File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
____________________________
APPLICATION-DECLARATION
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________
Entergy Corporation
639 Loyola Avenue
New Orleans, LA 70113
(Name of company filing this statement
and address of principal executive offices)
____________________________
Entergy Corporation
(Name of top registered holding company parent of
each applicant or declarant)
____________________________
Terry L. Ogletree Gerald D. McInvale
President Executive Vice President
Entergy Enterprises, Inc. Chief Financial Officer
4 Park Plaza, Suite 2000 Entergy Corporation
Irvine, CA 92614 639 Loyola Avenue
New Orleans, LA 70113
(Names and addresses of agents for service)
____________________________
The Commission is also requested to send copies
of any communications in connection with this matter to:
Frederick F. Nugent, Esq. Laurence M. Hamric, Esq.
General Counsel General Attorney
Entergy Enterprises, Inc. Entergy Services, Inc.
4 Park Plaza, Suite 2000 639 Loyola Avenue
Irvine, CA 92614 New Orleans, LA 70113
Thomas C. Havens, Esq. Kent R. Foster, Esq.
Mayer, Brown & Platt Entergy Services, Inc.
1675 Broadway P.O. Box 8082
New York, NY 10019 Little Rock, AR 72203
Item 1. Description of Proposed Transaction.
Entergy Corporation ("Entergy"), a Delaware corporation and
a registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), hereby requests the
approval of the Securities and Exchange Commission (the
"Commission") under the Act for a modification to the condition
in Rule 53(a)(1) under the Act as applied to Entergy so that
Entergy may provide guarantees and may use the proceeds of
securities issuances (in each case, to the extent authorized from
time to time by the Commission under the Act) to invest in
"exempt wholesale generators" ("EWGs"), as defined in Section
32(a) of the Act, and "foreign utility companies" ("FUCOs"), as
defined in Section 33(a) of the Act (such EWGs and FUCOs,
collectively, "Exempt Projects") in amounts which, when added to
Entergy's "aggregate investment" at any time in Exempt Projects
would not exceed Entergy's "consolidated retained earnings".<FN1>
I. Background.
A. The Entergy System.
Entergy and its various direct and indirect subsidiary
companies comprise the Entergy System (the "Entergy System" or
"System"), which currently consists of: (1) five domestic retail
electric utility companies - Entergy Arkansas, Inc. ("Entergy
Arkansas"), Entergy Gulf States, Inc. ("Entergy Gulf States"),
Entergy Louisiana, Inc. ("Entergy Louisiana"), Entergy
Mississippi, Inc. ("Entergy Mississippi") and Entergy New
Orleans, Inc. ("Entergy New Orleans") (such companies are
sometimes referred to herein, collectively, as the "System
operating companies"); (2) a domestic wholesale electric
generating company that sells power to the System operating
companies (other than Entergy Gulf States) - System Energy
Resources, Inc. ("SERI"); (3) a company that provides
administrative and other services primarily to the System
operating companies - Entergy Services, Inc. ("ESI"); (4) a
company that provides management, operations and maintenance
services for the System's nuclear facilities - Entergy
Operations, Inc. ("EOI"); (5) a company that implements and/or
maintains certain fuel supply programs for the System operating
companies - System Fuels, Inc. ("SFI"); (6) a company that
markets and sells its electric generating capacity and energy to
non-associate purchasers in the domestic bulk power markets -
Entergy Power, Inc. ("EPI"); (7) a company that invests in and
develops energy and energy-related projects and businesses on
behalf of the Entergy System, and markets skills and products
developed by System companies - Entergy Enterprises, Inc.
("Entergy Enterprises"); (8) an energy management services
company - Entergy Integrated Solutions, Inc. ("EIS"); and (9)
various other companies formed to develop, acquire and own
Entergy's interests in domestic and foreign energy, energy
services, energy-related and telecommunications businesses.
Entergy, through its domestic public utility subsidiaries,
is engaged principally in the generation, transmission,
distribution and sale of electricity at retail and wholesale and
the purchase of electricity at wholesale. These domestic retail
public utility companies provide electric service to
approximately 2.4 million customers in portions of the states of
Arkansas, Louisiana, Mississippi, Tennessee and Texas, and retail
gas service in and around Baton Rouge, Louisiana and in New
Orleans, Louisiana.
Each of the System operating companies is subject to
regulation by state and/or local regulatory authorities having
jurisdiction over the service areas in which it operates.
Specifically, as to rates, service and other matters, (1) Entergy
Arkansas is subject to the jurisdiction of the Arkansas Public
Service Commission (the "APSC") and the Tennessee Public Service
Commission (the "TPSC"), (2) Entergy Gulf States is subject to
the jurisdiction of the Public Utility Commission of Texas (the
"PUCT"), the Louisiana Public Service Commission (the "LPSC") and
certain municipalities in Texas, (3) Entergy Louisiana is subject
to the jurisdiction of the LPSC and the Council of the City of
New Orleans, Louisiana (the "CNO"), (4) Entergy Mississippi is
subject to the jurisdiction of the Mississippi Public Service
Commission (the "MPSC") and (5) Entergy New Orleans is subject to
the jurisdiction of the CNO. The APSC, CNO, LPSC, MPSC, PUCT and
TPSC are sometimes referred to herein, collectively, as the
"State Regulators".
B. Development of Exempt Projects.
Since 1992, Entergy, through Entergy Enterprises<FN2> and
certain other non-utility affiliates (Entergy Enterprises and
such affiliates are sometimes collectively referred to herein as
the "Entergy Power Group"), has been engaged in the development
of various energy and energy-related businesses. Pursuant to
Commission order dated June 30, 1995 (the "June 1995 Order")<FN3>,
Entergy Enterprises is currently authorized (1) to conduct
preliminary development activities with respect to potential
investments by Entergy in various energy, energy-related and
other non-utility businesses, (2) to provide management and
administrative support services to certain of its associate
companies<FN4>, (3) to market intellectual property developed by
other System companies, (4) to provide consulting services to
certain of its associate companies<FN5> and to non-associate
companies, primarily in the areas of power generation,
transmission and distribution and ancillary operations, and (5)
to provide operations and maintenance services, directly or
through new subsidiaries of Entergy Enterprises or Entergy, to
non-associate companies and to certain of its associate
companies, subject to the conditions set forth in the June 1995
Order.
C. Financing of Exempt Projects.
Entergy is currently authorized under the terms of
Commission orders and supplemental orders (including the June
1995 Order) issued in File Nos. 70-8105, 70-8839 and 70-8903
(collectively, the "Financing Orders"), to finance the operations
of Entergy, Entergy Enterprises and other non-utility
subsidiaries of Entergy, including Exempt Projects, by issuing
and selling debt and equity securities and by issuing guarantees
(collectively, "Securities") of the securities or other
obligations of Exempt Projects and certain other Entergy
subsidiaries. Entergy's authorization under the Financing Orders
may be summarized as follows:
(1) File No. 70-8105. Pursuant to the June 1995 Order,
Entergy and Entergy Enterprises are authorized, among other
things, (i) to conduct preliminary development activities with
respect to potential investments in Exempt Projects and other
energy-related businesses; and (ii) to finance such activities
through purchases of common stock, capital contributions, open
account advances, loans and guarantees provided to Exempt
Projects and other associate companies (other than Excepted
Companies) in an aggregate amount not to exceed $350 million
(exclusive of investments that are exempted by Commission rule).
Such authorization expires on December 31, 1997.
(2) File No. 70-8839. Pursuant to Commission orders dated
June 6, 1996 (HCAR No. 26541) and March 25, 1997 (HCAR No.
26693), Entergy is authorized to issue and sell up to an
aggregate of thirty million shares of its authorized but unissued
common stock, par value $0.01 per share ("Common Stock") pursuant
to its Dividend Reinvestment and Stock Purchase Plan (the
"DRIP"). Proceeds from the issuance and sale of Common Stock
under the DRIP may be used for general corporate purposes,
including investments in Exempt Projects (subject to any
requisite Commission approval and compliance with Rule 53).
Through December 31, 1996, Entergy had sold 4,438,931 shares of
Common Stock pursuant to the DRIP.
