EWC and the absence of the gain on the sale at EWC noted earlier. Slide 7 provides a recap of our cash flow performance for the full year. For the year 2011, operating cash flow was $3.1 billion, down from a record $3.9 billion in 2010. The decrease is due primarily to the absence of the receipt of roughly $700 million of proceeds associated with storm-related debt issuances for 2008 hurricanes in Louisiana and lower EWC net revenue. Slide 8 details our 2012 operational earnings guidance, which we're affirming today at $5.40, $6.20 per share. Previously issued as recorded earnings guidance of $5.40 to $6.20 per share for 2012 does not reflect any potential future expenses for the special item in connection with the proposed spin-merge of Entergy's transmission business. As reported, earnings guidance will be updated to reflect the special item as the actual costs are incurred throughout 2012. The details of our earnings guidance shown on Slide 8 should be familiar to you as most of the drivers have not changed since we initiated guidance last November. In keeping with past practice, we have however, adjusted a few line items to reflect final 2011 results including weather, the decommissioning liability adjustment noted at EWC and income tax by segment. While we do not update all line items in our guidance table, we do provide details on assumptions at the time guidance was issued, and comparable information today. While we are affirming our operational earnings guidance range, we already know of some challenges that I'd like to highlight. First, I'd like to touch on commodity prices. Since the end of the third quarter, we've seen natural gas and power prices decline roughly 20% across the curve through 2016. As you know, there's been some rebound in the last week or so. For EWC's plants, in the Northeast market, 2012 market energy prices now average in the range of $35 per megawatt hour, compared with an average unsold energy price assumption of $46, reflected in guidance. Conversely, forward markets for the New York capacity have shown signs of initial recovery from their low point last summer. Another headwind that we face for 2012 is pension expense. When we issued guidance, we assumed a pension discount rate of 5.6%. The final pension discount rate is 5.1%. This lower rate, combined with other updated assumptions, will result in higher pension expense. We estimate the earnings impact will be in the range of $0.24 per share below the guidance midpoint assumption. Some offsets include lower interest costs, lower depreciation and the capacity prices that I mentioned earlier. With that in mind, earnings estimates currently point to the bottom of the range. That said, it is still early. We need to focus on things we can control such as spending levels and operations. We will continue to work towards offsetting these challenges and keep you updated on our progress. One last point on 2012, as it relates to quarterly results. While we do not provide quarterly guidance, Slide 9 outlines some key events to keep in mind in considering the quarters. 2011 earnings were heavily weighted in the third quarter due to the IRS settlement and associated regulatory reserve. 2011 EPS includes the $0.52 of weather primarily in the second and third quarters. Utility net revenue can be affected by seasonality, as well as the timing of regulatory rate actions such as the Entergy Texas rate action, which we are assuming effective around midyear. We're also assuming Hinds and Hot Spring acquisitions, and the Grand Gulf upgrade to be placed in service around mid-2012. At EWC, the fourth quarter of 2011 included an adjustment to the decommissioning liability, which reduced decommissioning expense $0.12. While there is ongoing impact to this adjustment, it is not significant. Quarter-over-quarter, non-fuel O&M variances are reflected by both the timing of spending and the occurrence or absence of specific events. Finally, tax items are lumpy by nature. Significant tax benefits in 2011 realized in the second and third quarters. In closing, I'd like to recap some accomplishments from this past year that position us well for the future. We completed the RISEC acquisition which adds a new flexible plant to the New England market. EWC also added nuclear hedges last year particularly for 2013 delivery where the energy sold forward position more than doubled to 81%. This provides additional certainty on future revenue streams, not only increasing the volume hedged but also prudently utilizing firm product structures to address the challenging commodity market and unique portfolio positions, such a pending license renewals. Looking ahead to 2012, EWC will continue our focus in key areas of the merchant generation business, including license renewal for our nuclear plants, our analytical and market-facing capabilities and positioning EWC to capture the long-term potential upside from key rate expansion. At the Utility in 2011, we continue to build on the Utility's progress, get the operating companies the opportunity to earn their allowed return on equity and the growth story for the Utility based on productive investments and flexible regulatory mechanisms remains intact. As we plan our strategies and initiatives for the future, we continue to take the steps necessary to name financial flexibility as reflected in solid credit metrics and strong liquidity. As an example, the ITC spin-merge transaction will increase flexibility of the Utility's investment alternatives and protect credit quality of Entergy and its operating companies. I can assure you, the management team is focused every day on accomplishing the goals that Wayne laid out for you earlier this morning towards the overarching financial goal of creating and delivering sustainable long-term value to all of our stakeholders. And now, the Entergy team is available for your questions.

