File No. 70-9049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
____________________________
AMENDMENT NO. 1
To
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)
____________________________
Jerry D. Jackson Charles J. Brown, III
Executive Vice President - Vice President
External Affairs Entergy Enterprises, Inc.
Entergy Corporation 4 Park Plaza, Suite 2000
639 Loyola Avenue Irvine, CA 92614
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
<PAGE>
Item 1. Description of Proposed Transaction.
Item 1 of the Application-Declaration in this File is
hereby amended and restated to read in its entirety as
follows:
"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 other 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 primarily 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.; (7) a
company that primarily 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.; (9) a company primarily engaged in the
marketing and brokering of electricity, gas and other energy
commodities - Entergy Power Marketing Corporation; and (10)
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 and its Exempt Projects, is engaged principally
in the generation, transmission, distribution and sale of
electricity at retail and wholesale and the purchase of
electricity at wholesale. Entergy's 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. In addition, Entergy's Exempt Projects,
among other things, provide electricity to approximately 2
million customers in London, England and to approximately
240,000 customers in Melbourne, Australia.
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,<FN2> (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 and PUCT are sometimes referred to herein,
collectively, as the "State Regulators".
B. Development of Exempt Projects.
Since 1992, Entergy, through Entergy Enterprises<FN3> and
certain other non-utility affiliates (Entergy Enterprises
and such affiliates are sometimes collectively referred to
herein as the "Entergy Power Group"), has been actively
engaged in the development of various domestic and foreign
energy and energy-related businesses. Pursuant to
Commission order dated June 30, 1995 (the "June 1995
Order")<FN4>, 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<FN5>, (3) to market intellectual property developed by
other System companies, and (4) to provide consulting
services to certain of its associate companies<FN6> and to non-
associate companies, primarily in the areas of power
generation, transmission and distribution and ancillary
operations.
C. Financing of Exempt Projects.
Entergy is currently authorized under the terms of
Commission orders and supplemental orders issued in File
Nos. 70-8839 and 70-8903 (collectively, the "Financing
Orders") to finance the acquisition of Exempt Projects by
issuing and selling debt and equity securities. Entergy's
authorization under the Financing Orders may be summarized
as follows:
(1) 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 to
compliance with Rule 53). Through December 31, 1997,
Entergy had sold a total of 16,131,672 shares of Common
Stock pursuant to the DRIP.
(2) 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 may 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.<FN7> Entergy is
authorized to use the proceeds of Borrowings for general
corporate purposes, including financing of the acquisition
of securities of, or other interests in, Exempt Projects.<FN8>
In addition to the Financing Orders, Entergy is
currently seeking Commission approval in File No. 70-9123,
among other things, to finance its investments in Exempt
Projects through providing guarantees or other forms of
credit support in respect of the securities or other
obligations of Exempt Projects ("Guarantees"; such
Guarantees, together with the debt and equity securities
authorized under the Financing Orders, are sometimes
collectively referred to herein as "Securities"). Entergy
is proposing in such File to issue Guarantees in an
aggregate amount (inclusive of, among other things, any
guarantees previously issued by Entergy and outstanding
under the June 1995 Order) not to exceed $750 million.<FN9>
Reference is hereby made to File No. 70-9123 for further
information with respect to Entergy's proposed authorization
to issue Guarantees.
For the reasons stated herein, Entergy hereby requests
that the Commission exempt Entergy from the requirements of
Rule 53(a)(1) under the Act so that it may use the proceeds
of Securities (including the issuance of Guarantees), each
in accordance with and upon the terms of this Application-
Declaration, the applicable Financing Order and any
Commission order issued in File No. 70-9123, 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. 70-8839, 70-8903 and 70-9123, and any
applications pending in such Dockets, be deemed to 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, 1998 (approximately $1,183,822,020)
represented approximately 54% of Entergy's "consolidated
retained earnings" as of March 31, 1998 (approximately
$2,193,606,750). Giving effect to the authorization sought
in this File would allow, on a pro forma basis as of March
31, 1998, the financing by Entergy of investments in
additional Exempt Projects in an amount equal to
approximately $1.1 billion. Entergy is not requesting
authority herein to issue any additional securities for
purposes of financing the acquisition of Exempt Projects.