(3) File No. 70-8903. Pursuant to the Commission's order
dated February 26, 1997 (HCAR No. 26674), Entergy is authorized
to enter into credit facilities with one or more banks pursuant
to which Entergy would effect borrowings and reborrowings
("Borrowings") and issue unsecured notes in connection therewith
from time to time through December 31, 2002, in an aggregate
principal amount at any time outstanding not to exceed $500
million.<FN6> Entergy may use the proceeds of Borrowings for
general corporate purposes, including to finance the acquisition
of the securities or other interests in Exempt Projects.<FN7>
For the reasons stated herein, Entergy hereby requests that
the Commission exempt Entergy from the requirements of Rule
53(a)(1) under the Act such that it may use the proceeds of
Securities, each in accordance with and upon the terms of this
Application-Declaration and the applicable Financing Order, as
well as the proceeds of any subsequently authorized financings,
in an aggregate amount at any time outstanding which, when added
to Entergy's "aggregate investment" in all Exempt Projects, would
not at any time exceed Entergy's "consolidated retained
earnings". Entergy further requests that, to the extent
necessary, upon the effectiveness of the authorization sought
herein, the Commission's orders in Docket Nos. 70-8105, 70-8839
and 70-8903 and any applications pending in such Dockets be
appropriately modified to permit the transactions therein
authorized and/or contemplated to be consummated consistent with
the authorization sought herein.
Entergy's "aggregate investment" in all Exempt Projects as
of March 31, 1997 (approximately $1,041,871,905)<FN8> represents
approximately 44.7% of Entergy's "consolidated retained earnings"
as of March 31, 1997 (approximately $2,331,387,000). The
limitation under Rule 53(a)(1) would, as of March 31, 1997,
permit additional investments in Exempt Projects of approximately
$124 million. Entergy is not requesting authority herein to
issue any additional securities for purposes of funding the
acquisition of any Exempt Projects.
D. Entergy's Investments in Exempt Projects.
Entergy's investments in Exempt Projects currently consist
of the following:
(1) Entergy Power Development Corporation ("EPDC"), a
wholly-owned subsidiary of Entergy, is an EWG that develops,
acquires and holds, through various direct and indirect EWG
subsidiaries, substantially all of Entergy's investments in
"eligible facilities" within the meaning of Section 32(a) of the
Act. Such investments currently include (a) a 20.82% interest,
held through its wholly-owned subsidiary EP Edegel, Inc., in
Edegel, S.A. ("Edegel"), which owns five hydroelectric generating
stations (totaling 539 MW) and one 271 MW thermal electric
generating station in Peru; (b) a 7.5% interest, held through its
wholly-owned subsidiary Entergy Pakistan, Ltd., in The Hub Power
Company, Ltd. ("Hub Power"), which owns a 1,292 MW steam electric
generating facility in Pakistan; and (c) a 7.8% interest, held
through its wholly-owned subsidiary Entergy Power CBA Holding
Ltd., in Central Termoelectric Buenos Aires, S.A. ("CBA"), which
owns a 220 MW combined cycle gas turbine generator located at the
Central Costanera, S.A. power plant in Buenos Aires, Argentina.<FN9>
As of March 31, 1997, Entergy's "aggregate investment" in
EPDC, Edegel, Hub Power and CBA was approximately $57.8 million,
$165 million, $37.8 million and $3.7 million, respectively.
(2) Entergy Power Development International Corporation, a
wholly-owned subsidiary of Entergy, is a FUCO formed to develop,
acquire and hold, through various direct and indirect FUCO
subsidiaries, Entergy's investment in FUCOs, which currently
include (a) CitiPower Ltd. ("CitiPower"), an electric
distribution company providing service to customers in Melbourne,
Australia; and (b) London Electricity plc ("London Electricity"),
a regional electric distribution company in the United Kingdom
providing service to customers in the greater London area.
As of March 31, 1997, Entergy's "aggregate investment" in
CitiPower was approximately $294.4 million. Entergy's anticipated
"aggregate investment" in London Electricity (after giving effect
to the acquisition of 100% of its ordinary share capital, as
noted above) is approximately $392 million.
(3) Entergy S.A., a subsidiary of Entergy, is an EWG which
participated in a consortium with non-affiliated companies
through which it acquired an indirect 6% interest in Central
Costanera, S.A. ("Costanera"), a company that owns and operates
an electric generating station located in Argentina with a total
installed capacity of 1,260 MW. As of March 31, 1997, Entergy's
"aggregate investment" in Costanera was approximately $10.5
million.
(4) Entergy Power Edesur Holding, LTD, a wholly-owned
subsidiary of Entergy, is a FUCO which holds Entergy's indirect
5.1% interest in Edesur S.A. ("Edesur"), an electric distribution
company providing service to customers in Buenos Aires,
Argentina. As of March 31, 1997, Entergy's "aggregate
investment" in Edesur was approximately $58.2 million.
(5) Entergy Transener S.A., a subsidiary of Entergy, is a
FUCO that participated in a consortium with non-affiliated
companies through which it acquired an indirect 9.75% interest in
Transener, S.A. ("Transener"), a company that owns an electric
transmission system in Argentina. As of March 31, 1997,
Entergy's "aggregate investment" in Transener was approximately
$18.5 million.<FN10>
(6) Entergy Power Operations Corporation ("EPOC"), a wholly-
owned subsidiary of Entergy, is an "O&M Subsidiary" formed
pursuant to the June 1995 Order to provide various operations and
management services ("O&M Services"), directly or indirectly, to
both affiliated and non-affiliated power projects (including
Exempt Projects). EPOC currently owns an indirect 95% interest
in Entergy Power Operations Pakistan Ltd. ("EPOP"), an EWG formed
to provide O&M Services to the Liberty Power Project in Pakistan.
As of March 31, 1997, Entergy's "aggregate investment" in EPOP
was approximately $500,000.
E. Anticipated Investments in Exempt Projects.
The following section describes potential equity investments
by Entergy or its subsidiaries in Exempt Projects which the
Entergy Power Group is actively developing and which the Board of
Directors of Entergy has approved at the date of the filing
hereof:
(1) The Saltend Project. The Saltend project is a proposed
1,100 MW gas-fired, combined cycle power plant to be located
adjacent to a British Petroleum Company chemical facility in Hull
County on the northeastern coast of England. The construction
schedule is approximately 28 months, with commercial operation
scheduled for 1999. Entergy currently plans to own 100% of the
Saltend project. Entergy's (or its subsidiaries') anticipated
equity investment in the Saltend project is currently estimated
to be approximately $200 million.
(2) Juba Power Projects. The Juba projects consist of two
hydroelectric generating plants with a combined capacity of 84 MW
and 175 km of interconnecting transmission lines located in the
State of Mato Grosso, Brazil. The projects were developed and
constructed by Itamarati, a diversified Brazilian company.
Entergy plans to acquire from Itamarati, indirectly through EPDC
or another exempt company, up to a 100% interest in Juba I and
II. Entergy's (or its subsidiaries') anticipated equity
investment in the Juba projects is currently estimated to be
approximately $28 million.
(3) San Isidro Project. The San Isidro project is a 370 MW
single unit, combined-cycle power plant located near Santiago,
Chile. Entergy has exercised its option to acquire, indirectly
through EPDC or another exempt company, a 25% ownership interest
in San Isidro, S.A., a wholly-owned subsidiary of Empresa
Nacional de Electricidad, S.A. Entergy's ownership interest will
entitle it to a 25% share of the cash flow and earnings from the
project and a 25% voting interest in San Isidro, S.A. Entergy's
(or its subsidiaries') anticipated equity investment in the San
Isidro project is currently estimated to be approximately $20
million.
In addition to the foregoing potential investments in Exempt
Projects, the Entergy Power Group is currently investigating
other possible investments in foreign and domestic utility
projects.
F. Risk Profile of Entergy's Investments in Exempt
Projects.
Investments in independent power production facilities and
foreign utility systems may involve a variety of risks that are
not typically present in the traditional, regulated, electric
utility industry. Therefore, Entergy has established
comprehensive procedures to identify and address (i.e., limit
and/or mitigate) these risks.<FN11>
(1) The Project Review Process. Every potential project
investment opportunity developed by the Entergy Power Group is
subjected to a series of formal reviews to ensure the project's
soundness. The process begins with a consideration of the
Entergy Power Group's strategic plans which survey independent
power opportunities domestically and throughout the world and
provides a variety of tools to assist in the evaluation of risks.