[Operator:]

[Operator Instructions]. And we'll take our first question from Jonathan Arnold with Deutsche Bank.

[Jonathan P. Arnold:]

My first question is on some of the tax items. I'm -- just reading the footnotes to the variance table, you talk about the consolidated adjustments which net to 0 and also the shift of the nuclear power marketing, but within Utility you also highlighted favorable income tax adjustments and then at Parent, unfavorable income tax reserve adjustments. Any chance you could quantify those or give us a sense of whether they netted out? And what was sort of a net impact of tax adjustments in the quarter?

[Leo P. Denault:]

Well, the net impact wasn't that significant. You've got the consolidated tax savings. Those adjustments are all net to 0 just shifting between Utility, EWC, Parent & Other. And the impact of all the other adjustments was pretty close to 0 as well. So the overall effective tax rate, if you look at that, is 36%.

[Jonathan P. Arnold:]

So the net is just noise within the segments that you're referencing after?

[Leo P. Denault:]

Correct. Correct.

[Jonathan P. Arnold:]

Okay, and on year-to-date basis, is there a similar number you could give us?

[Leo P. Denault:]

Well, on the year-to-date basis, the big issue that we have is the IRS tax settlement, which effectively turns a temporary difference to a permanent difference. And that was the big third quarter adjustment that we have. Other than that, we make all of those consolidated tax adjustments in the fourth quarter, so those are all embedded in the year as well. But the big item for taxes for the year was the IRS settlement. That's the $382 million that I mentioned. But in the third quarter -- but then you also have the offset because of the regulatory sharing agreement of $199 million in the same quarter, which impacted the Utility segment's revenue.

[Jonathan P. Arnold:]

Thanks, Leo. And then, if I may on another topic, Wayne, I think you mentioned the sort of thought that the Vermont PSB would reopen the existing proceeding they have on the Certificate of Public Good. Is it possible that they could start a new proceeding altogether? And what are your thoughts on the sort of those 2 different routes?

[J. Wayne Leonard:]

Well we've had a lot of discussion among ourselves about what we think what they may or may not do. And if there's 4 of us in the discussions, there's 4 different opinions on what they may or may not do. So the -- I'm not going to speculate about that. We expect that they will follow the law. We expect that they will follow the record at some point in time in this case. I expect that there will be pressure to let the appeal... get the appeal, exhaust before they make that decision, but we're just going to have to wait and see, first of all, whether the state decides to appeal.

[Operator:]

And we'll go next to Steve Fleishman with Bank of America Merrill Lynch.

[Steven I. Fleishman:]

First, Bob and Gary, best of luck just in case I don't get to see you. And on the questions, the -- Leo, on the pension increase that you're projecting now for 2012, the additional $0.24, is there a way to break that out between the effect to the Utilities versus the effect to the other -- the unregulated businesses?

[Leo P. Denault:]

Yes, there is. It's about -- in general, our pension, our liabilities are about 75% of the Utility and 25% is the EWC portion of that. So in all of those things, when you're looking, whether it's a cash flow statement or whatever, that's the general rule of thumb.

[Steven I. Fleishman:]

Okay, and does it -- obviously, that may mean that you under-earn a little more in 2012, so does this potentially change any thoughts on timing of rate cases?

[Leo P. Denault:]

Well, what -- the way pension -- net pension expense runs through the regulatory mechanisms, such that it's a cost to service. So what we'll see is anything that has a test year, for example of 2012, will include the pension expense that we recorded in 2012.

[Steven I. Fleishman:]

Right. So just get through without in the formula rates potentially? Their process...

[Leo P. Denault:]

Either the formula rates were in the 60% or so of the business, where we have those or in rate cases when they -- whenever those are a test year.

[Steven I. Fleishman:]

Okay, and then I guess my last question is just on the ITC transaction. I know you're still in the -- I think as you called the vetting process, but on the regulatory side, do you have -- would it be fair to say, to expect filings in the second quarter on the transaction with the states or too hard to pin down still?

[J. Wayne Leonard:]

Steve, it's Wayne. The -- we wouldn't want to discount that or commit to it. We have another round coming up, a visit with regulators, and it actually starts next week, and have better insight into where we stand at that point in time, so ask me that at our next conference.

