Entergy Corporation (NYSE: ETR) reported second quarter 2011 earnings of $1.76 per share on as-reported and operational bases versus $1.65 for the second quarter of 2010. A far-flung energy company based in New Orleans, Entergy owns the Vermont Yankee nuclear power station in Vernon, Vermont.
Table 1: Consolidated Earnings ‘ Reconciliation of GAAP to Non-GAAP Measures
Second Quarter and Year-to-Date 2011 vs. 2010
(Per share in U.S. $)
Second Quarter
Year-to-Date
2011
2010
Change
2011
2010
Change
As-Reported Earnings
1.76
1.65
0.11
3.14
2.77
0.37
Less Special Items
-
(0.06)
0.06
-
(0.26)
0.26
Operational Earnings
1.76
1.71
0.05
3.14
3.03
0.11
Weather Impact
0.18
0.09
0.09
0.28
0.26
0.02
Operational Earnings Highlights for Second Quarter 2011
·
Utility’s results were higher due primarily to higher sales volume and pricing adjustments from previous rate actions, as well as lower interest expense.
·
Entergy Wholesale Commodities’ earnings declined as a result of lower net revenue primarily from lower pricing on the nuclear fleet as well as a higher effective income tax rate.
·
Parent & Other’s results were higher due to lower income tax expense on Parent & Other activities.
‘The Utility business continued on track to achieve its asset portfolio objectives with regulatory filings for a new 550-megawatt combined-cycle gas-fired unit at our Ninemile Point plant site and the pending acquisitions of the 620-megawatt Hot Spring and 450-megawatt Hinds existing combined-cycle plants,’ said J. Wayne Leonard, Entergy’s chairman and chief executive officer . ‘These highly efficient facilities will provide reliable, low-cost energy to serve the growing needs of our customers while reducing the overall consumption of fossil fuels. At Entergy Wholesale Commodities, license renewal efforts continued. We also announced that we will proceed with the 29th refueling outage at Vermont Yankee following a careful review of the merits of our case and the record from the most recent hearing in Federal District Court.
‘We continue to work with regulators to gain approval to join the MISO regional transmission organization that would stretch from Canada to the Gulf of Mexico,’ Leonard said. ‘Despite the various hurdles we still face to accomplish our major initiatives, we believe 2011 is shaping up to be a transformational year in achieving our corporate strategy.’
Entergy’s business highlights include the following:
·
All Utility operating companies filed reports with retail regulators outlining expected benefits of joining MISO.
·
Entergy Wholesale Commodities announced the sale to Con Edison of 500 MWs of unit and license renewal contingent energy and firm capacity from the Indian Point Energy Center for a five year term beginning in 2013.
·
The New York Public Service Commission issued an order resolving the Show Cause proceeding related to notification requirements.
·
Entergy announced that the company’s board of directors voted to approve the fabrication of fuel and the refueling of the Vermont Yankee nuclear power plant in October.
Entergy will host a teleconference to discuss this release at 10 a.m. CT on Tuesday, August 2, 2011, with access by telephone, (719) 457-2080, confirmation code 8424061. 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 through August 9, 2011, by dialing (719) 457-0820, confirmation code 8424061. The replay will also be available on Entergy’s website at www.entergy.com .
I.
Consolidated Results
Consolidated Earnings
Table 2 provides a comparative summary of consolidated earnings per share for second quarter and year-to-date 2011 versus 2010, including a reconciliation of GAAP as-reported earnings to non-GAAP operational earnings. Utility’s earnings increased quarter-over-quarter as a result of higher net revenue due to increased retail sales volume as well as pricing adjustments from previous rate actions. Lower interest expense also contributed to the higher Utility earnings. Entergy Wholesale Commodities’ second quarter 2011 operational earnings were lower than the same quarter last year as a result of lower net revenue due primarily to lower pricing. Also contributing to the lower operational results at Entergy Wholesale Commodities was a higher effective income tax rate. Parent and Other’s operational results increased in the current period compared to a year ago due primarily to lower income tax expense on Parent & Other activities. Entergy’s results for the current period also reflect the positive effect of accretion associated with the company’s share repurchase programs.