These plans, which are updated periodically, lead to the
identification of projects and countries where the Entergy Power
Group intends to pursue project development efforts. The plans
also lead to the development of budgeted levels of expenditure on
foreign development activities. Before Entergy makes any
investment in an Exempt Project, an analysis of the investment
opportunity, including the specific country risk, is first
presented to the executive management group of the Entergy Power
Group. If the investment is significant, it is then presented to
the board of directors of Entergy. The analysis includes a
review of the political and economic stability of the particular
country, the government's commitment to private power, the legal
and regulatory framework for private investment in electricity
facilities and whether local business practices will support long-
term investment of private capital. This careful planning and
budgeting process helps to mitigate an important risk of the
independent power business: the expenditure of development funds
without a realistic expectation of success in terms of both
making investments in projects and in obtaining appropriate
levels of non-recourse financing on commercially reasonable
terms.
Once development of a project is undertaken, milestones are
established to ensure that continuing expenditures on development
are producing acceptable results. In addition, project teams are
required to identify the major technical, financial, commercial
and legal risks associated with their particular project and
whether and how those risks have been mitigated. The members of
the project team are responsible for the due diligence
investigation of those risks that have been identified and must
present their findings to an officer of Entergy Enterprises with
oversight responsibilities for the relevant risk factor subject
matter.
Significantly, the final project review process is to a
large extent replicated by the lenders who agree to provide
construction or permanent debt financing on a non-recourse basis,
since repayment of that debt will depend solely upon the success
of the project. Project debt maturities are often long-term
(e.g., 15 or more years), meaning that the lenders' exposure to
the risks of a project extends for many years after closing or
completion of construction. Typically, project debt documents
require the establishment of plant overhaul, debt service and
other funded reserves, all of which are designed to preserve the
asset and protect the financial performance of the project
against interruptions in revenues and other contingencies. The
Entergy Power Group's success in arranging appropriate levels of
non-recourse financing for its Exempt Project investments in
effect serves as a validation of the project review process
described above.
(2) Risk Mitigation of Exempt Projects. The Entergy Power
Group carefully evaluates the potential risks of an independent
power project or foreign utility system before it requests that
Entergy's funds be committed.
(a) Operating Risks. The Entergy Power Group has focused
its project development efforts on technologies with which it has
existing competencies in thermal generating sources such as coal,
gas or oil-fired generation as well as hydroelectric generation.
Due diligence of operating assumptions is carried out by the
Entergy Power Group's engineers with experience in the technology
being evaluated and by outside technical consultants. The risk
of changes in the price of fuel is sometimes passed through to
the purchaser of electricity under the negotiated terms of a long-
term power sales agreement. Other operating risks can be covered
by equipment warranties and by casualty, business interruption
and other forms of insurance. Further, when Entergy Enterprises
or an affiliate is responsible for managing the day-to-day
operations of Exempt Projects in which it holds an ownership
interest, its ability to address and correct operating problems
is far greater than would be the case if operating control were
in the hands of a third party.
(b) Construction Risks. Construction risks typically are
addressed through fixed-price contracts with milestones and
performance guarantees (e.g., guaranteed heat rates, availability
factors), backed by appropriate levels of liquidated damages.
The credit-worthiness and "track record" of the construction
contractor is a very important consideration in this regard. In
those cases where Entergy Enterprises or an affiliate may serve
as its own general construction contractor, it would look to pre-
negotiated cost and damage provisions from sub-contractors,
including, without limitation, equipment vendors, to protect
against performance shortfalls, cost overruns and schedule
delays.
(c) Commercial Risks. Many independent power projects rely
on the "off-take" commitment of a single power purchaser, usually
the local utility company, to eliminate all or most of the risk
of variation in revenues. In such cases, the Entergy Power Group
makes an assessment of the credit-worthiness of the power
purchaser over the life of the project and/or seeks to have a
contingency plan in the event of off-take defaults.
In competitive power markets outside the United States, long-
term off-take contracts generally are not available and
electricity prices may be determined by supply and demand. The
Entergy Power Group conducts extensive investigations of the
electricity markets in these environments to ensure the viability
of long-term demand. Further, the Entergy Power Group seeks
projects that will be capable of producing electricity at or
below long-run marginal costs in the region, thus assuring that
the project will be a competitive supplier.
(d) Financial Risks. The Entergy Power Group addresses the
financial risks of its projects in a variety of ways. First and
foremost, the permanent debt financing for such projects is, by
its express terms, nonrecourse to Entergy or any associate
company (other than other Exempt Projects) to the greatest extent
practicable. This means that the non-recourse debt of each
project or foreign utility system is secured solely by its assets
and revenues, and creditors have no ability to seek repayment
upon default from Entergy. This method of financing provides
assurances that Entergy's financial exposure with respect to an
independent power project is limited to the amount of its equity
commitment, and that the System operating companies and their
customers bear no risk of a project's failure or financial
distress. From time to time, Entergy may agree to provide
guarantees in connection with non-recourse financings or bridge
financings, but these financial supports are carefully monitored
and are treated as a part of Entergy's equity commitment for
regulatory reporting (including in calculating Entergy's
"aggregate investment") and internal control purposes. To date,
Entergy has never been called upon to fund its obligation under
any such guarantee issued with respect to an investment in an
Exempt Project.
In addition to the essentially non-recourse nature of
project debt financing, project debt is carefully structured to
meet, or match, the characteristics of the particular project.
For example, when the value of a project depends on a long-term,
fixed-price, off-take contract (i.e., a power purchase contract),
the project debt is typically designed to be of a similar term
with scheduled debt payments usually covered by fixed charges
(usually the capacity payment component in the contract). On the
other hand, where there is no long-term, fixed source of revenue,
the percentage of non-recourse debt financing is typically
smaller, so that financial risk is not induced by excessive debt
levels. Thus, while the Entergy Power Group's projects with long-
term off-take contracts have debt capitalization levels in the
70% to 80% range, the Entergy Power Group's other projects will
be leveraged at levels commensurate with the project
requirements.
Another financing risk is the potential variability of
interest rates. This risk is addressed, in part, by borrowing,
to the extent possible, on a long-term, fixed-rate basis. After
contractual terms for a project have been agreed to but before
financial closing, Entergy is also exposed to interest rate
variability. This risk can be mitigated by purchasing financial
instruments which provide hedges against interest rate
volatility. The finance departments of ESI and Entergy
Enterprises would be responsible for monitoring the use of these
instruments to ensure they are appropriately structured.
(e) Foreign Currency Exchange Risk. There are several ways
in which the Entergy Power Group has addressed the foreign
currency exchange risk element, depending on the status of the
host country. In more developed countries, long-term currency
swaps are available to provide further hedging for the equity
component of the investment. In addition, back-up guarantees or
other undertakings by the central government may be available to
ensure that the United States dollar payments due under an off-
take contract are actually made available by the central bank or
ministry of finance.
In some countries, the source of revenues can be tied in
other ways to the United States dollar. For example, the
capacity charge element of revenues derived by an Exempt Project
may be tied to the cost of new capacity measured in United States
dollars. In addition, an Exempt Project's revenue may be
expressed in a unit of account (i.e., a national monetary unit)
which adjusts for any inflation of the local currency, thereby
protecting the project against depreciation of the currency.
In other cases, the non-recourse project debt is borrowed in
the same currency as the project's revenues, thereby ensuring a
match between debt service obligations and operating income. In
addition, in countries which do not have a history of stability
in the management of their exchange policy, part or all of the
revenue from a project is payable in or indexed to hard currency
(almost invariably United States dollars).
(f) Legal Risks. Legal risks are addressed by careful
review of any investment by legal counsel, including local and
international counsel where foreign projects are concerned. Such
legal reviews address legal, regulatory and permitting risks,
environmental risks, the adequacy and enforceability of
guarantees or other contractual undertakings of third parties,
the status of title to utility property and the obligations
inherent in the financing arrangements.
In addition to the specific risks mentioned above,
investment outside the United States can entail country-specific
risks related to political or economic performance. As indicated
above, the Entergy Power Group evaluates country risk at the
outset of any project development effort and attempts to mitigate
this risk through a number of measures. Most important, the
country review process described above ensures that the political
and economic stability of any country has been reviewed at
several decisional levels up to and including Entergy's board of
directors before any significant investment occurs. In addition
to a general review, the country analysis focuses specifically on
the country's electric sector and on the government's support for
private ownership in that sector, and on the presence of an
established and stable legal system.