[Operator:]

We'll go next to Paul Fremont with Jefferies.

[Paul B. Fremont:]

Leo, I thought I heard you earlier say that nuclear decommissioning impact on the fourth quarter would essentially not affect 2012. What was -- what did you reflect in the fourth quarter and why doesn't it have an impact on '12 earnings?

[Leo P. Denault:]

It's basically a reset of the liability based on a commitment we made to the state when we acquired the plant that we would review the cost of decommissioning at this time. So it's a commitment we made to the state of Vermont that we would reestimate what that liability is, and so we're actually just making a change in the liability going forward, based on changing assumptions mostly around interest rates, escalation rates, et cetera. And so that reset of the liability runs through the income statement in the period which you do it. Going forward, because the liability is lower, there is an impact between now and the end of the plant's life. But it's not a big number like this one, it's as much smaller number. So it's not really the kind of thing that you're going to notice one way or the other going forward.

[Paul B. Fremont:]

And going back to the back to taxes, if I look at the effective tax rate in the fourth quarter of 2010, it looks like to be in the 26% range versus the 37% range this quarter. What were the drivers behind the change in effective tax rate quarter-over-quarter?

[Leo P. Denault:]

We had some -- I'll try not to use the buzzword for it, but basically when we finished up the 2009 tax return in 2010, there are some adjustments made to what we actually filed versus what we would have estimated at that time, and that those are made in the fourth quarter. That happens every year. It just happened to be a little bit more significant last year at the Utility.

[Paul B. Fremont:]

Okay, and last for me is, can you update us at all on, I guess, you had filed several years ago for a large nuclear decommissioning loss, which gave rise to tax benefits. Can you just update us on where you stand in that process and has the IRS issued any type of ruling on the position that you took?

[J. Wayne Leonard:]

Are you talking about -- when you say filed for loss? Are you talking about the tax deduction we took?

[Paul B. Fremont:]

Right. Okay.

[J. Wayne Leonard:]

No, that's going to be a long time before that gets resolved most likely. We had the -- if you're talking about the deduction that we took, actually I think on the 2009 return associated with the decommissioning liability at the Northeast plants, that -- by the time that comes up to audit cycle, by the time we get through review and wherever that's going to go, it'll be quite a while before we have resolution unless something comes up to settle it sooner.

[Paul B. Fremont:]

And we should assume that you're not taking or that you haven't taken any of those NOLs as a credit towards earnings? Or is that not the case?

[J. Wayne Leonard:]

Well, to the extent that we had resolution, for example, in the recent tax settlement, those things -- the recent IRS settlement is kind of an outgrowth of all of that. There was a combination of benefit from the tax positions that we took plus we utilized about $2.5 billion of the NOL at that point in time. So those do get taken care of as we run through resolution of those issues to the extent that there is a reserve against those.

[Operator:]

And we'll go next to Daniel Eggers with Crédit Suisse.

[Dan Eggers:]

Just looking at some of your long-term planning assumptions that you provided in the fall, I guess, my first question is the $4 billion to $5 billion you thought you could return to shareholders in a lower commodity-priced environment, how is that number being affected? Are you guys still seeing yourselves within that band? And what kind of credit metrics we'll be watching to understand where you could fall out against that number?

[J. Wayne Leonard:]

We would still see ourselves in that band at the amount of repurchases we've done since then, plus the current dividend. We're already at the bottom end of that. Commodity price movements, the acquisition of RISEC, things like that impact the distributable cash flows and how those will work. And recall that from a buy back point of view, we're really focused -- the buybacks come from either the EWC business, the commodity-market based business or unique events like asset sales or things like that. So we still see ourselves in that range but arguably with today's commodity prices that puts us down in a range rather than up.

[Dan Eggers:]

And Leo, what kind of metrics should we be looking at most specifically as far as coverage ratios and that sort of thing to kind of calibrate where the balance sheet should be?

[Leo P. Denault:]

In terms of which ones? I'm sorry, you were a little bit...

[Dan Eggers:]

Yes, I guess, add flow[indiscernible] interest, what kind of cover around metrics are you guys focused on?

[Leo P. Denault:]

Well, we don't really disclose targets of where we're trying to go with those. Our metrics have traditionally been very strong within our ratings category. Our debt-to-capital ratio usually hovers around that 55%, debt-to-cap on a gross basis. We focus mostly on maintaining a significant amount of liquidity to manage the business, both the needs of the Utility but also obviously within UDPWC. But typically, we strive for and we accomplish cash flow metrics that are reasonably strong within the ratings category we are to. But we don't give out specific targets or anything like that.

