New Orleans, La. – Entergy Corporation (NYSE: ETR) today reported an
as-reported loss of $151.7 million, or 86 cents per share, compared with
as-reported earnings of $248.7 million, or $1.38 per share, for first quarter
2011. On an operational basis, Entergy’s first quarter 2012 earnings were $79.0
million, or 44 cents per share, compared with $248.7 million, or $1.38 per
share, in first quarter 2011.
Consolidated Earnings – Reconciliation of GAAP* to
First Quarter 2012 vs. 2011
(Per share in
Less Special Items
*GAAP refers to United States generally
accepted accounting principles.
As-reported results for the current quarter included a non-cash charge
arising from an asset impairment taken in accordance with financial accounting
rules. The impairment, which contributed $223.5 million, or $1.26 per share, to
the quarter’s as-reported loss, is discussed in more detail in the Entergy
Wholesale Commodities section of this release.
Operational Earnings Highlights for First Quarter 2012
- Utility results were lower due primarily to higher income tax expense
associated with the write off of a regulatory asset, lower net revenue and
higher non-fuel operation and maintenance expense.
- Entergy Wholesale Commodities earnings decreased due to lower net
revenue and higher non-fuel operation and maintenance expense.
- Parent & Other results declined due to several individually
“While we had a number of tactical and strategic successes during the
quarter, financial results were negatively impacted by a number of items,” said
J. Wayne Leonard, Entergy’s chairman and chief executive officer. “We continue
to make good progress on our previously announced strategic initiatives related
to our transmission business, including our efforts to join MISO, the Midwest
Independent Transmission System Operator, Inc. Last week, the Federal Energy
Regulatory Commission approved MISO’s cost allocation methodology for
transmission projects once Entergy completes its planned integration into MISO.
This decision ensures that Entergy’s customers will pay only for transmission
projects that benefit them, and widens the pathway to a seamless integration
into MISO and an opportunity for customers to realize up to $1.4 billion of
projected savings in the first 10 years.
“We’re focused on these major initiatives and all aspects of our business,
remaining attentive to safety, operational excellence, risk mitigation,
potential growth opportunities and preserving sound creditworthiness.”
Other Business Highlights
- The U.S. Court of Appeals for the Federal Circuit issued its decision on
the appeal of Indian Point 1 and 2’s damages claim for breach of the spent
fuel disposal contract. Assuming no more appeals, Entergy Wholesale
Commodities could receive funds within the next several months.
- Entergy successfully executed $4.15 billion of credit facilities
for the parent company ($3.5 billion) and four of the Utility operating
- Entergy Vermont Yankee was named one of the Best Places to Work in
Vermont for a third year.
- Edison Electric Institute honored Entergy with Emergency Recovery
and Emergency Assistance awards. This is the 14th consecutive year for
Entergy to receive an EEI storm restoration award.
Entergy will host a teleconference to discuss this release at 10 a.m. CT on
Thursday, April 26, 2012, with access by telephone, (719) 457-2080, confirmation
code 4034210. The call and presentation slides can also be accessed via
Entergy’s website at www.entergy.com.
A replay of the teleconference will be available by telephone and on Entergy’s
website at www.entergy.com as soon
as practical after the transcript is filed with the U.S. Securities and Exchange
Commission. The telephone replay will be available through May 3, 2012 by
dialing (719) 457-0820, confirmation code 4034210.
In first quarter 2012, Utility’s earnings were $62.9 million, or 35 cents per
share, on an as- reported basis and $68.7 million, or 38 cents per share, on an
operational basis, compared to $164.3 million, or 91 cents per share, on both
as-reported and operational bases in first quarter 2011. Earnings for the
Utility in the current quarter reflect higher income tax expense, lower net
revenue and higher non-fuel operation and maintenance expense.
Higher income tax expense resulted from Entergy recording an adjustment to
write off a net regulatory asset for income taxes to align the financial
accounting with the actual ratemaking treatment. The adjustment increased income
tax expense by approximately $46 million. Entergy Gulf States Louisiana
determined that its regulatory asset for income taxes was overstated because
there was a difference between the regulatory treatment of income taxes
associated with certain items (primarily pension expense) and the financial
accounting treatment of those taxes. Electric retail rates were developed using
the normalization method of accounting for income taxes, while the financial
accounting assumed the flow through method of accounting. As a result, Entergy
Gulf States Louisiana had a regulatory asset representing expected future
recovery of a portion of income tax expense, while the tax expense was already
being collected in rates and would not be recovered in the future.