Moreover, at the outset of development work in a foreign
country, the Entergy Power Group seeks local partners who are
experienced in doing business in the host country. Local
partners are a very important element in mitigating the risk of
future expropriation or unfair regulatory treatment. An
additional mitigating factor is the participation of official or
multilateral agencies in a project. When funds for the project
are supplied by government sponsored export credit agencies or
other governments or institutions, such as the World Bank through
its International Finance Corporation affiliate, the host country
has strong incentives not to take actions which would harm a
project's viability. In addition, political risk can often be
addressed through political risk insurance obtained from the
Overseas Private Investment Corporation, a United States agency,
or the Multilateral Investment Guaranty Agency, a World Bank
affiliate, or in the commercial insurance market. Political risk
insurance is available to insure the project debt or the return
of an investor's equity. One can also insure against outright
expropriation, acts of civil violence or even "creeping"
nationalization brought about by punitive regulation.
(g) Portfolio Diversification. Apart from the detailed and
comprehensive approach to the specific risks described above,
Entergy's fundamental view is that the best long-term approach to
managing the risk of investing in the independent power business
is through diversifying both the type and the location of
projects. In this regard, Entergy recognizes that the risk
inherent in any investment cannot be eliminated entirely, even by
the most careful approach to project development. Consequently,
Entergy is committed to diversifying its investments across
countries and regions of the world. Entergy's strategy has been
focused on investment opportunities in Latin America, North
America (outside the core regulated business of Entergy), Europe,
Australia and Asia. Substantial investments have been made in
Latin America, Australia and Europe, and extensive development
efforts are underway in all three areas and, to a lesser degree,
in Asia.
Regional diversification is important since economic and
political instability, when they have occurred historically, have
tended to involve multiple countries in a region. Accordingly,
Entergy's board of directors sets limits on investment in
specific countries which vary according to an assessment of the
country's stability.
Another element of Entergy's diversification policy is to
achieve a balance between so-called "greenfield" projects and
acquisitions of existing facilities and power systems.
Greenfield projects are those that involve completely new
development and construction of electric facilities, principally
generating stations. Greenfield projects involve a higher degree
of risk since they entail a lengthy process of development and
construction. Funds are expended during the early years of such
projects; return on investment is not earned until the project is
in operation. Nevertheless, while these projects have higher
levels of risk and deferred returns, they are important to
Entergy because they generally produce higher rates of return on
investment than investments in existing assets and because they
lay the foundation for continued earnings growth for Entergy
after the turn of the century.
To balance these greenfield project development efforts,
EPG's development efforts have also targeted assets that are
already in operation, either from existing private owners or
through privatizations. These acquisitions reduce the risk of
Entergy's overall business by producing near-term earnings
without significant development or construction risk. In
addition, like other developers, Entergy has pursued a strategy
of diversifying the types of electric sector assets in which it
invests. Entergy's investment portfolio thus includes interests
in electric distribution systems, as well as in electric
generation and transmission facilities.
The result of this balanced portfolio strategy is that
Entergy is not dependent on any single country, regulatory
environment or type of asset for its earnings from domestic and
foreign utility projects. In addition, while Entergy has
successfully developed significant investments in projects which
are expected to produce positive long-term results, it has also
ensured that its portfolio of projects will add cash flow and
earnings for its shareholders in the immediate future, thereby
supporting share value and dividend growth.
G. Earnings from Exempt Projects.
Entergy's investments in Exempt Projects have generated
modest but important contributions to earnings. For the quarter
ended March 31, 1997, Entergy's domestic and foreign energy-
related investments increased consolidated net income by
approximately $28 million. Entergy expects that its investments
in Exempt Projects will continue to generate positive earnings
and contribute to consolidated earnings growth in the future.
II. Proposed Transactions.
As discussed above, on behalf of Entergy, the Entergy Power
Group is presently investigating, alone or in conjunction with
non-affiliates, additional investment opportunities primarily in
foreign power projects and foreign utility systems. Most of
these investments are expected to qualify as either EWGs or
FUCOs.
Entergy intends to make additional investments in Exempt
Projects for a number of reasons, including the following:
(1) As discussed in Item 3 below, there has not been a need
for any significant equity investments in any of the System
operating companies in nearly five years, and Entergy has no
current plans to purchase additional common stock of any System
operating company for at least the next three years. The System
operating companies (except for Entergy Arkansas)<FN12> anticipate
only a limited need for capital investment in new generation,
transmission and distribution facilities over the next three
years. Any such capital investments over this period are
expected to be funded by net cash flow from operations and
proceeds from sales of debt or preferred securities, and not
through additional equity investments by Entergy.
(2) Potential investments in additional Exempt Projects are
a key component of Entergy's strategy for delivering shareholder
value. Given that there is no need for additional equity
investments in the System operating companies, further
acquisitions of Exempt Projects will afford Entergy an
opportunity to reinvest retained earnings in an industry sector
in which Entergy has decades of experience.<FN13> Investments in
Exempt Projects also serve to diversify Entergy's overall asset
risk as it faces increasing competitive pressures in its domestic
utility business. However, the 50% limitation under Rule 53
constrains Entergy's ability to enhance shareholder value through
additional investments in Exempt Projects, and also restricts
Entergy's flexibility in structuring such investments.
(3) Entergy believes that the creation and maintenance of
value for its shareholders also will depend in large measure on
its ability to successfully operate its core business in the
United States as that business becomes subject to increasing
competition. As the U.S. electric utility industry becomes more
competitive, gaining experience in markets that are largely
deregulated will increase the chances of long-term success of the
domestic utility business. For this reason, Entergy, through the
Entergy Power Group, is actively pursuing investments in utility
systems in regions or countries (such as Latin America, Australia
and the United Kingdom) which have already moved to deregulate
and introduce competition in wholesale and retail electricity
markets.
III. Compliance With Rules 53 and 54.
Entergy hereby represents that, pursuant to Rule 54 under
the Act, all of the criteria of Rule 53(a) and (b) are satisfied.
Entergy undertakes to notify the Commission by filing a post-
effective amendment in this proceeding in the event that any of
the circumstances described in Rule 53(b) arise, and represents
that it will at all times remain in compliance with the
requirements of Rule 53(a) (other than Rule 53(a)(1)).
Item 2. Fees, Commissions and Expenses.
The estimated fees, commissions and expenses expected to be
paid or incurred, directly or indirectly, in connection with the
transactions described herein will be supplied by amendment.
Item 3. Applicable Statutory Provisions.
The transactions proposed herein are or may be subject to
Sections 6(a), 7, 12(b), 32 and 33 of the Act and Rules 45, 53
and 54 thereunder. To the extent that the proposed transactions
are considered by the Commission to require authorization,
approval or exemption under any Section of the Act or rule
thereunder, other than those specifically referred to above,
request for such authorization, approval or exemption is hereby
made.
Rule 53 provides that, if each of the conditions of
paragraph (a) thereof is met, and none of the conditions of
paragraph (b) thereof is applicable<FN14>, then the Commission may
not make certain adverse findings under Sections 7 and 12 of the
Act in determining whether to approve a proposal by a registered
holding company to issue securities in order to finance an
investment in any EWG or to guaranty the securities of any EWG.
However, after giving effect to the anticipated investments in
EWGs and FUCOs described herein, at some future date Entergy may
not satisfy the condition of Rule 53(a)(1) that Entergy's
"aggregate investment" not exceed 50% of Entergy's "consolidated
retained earnings."
Rule 53(c) states that if registered holding company is
unable to satisfy the requirements of paragraph (a) of Rule 53,
such company must "affirmatively demonstrate", in connection with
a proposal to issue and sell securities to finance an investment
in any EWG, or to guarantee the securities of any EWG, that such
proposal:
(1) will not have a substantial adverse impact upon
the financial integrity of the registered holding company
system; and
(2) will not have an adverse impact on any utility
subsidiary of the registered holding company, or its
customers, or on the ability of State commissions to protect
such subsidiary or customers.
Entergy addresses each of these requirements as follows:
(1) The use of proceeds from the issuance and sale of
securities to make investments in Exempt Projects in amounts
which would cause Entergy's "aggregate investment" in Exempt
Projects to exceed 50% (but not 100%) of Entergy's "consolidated
retained earnings" should not have a "substantial adverse impact"
on the financial integrity of the Entergy System.
(a) Aggregate investments in Exempt Projects in
amounts up to 100% of Entergy's "consolidated retained earnings"
would still represent a relatively small commitment of capital
for a company the size of Entergy, based on various key financial
ratios at March 31, 1997. For example, investments in this
amount would be equal to only 13.7% of Entergy's total
capitalization ($17,078,067,000), 12.8% of consolidated utility
plant ($18,280,002,000), 8.6% of total consolidated assets
($27,148,562,000), and 40.4% of the market value of Entergy's
outstanding common stock ($5,799,978,198).