Table 2: Consolidated Earnings ‘ Reconciliation of GAAP to Non-GAAP Measures
Second Quarter and Year-to-Date 2011 vs. 2010 (see Appendix E for definitions of certain measures)
(Per share in U.S. $)
Second Quarter
Year-to-Date
2011
2010
Change
2011
2010
Change
As-Reported
Utility
1.39
1.18
0.21
2.30
1.91
0.39
Entergy Wholesale Commodities
0.36
0.55
(0.19)
1.04
1.01
0.03
Parent & Other
0.01
(0.08)
0.09
(0.20)
(0.15)
(0.05)
Consolidated As-Reported Earnings
1.76
1.65
0.11
3.14
2.77
0.37
Less Special Items
Utility
-
-
-
-
-
-
Entergy Wholesale Commodities
-
(0.08)
0.08
-
(0.36)
0.36
Parent & Other
-
0.02
(0.02)
-
0.10
(0.10)
Consolidated Special Items
-
(0.06)
0.06
-
(0.26)
0.26
Operational
Utility
1.39
1.18
0.21
2.30
1.91
0.39
Entergy Wholesale Commodities
0.36
0.63
(0.27)
1.04
1.37
(0.33)
Parent & Other
0.01
(0.10)
0.11
(0.20)
(0.25)
0.05
Consolidated Operational Earnings
1.76
1.71
0.05
3.14
3.03
0.11
Weather Impact
0.18
0.09
0.09
0.28
0.26
0.02
Detailed earnings variance analysis is included in Appendix A-1 and Appendix A-2 to this release. In addition, Appendix A-3 provides details of special items shown in Table 2 above.
Consolidated Net Cash Flow Provided by Operating Activities
Entergy’s net cash flow provided by operating activities in second quarter 2011 was $654 million compared to $794 million in second quarter 2010. The overall quarterly decrease was due primarily to:
·
Decreased deferred fuel cost collections
·
A reduction in Entergy Wholesale Commodities’ net revenue
Table 3 provides the components of net cash flow provided by operating activities contributed by each business with quarterly and year-to-date comparisons.
Table 3: Consolidated Net Cash Flow Provided by Operating Activities
Second Quarter and Year-to-Date 2011 vs. 2010
(U.S. $ in millions)
Second Quarter
Year-to-Date
2011
2010
Change
2011
2010
Change
Utility
507
577
(70)
640
993
(353)
Entergy Wholesale Commodities
173
231
(58)
381
520
(139)
Parent & Other
(26)
(14)
(12)
(44)
(45)
1
Total Net Cash Flow Provided by Operating Activities
654
794
(140)
977
1,468
(491)
II.
Utility
In second quarter 2011, Utility’s as-reported and operational earnings were $1.39 per share compared to $1.18 per share on the same bases in second quarter 2010. Earnings for the Utility in the current quarter reflect higher net revenue due to increased sales volume, including the effects of significantly warmer-than-normal weather, and the net effect of rate adjustments at Entergy Arkansas, Entergy Texas and Entergy New Orleans. Lower interest expense resulting from refinancing of long-term debt at lower interest rates as well as the absence of an interest charge recorded on a fuel audit refund in 2010 also contributed to the Utility’s earnings increase.
Electricity usage, in gigawatt-hour sales by customer segment, is included in Table 4. Current quarter sales reflect the following:
·
Residential sales in second quarter 2011, on a weather-adjusted basis, decreased 0.5 percent compared to second quarter 2010.
·
Commercial and governmental sales, on a weather-adjusted basis, increased 0.3 percent quarter over quarter.
·
Industrial sales in the second quarter increased 2.8 percent compared to the same quarter of 2010.
Retail sales growth was positive for the quarter at 2.9 percent, or 1.1 percent on a weather-adjusted basis. Results were mixed across the jurisdictions. Entergy Texas produced the strongest sales growth, including a 15.1 percent increase in industrial sales due largely to expansions. Entergy Arkansas sales were down slightly compared to the same period a year ago with a decrease in industrial sales. Residential sales increased 3.7 percent as compared to the second quarter of 2010, but were slightly below last year on a weather-adjusted basis, reflecting an increase in the number of customers but a decrease in the usage per customer. Industrial sales growth leveled off somewhat after significant growth since the beginning of 2010. Entergy’s service territory continues to benefit from expansions, while there has been some pullback in the paper and wood segments and small industrials.
