Download the 2009 Annual Report
Download the 2009 Annual Report
Entergy Letter to Our Stakeholders

Entergy Corporation Letter to Stakeholders

Letter to Our Stakeholders


ast month in my letter to stakeholders, I explained our decision to take a staged approach in presenting 2009 financial results and strategies rather than speculate on the outcome of the proposed spin-off of the non-utility nuclear assets into a separate company and what comes next “if.” I committed to follow up with a supplemental report including information you are accustomed to receiving.

As it turned out, the proposed spin-off was not “in the cards.” On March 25, the New York State Public Service Commission voted unanimously to reject the spin-off, presumably on the basis that it was not in the public interest of New York. As this goes to print, the commission has not issued an order in the case. The week after the New York ruling, Entergy’s Board of Directors conducted its annual offsite review and assessment of the state of the company and its strategy going forward. The Board devoted considerable time to the issue of our offspring (Enexus) moving back home and to the finances of the company with the family back together. While we have preserved our legal rights as we wait for a commission order, we have already begun the process of unwinding the business infrastructure associated with the proposed separate non-utility nuclear generation company to have been named Enexus Energy Corporation and the proposed joint venture to have been named EquaGen LLC.

Given the amount of time we devoted to the spin-off of our non-utility nuclear plants, to many of you, it may have seemed like our future hinged on that single transaction. But as you well know, while you won’t have two pieces of paper representing your ownership interest, you do still own a lot of iron and steel that supplies roughly 5,000 megawatts of clean, reliable capacity in excellent markets. The New York State Public Service Commission’s ruling hasn’t changed that. Further, the structural limitations that led us to pursue the spin-off strategy two years ago haven’t changed either. And while we believed a spin-off of our non-utility nuclear assets was the most efficient and effective opportunity to address these, we remain confident there are various ways to successfully play this hand. With one more card showing, we can refine our financial strategy and move forward to achieve our objective of returning the appropriate level of cash to our shareholders in the most efficient manner. At the same time, we can adjust our business plans as we continue to pursue capturing the practically realizable value of these assets. Clearly, shareholders who anted up the capital to acquire these assets, when few wanted to take the risk or lacked the ability to operate these plants safely, securely and reliably, deserve more than we have delivered so far. Operationally, the results have far exceeded expectations. Financially, the business has trapped cash or liquidity that needs to be released for more efficient purposes.{ continued | 1 of 12 }


Entergy Corporation Letter to Stakeholders

After reviewing the realities of today and the prospects for the future, the Board moved to financially recognize our shareholders who have experienced this protracted period of uncertainty. Specifically, the Board took action to declare a quarterly dividend increase in April, producing an annualized rate of $3.32 per share. This is the first increase in Entergy’s common stock dividend since July 2007. In addition, the Board reaffirmed our intent to execute the $750 million share repurchase program they had authorized in fourth quarter 2009. We continue to see attractive capital investment opportunities, which we aspire to fund without issuing traditional common equity. Absent attractive investment opportunities, capital returns through dividends and share repurchases could total as much as $5 billion over the next five years under the current long-term business outlook.

Lucky or Good?
Outstanding Service to Our Stakeholders

A year of good or bad performance, or maybe two, can happen by chance or sometimes simply due to the “exuberance of markets” or the overhang of uncertainty. Be in the right place at the right time and you may get lucky (or not). But continuous periods of strong performance take planning, resourcefulness and outstanding execution. Chance has little to do with it. It’s like predicting the climate versus the weather. We can be wildly off on tomorrow’s weather forecast, but still predict the future climate with incredible accuracy. That sounds counterintuitive but, among other things, it falls under the law of big numbers. The chaotic aberrations smooth out when measured over a long time period. In our business, where the standard is perfection – no accidents, instantaneous service, no outages – performance is measured by: what have you done for me lately. For 11 years, we’ve been able to say: more than we did yesterday.

Delivering 11 years of affordable utility rates and constantly improving metrics in service reliability and customer satisfaction – last year, we achieved improved metrics in these categories – that’s not by chance. Achieving operational excellence in our nuclear fleet – we generated the highest ever output across the entire fleet in 2009 – that’s not by chance. Achieving the safest year in our company’s history in an ongoing effort to create an accident-free work environment – that’s not by chance. Being listed on the Dow Jones Sustainability World Index for eight consecutive years and being one of only two U.S. utilities listed this year – none of this happens by chance.