(b) Entergy's consolidated retained earnings have
grown an average of approximately 3.94% per year over each of the
previous 5 years. Consolidated retained earnings increased by
approximately $6 million from 1995 to 1996, a 0.3% increase.<FN15>
More recently, Entergy's consolidated retained earnings increased
by approximately $303 million, or 14.8%, for the quarter ended
March 31, 1997 as compared to the quarter ended March 31, 1996.
(c) Entergy's consolidated capitalization and interest
coverage ratios for 1995 and 1996 were within industry ranges set
by the independent debt rating agencies for BBB rated companies.
Actual 1995 Capitalization and Interest Coverage Ratios:
Total Debt/Capital 51.35%
EBIT/Cash Interest (times) 2.34
Funds from Operations/Interest (times) 2.24
Actual 1996 Capitalization and Interest Coverage Ratios:
Total Debt/Capital 52.54%
EBIT/Cash Interest (times) 2.19
Funds from Operations/Interest (times) 2.23
Industry Ratios for BBB Rated Companies *
Average High Low
Total Debt/Capital 53% 67% 41%
EBIT/Cash Interest (times) 3.0 4.0 1.9
Funds from Operations/Interest (times) 4.0 5.7 2.1
*(Source: Moody's Investors Service Electric Utility
Sourcebook, October 1996)
(d) There is no indication that Entergy's investments
in Exempt Projects have adversely affected its ability to raise
common equity. As discussed above, Entergy has an ongoing public
offering of Common Stock through its DRIP, which began selling
newly-issued shares of Common Stock in 1996. Net proceeds from
the sale of Entergy's Common Stock through the DRIP during the
fiscal year ended December 31, 1996 (at an average price of
$26.60 per share) compared to the year-end 1996 per share net
book value for Entergy's common stock ($28.51) reflected a market-
to-book ratio of 93%.
Entergy's price-earnings and market-to-book ratios and the
electric industry averages during the period 1993 through 1996
are shown below:
1993 1994 1995 1996
P/E Ratio:
Entergy 13.4 10.1 12.4 11.1
Electric Industry* 13.0 11.1 12.8 12.3
Market-to-Book Ratio:
Entergy 127% 78% 103% 97%
Electric Industry* 167% 136% 140% 145%
*(Source: Goldman Sachs Unweighted Average for 79
U.S. Electric Utilities)
Entergy's investments in Exempt Projects during most of the
period covered above were not significant. As such, Entergy
believes that the performance of Entergy's Common Stock over this
time frame primarily reflects the market's perception of the
prospects for earnings growth in, and the potential risks
associated with, Entergy's domestic regulated utility business.
Entergy further believes that the market's assessment of
Entergy's future growth and earnings potential will increasingly
be influenced by Entergy's ability to augment its earnings from
domestic regulated operations with earnings from investments in
Exempt Projects and other non-regulated businesses. Therefore,
Entergy believes it is important to enhancing shareholder value
that it have the increased capacity sought in this filing to
invest in additional Exempt Projects as appropriate opportunities
arise.
(e) In recent years, Entergy has been more
conservative than the industry as a whole in its dividend payout
policy. This can be shown by Entergy's dividend payout ratio
(percentage of earnings paid out in dividends), which has
consistently been lower than the electric utility industry
average. The implication of a relatively conservative payout
policy is that Entergy's earnings are more than adequate to cover
current dividend levels and to support the growth in dividend
levels needed to attract common stock investors, while continuing
to strengthen the equity base through retained earnings growth.
1993 1994 1995 1996
Entergy Payout Ratio (%) 61.3 82.9 76.6 72.6
Electric Industry* 94.5 83.9 78.3 76.4
*(Source: Goldman Sachs Unweighted Average for 79
U.S. Electric Utilities)
(f) The market's assessment of the overall quality of
Entergy's portfolio of Exempt Projects is further demonstrated by
the success that Entergy has had in obtaining necessary and
appropriate amounts of non-recourse debt to finance the
acquisition and ownership of these projects. Most recently, in
connection with the acquisition of London Electricity, the
Entergy Power Group was able to arrange non-recourse financing in
the amount of approximately $1.7 billion through a credit
facility with a group of international banks.<FN16> The debt issued
under the credit facility is secured solely by the assets of
Entergy Power UK plc and is not guaranteed by, or otherwise
recourse to, Entergy or any of the System operating companies.
* * * * *
(2) The proposed increased investments by Entergy in Exempt
Projects, using financing proceeds or other available funds, in
amounts which would cause Entergy's "aggregate investment" in
Exempt Projects to exceed 50% (but not 100%) of Entergy's
"consolidated retained earnings" should have no "adverse impact"
on any of the System operating companies, their respective
customers, or on the ability of the State Regulators to protect
such companies or their customers.
This conclusion is directly supported by, among other
things, (1) analyses of the System operating companies' financial
condition (including the ability of the System operating
companies to issue senior securities), (2) the lack of present
and anticipated need of any of the System operating companies for
equity capital from Entergy, (3) the existing structural and
other safeguards against adverse effects of Entergy's investments
in Exempt Projects, including the authority of Entergy's State
Regulators to protect the System operating companies and their
customers from any such adverse effects,<FN17> and (4) Entergy's
continuing compliance with other applicable requirements of Rule
53(a).
(a) As shown below, the debt (including short-term debt)
ratios of the System operating companies have generally been, and
should continue to be, consistent with the industry average for
BBB rated electric utilities (which was 52% as of the third
quarter of 1996)*.
Debt as % of 1992 1993 1994 1995 1996
Capitalization
Entergy Arkansas 53.2 53.7 52.8 52.7 52.3
Entergy Gulf States ** 52.5 57.0 55.2 52.9
Entergy Louisiana 50.4 52.2 51.0 51.5 51.0
Entergy Mississippi 50.9 51.7 51.0 52.4 49.8
Entergy New Orleans 51.1 51.0 52.2 53.0 52.6
*(Source: BBB industry average-Calculated using
Merrill Lynch & Co., Electric Utilities Data
Sheet, Third Quarter, 1996)
** Information on the debt ratio for
Entergy Gulf States is provided only for the years
since consummation of the merger with Entergy in
December 1993.
Debt levels of each of the System operating companies are
projected to steadily decline over the next several years. The
reduction in debt levels is attributable largely to redemptions
and retirements of senior debt using funds derived from excess
cash flow.
(b) Moreover, additional investments by Entergy in Exempt
Projects will not have any negative impact on the System
operating companies' ability to fund operations and growth. Over
the past 10 years, the System operating companies have funded
substantially all of their construction expenditures from
internally generated funds and from sales of senior securities
and other borrowings. The last significant equity infusion by
Entergy in any of the System operating companies was made in 1992
(approximately $25 million to Entergy Mississippi). Present
projections indicate that Entergy will not have to make any
additional equity investment in any System operating company for
at least the next three years.
System operating companies - Construction Expenditures:
Actual (1992-1996) and projected (1997-1999)
expenditures, net of Allowance for Funds Used During
Construction ($ million):
1992 1993 1994 1995 1996 1997 1998 1999
493 537 610 570 508 482 515 529
Percent internally generated:
1992 1993 1994 1995 1996
205% 209% 210% 247% 251%
Entergy currently estimates that cash flow from operations will
be sufficient to fund projected construction expenditures through
1999.
The System operating companies' ability to issue debt and
equity securities in the future depends upon earnings coverages
at the time such securities are issued. Each of the System
operating companies must comply with certain coverage
requirements designated in their mortgage bond indentures. The
earnings coverages of the System operating companies are all
currently at levels sufficient to enable such companies to issue
securities in amounts necessary to meet their projected financing
requirements, and over the near term, such coverages are expected
to remain at levels sufficient for such financing requirements.
The senior securities of each of the System operating
companies are presently rated BBB, BBB-, BBB, BBB, and BBB for
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy
Mississippi and Entergy New Orleans, respectively, by Standard &
Poor's Ratings Group. The System operating companies show
financial statistics on various performance measures used by the
rating agencies ( e.g., pre-tax interest coverage, debt ratio,
funds from operations to debt, funds from operations interest
coverage, and net cash flow to capital expenditures) consistent
with similarly rated companies in the industry. In addition,
based upon currently available public information from the
ratings agencies, Entergy believes there has been no adverse
effect on the financial ratings of the System operating companies
as a result of Entergy's investments in Exempt Projects./18
Senior Debt Ratings 1992 1993 1994 1995 1996
Entergy Arkansas BBB BBB BBB BBB BBB
Entergy Gulf States * BBB- BBB- BBB- BBB-
Entergy Louisiana BBB+ BBB+ BBB BBB BBB
Entergy Mississippi BBB BBB BBB BBB BBB
Entergy New Orleans BBB BBB BBB BBB BBB
* Information on the senior debt ratings
for Entergy Gulf States is provided only for the
years since consummation of the merger with
Entergy in December 1993.
