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Entergy (ETR)Stock (Electric Utilities Industry, Energy Industry, Services Industry)
 Entergy is one of the nation’s largest utility operators, with annual revenues around $11 billion and 2007 operating income at $1.167 billion[1]. Entergy is also the nation's second largest plant operator, after Exelon. Entergy emerged in its present form after considerable reorganization and inorganic growth in the late 80's and early 90's. These changes were made in response to a rapidly evolving energy industry marked by deregulation and open markets. Entergy serves more than 2.7 million retail customers in Mississippi, Louisiana, Arkansas, and Texas. The company's utility segment accounted for more than 80% of the company's revenue in fiscal year 2007. In 2005, Hurricanes Rita and Katrina reeked havoc on Entergy's Utility infrastructure causing billions of dollars in damage. Entergy remains susceptible to increased hurricane activity and larger insurance premiums resulting from heightened perceived risks. Moving forward, the utility's success depends greatly on U.S. Energy Regulations . In the recent past, local and state governments have been leaning toward open markets and deregulation. Continued deregulation and a movement to market based prices should provide a boost to Entergy's Utility earnings in the mid to long term. Rising fossil-fuel prices(which set wholesale energy rates) have improved margins at Entergy's nuclear plants which have comparatively low fuel and marginal costs. Entergy's nuclear presence will allow it to benefit from rising worldwide demand for energy, resulting rising fossil fuel prices, global warming concerns and a favorable US legislative environment.
[edit] Company HistoryEntergy emerged in its current form in the late 80's, in response to a rapidly evolving energy industry marked by open markets and deregulation. Entergy responded to these rapid changes by organizing new subsidiaries to streamline operations and capitalize on new opportunities. In 1990, the company formed Entergy Operations to better manage its nuclear facilities along with Entergy Power which was created to expand wholesale electricity generation. Entergy continued to expand its utility operations with the acquisition of Gulf States Utilities in 1993. With this acquisition, Entergy emerged as one of the United States' largest utility companies with over 2.3 million retail customers. In 1998, Entergy redoubled its focus on nuclear energy, making several strategic acquisitions. Soon Entergy became the nation’s second largest nuclear operator with 11 nuclear units producing 10,000 megawatts of energy. (1 MW can power approximately 500 homes; a city the size of Seattle can consume 1,100 MW at any given moment in time.) In addition to regional expansion, the passage of the Energy Policy Act of 1992 allowed Entergy to expand its international operations. Entergy now has energy operations on four continents. [edit] Corporate OverviewEntergy is divided into two broad business segments: utility and non-utility. The Utility segment generates, distributes energy to over 2 million retail customers in the southern regions of the United States. The Non-Utility segment focuses on generating energy through nuclear and non-nuclear plants for wholesale delivery to retail energy suppliers. Together, these segments have the capacity to generate over 30,000 megawatts of electricity[2]. Though Entergy utility previously generated most of the company's income, non-utility income surpassed utility income in 2007, probably because the utilities market is highly regulated. These regulations prevent Entergy from raising utility rates when costs increase - to do so, the company must go through a lengthy process of government petitioning. 2007 ended with a number of successful rate increases, but their effects will not be seen until 2008.  In the first quarter of 2008, the company saw revenues increase over $170 million year-on-year to $2.864 billion. Operating income increased by $170 million, to $606 million. The company added 30,000 electric utilities customers. In the second quarter of 2008, ETR's operating revenue grew from $2.8 billion to $3.3 billion year-on-year; operating income increased from $478 million to $568 million.[3] [edit] UtilityEntergy's Utility segment generates, distributes and sells electric power and operates a small Natural gas utility. Entergy's retail utility operations are divided by region into six segments: Entergy Louisiana, Entergy Gulf State Louisiana, Entergy Texas, Entergy Arkansas, Entergy New Orleans and Entergy Mississippi. In all, these six utilities generate 22,000 megawatts of energy and deliver energy to over 2.6 million retail customers. In addition to electric utilities, Entergy operates two natural gas utilities that serve approximately 150,000 retail customers. Entergy Utility also includes several nuclear utilities that serve Entergy's regulated energy businesses. This segment had an operational income of $554.6 million in 2007. [edit] Non-Utility[edit] Non-Utility NuclearEntergy's Non-Utility Nuclear segment operates five nuclear plants in northeast region of the United States and one nuclear plant in the Midwest. These nuclear plants generate energy for wholesale delivery to retail suppliers. In all, these nuclear plants have a generation capacity of almost 5000 megawatts. Entergy Non-Utility Nuclear segment also has access to another 800 MW through a long term management contract for a nuclear power plant in Nebraska. In 4Q07, Entergy's non-utility nuclear segment had a capacity factor of 90%, which then rose to 92% in 2Q08.