Table 4 provides a comparative summary of the Utility’s operational performance measures.
Table 4: Utility Operational Performance Measures
Second Quarter and Year-to-Date 2011 vs. 2010 (see Appendix E for definitions of measures)
Second Quarter
Year-to-Date
2011
2010
% Change
% Weather Adjusted
2011
2010
% Change
% Weather Adjusted
GWh billed
Residential
7,993
7,705
3.7%
(0.5)%
17,034
17,350
(1.8)%
0.6%
Commercial and governmental
7,548
7,384
2.2%
0.3%
14,580
14,448
0.9%
(0.2)%
Industrial
10,140
9,862
2.8%
2.8%
19,657
18,596
5.7%
5.7%
Total Retail Sales
25,681
24,951
2.9%
1.1%
51,271
50,394
1.7%
2.3%
Wholesale
1,036
971
6.7%
1,983
2,287
(13.3)%
Total Sales
26,717
25,922
3.1%
53,254
52,681
1.1%
O&M expense per MWh
$19.09
$19.21
(0.6)%
$18.49
$18.24
1.4%
Number of retail customers
Residential
2,368,321
2,351,556
0.7%
Commercial and governmental
353,662
350,313
1.0%
Industrial
44,476
45,841
(3.0)%
Appendix B provides information on selected pending local and federal regulatory cases.
III.
Entergy Wholesale Commodities
Entergy Wholesale Commodities earned $0.36 per share on as-reported and operational bases in second quarter 2011, compared to as-reported earnings of $0.55 per share and operational earnings of $0.63 per share in second quarter 2010. Entergy Wholesale Commodities’ operational earnings declined largely as a result of lower net revenue with decreased pricing. A higher effective income tax rate resulting from changes in Michigan tax law stemming from legislation enacted in May 2011 also contributed to the Entergy Wholesale Commodities’ earnings decline.
Table 5 provides a comparative summary of Entergy Wholesale Commodities’ operational performance measures.
Table 5: Entergy Wholesale Commodities’ Operational Performance Measures
Second Quarter and Year-to-Date 2011 vs. 2010 (see Appendix E for definitio ns of measures)
Second Quarter
Year-to-Date
2011
2010
% Change
2011
2010
% Change
Owned Capacity
6,016
6,351
(5.3)%
6,016
6,351
(5.3)%
GWh billed
10,652
10,498
1.5%
21,171
21,626
(2.1)%
Average realized price per MWh
$52.32
$58.15
(10.0)%
$54.64
$58.23
(6.2)%
Non-fuel O&M expense/purchased power per MWh (a)
$26.87
$26.93
(0.2)%
$25.91
$25.37
2.1%
EWC Nuclear Fleet
Capacity factor
91%
90%
1.1%
91%
92%
(1.1)%
GWh billed
9,993
9,868
1.3%
19,906
20,123
(1.1)%
Average realized price per MWh
$52.38
$57.69
(9.2)%
$54.91
$58.22
(5.7)%
Production cost per MWh (a)
$25.96
$24.40
6.4%
$24.99
$24.05
3.9%
Refueling outage days:
Indian Point 2
-
11
-
33
Indian Point 3
7
-
30
-
Palisades
-
-
-
-
Pilgrim
25
-
25
-
Vermont Yankee
-
29
-
29
(a)
Second quarter and year-to-date periods in 2010 exclude the effect of the special item for non-utility nuclear spin-off expenses.
Table 6 provides capacity and generation sold forward projections for Entergy Wholesale Commodities.