I’m proud of the operational and financial success we’ve achieved over the past 11 years and the way we achieved it – with social conscience, hard work and transparency in everything we do, and by managing our business and financial risks to appropriate levels. { continued | 2 of 12 }

Entergy Corporation Letter to Stakeholders

Achieving Record Earnings in 2009, But…

Even with multiple external challenges and the protracted uncertainty related to the spin-off transaction, we delivered record-setting financial performance in 2009. We reported the highest earnings in Entergy’s history on both a dollar and per share basis. In 2009, our as-reported earnings were $6.30 per share. In sharp contrast, the dismal return to our shareholders, at 2.4 percent total shareholder return for 2009, was so far below our expectations that I can’t begin to put it in words. We ranked in the bottom quartile of our peer group. This disappointing result, while somewhat influenced by the overhang of uncertainty regarding the spin-off, is simply not acceptable.

While the rejection of the spin-off by New York wasn’t the answer we wanted, it removed the overhang of uncertainty that the market abhors. The market tends to discount what it doesn’t know. What started as a simple transaction afforded lightened regulation under New York law became more complicated and higher profile as time passed. While in the end the spin-off was not successful, we still believe the business case was sound and that we met the standards for approval. It was a solid “bet” that just didn’t pay off. There is a lot we would do differently if we had it to do over, although I honestly can’t say at this point the outcome would be any different. The Board received numerous updates on the spin-off over the last two years. We, in management, continued to express optimism on the approval. In the end, that optimism was misplaced. We conducted a full review on what went wrong, lessons learned and where we go next.

Our Board is fully engaged in our strategies and aspirations. The Board sets the tone for our company and maintains a clear direction on doing what’s right, even if it means sacrificing short-term results. They have driven management to continually improve in everything we do. That desire goes for the Board as well. In 2009, we made an already outstanding Board even better with the election of Dr. Stewart Myers, a renowned expert in the field of finance. His ability, experience and reputation will be invaluable in providing guidance and oversight in a period of growing investment and more complicated financial alternatives and structures. Our employees – more than 15,000 people working in nine states – know our business and execute our strategies with confidence down to the smallest detail. From the most senior director on our Board to the newest lineman in our organization, we work together, determined to deliver value to our stakeholders. The Entergy that brought you those results is the same Entergy working on your behalf today. { continued | 3 of 12 }

Entergy Corporation Letter to Stakeholders

We believe the strategies we’ve undertaken will drive long-term success and sustainability, and ultimately will enable Entergy to once again achieve top-quartile shareholder returns consistent with our long track record of success. But talk is cheap. The past operating results have been excellent, and the market has rewarded that. Today, the market isn’t fully accepting or expecting that in these tough times we can deliver the same kind of performance for the foreseeable future. Admittedly, there are risks, but we faced similar adversities before and we are more determined than ever to deliver on our aspirations.

Entergy Utilities:
Pursuing Productive Investment Opportunities

We know our utilities provide what really matters – an essential service for our customers. For 11 years, Entergy’s utility operating companies have worked to safely deliver reliable service at affordable rates. At times we have found ourselves in the middle of philosophical or financial tensions among our states or with federal regulators, but tried to operate simply by doing the right thing; using common sense to guide our policies. Just this month, we made the decision that none of our utility operating companies will voluntarily sign on to successor arrangements over the objection of their retail regulator. This decision does not affect the 96-month notice requirements of the System Agreement. With the Federal Energy Regulatory Commission’s decision to allow the utility operating companies to exit from the System Agreement without payments or continuing obligations, the world has changed.

With unrelenting attention to service and aligned interests, we believe the utility business is capable of delivering 5 to 6 percent compound average annual net income growth for the 2010 to 2014 period off of the 2009 base year. Key drivers of this projected earnings growth include assumptions of increasing load demand, potential investment opportunities and constructive regulatory outcomes.

