Entergy Corporation · NYSE:ETR
Entergy — 37th Edison Electric Institute Financial Conference (October 2002)
43 slides from Entergy's conference presentation, Oct 22, 2002
Slide 1: Edison Electric Institute Financial Conference
“We can’t go on together, with suspicious minds” 37 Edison Electric Institute Financial Conference J. Wayne Leonard r___\ Chief Executive Officer October 22, 2002 ==> Enter: ey
Slide 2: Safe Harbor
Safe Harbor The following constitutes _a “Safe Harbor” staterent_under_the Private Securities Litigation Reform Act of 1995: Investors are cautioned that forward- looking statements contained herein with respect to the revenues, earnings, performance, strategies, prospects and other aspects of the b
Slide 3: Why you? or Why not you?
Slide 4: Been there, Done that
Slide 5: Fix What's Broken by Stopping Doing What Ain't Working
“Fix What’s Broken” by “ stop Doing What Ain’t Working” ¢ What? ) ¢ How?) Divestitures ($5 Bit Net Debt to Net Capital Ratio 1998 1999 2000 2001 12 Months Ended, % 60 -10% 55 50 45 40 Gains/Losses From Divestments $ Millions 35 30 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 98 98 99 99 00 00 01 O01 Hyperion Freeston
Slide 6: Build on What You Do Well: Consecutive Quarters > Consensus
Build on What You Do Well 17 Consecutive Quarters > Consensus* Quarterly Earnings Actual Consensus* Variance Key Driver ( EPS) 2098 0.83 0.60 38% ECS $1.50 3q98 1.01 0.96 5% Utility Actual _ 4098 0.17 0.02 750% Utility/ ECS Consensus 1999 0.26 0.19 32% Utility / Parent - in = 2099 0.81 0.76 ™% Utili
Slide 7: Build on What You Do Well
Build on What You Do Well What? ‘andi EPS hen EPS Projection —Now (mid 1998) (Oct 2002) Parent " 3.65* inert ommodi Services Parent UK Projects Trading Nuclear Utility 1998 Sourcesof 2002 1998 Sourcesof 2002 Growth Growth “Midpoint of 2002 Guidance
Slide 8: Stay Out of Trouble
Stay Out of Trouble teamfascount Wh . ; ‘) Stop doing ~\ ( Build on fi Fix what’s what you don’t what what you broken eaty F know ain’t working do well * Formed a joint venture with Koch * Stayed out of California. * No long-dated power contracts * Utility reliability * Utility service * Utility cal
Slide 9: Expect the Unexpected, Prepare for the Worst
Expect the Unexpected, Prepare for the Wor: Save for a Rainy Dayffyours / others) Projected Cash Flows Dafffous one $B Sources - $7.78 14 7 a6 Uulity Only Uses -$48B ==" a CO 09 _— 05 08 Beginning OOF NewDelA INalpterance DhMderd Investment Avalable for * toto tabs conkartoaalafon oats Net Debt to T
Slide 10: How do you keep it up?
Slide 11: Execute Well, Invest Wisely
Execute Well, Invest Wisely Point L f ong <7 oO y 2.49, View __ Develop/ Sous, & [7 Acquire Assets Th Portfolio jy SS Management Short F Asset “Disposition [— r Manage Asset % == Performances/ pal Skills | Productivity 1 7 Provide I Operational ryt qe Products/ >} Competitor | S & Services Standards
Slide 12: To Do List: 2003 - 2005
To Do List: 2003 - 2005 To Achieve 6 38 insic Growth: Utility Gain approval for rate Improve productivity to Pursue incentive-based increases reduce costs generation plans Nuclear Achieve additional Sell/fhedge output as PPAs Complete uprates cost savings roll off Complete Magnolia Storage Continue
Slide 13: Capital Investment and Depreciation
Capital Investment and Depreciation $ Billions 99 00 01 02 Est. (-) Capex —e-- Depreciation B
Slide 14: Return on Investment
Return on Investment 98 vs. 01 $1 Billion Investment Outage Outage Frequency Duration Down Down 40% 42% Call Center Regulatory Outage Answer Time Complaints Improved Regulatory Relations Higher Return: Less Disallowances Growth Opportunities 14
Slide 15: Productive Investment
Productive Investment,» | Traditional arnings: Levers a Value Added: > Compensation fo Rate Base oogo 0 & MReduction Capital Savings Sales Growth Oooadogd Fuel Savings Purchased Power Savings Fuel / Purchased Power Efficiencies O&M & Capital / Fuel Efficiencies ONPV to 0-1% above cost of capital Reg
Slide 16: Important Decisions Require Aligning Economic Interests
Important Decisions (across time, location, fuels, etc.) Require Aligning Economic Interests Generation Load Profile Owned Capacity Gross nan, Cjrecie zee Zain Cte tee Plant Type mice GD ce-cuen By coger a a HE soa TransArea ec aye ‘ee cur AE TORK Heivo-a9 Teresha ferter Snore RverWeree sarspnnge AR
Slide 17: Other Reason the Market is Overbuilt
other Reason the Market is Overbuilt Capacity Factor % Over 7 million more MWhrs per year 96 98 94 94 92 90 87 86 76 [DD Before ETR After ETR 43 Pilgrim IP3 FitzPatrick IP2 vY ETR'01 Industry Note: Before ETR consists of previous 3 years performance Regulated Average Source: UDI, intemal Analysis Av
Slide 18: He Jumps, He Shoots, He...