Table 6: Entergy Wholesale Commodities’ Capacity and Generation Projected Sold Forward
Third Quarter 2011 through 2015 (see Appendix E for definitions of measures)
Balance of
2011
2012
2013
2014
2015
Energy
Planned TWh of generation (b)
21
41
40
41
41
Percent of planned generation sold forward
Unit-contingent
76%
59%
36%
14%
12%
Unit-contingent with availability guarantees
20%
14%
16%
13%
13%
Firm LD
3%
24%
24%
8%
‘%
Offsetting positions
(3)%
(10)%
‘%
‘%
‘%
Total energy sold forward
96%
87%
76%
35%
25%
Average revenue under contract per MWh (c) (d)
$54
$49
$45 - 51
$49 - 55
$49 - 57
Capacity
Planned net MW in operation (b)
4,998
4,998
4,998
4,998
4,998
Percent of capacity sold forward
Bundled capacity and energy contracts
26%
18%
16%
16%
16%
Capacity contracts
33%
30%
26%
25%
11%
Total capacity sold forward
59%
48%
42%
41%
27%
Average capacity contract price per kW per month
$2.4
$2.9
$3.2
$3.1
$2.9
Blended Capacity and Energy Recap (based on revenues)
Percent of planned energy and capacity sold forward
96%
87%
74%
37%
25%
Average contract revenue per MWh (c) (d)
$55
$51
$49
$54
$56
(b)
Assumes successful license renewal at all plants. NRC license renewal applications are in process for three units (with current license expirations noted parenthetically): Pilgrim (6/8/2012), Indian Point 2 (9/28/2013), and Indian Point 3 (12/12/2015). In addition, two Entergy subsidiaries filed a complaint in federal court seeking declaratory and injunctive relief to prevent the state of Vermont from forcing Vermont Yankee to cease operation on March 21, 2012.
(c)
A portion of EWC’s total planned generation sold forward through March 2012 is associated with the Vermont Yankee contract, for which pricing may be adjusted.
(d)
Average revenue under contract may fluctuate due to factors including positive or negative basis differentials, option premiums and market prices at time of option expiration, costs to convert Firm LD to unit-contingent and other risk management costs. Also, average revenue under contract excludes payments owed under the value sharing agreement with the New York Power Authority.
IV.
Parent & Other
Parent & Other reported as-reported and operational earnings of $0.01 per share in second quarter 2011 compared to a loss of $(0.08) per share on an as-reported basis and $(0.10) per share on an operational basis in the second quarter of 2010. Lower income tax expense on Parent & Other activities was the primary factor driving results for the quarter. Income tax expense was lower due to reversal of a tax reserve.
V.
2011 Earnings Guidance
Entergy affirmed its 2011 earnings guidance in the range of $6.35 to $6.85 per share on both as-reported and operational bases. Year-over-year changes are shown as point estimates and are applied to 2010 earnings to compute the 2011 guidance midpoint. Drivers for the 2011 guidance range are listed separately. Because there is a range of possible outcomes associated with each earnings driver, a range is applied to the guidance midpoint to produce Entergy’s guidance range. The 2011 earnings guidance is detailed in Table 7 below.
Table 7: 2011 Earnings Per Share Guidance ‘ As-Reported and Operational
(Per share in U.S. $) ‘ Prepared October 2010 (e)
Segment
Description of Drivers
2010 Earnings per Share
Expected Change
2011
Guidance
Midpoint
2011
Guidance Range
Utility
2010 Operational Earnings per Share
4.33
Adjustment to normalize weather
(0.62)
Increased net revenue due to sales growth and rate actions
0.45
Decreased non-fuel operation and maintenance expense
0.20
Increased depreciation expense
(0.10)
Increased other income
0.10
Lower effective income tax rate
0.15
Accretion / other
0.19
Subtotal
4.33
0.37
4.70
Entergy Wholesale Commodities
2010 Operational Earnings per Share
3.13
Decreased net revenue from nuclear assets due to lower pricing net of higher volume
(0.35)
Flat non-fuel operation and maintenance expense for nuclear operations
‘
Increased depreciation expense on nuclear assets
(0.05)
Higher effective income tax rate
(0.10)
Accretion / other
(0.03)
Subtotal
3.13
(0.53)
2.60
Parent & Other
2010 Operational Earnings per Share
(0.36)
Increased Parent non-fuel operation and maintenance expense
(0.10)
Increased Parent interest expense
(0.10)
Increased preferred dividend requirements
(0.10)
Accretion / other
(0.04)
Subtotal
(0.36)
(0.34)
(0.70)
Consolidated
Operational
2011 Operational Earnings per Share Guidance Range
7.10
(0.50)
6.60
6.35 ‘ 6.85
Consolidated
As-Reported
2010 As-Reported Earnings per Share
6.66
Changes detailed above
(0.50)
2010 special items for non-utility nuclear spin-off expenses
0.44
2011 As-Reported Earnings per Share Guidance Range
6.66
(0.06)
6.60
6.35 ‘ 6.85
(e)
Updated February 2011 to reflect 2010 final results.