Increasing Load Demand

A gradually improving economic outlook in our service territory throughout 2009 ended with fourth-quarter residential utility sales growth, considering weather and the 2008 hurricanes, in positive territory at 4.6 percent versus 2008. We expect to see strong demand growth in 2010 as the economic recovery takes hold and industries within our service territories expand. Over the long term, we expect baseload demand to return to its normalized levels of growth between 1 to 2 percent per year. { continued | 4 of 12 }


Entergy Corporation Letter to Stakeholders

Potential Investment Opportunities

Our portfolio transformation strategy will allow us to provide reliable, affordable service to our customers, while at the same time providing attractive returns for our shareholders. By continually analyzing build or buy opportunities in our service territories, we can meet our long-term generation capacity shortfall with modern, efficient, lower-cost assets. For example, we executed an agreement to acquire Unit 2 of the Acadia Energy Center – a 580-megawatt modern, highly efficient, load-following generation resource. The facility’s location in southern Louisiana offers substantial reliability and fuel-savings benefits for our system and our customers. Buying the already completed plant removed construction risk, financing risk, regulatory lag, and we paid substantially less than replacement cost for the plant.

Constructive Regulatory Outcomes

Under the law, constructive regulatory decisions require that Entergy’s utility operating companies be given the opportunity to obtain allowed returns on equity comparable to alternative investments of similar risk. Equally important is the ability to actually earn those returns, all the while maintaining a solid investment-grade credit rating and rates that are just and reasonable for our customers – many of whom live below the poverty level. While we believe that authorized returns have been on the low end of the industry, a bigger issue has been actually earning those authorized returns. Our record of effectiveness and efficiency (e.g., storm restoration) has been exemplary, but we have just not solved the problem of earning the allowed returns on a consistent basis.

This year, our utility operating companies in Arkansas, Louisiana, Mississippi and Texas took actions to enhance their opportunity to earn adequate return levels while also reducing regulatory lag.

Highlights include:

Entergy Arkansas filed a rate case outlining the structural problems with earning its allowed ROE and requested a formula rate plan that provides a legitimate opportunity to earn the return necessary to attract capital on reasonable terms.

Entergy Texas filed a rate case with positions similar to those of Entergy Arkansas and sought a competitive ROE and a cost-of-service adjustment rider, like the other utility operating companies’ formula rate plans. { continued | 5 of 12 }

Entergy Corporation Letter to Stakeholders

Entergy Mississippi obtained modifications to its formula rate plan that more closely align its earning opportunities with other Mississippi

utilities that have consistently earned better than we have.

Entergy New Orleans entered into a definitive settlement agreement for its post-Katrina rate case, implementing a new formula rate plan with an opportunity to reset its rates to earn its midpoint ROE if the company earns outside of its allowed ROE bandwidth for the 2009 through 2011 test years.

Entergy Louisiana and Entergy Gulf States Louisiana agreed to extend their formula rate plans for the 2008 through 2010 test years. This agreement supports both companies’ efforts to earn their ROEs through the one-time rate reset to their midpoint ROEs for the 2008 test year.

At the utility, the ability to actually earn midpoint or allowed returns across all jurisdictions may be the most significant thing we need to do to enhance the utility operating companies’ future prospects. Implementing formula rate plans is not only consistent with the shareholders’ decision to invest in this company and stay invested, but also provides a streamlined, efficient mechanism for all stakeholders that promotes stability, predictability, and allows us to attract the additional capital required to meet our service needs at reasonable rates even in adverse markets.

Our utility operating companies are also engaged in ongoing transmission discussions with FERC and state and local regulators. The potential amendment of certain reliability planning standards, the November 2010 expiration for Entergy’s current Independent Coordinator of Transmission arrangement, and the potential infrastructure requirements of a renewable energy build-out all present issues and opportunities related to the future direction of our transmission operations.

We are encouraged by the action taken by our retail regulators to form the Entergy Regional State Committee to jointly consider transmission issues. We plan to actively support and work closely with the E-RSC to determine the appropriate path forward regarding the structure, operating approach and direction for our utility operating companies’ transmission business.
{ continued | 6 of 12 }


Entergy Corporation Letter to Stakeholders

The two primary alternatives under consideration are adoption of certain modifications to the current ICT arrangement or transition to membership in the Southwest Power Pool Regional Transmission Organization. A cost-benefit analysis jointly sponsored by FERC and E-RSC is under way comparing SPP RTO membership to the current ICT structure. Simultaneously, the E-RSC is considering potential modifications to the ICT arrangement.