He Jumps, He Shoots, He... Production Cost 3-year rolling average, $/MWH $26.48/MWhr Avg. 42 24 Z T=] $16.49/IIWhr Avg. 19 20 19 7 16 14 Pilgrim IP3 FitzPatrick IP2 vy ANO Grand Gulf River Bend Waterford Industry, Average Note: Entergy plants through 2001. Industry is through 2000. Northeast fleet i
Slide 19: More Cheap, Clean Capacity
More Cheap, Clean Capacity Entergy Nuclear South Capacity Entergy Nuclear Northeast Capacity (uy (uy 5,078 4,159 Indian Point 2 Waterford wre FitzPatrick ANO2 Vermont Yankee — ‘River Bend" s ane? Indian Point2 Grand Gulf Waterford Pilgrim Indian Point ANO2 3,955 Indian Point2 2002 2003 2004 2005 200
Slide 20: Entergy-Koch: Built to Last
Entergy-Koch: Built to Last 40%-60% 40%-60% Pipeline Earnings Trading Earnings Discipline 20
Slide 21: We Do This Well Too
We do This Well Too Gulf South Pipeline Gulf South Operating Expense — $M, excluding Fuel 122 113 86 1 Pan cure SOUTH Key Statistics 97 98 99 00 01 Throughput - Befid 25 Miles of Pipeline 8,800 Peak Day Deliveries - Befid 3.8 Including 10.6 Bef Magnolia a” Storage Working Gas - Bef 786 21
Slide 22: Entergy-Koch Trading
Entergy-Koch Trading — information —>Analytics —>Knowledge 3 Distinct and Complementary Businesses Eamings Composition Target; % Physical 40% 60% 40%-60% Optimization ipeli i rading Eaming (Value Capture) Discipline 35% Financial Optimization ‘Value Protection) 15% Point-of-View Trading 50% 22
Slide 23: Physical Optimization
Physical Optimization — Trading Around Owners’ Assets Products and Structures Revenue Sharing Physical Positions Profit/Loss <iH-UDOZZ00 Profit/Loss [impact on. RRisk/Volatility|Lower dueto risk [Risk held if consistent with POV lransfer lor transferred to marketfor a lgain Return IMore predictable
Slide 24: Financial Optimization
Financial Optimization — Protects Owners’ Business Value Market Risk Products and Interface Mitigation agisige _Midgation: Structures a Margins oamsor9oeo <4-U00ZzZ00 [impact on. IRisk/Volatility [Risk managed to desired _|Riskhheld if consistent with levels POY or transferred to market [for again R
Slide 25: Risk Management Options
Risk Management Options Who You Gonna Call? (BID) BidiA sk POV BOOK ‘AskiBid ldiAsk Spread | = Receive: Gain/loss on trade INFORMATION FLOW HELPS ESTABLISH ENTERGY KOCH POINT OF VIEW > 6 | Receis
Slide 26: Point-of-View Trading: Trading Track Record
Point-of-View Trading — 2 Trading Track Record Gainiloss days; Ratio 98-01 Daily earnings; Trading days 3.0 350 25 | 30 20 250 ) 200 15 | 150 1.0 100 0.5 50 00 IB | 98 99 00 O1 02 0 Lal IAN No _ YTD 432401234 Power [| Weather % of annual eamings {| Gas Ml Overall 96
Slide 27: Growth: New Markets, Market Share, New Products
Growth — New Markets, Market Share, New Products Trading Regions Trading Products Today Dae icnat Today Future Opportunity North America #2 Of Canada + Electricity Coal Emissions Pena Europe + es. IK ae Weather Se Weather Continental Europe Transmission " x a | +f ar
Slide 28: $3 billion to spend - How?