[4] [edit] Spin-offEntergy announced in its 3Q07 report that it would be spinning its non-utility nuclear business into a tax-free spin-off. Shareholders of Entergy would be the shareholders of the company, codenamed SpinCo, which would be independent, publicly traded, and recorded as "discounted operations" in future Entergy earnings releases. SpinCo will pursue a joint nuclear services venture with Entergy, with both companies having a 50/50 share. The spin-off is expected to be finalized by 3Q08. [edit] Non-Nuclear Wholesale AssetsEntergy's Non-Nuclear Wholesale Assets sells wholesale energy produced by non-nuclear plants. Non-Nuclear Wholesale has a generation capacity of 1600 MW, and in 2007 had $54.8 million in operating income. [edit] Trends and Forces[edit] Rising Fossil Fuel Prices  Over the past decade the price of fossil fuels has risen steeply, approximately tripling since the year 2000. These huge price increases have drastically increased the cost of operating fossil-fuel based plants. Higher fossil fuel prices stand to have a mixed effect on Entergy's earnings. Fossil-fuel plants in Entergy's regulated utility segment represent a substantial portion of Entergy's 30,000 MW of capacity. Increasing fossil-fuel prices increase the marginal cost of operating these plants, while regulation prevents Entergy from passing these costs onto to customers. This unfavorable combination raises Entergy's marginal costs, negatively impacting earnings. On the other hand, Entergy's substantial non-utility nuclear portfolio stands to benefit greatly from rising fossil fuel prices. Decades after safety concerns shelved plans for the lion's share of nuclear energy projects, these increasing costs have in turn forced corporations and the government to take a second look at nuclear energy: Nuclear vs. Fossil. The key difference between nuclear and fossil plants is the cost structure. Nuclear plants require very large capital investments (to construct the plant) but little expenditure for fuel because it takes relatively little uranium to power a plant. On the other hand, fossil fuel plants require relatively little capital investment but have high fuel costs because they require large amounts of coal, oil or gas. In the past, low fossil fuel prices gave given fossil fuel plants a cost advantage over nuclear plants. The cost advantage, compounded by the stigmas of nuclear energy (the Not In My Back Yard (NIMBY) phenomenon) has prevented new nuclear construction for almost 30 years. Record fossil fuel prices have begun to reverse this trend. The possibility and implications of peak oil may reinforce this reversal. Because market prices for wholesale energy are determined by fossil-fuel plants, increasing operation costs at fossil fuel plants will widen profit margins at Entergy's non-utility nuclear plants, boosting earnings. Already, nuclear utilities such as Entergy have begun filing for permits for construction of new nuclear plants to capitalize on this fact. [edit] WeatherBad weather can knock out power to Entergy customers, forcing the company to do costly repairs. For example, Hurricane Gustav in 2008 cut power to 1.8 million homes, 690,000 of which were Entergy's customers - the second largest outage for the company.[5] [edit] Global Warming and EnvironmentalismOver the past few years, global warming has moved from the fringes to become a main stream issue across the globe. A growing body of scientific evidence ties carbon dioxide emissions to rising temperatures. As a result of growing popular awareness of the risks of global warming, many large corporations have stepped up their efforts to project greener images. Additionally, many expect the US government to enact more stringent legislation limiting carbon emissions. Environmental awareness is another key trend driving the renaissance of nuclear energy. Compared to their fossil fuel peers, nuclear energy plants have negligible emissions. Although Entergy also operates fossil fuel plants, its substantial nuclear portfolio should allow it to offset its emissions if carbon trading markets are used to lower emissions. Entergy appears to be a posterboy for sustainability; on September 11th, 2007, the company was named a member of the Dow Jones Sustainability Index for North America and the world, an award only granted to 16 other utilities worldwide. 