Utility net revenue was lower than the same quarter last year. The decrease
in net revenue was attributable to significantly milder-than-normal weather
experienced in the first quarter of 2012 compared to significantly
colder-than-normal weather in the same period a year ago. The effect of milder
weather was partially offset by weather-adjusted sales growth. The higher
non-fuel operation and maintenance expense was driven by increases in
compensation and benefit costs (largely post-employment benefits),
fossil-related outage costs and the absence of nuclear insurance refunds
received in 2011.
Residential sales in first quarter 2012, on a weather-adjusted basis,
increased 2.6 percent compared to first quarter 2011. Commercial and
governmental sales, on a weather-adjusted basis, increased 2.4 percent quarter
over quarter. Industrial sales in the first quarter increased 4.6 percent
compared to the same quarter of 2011. Overall retail sales growth on a
weather-adjusted basis was 3.3 percent for the quarter. The Louisiana
jurisdictions - including the city of New Orleans - recorded the strongest
results for residential sales growth. Industrial sales growth was largely due to
expansions. This sector saw growth from both large and small industrial
customers. Improvements in chemicals were partially offset by declines in
refineries and pipelines.
Entergy Wholesale Commodities
Entergy Wholesale Commodities reported a loss of $168.5 million, or 95 cents
per share, on an as-reported basis for first quarter 2012, compared to earnings
of $122.6 million, or 68 per cents per share, for first quarter 2011. On an
operational basis, Entergy Wholesale Commodities earnings were $55.0 million, or
31 cents per share, in first quarter 2012, compared to $122.6 million, or 68
cents per share, in first quarter 2011.
Entergy Wholesale Commodities operational adjusted EBITDA (earnings before
interest, income taxes, depreciation and amortization, and interest and
investment income excluding decommissioning expense and special items) was $144
million in the first quarter of 2012, compared to $253 million in the same
period a year ago. The decline was largely due to lower net revenue from the
nuclear portfolio on lower energy pricing. The average realized revenue per
megawatt hour for the nuclear fleet was approximately $50, down 12 percent from
$57 in the same period last year. Nuclear generation also declined slightly due
primarily to an increase in refueling and other outage days. These net revenue
decreases were partially offset by higher net revenue from the Rhode Island
State Energy Center, which was acquired in December 2011. Higher non-fuel
operation and maintenance expense also contributed to the operational adjusted
EBITDA decline driven by higher compensation and benefits expense (largely
related to post-employment benefits) and the Rhode Island State Energy Center
In addition to the drivers noted above, an asset impairment recorded in the
first quarter of the current year contributed to the as-reported decrease. Under
generally accepted accounting principles, power plants and other long-lived
assets are generally required to be accounted for on a historical cost basis,
unless a triggering event occurs which requires an impairment evaluation. In the
case of Vermont Yankee, as described in our prior financial statement filings
with the U.S. Securities and Exchange Commission, Entergy has performed
quarterly impairment evaluations since early 2010, triggered by state actions to
shut down the plant early. A number of factors and inputs are used in the
Vermont Yankee impairment evaluation, including the status of pending legal and
state regulatory matters, as well as assumptions about future revenues and costs
of the plant. Under the accounting rules, these inputs are required to be
estimated as of the end of each quarterly period. The decline in the overall
energy market and forward price of energy at March 31, 2012, which is used as an
input in the current accounting analysis, yielded a different impairment result
now as compared to earlier quarters, resulting in a pre-tax impairment charge of
$356 million, or $1.26 per share after tax. This impairment is classified as a
special item and is not included in operational results.
As previously noted, the triggering event and impairment result are unique to
Vermont Yankee. This impairment does not reflect a change in Entergy’s point of
view of the economic value of the plant assuming continued operation through
2032, nor does it impact the company’s continued commitment to invest to assure
safe operations of the plant, which is always the top priority. It also does not
reflect a change in Entergy’s point of view on the legal and state regulatory
proceedings associated with obtaining certainty on continued operation of
Parent & Other
Parent & Other reported a loss of $46.1 million, or 26 cents per share, on an
as-reported basis and $44.6 million, or 25 cents per share, on an operational
basis for first quarter 2012. This compares to a loss of $38.2 million, or 21
cents per share, on both as-reported and operational bases in first quarter
2011. Parent & Other’s earnings decrease was due to several individually
Entergy updated its 2012 earnings guidance range to be $3.55 to $4.35 per
share on an as-reported basis and affirmed operational guidance of $4.85 to
$5.65 per share previously updated on April 19, 2012. The revised guidance
- The write-off of a regulatory asset discussed in the Utility
results section of this release,
- Higher pension expense resulting from lower-than-planned pension
discount rate and other updated pension assumptions,
- Lower market energy prices for EWC’s open position,
- Significant unfavorable weather in the first quarter of 2012, and
- Opportunities identified to partially offset these challenges.
