Entergy Texas. Inc · NYSE:ETI/P
Entergy Texas — Entergy — Merrill Lynch Power and Gas Leaders Conference 2003
40 slides from Entergy Texas's conference presentation, Sep 17, 2003
Slide 1: Merrill Lynch Power and Gas Leaders Conference: Back to the Future
Merrill Lynch Power and Gas Leaders Conference “Back to the Future” J. Wayne Leonard Chief Executive Officer September 17, 2003
Slide 2: Safe Harbor and Reg G Compliance
Safe Harbor and Reg G Compliance The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: From time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. S
Slide 3: What We Said on September 17th in 1998
What We Said on September 17th in … 1998! “This isn’t rocket science … it’s pretty basic” z Stop doing what isn’t working/making money z Fund the future, or without the funds, you have no future z Act like a real utility – make reliability a reality z Fix what’s broken z Build on what you do well z
Slide 4: Stop Doing What Isn't Making Money
98 Stop Doing What Isn’t Making Money 19 Timeline of Divestitures FPL Merger 98 – 03 Termination 98 99 00 01 02 03 Results Bad Latin London Spain Security Hyperion DeSoto America OK Electricity Sites Projects Good Citi- Damhead EISI Edesur Freestone Saltend Turbines Power Creek $6.5 $400 $4.7 billio
Slide 5: Fund the Future
98 Fund the Future 19 Sources and Uses of Cash 98 – 02; $B Beginning Cash 0.8 Sources of Cash: Asset Sales 3.8 Operating Cash Flow 8.5 Total Sources of Cash 12.3 Fund Uses of Cash: Investments in: Utility 4.7 the Nuclear 1.3 Future Entergy-Koch 0.4 Entergy Wholesale/Other 2.0 Net Debt Reduction 0.9
Slide 6: Start Measuring
98 Start Measuring 19 Assessment Perspective Strategic Objective Measure/KPI Frequency Financial Meet or Exceed Commitments EPS – Consolidated Quarterly Enhance Cash Flow OCF – Consolidated Quarterly Increase Net Income Earnings from Initiatives Annually Improve Cost Competitiveness Total Spending –
Slide 7: Act Like a Real Utility in Fossil Operations
98Act Like a Real Utility…in Fossil Operations 19 Regulated Fossil Plants Outage Rates 99 – 02; % 11 46% 46% 53% 53% 9 8 7 6 6 4 4 99 00 01 02 Forced Outage Rate Equivalent Forced Outage Rate 5
Slide 8: Act Like a Real Utility in Nuclear
98 Act Like a Real Utility…in Nuclear 19 Production Costs* Capacity Factors* Industrial Accident Rate* 99 – 02; $/MWh 99 – 02 ; 3 Year Moving Average, % 97 – 03E; 18/24 Month Average 17% 17% 9% 87% 87% 9% 1.0 0.9 94.4 18.0 0.8 16.8 88.8 86.8 86.3 ETR Regulated Nuclear 14.8 15.0 0.7 Industry Top Quar
Slide 9: Act Like a Real Utility in Transmission
98 Act Like a Real Utility…in Transmission 19 Transmission Service Index Transmission Service Schedules Managed 98 – 02; MWhs Not Served 96 – 03E; # of Schedules 3000 2,719 180,000 2500 165,000 56% 56% 160,000 4614% 2,127 4614% 140,000 2000 120,000 1,472 1500 100,000 1,184 80,000 965 1000 60,000 40,
Slide 10: Act Like a Real Utility in Reliability and Customer Service
8 Act Like a Real Utility…in Reliability 9 19 And Customer Service Call Center Answer Speed Abandoned Calls Employee Accidents Seconds 000s 59 64% 76% 53% 858 76 36 21 210 98 02 98 02 98 02 Regulatory Outage Outage Frequency Outage Duration Complaints Per Customer Per Year Average Minutes 79% 79% 44
Slide 11: Fix What's Broken
98 Fix What’s Broken 19 Issue Problem Solution Customer • Busy signals and long delays • Implement new call center Service • Lack of customer-friendly technology, offices, and staffing policies; shut-offs • Add walk-in centers • Not enough aid for low-income • Offer bill paying options to low custom
Slide 12: Build on What You Do Well in Nuclear
98 Build on What You Do Well…in Nuclear 19 “Acquired at a reasonable price” FitzPatrick - 825 MW (BWR – GE) Acquired Nov. 2000 3,955MW@ Vermont Yankee - 510 MW (BWR – GE) $240/kW Acquired July 2002 Indian Point 2 - 970 MW (PWR – Westinghouse) Acquired Sept. 2001 Pilgrim - 670 MW (BWR – GE) Indian Po
Slide 13: Build on What You Do Well in Nuclear
98 Build on What You Do Well…in Nuclear 19 Production Costs Capacity Factors Outage Duration Before ETR Ownership vs. 03E Before ETR Ownership vs. 03E Previous Record vs. 03E Average $/MWh Average % Average days/plant 28% 28% 21% 46% 46% 21% 29 Southern Fleet in 02 = 97 21 93 46 77 Southern Fleet in