2007 is the sixth year the company has been named a member of the DJSI, an unprecedented honor. The company ranked highest in its sector for climate strategy, environmental policy and management, shareholder engagement, occupational safety, and talent attraction/retention. Furthermore, the company was named "Best in Class" four times by the Carbon Disclosure Project for its disclosure of greenhouse gas emissions and its plans to prevent and deal with climate change. It should be noted, however, that the environmental benefits of nuclear power are still hotly debated; among hardcore environmentalists, the true friendliness of Entergy is still up in the air. [edit] Nuclear Power Is Still Highly ControversialNuclear power plants are run to precise, extremely high standards in order to ensure that the power-generating processes do not go awry. This is because nuclear energy is generated by dealing with the most basic and yet most powerful forces in the universe: the quantity of energy released by fission reactions in a single power plant, though enough to power 800,000 people, is enormous enough to melt a hole deep into the planet. Furthermore, an uncontrolled reaction could release enough radiation to make the state of Pennsylvania unlivable. Entergy has taken an industry-leading position on plant safety and regional safety, and is currently in the process of installing the most advanced meltdown-warning system in the world at its Indian Point Energy Center to give locals advance warning if there is any danger. The threats to the environment and human life that nuclear power could pose have many people who would otherwise support nuclear energy in the fight against climate change turning to other energy sources like wind and solar, though the fact that Entergy's competitor, Exelon, can generate a kilowatt-hour of energy for only 1.8 cents versus an average of 4 cents for wind energy could have average consumers leaning toward nuclear as an easy climate change solution. Ultimately, the question of the success of nuclear energy will come down to what people fear more: the threat of climate change with its unknown effects or the risk of a cataclysm whose effects are known ([www.wikipedia.com/chernobyl see: Chernobyl]). On July 11th, Entergy discovered a 60-gallon-per-minute leak in one of its Vermont generator cooling towers. It was forced to reduce output to just 24%, though as of July 16th, repairs have brought the plant back up to 40%.[6] [edit] Government Regulation and LegislationThe US government plays a critical role in the financials of the highly regulated energy sector. Each of Entergy's utilities and non-utilities face a variety of challenges and potential benefits that may arise from changes in legislation and regulatory schemes: [edit] UtilityMost of Entergy's retail utilities are in highly regulated markets. Regulation impairs Entergy's ability to pass increasing costs along to consumers. However, local and state governments have been trending toward deregulation and open markets. Increasingly deregulated markets and market based pricing should provide a boost to earnings in Entergy's utility segment. [edit] Non-Utility NuclearIn all, the legislative environment is favorable for Entergy's Non-Utility Nuclear segment. Increasing concern over global warming makes US carbon emission legislation likely in the short to midterm. Entergy should benefit from any legislation based on carbon trading markets because its substantial nuclear portfolio should allow it to offset emissions at its carbon based plants with carbon credits from nuclear plants. Additionally, the 2005 federal energy bill provided many government incentives for the continued expansion of the US nuclear fleet. Non-Utility Nuclear should benefit from this favorable legislative environment moving forward. [edit] Hurricane SeasonsEntergy's utility operations are predominantly located in the gulf-state regions, making it very susceptible to hurricanes. The 2005 Hurricanes Katrina and Rita and the 2007 Hurricane Humberto caused immense damage to Entergy's utility infrastructure throughout the gulf states resulting in significant losses. Specifically, Entergy reported over $1B in losses due to hurricane damage. After Hurricane Katrina, Entergy's subsidiary Entergy New Orleans was forced to file for bankruptcy due to a near complete loss of revenue from its electric and natural gas customers. Entergy is poised to recover much of these losses from federal and state assistance along with insurance claims. However, the storms may have a more permanent negative impact on earnings as many expect New Orleans' population to remain at half of pre-storm levels. If hurricane seasons continue to increase in intensity, whether due to global warming or natural cycles, storm systems will continue to pose a very serious threat to Entergy's operations. [edit] Competitors
Entergy's position as the nation's second largest nuclear operator puts in a favorable position compared to its non-nuclear utility peers. Increased fossil fuel prices have continued to raise wholesale electricity rates throughout the nation. As a nuclear supplier, Entergy's Non-Utility Nuclear segment will benefit because it is largely immune to increases in fuel prices. It is important to note that, while these metrics are useful in highlighting various advantages of each utility, none of these company's utility operations are in direct competition. Each utility operates in a geographical monopoly.
 Entergy2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
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