(c) There is no evidence indicating that any of the State
Regulators have been, or will be, unable to protect the System
operating companies or their customers from any adverse effects
resulting from Entergy's investments in Exempt Projects.
In addition, all of Entergy's investments in Exempt Projects
are strictly segregated from the System operating companies.
No System operating company owes indebtedness, has extended
credit, or has sold or pledged its assets, directly or
indirectly, to any Exempt Project, and the indebtedness of the
Exempt Projects is not recourse to any System operating company.
Entergy further represents that, in connection with any existing
or future investments in Exempt Projects, no System operating
company will, directly or indirectly, sell or pledge any of its
assets or incur any indebtedness to or for the benefit of an
Exempt Project. Therefore, there is no possibility that the
System operating companies would have any liability with respect
to Entergy's investments in Exempt Projects.
Moreover, in the event of any investments in Exempt Projects
having indirect adverse effects on the System operating
companies' cost of capital, Entergy's State Regulators have the
authority and the means to prevent any increased capital costs
from being passed on to the ratepayers of such companies. For
example, the State Regulators can fix the cost of capital for
purposes of setting the retail rates of electric utilities
subject to their jurisdiction by comparison with selected groups
of domestic utilities, which exclude any utilities with adverse
capital cost impacts due to investments in FUCOs or EWGs. In
addition, Entergy and its affiliates have been subjected to
extensive audits by the Federal Energy Regulatory Commission, the
Commission and the State Regulators. These audits have not led
to findings that the System operating companies cross-subsidize
Exempt Projects. Furthermore, Entergy represents herein, and
will commit to each of its State Regulators, that Entergy will
not seek recovery through rates to the System operating
companies' customers for any possible losses that Entergy may
sustain on investments in Exempt Projects or for inadequate
returns on such investments.
(d) Entergy has complied and will continue to comply with
the requirements of Rule 53(a)(2) (regarding the preparation and
availability of books and records and financial reports for
Exempt Projects), and the limitations in Rule 53(a)(3) (regarding
the use of System operating company employees in connection with
providing services to Exempt Projects).
Entergy's need for the support of personnel provided by the
System operating companies in connection with Exempt Projects has
been, and is projected to remain, minimal. The vast majority of
the operational employees of the Exempt Projects are hired or
contracted locally, even where an Entergy affiliate is the
project operator. Moreover, project development, management and
home office support functions for the Exempt Projects are largely
performed by Entergy Enterprises and by outside consultants
engaged by the Entergy Power Group. The increased levels of
investment in Exempt Projects proposed herein are not expected to
have any impact on the level of utilization of System operating
company employees. Entergy further represents that the System
operating companies have not increased, and will not increase,
staffing levels or acquire other resources to support the
operations of Exempt Projects.
Finally, none of the conditions described in paragraph (b)
of Rule 53 is applicable. Specifically, (1) there has been no
bankruptcy of any Entergy associate company, (2) Entergy's
consolidated retained earnings, as previously indicated, have
increased in recent years, and (3) Entergy has never reported
"operating losses" attributable to its Exempt Projects in excess
of 2% of "consolidated retained earnings." No associate Exempt
Project has ever defaulted under the terms of any financing
document.
For all of the foregoing reasons, Entergy believes that, on
the basis of the information set forth herein, and consistent
with similar authorizations previously granted by the Commission,
the Commission should make the requisite findings under Rule
53(c) and grant the request for a modification of the condition
set forth in Rule 53(a)(1).
Item 4. Regulatory Approval.
No state or Federal commission, other than the Commission,
has jurisdiction over the transactions proposed herein. In
accordance with Rule 53(a)(4), Entergy has submitted a copy of
this Application-Declaration to each of the State Regulators.
Entergy intends to discuss the authorization requested in this
Application-Declaration with representatives of the State
Regulators.
Item 5. Procedure.
Entergy respectfully requests that the Commission issue its
order granting and permitting this Application-Declaration to
become effective as soon as practicable, but in any event not
later than June 30, 1997.
Entergy hereby (i) waives a recommended decision by a
hearing officer or any other responsible officer of the
Commission, (ii) agrees that the Division of Investment
Management may assist in the preparation of the decision of the
Commission, and (iii) requests that there be no waiting period
between the issuance of the order of the Commission and the day
on which such order is to become effective.
Entergy proposes to file quarterly certificates pursuant to
Rule 24, within 60 days after the end of each calendar quarter
(commencing with the first full calendar quarter following the
Commission's order herein) containing the following information
as of the end of the preceding quarter (except as otherwise
noted):
(i) A computation in accordance with Rule 53(a) of
Entergy's "aggregate investment";
(ii) Entergy's "aggregate investment" expressed as a
percentage of its consolidated capitalization, consolidated net
utility plant, consolidated assets and the market value of its
Common Stock;
(iii) Consolidated capitalization ratios with consolidated
debt inclusive of short-term debt and non-recourse Exempt Project
debt to the extent normally consolidated under GAAP or other
applicable financial reporting rules;
(iv) The market-to-book ratio of Entergy's Common Stock;
(v) An analysis of the growth in Entergy's consolidated
retained earnings which segregates earnings growth attributable
to Exempt Projects as a whole versus other subsidiaries of
Entergy; and
(vi) A breakdown of the revenues and net income of each of
the Exempt Projects for the twelve months then ended.
Entergy proposes to file a single report under Rule 24 which
combines the foregoing information with the information required
pursuant to Rule 24 in File Nos. 70-7851, 70-8002, 70-8010 and 70-
8105.
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
F - Opinion(s) of Counsel (to be filed by
amendment).
G - Financial Data Schedules.
H - Proposed Form of Notice.
(b) Financial Statements:
Financial Statements of Entergy Corporation and of Entergy
Corporation and subsidiaries, consolidated, as of March 31, 1997
(reference also is made to Exhibit G hereto).
Except as reflected in the Financial Statements, no material
changes not in the ordinary course of business have taken place
since March 31, 1997.
Item 7. Information as to Environmental Effects.
The proposed transactions do not involve any major Federal
action significantly affecting the quality of the human
environment. No Federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed
transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
ENTERGY CORPORATION
By:/S/ William J. Regan, Jr.
William J. Regan, Jr.
Vice President and Treasurer
Dated: May 6, 1997
_______________________________
<FN1> The terms "aggregate investment" and "consolidated retained
earnings" are used in this Application-Declaration as
defined in Rule 53(a)(1) under the Act.
<FN2> Entergy Enterprises (formerly Electec, Inc.) was organized
in 1983 to market energy-related expertise and capabilities
of the Entergy System to non-associate companies, and to
investigate and develop business opportunities in power-
related areas. See Holding Company Act Release ("HCAR") No.
22818 (dated January 11, 1983); see also HCAR No. 23200
(dated January 13, 1984) and HCAR No. 23569 (dated January
15, 1985). Entergy Enterprises was further authorized by
the Commission in 1992 to render consulting services to
certain Argentine electric utility companies in which
Entergy had acquired an interest and that qualified as
FUCOs. See HCAR Nos. 25705 and 25706 (each dated December
14, 1992).
<FN3> See HCAR No. 26322.
<FN4> Specifically, Entergy Enterprises is authorized under the
Act to provide such services to subsidiaries of Entergy that
are Exempt Projects or other Entergy subsidiaries (including
EPI and EIS) that are not (1) domestic regulated electric or
combination electric and gas utilities primarily engaged in
the business of selling electric energy or natural gas at
retail or at wholesale to affiliates, or (2) primarily
engaged in the business of providing goods or services to
regulated electric or combination electric and gas utility
affiliates.
<FN5> Entergy Enterprises is currently authorized under the Act to
provide consulting services to associate companies other
than the System operating companies, SERI, SFI, ESI, EOI or
any other subsidiaries Entergy may create whose activities
and operations are primarily related to the domestic sale of
electric energy at retail or at wholesale to Entergy's
affiliates or the provision of goods or services thereto
(such companies are sometimes referred to herein,
collectively, as the "Excepted Companies").
