Company achieves highest level of nuclear generating output since Entergy ownership; entergy Spinning-off nuclear business
– By April Murelio –
Entergy Corporation has reported fourth quarter 2008 as-reported earnings of $170.6 million, or 89 cents per share, compared with $193.9 million, or 96 cents per share, for fourth quarter 2007. On an operational basis, Entergy’s fourth quarter 2008 earnings were $190.7 million, or 99 cents per share, compared with $225.9 million, or $1.12 per share, in fourth quarter 2007.
For the year, Entergy’s as-reported earnings were $1.2 billion, or $6.23 per share, and operational earnings were $1.3 billion, or $6.51 per share. These results compare with 2007 as-reported earnings of $1.1 billion, or $5.60 per share, and operational earnings of $1.2 billion, or $5.76 per share. Below are some 2008 highlights on the company’s nuclear operations.
• Entergy Nuclear earnings increased as a result of higher power prices and lower income tax expense.
• Entergy’s Non-Nuclear Wholesale Assets business reported earnings equal to last year’s results.
“The challenges presented by the current world-wide economic crisis are formidable. But, as a point-of-view company,” said J. Wayne Leonard, Entergy’s chairman and chief executive officer, “we have the processes and the mentality to change direction to seize unexpected opportunities or adapt quickly to changed circumstances to protect our stakeholders. Our disciplined approach to warehousing risk, our strong liquidity position and past success in such times all give us valid reasons to be optimistic.”
• Entergy Nuclear closed out the year achieving the highest level of generating output since Entergy ownership.
A Closer Look At Entergy Nuclear
Entergy Nuclear earned $226.6 million, or $1.18 per share, on as-reported and operational bases in fourth quarter 2008, compared to $141.4 million, or 70 cents per share, on an as-reported basis and $159.8 million, or 79 cents per share on an operational basis in fourth quarter 2007. Entergy Nuclear’s earnings increased primarily as a result of higher power prices and lower income tax expense.
For the year 2008, Entergy Nuclear earned $797.3 million, or $4.07 per share, on both as-reported and operational bases, compared with $539.2 million, or $2.66 per share, on an as-reported basis and $557.6 million, or $2.75 per share, on an operational basis in 2007. The increase in 2008 operational earnings was due primarily to increased revenue from higher pricing and higher generation due to the inclusion of Palisades in the fleet for the full year and fewer outage days, lower income taxes and accretion associated with Entergy’s share repurchase program. These items were partially offset by higher expenses from the full year of Palisades operation, higher depreciation due to plant additions, and lower interest and dividend income reflecting impairments recorded on decommissioning investments.
A Comparison With Entergy’s Non-Nuclear Wholesale Assets
Entergy’s Non-Nuclear Wholesale Assets business had earnings of $26.5 million, or 14 cents per share, on both as-reported and operational bases in fourth quarter 2008 compared to $27.4 million, or 14 cents per share, in fourth quarter 2007. Income tax benefits were the primary earnings drivers in both quarters. In the fourth quarter of 2008, a closing agreement was reached with the Internal Revenue Service allowing a capital loss. As a result, a provision for tax uncertainties that existed on this item was reversed.
For the year 2008, Entergy’s Non-Nuclear Wholesale Assets business earned $1.3 million, or one cent per share, on as-reported and operational bases compared to earnings of $54.8 million, or 27 cents per share, on as-reported and operational bases in 2007. The decrease in operational earnings in 2008 is due primarily to higher income tax expense resulting from the absence of benefits associated with the resolution of tax audit issues in 2007 and higher tax expense from the redemption of an investment in 2008.
Entergy’s Outlook
Entergy is initiating 2009 earnings guidance in the range of $6.70 to $7.30 per share on an operational basis, assuming a business-as-usual operation for the full year. As-reported guidance ranges from $6.56 to $7.16 and reflects (14) cents per share of projected dis-synergies associated with the spin-off of Entergy’s non-utility nuclear business and plans to enter into a nuclear services joint venture, both discussed below. Guidance for 2009 does not include a special item for expenses, a portion of which were incurred in 2008, anticipated in connection with the outside services provided to pursue the spin-off.
Planned Business Separation
On Nov. 3, 2007, Entergy’s Board of Directors approved a plan to pursue a separation of the non-utility nuclear business from Entergy’s regulated utility business through a tax-free spin-off of the non-utility nuclear business. Enexus Energy Corporation will be a new, independent publicly traded company. In addition, Entergy and Enexus intend to enter into a nuclear services joint venture, with equal ownership. EquaGen L.L.C. has been selected as the name for the joint venture.
Progress achieved since the last quarter update and/or current status includes:
• Key board and leadership positions at Enexus and EquaGen have been filled.
• Regulatory proceedings continued to advance.
• In Vermont, all scheduled procedural matters have been completed and a decision from the Vermont Public Service Board is pending.
• In New York, all scheduled procedural matters have been completed and the administrative law judges issued notification to all parties that from their review of the submissions, all issues of fact and policy material to the relief requested by petitioners have been thoroughly addressed by the parties, an adequate record for decision is available to the Commission, and no further formal proceedings are warranted. In December, the ALJs provided further notification that the parties intended to conduct a settlement discussion which to date has not yielded an acceptable agreement.
• A third amendment to the Form 10 filing with the Securities and Exchange Commission was filed on Nov. 21, 2008.
• Enexus completed efforts to put in place a senior secured revolving credit facility in the amount of $1.175 billion with the transaction closing on Dec. 23, 2008.
The state regulatory decisions and financing continue as the critical path items. Due to the continued turmoil in the financial markets and a longer regulatory approval process than originally expected, Entergy and Enexus remain in a rolling readiness posture. This strategy enables Entergy to execute the spin-off following receipt of regulatory approvals and once the timing is right to access the credit markets, both on acceptable terms.