[Dan Eggers:]

Okay, and I think just one last question. I know there's a lot of work that you've done on the ITC transaction but when you look at that 6% to 8% compound earnings growth, do you guys feel comfortable at those numbers even if just on the traditional distribution business? Is it traditionally Utility businesses x Transco if you'll look out between now and '14?

[Leo P. Denault:]

Well, the 6% to 8% objective included the transmission business. We haven't done anything as Wayne said, to reset what would look like once we accomplish the spin and those are obviously, they went through 2014 anyway. So we really haven't -- we don't really have an update on those. We'll look at those as we go forward. Certainly the transmission business is a -- has a lot of capital associated with it, but so does generation. The biggest CapEx to depreciation spread is in transmission but the biggest numbers are in generation.

[Operator:]

And we'll take our next question from Julien Dumoulin-Smith with UBS.

[Julien Dumoulin-Smith:]

So I wanted to first address Arkansas as we are looking towards the MISO and ITC transaction and transition respectively. Specifically, as far as contingencies go, I mean I know we're still a little bit ways away from end of 2013, but I just wanted to hear a little bit about -- could Arkansas go independent for a little bit just to -- how much of a hard deadline is the end of 2013 vis-a-vis Arkansas and getting this all done?

[Gary J. Taylor:]

This is Gary and I'll start with the end part. December 2013 is a firm and fixed date. They -- we have the System Agreement in that date and we've got to be prepared for them to have an option. Until that point, we really have been proceeding with really 3 options. One is basically the RTO with it going to MISO, and then there's a little one that would probably most likely, if we were not to get there, is we got also the -- it's a stand-alone option. That's obviously not the one that's in the best interest of our customers and the one that would be more costly. But we've been proceeding with all of those options kind of simultaneously. As soon as we can get an answer from the commission, hopefully here in June, then we would basically terminate those others.

[Julien Dumoulin-Smith:]

At what point do you need to make a formal notification? Let's say end of this year, it doesn't look like you've gotten -- have a determination in hand or what have you, do need to make a decision with respect to investments to get yourself ready to transition to an independent system for whatever period of time?

[Gary J. Taylor:]

We are actually making those investments consistently at the same time right now. So the reality is we're spending money for both options and the sooner we can get one, we would actually terminate one. But we're were assuming that we could go through the end of this year holding both those options open until the commission makes a decision. And we need to file with FERC in 2013 for our intention of where we plan to go. We have [indiscernible].

[Julien Dumoulin-Smith:]

All right. Great. Did I cut you off there?

[Gary J. Taylor:]

No, that was fine.

[Julien Dumoulin-Smith:]

All right. And then finally, just a follow-up on the EWC side. In terms of the recent scrutiny at the Palisades, just kind of commenting around how you guys intend to change operationally your operation of that unit?

[J. Wayne Leonard:]

I'll give it to John here, and our Chief Nuclear Officer. John?

[John T. Herron:]

Julien, this is John. A couple of things first, while we're certainly disappointed with some of the performance issues that we've had at Palisades. I can assure you that not only the leadership team at the site along with our corporate leadership has put a lot of attention on this facility to make sure that we turn the tides here. We've had multiple meetings with the NRC, assuring them not only what the cause of some of these issues were but what corrective actions we've taken in making sure that the entire organization at Palisades is engaged with making sure that we don't continue to make some of these same performance errors. But we've definitely had significant oversight and making sure that the leadership team there is very focused on turning around this performance at that facility.

[Julien Dumoulin-Smith:]

Just as a follow-up, is there a key review date that we should be looking forward to there, sort of a key decision move forward date for NRC in terms of kind of unflagging the unit or anything like that?

[John T. Herron:]

We're still working with the Nuclear Regulatory Commission on 2 issues and we haven't got their final review on that. Typically, when you have something like this, you'll have a root cause -- you'll have the corrective actions and then typically, about a year, when you're able to sit down with the regulatory body and then go through -- making sure the corrective actions that you've taken have resolved the issue and that you're assured yourself that these types of issues won't continue. So it's early to say right now what the final date's going to be but it typically runs about a year from the time you get the final report from the regulatory body.

[Operator:]

And we'll go next to Paul Patterson with Glenrock Associates.

