Slide 1: Entergy Transmission Spin-Off and Merger with ITC
Filed by Entergy Corporation Pursuant to Rule 425 Under the Securities Act of 1933 Subject Company: Entergy Corporation Commission File No. 001-11299 Entergy Transmission Spin-Off and Merger with ITC Presentation to ULM Business Symposium October 25, 2012 Entergy Transmission Business
Slide 2: Entergy Forward-Looking Information
Entergy Forward-Looking Information In this communication, and from time to time, Entergy makes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Except to the extent required by the federal securities laws, Entergy undertakes no obligat
Slide 3: Additional Information and Where to Find It
Additional Information and Where to Find It On September 25, 2012, ITC filed a registration statement on Form S-4 with the SEC registering shares of ITC common stock to be issued to Entergy shareholders in connection with the proposed transactions, but this registration statement has not become effe
Slide 4: Topics for Discussion
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 5: Illustration of Vertically Integrated Utility
Illustration of Vertically Integrated Utility
Slide 6: Topics for Discussion: Overview of the Transaction
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 7: Utilities Industry is Facing a Huge Need for Capital – Estimated at $2.2T Over the Next 20 Years
Utilities Industry is Facing a Huge Need for Capital – Estimated at $2.2T Over the Next 20 Years Issues Facing Utility Industry Over Next 20 Years Projected Industry Capital Investments Over Next 20 Years Growth / Investment $T ??? Other = 0.15 Distribution Transmission Generation Current Market Cap
Slide 8: Electric Utilities Industry is Consistently the Second Highest in Capital Investments in the US
Electric Utilities Industry is Consistently the Second Highest in Capital Investments in the US Total Capital Expenditures Per Year ($B) 1,000 948 883 900 843 798 210 794 159 227 737 179 750 137 80 95 188 151 67 62 47 93 85 59 39 42 89 19 40 34 38 88 45 29 30 40 500 30 36 35 21 38 35 29 29 29 39 42
Slide 9: Electric Utilities Industry has 4th-Largest Ratio of CapEx to Market Capitalization and 7th-Highest Dividend Yield
Electric Utilities Industry has 4th-Largest Ratio of CapEx to Market Capitalization and 7th-Highest Dividend Yield Top 10 Industries by Ratio, Average 2006-2011 (%) 80 61.2 60 48.5 46.1 CapEx/ 40 34.9 Market 28.2 22.7 21.4 21.2 21.0 Cap 20 18.2 13.5 0 Automobiles Independent Consumer Electric Airlin
Slide 10: Capx/Depreciation Ratios Show Strong Upward Trend Creating Need for External Financing
Across the Electric Utility Industry, In All Functional Areas but Distribution, Capx/Depreciation Ratios Show a Strong Upward Trend Over the Last Decade, Creating the Need for Significant External Financing 4 3.7 Transmission 3.0 3 Generation 2.6 Overall 2 1.9 1.8 Distribution 1.5 1.1 1 0.7 0 2000 2
Slide 11: Industry Is Responding to Capital Investment Challenges with Different Approaches
Industry Is Responding to Capital Investment Challenges with Different Approaches Create larger footprint; upsize balance sheet • Duke / Progress Consolidate • Northeast Utilities / NSTAR • PPL / LG&E • First Energy / Allegheny • Exelon / Constellation Build Achieve greater certainty in regulations
Slide 12: Companies Forming Transcos to Take on New Multistate Investment
Companies Forming Transcos to Take on New Multistate Investment, Relieving Capital Demand on Local Utilities Company Year Transco Activities AEP 2010 Formed the Transco for on-system, wholly-owned investment, including greenfield projects, station additions and system upgrades. Seeking state utility
Slide 13: US Electric Transmission Grid Historically Fragmented and Inefficient
US Electric Transmission Grid Historically Fragmented and Inefficient U.S. Electric Power Transmission Grid Historically, transmission infrastructure development in the U.S. primarily focused on connecting kV load and resources within 115 138 balancing authority areas, 161 230 with little interregio
Slide 14: Federal Policy Created Incentives to Address Grid Optimization Through Independent Transmission
Federal Policy Created Incentives to Address Grid Optimization Through Independent Transmission Energy Policy Act FERC Presumption of 2005 on Independence "This order benefits customers because the transfer of transmission facilities to an Not later than 1 year after the date of independent entity i
Slide 15: Entergy Leadership Long Held Belief that Independent Transmission is an Optimal Path
Entergy Leadership Long Held Belief that Independent Transmission is an Optimal Path for the Industry 14
Slide 16: Topics for Discussion: Overview of the Transaction
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 17: The Transaction Parties – ITC and Entergy
The Transaction Parties – ITC and Entergy ITC • ~15,100 transmission line miles • Serves Michigan, Iowa, Minnesota, Illinois, and Missouri • Member of MISO and SPP Entergy Transmission Operations • ~15,500 transmission line miles • Serves Arkansas, Louisiana, Mississippi, and Texas • Pursuing propos
Slide 18: The Merger Transaction – End State