Entergy's aggregate investment in Exempt Projects
currently exceeds the 50% limitation in Rule 53(a)(1) as a
result of certain write-offs against Entergy's consolidated
retained earnings, including a net decrease of approximately
$140 million in Entergy's consolidated retained earnings
from the quarter ended June 30, 1997 to the quarter ended
September 30, 1997. This $140 million net decrease was
attributable primarily to the recording in July 1997 of a
one-time "windfall profits tax" imposed by the British
government on London Electricity plc ("London Electricity"),
an indirect subsidiary of Entergy and a FUCO, and other
privatized companies in the United Kingdom.<FN10> This tax,
which was approximately US$234 million for London
Electricity, was made payable in two installments, the first
of which was paid on December 1, 1997, and the second of
which will be due on December 1, 1998. The first
installment of the tax was paid by London Electricity,
without need for additional investment by Entergy, and it is
not anticipated that there will be a need for any additional
investment by Entergy to fund London Electricity's payment
of the second installment.
Following the July 2, 1997 announcement by the Labor
Government of the proposed windfall profits tax, a Standard
& Poor's Ratings Group report listed 13 British utilities,
including London Electricity, on "CreditWatch with negative
implications". However, as of March 31, 1997, London
Electricity's senior debt ratings have not changed due to
the enactment of the windfall profits tax. Moreover, as
noted below, after Entergy announced its intent to acquire
London Electricity, Standard & Poor's Ratings Group affirmed
its outstanding ratings on the System operating companies'
senior secured debt.
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 a FUCO that develops,
acquires and holds, through various direct and indirect FUCO
subsidiaries, certain of Entergy's investments in FUCOs.
Such investments currently consist of the following:
(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 (with
an aggregate installed capacity of 547 MW), one 260 MW
thermal electric generating station and 576 kilometers
of interconnecting transmission lines near Lima, Peru;
(b) a 5% interest, held through its wholly-owned
subsidiary Entergy Pakistan, Ltd., in The Hub Power
Company, Ltd. ("Hub Power"), which owns and operates a
1,292 MW steam electric generating facility in
Pakistan;
(c) a 25% economic interest, held through its wholly-
owned subsidiary Entergy Power Chile, Inc., in Compania
Electrica San Isidro S.A., which will develop, own and
operate a 370 MW combined-cycle electric generating
plant and, through a subsidiary, interconnecting
transmission facilities located near Santiago, Chile;
(d) a 6% interest, held through its subsidiary Entergy
S.A., in Central Costanera S.A. ("Costanera"), a
company which owns and operates an electric generating
station with a total installed capacity of 1,260 MW
located in Buenos Aires, Argentina;
(e) an aggregate 10.86% interest, held through
Costanera and EPDC's wholly-owned subsidiary Entergy
Power CBA Holding Ltd., in Central Termoelectric Buenos
Aires, S.A. ("CBA"), which owns a 220 MW gas-fired,
combined cycle turbine generator located at the
Costanera power plant in Buenos Aires, Argentina;
(f) a 100% interest, held through its subsidiary
Entergy Power Kingsnorth, Ltd., in Kingsnorth Power
Limited ("Kingsnorth Power"), which will develop, own
and operate a 740 MW (nominal) gas-fired, combined
cycle electric generating facility to be located in the
County of Kent, England; and
(g) a 100% interest, held through its subsidiary
Entergy Power Saltend, Ltd., in Saltend Cogeneration
Company Limited ("Saltend Cogen"), which will develop
and own a 1,200 MW (nominal) gas-fired, combined cycle
electric generating facility to be located in the
County of Hull, England.<FN11>
As of December 31, 1997, Entergy's "aggregate
investment" in EPDC, Edegel, Hub Power, San Isidro,
Costanera, CBA, Kingsnorth Power and Saltend Cogen was
approximately $97.8 million, $100 million, $25.3 million, $9
million, $10.5 million, $3.7 million, $83.6 million and $170
million, respectively.
(2) Entergy International Holdings Ltd LLC ("EIH"), 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 certain
FUCOs. Such investments currently consist of the following:
(a) a 100% interest, held through its subsidiary
Entergy International Ltd. LLC ("EIL"), in CitiPower
Ltd. ("CitiPower"), an electric distribution company
providing service to customers in Melbourne, Australia;
(b) a 100% interest, held through EIL, in London
Electricity, a company principally engaged in providing
electric service to customers in the greater London
area; and
(c) a 5.1% interest, held through EIL, in Edesur S.A.
("Edesur"), an electric distribution company providing
service to customers in Buenos Aires, Argentina.
As of December 31, 1997, Entergy's "aggregate
investment" in EIH, EIL, CitiPower, London Electricity and
Edesur was approximately $7.5 million, $4.4 million, $294.4
million, $392 million and $58.2 million, respectively.