<FN6> The credit arrangements authorized in the Commission's order
dated February 26, 1997 would replace those approved in a
previous Commission order dated July 27, 1995 (see HCAR No.
26343) under which Entergy could effect borrowings and
reborrowings under credit facilities in an aggregate
principal amount at any time outstanding not to exceed $300
million.
<FN7> As of March 31, 1997, the indebtedness outstanding under
these credit arrangements was approximately $275 million.
<FN8> For purposes of this calculation, Entergy has given effect
to the assumed acquisition (and the funding thereof in
accordance with existing financing arrangements) of all of
the ordinary share capital of London Electricity plc, as
discussed further herein.
<FN9> In addition to the foregoing, EPDC owns an interest in
Entergy Power Asia, Ltd., which has qualified for exemption
as an EWG but currently owns no "eligible facilities". As
of March 31, 1997, Entergy's "aggregate investment" in such
EWG was approximately $1 million.
<FN10> In addition to the above Exempt Projects, Entergy Power
Marketing Corporation ("EPMC"), a wholly-owned subsidiary of
Entergy, is an EWG formed to market electric capacity and
energy to non-affiliates. Subject to the receipt of
Commission approval, EPMC would also engage in other non-
utility activities, including the brokering and marketing of
energy commodities (reference is hereby made to File No. 70-
8863 for further information with respect to these
activities). Concurrently with the receipt of such
approval, EPMC would relinquish its EWG status. As of
March 31, 1997, Entergy's "aggregate investment" in EPMC was
approximately $2.5 million.
<FN11> The following description of the project review process and
associated risk mitigation techniques is illustrative only
and subject to change, and the specific techniques actually
used on any particular project may vary.
<FN12> Entergy Arkansas anticipates capital expenditures of
approximately $150 million for the fabrication and
replacement of the steam generators at Unit No. 2 of the
Arkansas Nuclear One Plant.
<FN13> At the same time, however, Entergy has committed to its
State and local regulators under settlement arrangements
entered into in 1992 to "give first priority in the
allocation of resources to the capital requirements of the
regulated utilities, as determined to be necessary to meet
their obligations to serve".
<FN14> As discussed below, none of the conditions specified in Rule
53(b) is applicable.
<FN15> The smaller increase in consolidated retained earnings
during 1996 is largely attributable to the $174 million net
of tax write-off (as required under Statement of Financial
Accounting Standards No. 121) of rate deferrals associated
with the River Bend Steam Electric Generating Station
(nuclear), which is 70% owned by Entergy Gulf States.
<FN16> As of March 31, 1997, approximately $1.55 billion of
borrowings were outstanding under such facility.
<FN17> To provide additional assurances in this regard to the
Commission, Entergy has requested each State Regulator
to certify to the Commission that it will exercise its
authority under relevant state law to protect
ratepayers from any such adverse effects.
<FN18> The senior secured debt ratings of the System operating
companies were affirmed by Moody's Investors Service, Inc.
after Entergy completed its $1.2 billion acquisition of
CitiPower in January 1996. More recently, on February 11,
1997, Standard & Poor's Ratings Group affirmed its
outstanding ratings on the System operating companies'
senior secured debt following Entergy's announcement of its
intent to acquire London Electricity.
EXHIBIT H
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. 35-_______/ File No. 70-________
___________________________________
In the Matter of :
:
:
ENTERGY CORPORATION :
:
:
___________________________________:
NOTICE OF APPLICATION CONCERNING PROPOSED EXPANSION OF SAFE
HARBOR UNDER RULE 53
Entergy Corporation ("Entergy"), 639 Loyola Avenue, New
Orleans, Louisiana 70113, a registered holding company, has filed
an application-declaration pursuant to Sections 6(a), 7, 12(b),
32 and 33 of the Act and Rules 45, 53 and 54 thereunder.
Entergy and its wholly-owned subsidiary, Entergy
Enterprises, Inc. ("Enterprises") are presently authorized by the
Commission to develop, finance and invest, directly or
indirectly, in one or more "exempt wholesale generators" ("EWGs")
or "foreign utility companies ("FUCOs"), as defined in Sections
32 and 33 of the Act, respectively.
As of March 31, 1997, Entergy's "aggregate investment" in
all EWGs and FUCOs was approximately $1,041,871,905, or
approximately 44.7% of Entergy's "consolidated retained earnings"
as of March 31, 1997 (approximately $2,331,387,000).
Entergy states that, through Enterprises and certain of its
affiliates, it is actively considering investments in additional
foreign and domestic electric utility systems which would qualify
for exemption under Section 32 and 33.
Entergy is now requesting an order that would exempt Entergy
from the requirement of Rule 53(a)(1) so as to allow Entergy to
guaranty securities of EWGs and FUCOs and to use the proceeds of
securities issuances, as authorized by the Commission from time
to time, to invest in the securities of EWGs and FUCOs in amounts
which, when added to Entergy's "aggregate investment" at any time
in such entities, would not exceed Entergy's "consolidated
retained earnings."
Rule 53(c) provides that, if any of the conditions of the
financing "safe harbor" in Rule 53(a) is not satisfied, then an
applicant must "affirmatively demonstrate" that the proposal (i)
will not have a "material adverse impact upon the financial
integrity" of the holding company system, and (ii) will not have
an "adverse impact" on any utility subsidiary of the holding
company, or its customers, or on the ability of the relevant
State commissions to protect such subsidiary or customers.
In its application or declaration, Entergy has provided
financial and other information which, Entergy asserts,
demonstrates that the financing of investments by Entergy in EWGs
and FUCOs in amounts which, when added to Entergy's "aggregate
investment" at any point in time in such entities, may be equal
to Entergy's "consolidated retained earnings," would not have
either of the adverse impacts referred to in Rule 53(c). The
application or declaration describes Entergy's present and
anticipated ownership of EWGs and FUCOs and the process of
project risk review and mitigation that Entergy states is
undertaken prior to the commitment of funds by Entergy in EWGs or
FUCOs. Entergy further represents that it has provided a copy of
the application-declaration to the public service commissions in
Texas, Arkansas, Louisiana, Mississippi and Tennessee and to the
Council of the City of New Orleans, and intends to discuss the
application-declaration with each of those bodies .
The application-declaration and any amendments thereto are
available for the public inspection through the Commission's
Office of Public Reference. Interested persons wishing to
comment or request a hearing should submit their views in writing
no later than ___________, 1997, to the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and serve a copy on the applicant-declarant at the address
specified above. Proof of service (by affidavit or, in case of
an attorney at law, by certificate) should be filed with the
request. Any request for a hearing shall identify specifically
the issues of fact or law that are disputed. A person who so
requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in this matter.
After said date, the application-declaration, as filed or as it
may be amended, may be granted and permitted to become effective.
For the Commission, by the Office of Public Utility
Regulation, pursuant to delegated authority.