The revised as-reported guidance range also reflects special items recorded
in the current quarter (which totaled $1.30 per share), including the asset
impairment on the Vermont Yankee power plant. As-reported earnings guidance for
2012 does not reflect any potential future expenses for the special item to be
recorded in connection with the proposed spin-merge of Entergy’s transmission
business. As-reported 2012 guidance will be updated throughout the year as these
transaction-related expenses are incurred.
Long-term Financial Outlook
Entergy believes it offers a long-term, competitive utility investment
opportunity combined with a valuable option represented by a unique, clean,
non-utility generation business located in attractive power markets.
The current long-term financial outlook for 2010 through 2014 (prepared
November 2011), excluding the effects of the proposed spin-merge of the
transmission business discussed below, includes the following:
- Utility net income: 6 to 8 percent compound annual net income
growth rate over the 2010 – 2014 horizon (2009 base year).
- Entergy Wholesale Commodities results: Revenue projections
through 2014 will experience increased volatility due to commodity market
activities – one of the most important fundamental drivers for this
business. At current sold and forward prices with its existing asset
portfolio and in-the-money hedges that will roll off in the coming few
years, Entergy Wholesale Commodities is expected to deliver declining
operational adjusted EBITDA for the period through 2014 compared to 2010.
However, Entergy Wholesale Commodities offers a valuable long-term option
from the potential positive effects of ongoing economic growth (driving
increased load, market heat rates, capacity prices and natural gas prices),
aging and unprofitable unit retirements (driving market heat rate expansion
and capacity price increases), new environmental legislation and/or
enforcement of additional environmental regulations.
- Corporate results: Results will vary depending upon factors
including future effective income tax and interest rates and the amount /
timing of share repurchases.
- A balanced capital investment / return program: Entergy continues to
see value-added investment opportunities at the Utility in the coming years,
as well as an investment outlook at Entergy Wholesale Commodities that
supports continued safe, secure and reliable operations and opportunistic
investments. Entergy aspires to fund this capital program without issuing
traditional common equity, while maintaining a competitive capital return
program. Given the company’s financial profile with a mix of utility and
non-utility businesses, return of capital is expected to be provided similar
to the past through a combination of common stock dividends and share
repurchases. Absent other attractive investment opportunities, capital
deployment through dividends and share repurchases could total as much as $4
– $5 billion from 2010 – 2014 under the current long-term business outlook.
The amount of share repurchases may vary as a result of material changes in
business results, capital spending or new investment opportunities.
- Strong liquidity.
- Solid credit metrics that support ready access to capital on
Spin-Merge of Transmission Business
Entergy’s Transmission Business Overview
Entergy’s electric transmission business consists of approximately 15,700
miles of interconnected transmission lines at voltages of 69kV and above and
associated substations across its utility service territory in the Mid-South.
Following the completion of the transaction, ITC will become one of the largest
electric transmission companies in the U.S., with over 30,000 miles of
transmission lines, spanning from the Great Lakes to the Gulf Coast.
Entergy and ITC Boards of Directors approved a definitive agreement under
which Entergy will spin off and then merge its electric transmission business
into a subsidiary of ITC. Terms of the transaction agreements include:
- Entergy will spin off its electric transmission business, or “Transco,”
to Entergy’s shareholders in the form of a tax-free spin-off.
- After the spin-off, the newly formed Transco will merge with a
newly-formed subsidiary of ITC.
- Prior to the merger, ITC expects to effectuate a $700 million
recapitalization, currently anticipated to take the form of a one-time
special dividend to its shareholders.
- The merger will result in Entergy shareholders receiving 50.1
percent of the shares of pro forma ITC in exchange for their shares of
Transco; existing ITC shareholders will own the remaining 49.9 percent of
the combined company.
Entergy expects to receive gross cash proceeds of $1.775 billion from
indebtedness that will be incurred in connection with the transaction, and this
indebtedness will be assumed by ITC at the close of the merger. Entergy expects
to utilize most of the cash proceeds to retire debt associated with the
transmission business at its utility operating companies and the balance for
debt reduction at the parent, Entergy Corporation.
Closing Conditions and Approvals
The transaction is subject to the satisfaction of customary closing
conditions. Primary filings and approvals required are summarized below.