Given the number of issues under consideration and the work involved, we anticipate an extension of the ICT arrangement, with modifications, for some period will be required under either alternative. Should the SPP RTO ultimately be deemed the preferred alternative, SPP has indicated implementation may take 12 to 18 months after that decision is made. Meanwhile, we are analyzing related strategy alternatives that would best align with the respective structure accountabilities and risks. Given that the transmission direction has been evolving since 1996, this initiative will likely take some time to complete. One thing is clear. We need to provide independence and transparency in how transmission capacity is determined, allocated and priced.

Entergy Nuclear: Moving Forward

Going forward, we see significant potential opportunities for the non-utility nuclear business over the long term above today’s bearish outlook in the markets. We believe the business will benefit from a supply/demand imbalance as demand for electricity grows with an improving economy and constraints limit expansion of the electric infrastructure in the northeastern United States. Increasing likelihood of more stringent environmental laws and regulation at the federal and state levels also favors clean baseload generation. We are committed to maintaining flexibility to act on these options when the time is right.

However, the bedrock foundation for this business is the superior operational track record we’ve delivered since we acquired these nuclear plants. Once again, our non-utility nuclear team delivered strong results in 2009, achieving a capability factor of 93 percent, with a near perfect run during the second half of the year. For the full year, the non-utility nuclear fleet achieved its second highest generation output.

Also in early 2010, we were pleased to report that Nebraska Public Power District agreed to extend its nuclear services agreement for Cooper Nuclear Station with Entergy Nuclear for an additional 15 years. The decision to extend was based on the significant improvements in regulatory and operational performance realized since the beginning of the agreement in 2003 when Entergy took over operations. The support services agreement is a model for the industry, demonstrating that fleet leverage can add value and assist single-unit or single-site operators.
{ continued | 7 of 12 }


Entergy Corporation Letter to Stakeholders

Recent developments in Vermont have been frustrating for everyone at Entergy and our missteps are simply not consistent with how we do business. In January 2010, tritium was found in a groundwater monitoring well on the Vermont Yankee Nuclear Power Station site. In March, the source of the tritium leak was identified, the leak was stopped and initial remediation work began. With more than 25 percent of the nuclear plants in the country having had some tritium issue, we announced our intention to become an industry leader in tritium leak prevention, detection and mitigation. We launched a fleet-wide initiative that emphasizes prevention or early detection as opposed to drilling test wells to check for signs of a leak after the fact, which is the current industry standard.

We are also working to regain the trust of the citizens of Vermont and committed to invest the time and effort it will take to do so. We lost the trust and confidence of stakeholders when we provided conflicting information to Vermont officials regarding the existence and extent of underground pipes carrying radionuclides at Vermont Yankee. We immediately engaged independent outside counsel to review all aspects of our communications to resolve inconsistencies, find any and all discrepancies or less than clear information and correct the record. The review did not find that any Entergy employee intentionally misled the Vermont Public Service Board or any other regulatory body. However, the review did find communications that were incomplete or inaccurate absent the full context in which questions were asked and answered. Entergy takes full responsibility for not making the record clear and, as a result of the findings, we went to great effort to clarify the record and establish new management with clear direction on the need for complete transparency in everything we say or do.

We have made the independent report available to the Vermont Public Service Board and are cooperating fully with the Vermont attorney general’s investigation into this matter. We value the trust and confidence that our regulators, customers and communities place in us, and we are determined to restore that trust and confidence in Vermont in the months to come.

In 2009, we continued to pursue license renewals for Vermont Yankee, Pilgrim Nuclear Power Station and Indian Point Energy Center Units 2 and 3. We follow an extensive, rigorous and structured license renewal process to demonstrate to the Nuclear Regulatory Commission and state and local regulators that the units can operate safely and efficiently and meet environmental standards for another 20 years. Using this process, license renewals have been secured for Palisades Power Plant and James A. FitzPatrick Nuclear Power Plant.
{ continued | 8 of 12 }

Entergy Corporation Letter to Stakeholders

For Pilgrim and Vermont Yankee, the NRC is reviewing one remaining appeal for license renewal, and in one instance the NRC remanded for hearing an Atomic Safety and Licensing Board decision at Pilgrim. Resolution of the Vermont issues previously discussed is necessary before the state can resume efforts associated with license renewal approvals. Under Vermont law, a Certificate of Public Good is required for continued operation, with an affirmative vote necessary in the Vermont legislature, followed by affirmative action from the Vermont Public Service Board. A decision is required as early as second quarter 2011 when substantial commitments need to be made. License renewal efforts also continue for Indian Point. We continue to work with the NRC and state regulators, including the New York State Department of Environmental Conservation, to secure all necessary permits and approvals.