[NAME OF SECRETARY]
[Secretary]
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands, Except Share Data)
<S> <C> <C>
Operating Revenues:
Electric $1,451,925 $1,413,068
Natural gas 57,496 57,473
Steam products 11,089 15,578
Nonregulated and foreign energy-related businesses 525,243 112,873
---------- ----------
Total 2,045,753 1,598,992
---------- ----------
Operating Expenses:
Operation and maintenance:
Fuel, fuel-related expenses, and
gas purchased for resale 398,742 375,764
Purchased power 420,962 158,157
Nuclear refueling outage expenses 17,236 14,209
Other operation and maintenance 426,087 353,212
Depreciation, amortization, and decommissioning 228,029 194,567
Taxes other than income taxes 92,991 88,971
Rate deferrals (9,575) (19,802)
Amortization of rate deferrals 99,063 91,511
---------- ----------
Total 1,673,535 1,256,589
---------- ----------
Operating Income 372,218 342,403
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 3,033 2,558
Write-off of River Bend rate deferrals - (194,498)
Miscellaneous - net 17,393 10,778
---------- ----------
Total 20,426 (181,162)
---------- ----------
Interest Charges:
Interest on long-term debt 185,490 172,843
Other interest - net 11,905 11,847
Distributions on preferred securities of subsidiaries 4,172 -
Allowance for borrowed funds used
during construction (2,437) (2,138)
Preferred and preference dividend requirements of
subsidiaries and other 16,723 18,081
---------- ----------
Total 215,853 200,633
---------- ----------
Income (Loss) Before Income Taxes 176,791 (39,392)
Income Taxes 67,029 47,680
---------- ----------
Net Income (Loss) $109,762 ($87,072)
========== ==========
Earnings (loss) per average common share $0.47 ($0.38)
Dividends declared per common share $0.45 $0.90
Average number of common shares outstanding 235,133,608 227,780,604
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands)
<S> <C> <C>
Operating Activities:
Net income (loss) $109,762 ($87,072)
Noncash items included in net income (loss):
Write-off of River Bend rate deferrals - 194,498
Change in rate deferrals/excess capacity-net 111,036 105,388
Depreciation, amortization, and decommissioning 228,029 194,567
Deferred income taxes and investment tax credits (53,743) (45,013)
Allowance for equity funds used during construction (5,470) (2,558)
Changes in working capital:
Receivables 115,155 37,148
Fuel inventory 32,438 23,212
Accounts payable (201,617) (32,984)
Taxes accrued 119,438 65,289
Interest accrued (10,637) (65,276)
Other working capital accounts 98,914 (81,209)
Decommissioning trust contributions (14,656) (12,146)
Other (42,584) (25,535)
---------- ----------
Net cash flow provided by operating activities 486,065 268,309
---------- ----------
Investing Activities:
Construction/capital expenditures (125,743) (131,435)
Allowance for equity funds used during construction 5,470 2,558
Nuclear fuel purchases (54,155) (65,430)
Proceeds from sale/leaseback of nuclear fuel 68,319 46,872
Acquisition of CitiPower - (1,156,112)
Acquisition of London Electricity, net of cash acquired (2,021,501) -
Investment in nonregulated/nonutility properties 12,515 (5,171)
---------- ----------
Net cash flow used in investing activities (2,115,095) (1,308,718)
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands)
<S> <C> <C>
Financing Activities:
Proceeds from the issuance of:
General and refunding mortgage bonds - 39,608
First mortgage bonds 84,490 198,250
Bank notes and other long-term debt 1,630,280 946,167
Common Stock 98,695 -
Preferred securities of subsidiaries trust 82,323 -
Retirement of:
First mortgage bonds - (133,687)
General and refunding mortgage bonds (87,965) -
Other long-term debt - (92,744)
Redemption of preferred stock (101,728) (19,704)
Changes in short-term borrowings - net 258,274 277,000
Common stock dividends paid (105,035) (99,714)
---------- ----------
Net cash flow provided by financing activities 1,859,334 1,115,176
---------- ----------
Effect of exchange rates on cash and cash equivalents (758) 40
---------- ----------
Net increase in cash and cash equivalents 229,546 74,807
Cash and cash equivalents at beginning of period 388,703 533,590
---------- ----------
Cash and cash equivalents at end of period $618,249 $608,397
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $223,444 $239,354
Income taxes $3,002 $12,032
Noncash investing and financing activities:
Change in unrealized depreciation of
decommissioning trust assets ($1,119) ($4,265)
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(Unaudited)
1997 1996
ASSETS (In Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents:
Cash $125,027 $34,807
Temporary cash investments - at cost,
which approximates market 391,130 346,782
Special deposits 102,092 7,114
----------- -----------
Total cash and cash equivalents 618,249 388,703
Notes receivable 9,524 1,384
Accounts receivable:
Customer (less allowance for doubtful accounts of
$26.4 million in 1997 and $9.2 million in 1996) 562,916 324,687
Other 148,717 99,066
Accrued unbilled revenues 468,238 351,429
Deferred fuel 86,965 122,184
Fuel inventory 122,195 139,603
Materials and supplies - at average cost 375,985 339,622
Rate deferrals 411,483 444,543
Prepayments and other 190,884 151,312
----------- -----------
Total 2,995,156 2,362,533
----------- -----------
Other Property and Investments:
Decommissioning trust funds 375,933 357,962
Non-regulated investments 502,629 513,058
Other 78,417 59,053
----------- -----------
Total 956,979 930,073
----------- -----------
Utility Plant:
Electric 25,039,087 22,811,164
Plant acquisition adjustment - Entergy Gulf States 451,359 455,425
Electric plant under leases 680,246 679,991
Property under capital leases - electric 143,857 147,277
Natural gas 175,093 168,143
Steam products 81,743 81,743
Construction work in progress 411,694 401,676
Nuclear fuel under capital leases 284,489 250,651
Nuclear fuel 58,030 112,625
----------- -----------
Total 27,325,598 25,108,695
Less - accumulated depreciation and amortization 9,045,596 8,885,572
----------- -----------
Utility plant - net 18,280,002 16,223,123
----------- -----------
Deferred Debits and Other Assets:
Regulatory assets:
Rate deferrals 321,517 399,493
SFAS 109 regulatory asset - net 1,194,590 1,196,041
Unamortized loss on reacquired debt 212,183 217,664
Other regulatory assets 436,340 435,652
Long-term receivables 211,524 216,082
CitiPower license (net of $3.8 million of amortization) 598,897 606,214
London Electricity license (net of $6.4 million of amortization) 1,541,414 -
Other 399,960 379,419
----------- -----------
Total 4,916,425 3,450,565
----------- -----------
TOTAL $27,148,562 $22,966,294
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(Unaudited)
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands)
<S> <C> <C>
Current Liabilities:
Currently maturing long-term debt $412,332 $345,620
Notes payable 567,811 20,686
Accounts payable 511,661 554,558
Customer deposits 181,693 155,534
Taxes accrued 370,004 180,340
Accumulated deferred income taxes 47,248 78,010
Interest accrued 195,834 203,425
Dividends declared 5,486 8,950
Obligations under capital leases 152,077 151,287
Other 280,575 184,157
----------- -----------
Total 2,724,721 1,882,567
----------- -----------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 4,674,949 3,770,760
Accumulated deferred investment tax credits 602,793 607,641
Obligations under capital leases 277,012 247,360
Other 1,791,020 1,298,306
----------- -----------
Total 7,345,774 5,924,067
----------- -----------
Long-term debt 9,422,701 7,590,804
Subsidiaries' preferred stock with sinking fund 200,237 216,986
Subsidiary's preference stock 150,000 150,000
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely junior subordinated deferrable debentures 215,000 130,000
Shareholders' Equity:
Subsidiaries' preferred stock without sinking fund 345,954 430,955
Common stock, $.01 par value, authorized 500,000,000
shares; issued 237,865,027 shares in 1997 and
234,456,457 shares in 1996 2,378 2,345
Paid-in capital 4,410,325 4,320,591
Retained earnings 2,345,917 2,341,703
Cumulative foreign currency translation adjustment 20,966 21,725
Less - treasury stock (1,131,223 shares in 1997 and
1,496,118 shares in 1996) 35,411 45,449
----------- -----------
Total 7,090,129 7,071,870
----------- -----------
Commitments and Contingencies (Notes 1 and 2)
TOTAL $27,148,562 $22,966,294
=========== ===========
See Notes to Financial Statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Entergy
Corporation financial statements for the quarter ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000065984
<NAME> ENTERGY CORPORATION AND SUBSIDIARIES
<SUBSIDIARY>
<NUMBER> 023
<NAME> ENTERGY CORPORATION AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 18,280,002
<OTHER-PROPERTY-AND-INVEST> 956,979
<TOTAL-CURRENT-ASSETS> 2,995,156
<TOTAL-DEFERRED-CHARGES> 4,916,425
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 27,148,562
<COMMON> 2,378
<CAPITAL-SURPLUS-PAID-IN> 4,410,325
<RETAINED-EARNINGS> 2,345,917
<TOTAL-COMMON-STOCKHOLDERS-EQ> 7,090,129
200,237
345,954
<LONG-TERM-DEBT-NET> 9,422,701
<SHORT-TERM-NOTES> 567,811
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 412,332
0
<CAPITAL-LEASE-OBLIGATIONS> 277,012
<LEASES-CURRENT> 152,077
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,011,818
<TOT-CAPITALIZATION-AND-LIAB> 27,148,562
<GROSS-OPERATING-REVENUE> 2,045,753
<INCOME-TAX-EXPENSE> 67,029
<OTHER-OPERATING-EXPENSES> 1,673,535
<TOTAL-OPERATING-EXPENSES> 1,673,535
<OPERATING-INCOME-LOSS> 372,218
<OTHER-INCOME-NET> 20,426
<INCOME-BEFORE-INTEREST-EXPEN> 392,644
<TOTAL-INTEREST-EXPENSE> 199,130
<NET-INCOME> 109,762
16,723
<EARNINGS-AVAILABLE-FOR-COMM> 109,762
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 486,065
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
