Earnings up, Entergy bearish on power prices

Utility holding company Entergy Corp. Tuesday reported second quarter profits rose on the strength of its nuclear power plants' and trading venture's performance, beating Wall Street estimates. Top executives also indicated they have turned bearish on power prices because of pent up coal capacity and climbing reserve margins in most regions of the country.


By the OGJ Online Staff

HOUSTON, July 31 -- Utility holding company Entergy Corp. Tuesday reported second quarter profits rose on the strength of its nuclear power plants' and trading venture's performance, beating Wall Street estimates.

Top executives also indicated they have turned bearish on power prices because of pent up coal capacity and climbing reserve margins in most regions of the country. They also warned the turbine shortage appears to be evaporating.

Entergy, New Orleans, La., reported second quarter operating earnings of $238.9 million, or $1.06/share, up from $223.9 million, or 98¢/share, excluding a one-time gain, a year earlier. Including a gain from the sale of its Freestone power project, last year's net income totaled $237.2 million, or $1.04/share. The company reported operating revenues of $2.5 billion, up from $2.14 billion in the year earlier quarter.

Analysts forecast earnings of 88-97¢/a share, with a consensus estimate of 95¢/share, according to Thomson Financial/First Call. Chairman Wayne Leonard noted it was the thirteenth consecutive quarter the company has outperformed analyst projections.

Earnings from utility operations were down slightly year over year due to milder weather in the second quarter of 2001, compared to the same period in 2001. Higher fuel prices and sluggish economic conditions also reduced usage and revenue, especially in the industrial sector, Entergy said.

Entergy Wholesale Operations reported a loss of $13.3 million, or 6¢/share, on an operational basis, compared to $13.8 million or 3¢/share in second quarter 2000. The unit was affected by changes in the UK market which led to the sale of the Saltend power plant, Leonard said.

Chief Financial Officer John Wilder said income from the company's existing fleet of unregulated power plants will almost offset development expenses of new sites.

With spark spreads declining 70-80% this summer and a bearish outlook for power prices, Leonard said the company is reevaluating economics of proposed power plant projects. Presently, he said the company has more customers signed up than the 5,000 Mw of turbines on order.

"In the long-term we do not want to be long turbines," Leonard said, given the company's outlook for prices. But the company has a number of options available on how to proceed, he said, and time to make decisions, while the market becomes clearer.

Entergy is turning bearish because reserve margins are "creeping up" to the 15-20% range in most regions of the country, he said. Moreover, if environmental rules are relaxed under the Bush administration, "a lot of pent up coal capacity will be competing with turbines in the ground."

Leonard said Entergy is seeing the turbine shortage disappear. "We are starting to see competitors warehouse turbines," he said. Instead, the market is now short transmission capacity, permitted sites, and craftsmen to build plants. Interconnection costs that can range from $10-$100 million to transmission lines also appear to be catching companies offguard, he said, making potential sites uncompetitive.

Looking ahead, Leonard said it appears industrial power demand, which had been slumping in tune with rising gas prices, is poised to rebound in the second half of the year. With gas prices down, he said, industrial producers are expected to ramp up production.

The company also reaffirmed its earnings projections of $3-$3.20/share for 2001 and $3.30-$3.50/share for 2002, excluding the effects of weather in both periods. Analysts' current consensus estimates stand at $3.14/share for 2001 and $3.44/share for 2002, according to research firm Thomson Financial/First Call.

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