Slide 14: Build on What You Do Well in Trading
98 Build on What You Do Well…in Trading 19 Henry Hub Spot Gas Prices 1Q01 – 2Q03; $/MMBtu 20 Price movement > $0.40/MMBtu 15 10 5 0 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 Operational Earnings Per Share – Entergy-Koch, LP 1Q01 – 2Q03; $/share 0.41 0.2 0.22 0.22 Gulf South 0.16 0.15 Pipelin
Slide 15: Create Management Team Committed to the Truth
8 Create Management Team 9 19 Committed to the Truth Entergy’s Stated Goals and Results 98 – 02 Goals “Doing What We Say” Results Grow Operational Earnings 8 – 10% 14.5% Annual Average Sustain Strong Operating Cash Flow $1.9B/year Average Improve Operational Net Margin Improved 119% Increase Operati
Slide 16: Here's What Our Employees Think
We Have Our Story…You Have Your Perspective… But Here’s What Our Employees Think Customer Service Diversity Teamwork Overall, good customer Entergy promotes diversity Your department service is provided by of backgrounds, talents, cooperates well with other Entergy. and perspectives. departments. 10
Slide 17: Our Approach Is Unchanged Today
a y od Our Approach Is Unchanged T z Stop doing what isn’t working/making money z Fund the future, or without the funds, you have no future z Act like a real utility – make reliability a reality z Fix what’s broken z Build on what you do well z Create a management committed to the truth, who know wh
Slide 18: Fund The Future: Projected Liquidity
Fund The Future Projected Liquidity* 2Q03 – 05; $B 5.7 Available for Investment, Debt/Equity Retirement, Dividend Increases (3.0) (1.0) 3.3 1.3 (0.8) 1.1 Beg. Net Debt Adj. Op. Capital Dividends Target End Cash Financing Cash Investment Liquidity Cash Flow** * Consistent with published estimates **
Slide 19: Procuring Least-Cost Resources Through Integrated Supply Plan
Act Like A Real Utility…by Procuring Least-Cost Resources Through Integrated Supply Plan Generating Capacity in ETR’s Region Generation Market 03 – 05; Cumulative GW 17 17 16 3 3 3 03E 04E 05E Needed by ETR Available for reliability Capacity 03E 04E 05E Resulting Reserve Margins 57% 59% 56% “Looks e
Slide 20: But Planning Has Become Much More Complex
But Planning Has Become Much More Complex Utility Supply Planning Then vs. Now Issue Old WORLD New WORLD Certainty about load to Regulated utility sole • Cogen potential plan for supplier • Potential deregulation Transmission system Integrated generation and • RTOs, independent planning and operatio
Slide 21: The Goal is Simple: Reliable Supply, Predictable and Stable Price
The Goal is Simple: Reliable Supply, Predictable and Stable Price Utility Supply Planning Components and Objectives STRATEGIC SUPPLY • Generation mix matched to load shape RESOURCE PLAN • More modern and efficient generation fleet • Diversified Resource Mix SETS STRATEGY AND LONG- • Purchase vs. own
Slide 22: Supply Plan Uses Load Shape To Determine Generation Required
Supply Plan Uses Load Shape To Determine Type and Amount of Generation Required Supply Requirements vs. Existing Generation Based on 03 Load Duration Curve Supply Existing Requirements Plenty of Existing Generation Peaking/Reserve Generation Existing Gas 24,000 MW 120% Generation > Reserve Requireme
Slide 23: Needs Are Converted to Financial/Physical Assets
Needs Are Converted to Financial/Physical Assets Supply Requirements, Existing Generation and New Resource Options Based on 03 Load Duration Curve Comparable Supply Options Supply Existing New Resource for Operational Needs Matched Requirements Generation Supply Options to Load Shape Existing Life o
Slide 24: Location Determines Both Price and Reliability
Location Determines Both Price and Reliability New Generation by Region MW North Arkansas' Profile Dell Power CCGT (Complete) Complete 774 (Suspended) CCGT (Under Const.) Active Construction 0 Cogen/CCGT (Complete) Suspended Construction 5,663 Cogen/CCGT (Under Const.) Southaven (Cogentrix) Total Me
Slide 25: Why So Many Complaints?