[Paul Patterson:]

Just to follow-up on Paul Fremont's question on Vermont Yankee. It sounded like there was sort of just generic things like interest rates and what have you that changed the impact of the decommissioning liability. And I'm wondering is there any possibility that could happen at other plants?

[J. Wayne Leonard:]

It has happened. And we've done some of these in the past but there's no schedule for some of those plants at the moment. This was something that we did as a result of our agreement with Vermont when we acquired the plant. So typically, there's -- if there's some rationale for doing that, you'll go through that process. But right now there really wouldn't be for the other plants.

[Paul Patterson:]

Okay, so there's nothing really on the horizon that could happen in that area?

[J. Wayne Leonard:]

Not at the moment.

[Paul Patterson:]

Okay, and then just with respect to the ITC transmission. I'm sorry if I missed this, but any sort of follow-up with respect to discussions with Utility regulators in terms of their -- by that I mean sort of the local state regulatory folks, how they're looking at this and how they -- did their discussions there, how they're responding?

[J. Wayne Leonard:]

Well yes, I'd mentioned that we planned on at least 2 rounds with our regulators before we make our filing to make sure that we're addressing all the issues that are on their mind. We've had the first round. Rob and I are doing this personally. The second-round starts next week. But the main issues, as you are aware, we haven't really heard any immediate reaction from our regulators publicly. They've reserved judgment until they see the filing. Obviously they've heard over the last 2 years from a number of parties that in technical conferences that they believe independence is paramount to our system particularly given the magnitude of the merchant generators. They've heard that over and over and over again. So I think the details of how we would plan on proceeding with this, what impact it may have on customer rates, what impact it has on their own authority and ability to influence the construction plan, things of that nature, they're going to want straight answers to those questions. And we think we've got good answers for those questions. We wouldn't have done the deal. But we'll, like I told Steve, I think the Steve Fleishman earlier, I'll reserve judgment on that until this next round, and see if that after they've thought about it, new issues arise. I don't expect new issues to arise. But again, the good news is that they have not come out with a premature opinion of the transaction. They're waiting to see exactly what we filed and that's what the regulators should do.

[Paul Patterson:]

Okay, so it's pretty much sort of what you're kind of -- within the range of what you had expected in terms of reaction, is that a good way to characterize it?

[Leo P. Denault:]

I think it's -- I think, yes, yes, I think it's in, like I said, it's in the range of what good regulators should do and all the times across the country, you've seen regulators react before the filings and we haven't seen that with our regulators and we appreciate that.

[Operator:]

And we'll take our last question from Greg Gordon with ISI Group.

[Greg Gordon:]

I just wanted to make sure I was clear on the -- your comments relative to the earnings guidance range, guys. So does the -- you said you would expect to be at the lower end of guidance. Does that include the assumption that you've completed the sort of amount of the buyback that's already been completed, but exclude any future buyback or does it exclude that totally?

[Leo P. Denault:]

Well, the guidance range that we provided, Greg, excluded any repurchases similar to the guidance range that we gave last year. So within that same set of assumptions, which includes no buybacks, we would point towards the bottom of the range.

[Greg Gordon:]

Okay, but you've already executed a small portion of it?

[Leo P. Denault:]

We executed some buyback last year.

[Greg Gordon:]

Okay, and should we presume that given how soft the commodity environment is, and that sort of -- obviously, the impact that would have on cash flow that you would be less anxious to complete the buyback in the next 12 to 18 months? Or is your decision on when to complete the shareholder value return program, sort of independent of what's going on in that space?

[Leo P. Denault:]

The commodity prices are a factor as they relate to free cash flow. And so that's a factor that's considered. There's -- I wouldn't want to imply that we are preprogrammed to take an action on that regardless of what's going on there. So to the extent, obviously, the cash flow's better, that gives us more flexibility to the extent that it's a little bit tighter because of where the commodity prices are and then that's going to give us pause. Because it impacts not only our cash flow and our liquidity, but certainly we've always got to keep an eye on credit metrics and all of that. So it's certainly a major factor in the buyback, particularly given the fact that the buyback is really geared towards distribution of capital that comes out of the commodity-based businesses at EWC.

[Operator:]

And that concludes our question-and-answer session. I'd like to turn the conference back over to Ms. Waters for closing remarks.

[Paula Waters:]

Lynn, 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 was recorded and can be accessed for the next 7 days by dialing [phone], replay code 6779942. This concludes our call. Thank you.

[Operator:]

Thank you, everyone. That does conclude today's conference. We thank you for your participation.