Entergy’s Retail Regulators:
- Change of control of transmission assets
- Affiliate transaction approvals related to steps in the spin /
- Authorization to incur debt in some jurisdictions
Federal Energy Regulatory Commission:
- Change of control of transmission assets (203 filing)
- Acceptance of jurisdictional agreements (205 filing)
- Authorization to assume debt / issue securities (204 filings)
- Changes to System Agreement to remove provisions related to
transmission planning and equalization
- ITC filing to establish new rate tariffs for the ITC operating
- Pre-merger notification to review potential antitrust and competition
Internal Revenue Service:
- Private letter ruling substantially to the effect that certain
requirements for a tax-free treatment of the distribution of Transco are met
Securities and Exchange Commission:
- ITC Form S-4 and Proxy Statement (including audited Transco financial
statements and disclosures), and
- Transco Registration Statement
– Issuance of shares to ITC shareholders, and
– Amendment to ITC charter to increase authorized number
Upcoming activities in the second quarter will focus largely on regulatory
filings with Entergy’s retail jurisdictions as well as FERC. Initial filings are
expected to begin mid-year. Work on other key approvals such as ITC shareholder
approval, pre-merger notification under the Hart Scott Rodino Act, and IRS
private letter ruling is expected to begin in the second and third quarters of
Completion of the transaction is expected in 2013 subject to the satisfaction
of certain closing conditions, including the required approvals and filings
Additional Information and Where to Find It
ITC and Transco will file registration statements with the Securities and
Exchange Commission (“SEC”) registering shares of ITC common stock and Transco
common units to be issued to Entergy shareholders in connection with the
proposed transactions. ITC will also file a proxy statement with the SEC that
will be sent to the shareholders of ITC. Entergy shareholders are urged to read
the prospectus and/or information statement that will be included in the
registration statements and any other relevant documents, because they contain
important information about ITC, Transco and the proposed transactions. ITC
shareholders are urged to read the proxy statement and any other relevant
documents because they contain important information about Transco and the
proposed transactions. The proxy statement, prospectus and/or information
statement, and other documents relating to the proposed transactions (when they
are available) can be obtained free of charge from the SEC’s website at
www.sec.gov. The documents, when available, can also be obtained free of charge
from Entergy upon written request to Entergy Corporation, Investor Relations,
P.O. Box 61000, New Orleans, LA 70161 or by calling Entergy’s Investor Relations
information line at 1-888-ENTERGY (368-3749), or from ITC upon written request
to ITC Holdings Corp., Investor Relations, 27175 Energy Way, Novi, MI 48377 or
by calling 248-946-3000.
Entergy Corporation is an integrated energy company engaged primarily in
electric power production and retail distribution operations. Entergy owns and
operates power plants with approximately 30,000 megawatts of electric generating
capacity, and it is the second-largest nuclear generator in the United States.
Entergy delivers electricity to 2.8 million utility customers in Arkansas,
Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $11
billion and approximately 15,000 employees.
Additional information regarding Entergy’s quarterly results of operations,
regulatory proceedings and other operations is available in Entergy’s investor
news release dated April 26, 2012, a copy of which has been filed today with the
Securities and Exchange Commission on Form 8-K and is available on Entergy’s
investor relations website at
In this news release, and from time to time, Entergy makes certain
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Except to the extent required by the federal
securities laws, Entergy undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events, or otherwise.
Forward-looking statements involve a number of risks and uncertainties. There
are factors that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements, including (a) those
factors discussed in: (i) Entergy’s Form 10-K for the year ended December 31,
2011 and (ii) Entergy’s other reports and filings made under the Securities
Exchange Act of 1934; (b) uncertainties associated with rate proceedings,
formula rate plans and other cost recovery mechanisms; (c) uncertainties
associated with efforts to remediate the effects of major storms and recover
related restoration costs; (d) nuclear plant relicensing, operating and
regulatory risks, including any changes resulting from the nuclear crisis in
Japan following its catastrophic earthquake and tsunami; (e) legislative and
regulatory actions and risks and uncertainties associated with claims or
litigation by or against Entergy and its subsidiaries; (f) conditions in
commodity and capital markets during the periods covered by the forward-looking
statements, in addition to other factors described elsewhere in this release and
subsequent securities filings, and (g) risks inherent in the proposed spin-off
and subsequent merger of Entergy’s electric transmission business into a
subsidiary of ITC Holdings Corp. Entergy cannot provide any assurances that the
spin-off and merger transaction will be completed and cannot give any assurance
as to the terms on which such transaction will be consummated. The spin-off and
merger transaction is subject to certain conditions precedent, including
regulatory approvals and approval by ITC Holdings Corp. shareholders.
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