We strongly believe that the clean, affordable power provided by Vermont Yankee, Pilgrim and Indian Point is vital to the businesses and citizens of Vermont, Massachusetts and New York. The plants are operated safely, reliably and securely. And we will continue to do so while protecting the air and water quality, and the reliability of the electric grid. Ultimately, I believe obtaining license renewals supports the public interest in Vermont, Massachusetts and New York.

Climate Change: Leading by Example

For nearly 10 years, Entergy has been at the forefront of the climate change debate. And that most certainly is not by chance. Our Board was reviewing the risk and potential impact of our own and others’ CO2 emissions on the environment as far back as 2000, but as I previously said, “talk is cheap” (and plentiful these days). By contrast, in 2001 the Board had approved our first voluntary commitment to stabilize our greenhouse gas emissions at year 2000 levels for 2001 to 2005. In 2002, our Board adopted our Environmental Vision Statement, which details our commitment to operate our business in ways that preserve and protect our environment.

Since then, we successfully completed our first voluntary CO2 stabilization commitment and made a second five-year commitment to stabilize our CO2 emissions from 2006 to 2010 at 20 percent below year 2000 levels. Last year, we met our cumulative stabilization goal for 2006 through 2009. We have built organizational knowledge and experience that enables us to consider and address potential environmental risks and alternatives early in our decision-making processes.

We have also become strong external advocates for sustainable carbon policies at the federal, state and local levels that are effective, efficient and equitable. { continued | 9 of 12 }

Entergy Corporation Letter to Stakeholders

Our power-generation industry accounts for about 40 percent of global CO2 emissions. More than 80 percent of the electric sector emissions come from coal plants. With their attractive economics relative to other fuel sources and long operational lives, it is unrealistic to expect to replace existing coal plants with expensive alternative generation and either do without the abundance of energy and enviable reliability we enjoy today or endanger the economy with prices that can make energy unaffordable to the poorest among us. Instead, common sense and simple math both say we must start at the beginning and fix what we have. That is, find a fix for coal, a way to retrofit existing coal plants to reduce CO2 emissions. That idea does not sell newspapers, but if we pursued some of the headline-grabbing ideas as national policy, few could afford to pay for one anyway. We need to ground our policies in reality and not wishful thinking as we transition to a less carbon-intensive economy.

In 2009, we co-sponsored a study by the Massachusetts Institute of Technology to determine the current state of carbon capture and sequestration technology. The study focused exclusively on technology for conventional coal plants as this technology alone has the potential to reduce by half carbon emissions from the U.S. power sector.

Observations from discussions among the diverse study participants indicate that “there is today no credible pathway towards stringent greenhouse gas stabilization targets without CO2 emissions reduction from existing coal power plants, and the United States and China are the largest emitters.” Summary observations also call for the U.S. government to “move expeditiously to large-scale, properly instrumented, sustained demonstration of CO2 sequestration, with the goal of providing a stable regulatory framework for commercial operation.” Why? Very simply, cost. For the developed world to do otherwise is an unnecessary destruction of capital. For the developing world, it is money they simply don’t have.

Following the release of the MIT report in March 2009, Entergy committed significant time and resources to communicate the study’s conclusions to members of Congress and other stakeholders in the climate change debate. The conclusions have been widely accepted by stakeholders. In fact, work has begun toward the study’s recommended first step, which involves an inventory of the U.S. coal fleet to determine the plants that are eligible for retrofit.