Key assumptions supporting 2011 earnings guidance are as follows:
Utility
·
Normal weather
·
Retail sales growth of around 2 percent on a weather-adjusted basis; around 1 percent on a normalized basis excluding the effects of industrial expansion and cogen loss
·
Increased revenue associated with rate actions
·
Decreased non-fuel operation and maintenance expense resulting largely from lower compensation and benefits costs (including lower expense associated with employee stock options, which is offset in Parent & Other)
·
Increased depreciation expense associated with capital spending at the Utility, partially offset by new depreciation rates established in the Entergy Arkansas rate case effective July 2010
·
Increased other income largely due to affiliate dividend income arising out of the use of proceeds from storm cost financings in Louisiana, offset at Parent & Other
·
Lower effective income tax rate in 2011
·
Accretion / other primarily driven by the effect of 2010 share repurchases
Entergy Wholesale Commodities
·
41 TWh of total output for the EWC nuclear fleet, reflecting an approximate 93 percent capacity factor, including 30 day refueling outages at Pilgrim and Indian Point 3 in Spring 2011 and Vermont Yankee in Fall 2011
·
95 percent of energy sold under existing contracts and 5 percent sold into the spot market for the EWC nuclear fleet
·
$53/MWh average energy contract price and $40/MWh average unsold energy price based on published market prices at the end of September 2010 for the EWC nuclear fleet; average energy price for unsold volume based on prices as of the end of June 2011 is around $45/MWh
·
$3.0/kW-month average capacity contract price and $1.2/kW-month average unsold capacity price based on published market prices at the end of September 2010 for the EWC nuclear fleet; average capacity price for unsold volume based on prices as of the end of June 2011 is approximately $0.4/kW-month
·
Increased nuclear fuel expense reflected in net revenue
·
Non-fuel operation and maintenance expense for nuclear operations, including refueling outage expense and purchased power, around $25/MWh reflecting slightly higher compensation and benefits costs due in part to a long-term workforce planning initiative and other general expense increases, offset by the absence of spending associated with remediation of the tritium leak at Vermont Yankee and the write-off of capitalized engineering costs associated with a potential uprate project in 2010
·
Increased depreciation expense on nuclear assets associated with capital spending
·
Higher effective income tax rate in 2011
·
Flat year-over-year results for the balance of EWC’s business, consisting primarily of the non-nuclear generation portfolio
·
Accretion / other including the effect of 2010 share repurchases
Parent & Other
·
Increased Parent non-fuel operation and maintenance expense due primarily to the offset of lower intercompany employee stock option expense at Utility
·
Higher Parent interest expense due to $1 billion permanent debt issued in September 2010, with proceeds used to pay down lower-cost revolving credit facility
·
Increased preferred dividend requirements largely due to affiliate dividend income at Utility described above
·
Accretion / other includes the effect of 2010 share repurchases and lower effective income tax rate in 2011
Share Repurchase Program
·
2011 average fully diluted shares outstanding of approximately 180 million, assuming completion of the $750 million repurchase program in 2010; does not assume any repurchases under the incremental $500 million share repurchase authority approved by the Board of Directors in October 2010
Other
·
Overall effective income tax rate of 35 percent in 2011
·
Pension discount rate of 6.1 percent (the final pension discount rate is 5.6 ‘ 5.7 percent)
Earnings guidance for 2011 should be considered in association with earnings sensitivities as shown in Table 8. These sensitivities illustrate the estimated change in operational earnings resulting from changes in various revenue and expense drivers. Traditionally, the most significant variables for earnings drivers are utility sales for Utility and energy prices for Entergy Wholesale Commodities. Estimated annual impacts shown in Table 8 are intended to be indicative rather than precise guidance.