Slide 29: $1B of $3 Billion Would Cover it, if Done at Market
$1B of $3 Billion Would Cover it, if Done at ‘Market’ $1B investment Alternatives EPS crowth @) Pipeline Investment EPS Growth* 2) Nuclear 8% 8% oe 6% we _ wee _ wr 2% 2% o% 0% 85 8.0 75 70 multiple 475 450 425 400 $iKW ERS Grown (3] Distressed Generation EPs Gromit (4) Buyback 6% 6% 4% 4% 2h 2% 0%
Slide 30: Let's Play: Hot Potato
Let’s Play: “Hot Potato” Divestment Plans Announced Holding Period $B % of Asset Sales Announced AES 2.0 AEP 3.2 DYE oF Less than 1 Year ILA 29 i; cms 1.2 CPN 0.6 DYN 27 More than ENE 441 Bivears EP 2.0 Exc 0.6 FE 1.1 MIR 1.5 NI 2? PCG 1.6 TXU 6.1 WB 5.7 XEL 1.6 Total 4 38+ > Source: Company Analysi
Slide 31: Let's Play: Musical Chairs
Let’s Play: “Musical Chairs” Potential Divestitures $B Divestitures Required to Reacl 50% Debt/Total Capital Note: Assumes 20% of merchant energy companies go bankrupt and that 33% of book value of assets are auctioned 31
Slide 32: From Dodge Ball to Kick Ball
From “Dodge Ball” to “Kick Ball” Potential EPS Growth Contribution* y % 15% Historical Average Since 1998 12% cj . 2 9% bs . . . 6% . 2 3% 0% = 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% ROIC assumed for New Investments *Based on curnulative $2.9 billion investment 32
Slide 33: What keeps you up at night
What keeps you up at night
Slide 34: What keeps you up at night?
at keeps you up at night? PPA roll-off * Political risk * Event risk } Entergy-Koch Step-Out Investment * Opportunities greater © Execution risk, thai balance sheetpize —— 34
Slide 35: Entergy's Point of View
Slide 36: How Bad Is It For Merchants?
How Bad Is It For Merchants? Annual Into-Entergy Spark Spread $INWWH for 7,000 HR 60 45 Spark Spread 30 — “s Electricity Natural Gas 15 0 1999 2000 2001 2002 Source: Bloomberg, Company Analysis Spark Spreads $/VIWH for 7,000 HR 1 Entergy a [>] 04 241 NEPOOL 6 NY Zone A ERCOT " 6 36
Slide 37: How Bad Is It For Speculators?
How Bad Is It For Speculators? Trading & Marketing EBIT 2002 Palo Verde Forward Annual Price $m SINWH 200 150 100 1,101 60 939 94 0 —_ KAA A AoA AS oh Ho Oo x 00 507 PGE PH HP PAP’ HP’ PPG 7 ia ai Lk (629)/R2"* __ Mark to Market Impact of Book Duration Pl 1000 IW Firm position, $M per $1/lMWh change
Slide 38: Will It Last?
Will It Last? Entergy Reserve Margins Years to 15% Reserve Margin GW(Bars); % (Line) Years cw Capacity Additions % “10. [J incremental Demand | 75 — Reserve Margin 8 Ca 6 45 7 4 30 2 2 0 Year 01 03 05 07 09 11 13 15 17 19 21 23 25 SERC New New ERCOT England York Source: CERA, Company Estimates 36
Slide 39: How Important Is Financial Strength?
De % How Important Is Financial Strength? ebt to Total Capital* Debt to Total Capital Range* % by Credit Rating x0 100 Merchants 80 | sienna eo f——~—~~—~—~—~S™_ SPIELE 60 BBB 40 40 BBB. BBB 20 20 oO Oo 1999 2000 ©2001 2002 Pipeline Electric Merchant Energy Utility Energy Trader * Includes Off Balanc
Slide 40: How About Credit Quality?
How About Credit Quality? BAD and GETTING WORSE) Ratings of Top 15 Power Marketers Average Merchant Bond Spreads 2001 bps Enron Deer Bankrupt AEP AeTBaal BBEY Reliant Energy (RRI) (BBR++Baa3 Junk 1314 Duke ATAI Mirant BBB-/Baa2 Junk Williams BBB++Baaz Junk Aquila BBBTBEES Exiting PG&E Deas Bankrupt
Slide 41: And Volatility?
And Volatility? Rig Count US Natural Gas Storage Natural Gas Volatility Number of Rigs % of Capacity US Annualized Daily Volatility, % 1000 100 | 100 750 B 500 50 50 250 B 0 0 0 7 8 9 OO O11 O2 7 8 9 O OM 97 8 99 00 O1 02 Entergy New Additions Entergy Reserve Margins Electricity Volatility cw % Into
Slide 42: And the point is
Slide 43: Aligning Strategy With Market Reality (POV)
Aligning Strategy With Market Reality (POV) | OVERBUILT POWER MARKET Point of > | | [Large Asset Sales: View ~ = 7 What i i : keeps oe roman Feast) fren py| ssn hoes P: a 2 pik 3 opto prices nik us up nuclear evenas spread da at portfolio rates fall widens night? Increased Nuclear Increased Increase
Entergy — 37th Edison Electric Institute Financial Conference (October 2002) on 6ix