Why So Many Complaints? ETR Load Requirements vs. Regional Supply Availability MW Supply Sources Legend North Arkansas' Profile CT Merchant Generation 12,000 CCGT Merchant Generation Merchant 10,000 Capacity North Off-System Import Capability 8,000 ETR Peak 704 MW Arkansas Intra-System Import Capabi
Slide 26: Case Study: ENOI
Case Study: ENOI Entergy New Orleans Inc. (ENOI) Generation Supply Strategy Illustration Strategy Measure Before Strategic After Strategic Supply Objective Supply Resource Resource Plan Plan Price Stability- Less % of Energy Less Exposure to Gas Requirements y Price Provided by 27% 56% volatilit Coa
Slide 27: Case Study: ENOI – Lower, More Stable Prices
Case Study: ENOI – Lower, More Stable Prices ENOI Before New Strategic Supply Plan Production Mix Production Costs* % $/MWh 73% ENOI’s Gas/Oil/Purchases production costs $47 $55 $63 were very sensitive to gas $3/mmbtu $4/mmbtu $5/mmbtu 27% and purchased Market Gas Price Coal/Nuclear power costs ENOI
Slide 28: Fix What's Broken in Transmission Policy
Fix What’s Broken…in Transmission Policy Issue Problem Solution Policy • Uneconomic pricing rules for • Participant funding interconnection of generation • Generator deliverability standards • Potential cost shifting and • Locational marginal pricing subsidization • Congestion pricing • Result is st
Slide 29: Fix What's Broken in Texas
Fix What’s Broken…in Texas Problem: Returns Are Unacceptable Solution: Start of Retail Competition EGSI-TX Return on Equity 1 PTB Base Rate set in 3/02 %; Estimated 2 PTB Fuel Factor set in 8/03 11% Allowed ROE 3 On 8/20/03, the Texas PUCT approved the protocols settlement agreement 7.6 4 Remaining
Slide 30: Pursuing Top Quartile Utility Cost Performance
Build on What You Do Well…by Pursuing Top Quartile Utility Cost Performance Entergy’s Spending Rankings vs. Peers 01; Quartile Function Metric Quartile Rank Fossil Non-Fuel O&M $/MW 1st Nuclear Non-Fuel O&M $/MWh 1st Transmission $/Transmission Asset 1st Customer Service O&M $/Customer 2nd Distribut
Slide 31: Growing Nuclear Profitability
Build on What You Do Well…by Growing Nuclear Profitability Reducing Labor Costs Entergy Nuclear Workforce # of employees Projected Cost Savings From 12% 12% Productivity Improvements 03E – 06E; $M 3,690 3,240 10 100 35 2Q03 04E 30 Applying Southern Practices to Northern Fleet z Shared resources – st
Slide 32: Adding Best Practices to Both Nuclear Fleets
Build on What You Do Well…by Adding Best Practices to Both Nuclear Fleets Illustrative Sources of Cost Savings Reduce outage frequency and duration – implementation of the outage management team concept Minimize out of service time – use of Functional Equipment Groups to effectively bundle related s
Slide 33: Adding New Nuclear Plants Through Purchase or Management Contracts
Build on What You Do Well…by Adding New Nuclear Plants Through Purchase or Management Contracts Example: Cooper Nuclear Station Risk Mitigation & Share of Upside $10-20M Nuclear Nuclear Plant Plant Entergy Entergy Opportunity Performance Owner Owner Generation Indicators Nuclear Nuclear per plant pe
Slide 34: Executing on Commodity Point of View
Build on What You Do Well…by Executing on Commodity Point of View 1 Point of View Trading Create asymmetric trading Price Price Natural Gas positions: Increases Decreases ” Short Position r us • Establish trading position based on point of view (based on POV) ($$$) $$$$ F o “ • Hedge trading positio
Slide 35: And Business Is Good
And Business Is Good Customer Derivative Contracts Asset Positions Under EKT Management Year-over-Year Change; % 01 vs. Today Delivery (Bcf/Day) Storage (Bcf) Power (GW) 125% 33% 33% 53% 125% 53% 2.25 200 +74% 11.3 135 7.4 1.0 +12% 02 YTD 03 01 9/03 01 9/03 01 9/03 33
Slide 36: Making POV-Based Strategic and Operational Decisions
Build on What You Do Well by Making POV-Based Strategic and Operational Decisions Entergy’s Points of View Variable Point of View Implications for Entergy Price - Retail deregulation - Show retail regulators that regu- more fiction than fact wholesale competition lation - States’ rights benefits cus
Slide 37: Making POV-Based Strategic and Operational Decisions
Build on What You Do Well by Making POV-Based Strategic and Operational Decisions Entergy’s Points of View Variable Point of View Implications for Entergy Cost - Deflationary pressures - Customized pricing to trends mount protect exit or movement offshore of industrials Tech- - Modularization, - Dee
Slide 38: Start Measuring: Goals
Start Measuring Goals Near-Term Long-Term z Deliver average annual z Deliver average annual earnings earnings growth of 8-10% growth of 5-6% Operating z Improve net margin z Maintain top quartile net margin Performance z Achieve $145M in cost savings z Maintain top quartile cost position z Maintain
Slide 39: Q&A Session
Q&A Session J. Wayne Leonard – CEO Don Hintz – President C. John Wilder – EVP and CFO September 17, 2003
Slide 40: Merrill Lynch Power and Gas Leaders Conference: Back to the Future
Merrill Lynch Power and Gas Leaders Conference “Back to the Future” J. Wayne Leonard Chief Executive Officer September 17, 2003
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