The Merger Transaction – End State Proposed Spin-Merge of Transmission Business Entergy Shareholders own stock in two companies Entergy ITC ETR After Shareholders ITC After Shareholders $700M ETR ITC recapitalization Shares Shares (pre-close) Trust 5.0% ETR and ETR Up to ~5% Shares OpCos ITC Shares
Slide 19: Topics for Discussion: Strategy of the Case: Four Pillars of Benefits
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 20: Benefits to Customers and Other Stakeholders
Benefits to Customers and Other Stakeholders Provides proven business model for owning and operating transmission systems Independence Aligns with national policy objectives to facilitate investment in local, regional and inter-regional transmission, advance open access initiatives and promote acces
Slide 21: Topics for Discussion: Details on Four Pillars of Benefits
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 22: Attributes of Transaction Associated With Independence
Attributes of Transaction Associated With Independence 1 ITC does not own generation or distribution assets; business model singularly focused on Independent owning, operating, and maintaining transmission governance and • All capital generated from transmission and invested in transmission sole foc
Slide 23: ITC's Bottom-Up Planning Process Differs From Integrated Utilities Under MISO in 3 Crucial Ways
ITC's Bottom-Up Planning Process Differs From Integrated Utilities Under MISO in 3 Crucial Ways Difference Description Implication An independent transmission company is Potential to identify more economic incentivized to look at all utility customers projects as costs are tallied up against when ev
Slide 24: Topics for Discussion: Details on Four Pillars of Benefits
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 25: Sole Transmission Focus Has Four Primary Sources of Benefits
Sole Transmission Focus Has Four Primary Sources of Benefits for Independent Transmission Company Attribute Rationale Example impact Upper management can focus full-time on Increased ability to reach higher level Upper transmission business of detail management attention and Improved performance man
Slide 26: Benefits of ITC's Operational Excellence
Benefits of ITC's Operational Excellence • ITC has achieved top decile reliability and system performance with two Reliability and of its three subsidiaries, exceeding performance of region and peers system • ITC has demonstrated track-record of improving system performance performance post-acquisit
Slide 27: Topics for Discussion: Details on Four Pillars of Benefits
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 28: Financial Flexibility – Forecasted Future Capital Needs
Financial Flexibility – Forecasted Future Capital Needs Utilities industry is facing significant need to increase capital investment in coming years • Compliance requirements, environmental regulations, and infrastructure needs projected to drive $2.2T in capital needs over next 20 years In line wit
Slide 29: Financial Flexibility – Industry Response Focused on Protecting Credit Quality
Financial Flexibility – Industry Response Focused on Protecting Credit Quality Credit ratings have material effect on interest costs borne by utilities Rating agencies (S&P, Moody's) give significant weight to regulatory construct and financial credit metrics of utilities when deciding on credit rat
Slide 30: Financial Flexibility – Cash Release, Debt Reduction and Improved Credit Metrics
Financial Flexibility – Cash Release, Debt Reduction and Improved Credit Metrics Spin-merge releases cash flow of ~$860M for ETR Spin-merge OpCos from 2014-2018 releases cash • Additional cash flow can be used to fund increased investments, flow pay dividends or reduce debt Spin-merge By 2018, Spin-
Slide 31: Topics for Discussion: Details on Four Pillars of Benefits
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 32: Regional Planning Enabled by Independent Business Model
Regional Planning Enabled by Independent Business Model Illustrative regional projects An independent transmission company coupled with RTO participation will enhance economic benefits for regional Focus on customers through: regional • Potentially connecting Entergy's region with other regions need
Slide 33: ITC Looks Across Utility and RTO Boundaries to Identify Solutions to System Needs
ITC Looks Across Utility and RTO Boundaries to Identify Solutions to System Needs That Provide Local and Regional Benefits Goal of ITC's regional focus is always to reduce the delivered cost of energy to customers Green Green Power Power Express Express (GPE) (GPE) project project exemplifies exempl
Slide 34: Topics for Discussion: Required Approvals
Topics for Discussion Vertically Integrated Utility Overview of the Transaction • Industry context, history • Transaction parties and structure Strategy of the Case: Four Pillars of Benefits Details on Four Pillars of Benefits • Independence • Operational Excellence • Financial Flexibility and Growt
Slide 35: Pathway to Completion – Required Approvals
Pathway to Completion – Required Approvals Authority Requirements Entergy retail • Change of control of transmission assets regulators • Affiliate transaction approvals related to steps in the spin / merge • Authorization to incur debt in some jurisdictions FERC • Change of control of transmission a
Slide 36: Questions?
Questions? 35