We adamantly believe the U.S. must lead through action and must start now on multiple efforts to address climate change. Without a price on carbon emissions, we use too much fossil fuel and spend too little time and effort on ways to clean up our emissions or replace the technology as its useful life ends with { continued | 10 of 12 }

Entergy Corporation Letter to Stakeholders

either other cleaner fuels or ways to get the heat content out of carbon-based fuel.

But since CO2 stays in the atmosphere for decades, we are burning precious daylight as we argue over the “numbers” and burning opportunities future generations cannot get back. The fact is all indicators are the numbers have become a side show. We argue about the cost, but the real issue is about the return on our investment to control CO2. The base case is not zero cost, but a huge permanent destruction in gross domestic product if we don’t act. As we look for certainty in the physical science, it becomes painfully clear the more important science at this late date is in the social area, namely, risk management. The estimated damage from climate change can be wildly wrong – and if I were a betting man, I’d say it is more likely to be under than overstated – and it’s still the right thing to reduce our greenhouse gas emissions. No one I know would consciously take this kind of catastrophic risk we are taking today with their own business, even with far less likelihood of bad outcomes. But we are taking that kind of risk with our planet and with our children’s future. At the same time we must recognize the need to launch an aggressive program of adaptation. Mitigation alone will not secure our future. To reduce our cost and our risk, we have to invest in our planet in the same way we think of maintaining our home. We can always move to another house if we fail in this need. We don’t have another planet to relocate to if we neglect this endeavor. We have no choice but to get it right.

At a local level, Entergy’s utility operating companies are working with their regulators to implement energy efficiency programs, which offer dual benefits of reducing emissions and lowering bills for our customers. For example, at the direction of the New Orleans City Council, Entergy New Orleans is implementing an innovative energy efficiency program that offers customer rebates for energy efficiency improvements such as adding insulation, sealing ducts and weatherizing homes or offices using a qualified contractor. The program reduces emissions by reducing energy usage, lowers customers’ energy spending and helps stimulate the market for energy efficiency products and services. Energy efficiency programs are a priority for all our utility operating companies. We believe properly structured energy efficiency measures are important elements of a comprehensive climate change strategy given the location, climate, infrastructure and demographics of our service territory.

As an organization, we are committed to reducing our impact on the environment and promoting the adoption of effective, efficient and equitable policies to address climate change every passing year. I am more convinced than ever that climate change is the most important issue my generation will face. { continued | 11 of 12 }

Entergy Corporation Letter to Stakeholders

I believe it is our responsibility to act now. As more cards are turned over, it is obvious the deck is stacked. Mother Nature is holding all the cards. Lady luck won’t be bailing us out.

Delivering Value

Despite devastating hurricanes, global financial crises, big swings in energy markets and other uncontrollable events, both large and small, that we’ve encountered over the past 11 years, Entergy has continually delivered value to its stakeholders. Accomplishing long-term success does not happen by chance – and our 11-year track record proves that we have the mindset and strategies to make it happen. While this year certainly did not go according to plan, far more good things happened than not. However, the lower commodity prices, in part due to a faltering economy, and the rejection of our plans to spin off our non-utility nuclear plants largely explain our failure to achieve a satisfactory shareholder return.

Many of you are asking what’s next for Entergy. I can’t say for certain what the future holds. One of the keys to managing risks is to recognize the element of chance or things outside your direct control in your planning process. I can say for certain that Entergy is striving to shape its destiny. We will continue to rigorously analyze our points of view on influential market trends and adjust our strategies as circumstances change. We will remain focused on managing cash flows and operating within our risk capacity and stakeholders’ risk tolerance. We will pursue continuous improvements as well as game-changing opportunities. The Board confirmed at its March strategy session that in these uncertain times all possible alternatives should remain on the table unconstrained but for the attendant risk of each. We will remain unwavering in our quest to deliver value to our stakeholders, taking advantage of the opportunities we uncover.

Our employees are resourceful, adaptable, value-oriented, reliable and principled. These are Entergy’s strengths. We understand that good fortune is largely achieved not by chance, but rather by applying our attention and strengths to the challenges at hand. That has been our experience over the past 11 years and that is our expectation going forward. Over the long term, substance trumps chance. And for that reason, I like the cards we hold.{ 12 of 12 }
J. Wayne Leonard Signature
J. Wayne Leonard
Chairman and Chief Executive Officer
April 29, 2010