(3) Entergy Power Development International Holdings
Corporation, a wholly-owned subsidiary of Entergy, is a FUCO
which holds, indirectly through other FUCO subsidiaries,
Entergy's 92% interest in Nantong Entergy Heat & Power Co.,
Ltd. ("Nantong"). Nantong is developing a 24 MW
cogeneration plant located in the Nantong Economic and
Technological Development Zone in the Peoples Republic of
China. As of December 31, 1997, Entergy's "aggregate
investment" in Nantong was approximately $9.6 million.
(4) Entergy Power Operations Corporation ("EPOC"), a
wholly-owned subsidiary of Entergy, is a FUCO formed to
provide various operations and maintenance services ("O&M
Services"), directly or indirectly, to affiliated and non-
affiliated power projects. EPOC's wholly-owned subsidiary
Entergy Power Operations Pakistan Ltd. ("EPOP") is a FUCO
that currently provides O&M Services to Liberty Power, Ltd.,
which owns a gas-fired, combined-cycle electric generating
facility located in Pakistan. Another wholly-owned
subsidiary of EPOC, Entergy Power Operations U.K. Limited
("Entergy Operations UK"), is a FUCO organized to provide
O&M Services to Saltend Cogen. As of December 31, 1997,
Entergy's "aggregate investment" in EPOP and Entergy
Operations UK was approximately $500,000 and $1,500,
respectively.
At December 31, 1997, the outstanding amount of debt
relating to Entergy's investments in Exempt Projects that is
recourse to Entergy (including approximately $177.5 million
in the form of guarantees provided by Entergy of Exempt
Project indebtedness or other obligations) was approximately
$252 million. At December 31, 1997, the outstanding amount
of non-recourse debt relating to Entergy's investments in
Exempt Projects was approximately $3.2 billion. The Entergy
Power Group intends, to the extent practicable, to continue
to rely primarily on non-recourse debt in financing (or
refinancing) Entergy's investments in Exempt Projects.<FN12>
E. Anticipated Investments in Exempt Projects.
In addition to the foregoing investments in Exempt
Projects, the Entergy Power Group is currently investigating
other possible investments in foreign and domestic utility
projects. Most of these projects are expected to qualify as
either EWGs or FUCOs. Entergy believes that the expanded
authorization sought herein to use financing proceeds to
invest in Exempt Projects will provide Entergy with the
necessary financial flexibility to pursue such investments.
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. The
following is a description of the project review process and
associated risk mitigation techniques utilized by Entergy in
connection with potential investments in Exempt Projects.
(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 provide a variety of tools to
assist in the evaluation of risks. These tools include,
among others, utilization of independent country risk
analysis services, rating agency country ratings,
availability of political risk insurance, and availability
and cost of funds from international capital sources.
Entergy's strategic plans, which are updated periodically,
lead to the identification of projects and countries where
the Entergy Power Group pursues project development efforts.
The plans also lead to the development of budgeted levels of
expenditure on foreign development activities as well as, in
many cases, limits on investment in particular countries.
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 of the Entergy Power Group. 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 the risk of 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.
If the proposed investment exceeds $5 million, it is
then presented to the Entergy Investment Review Committee.
If the investment exceeds $10 million, it is then presented
to the Entergy board of directors. At each of the above
review and approval levels, the respective corporate body
evaluates the geographic region, the individual country
particulars and the specific project.
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 for Entergy's Exempt Projects, since repayment of that
debt will depend solely upon the success of the particular
Exempt Project. 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.
For example, the thoroughness of Entergy's review process
was affirmed by the more than 60 international banks which
have participated in two large non-recourse debt offerings
arranged by the Entergy Power Group: the CitiPower
acquisition in January 1996 (approximately $900 million in
original principal amount), and the London Electricity
acquisition in December 1996 (approximately $1.7 billion in
original principal amount). 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.
(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
limited, and will continue to confine, its project
development efforts to transmission/distribution systems and
generation 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. In certain cases (such as the Saltend Cogen
project in the U.K.), the risk of fuel price fluctuation may
be mitigated through hedging arrangements, such as indexing
the price of fuel to the pool price of electricity. Other
operating risks are covered by equipment warranties and by
casualty, business interruption and other forms of
insurance. Further, when an Entergy affiliate is
responsible for managing the day-to-day operations of Exempt
Projects in which it holds an ownership interest (such as
the Saltend Cogen project), Entergy's 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, Entergy 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 establishes a contingency plan in the
event of off-take defaults.
With other projects, particularly in competitive power
markets outside the United States (such as the United
Kingdom), 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 these electricity markets to ensure the
viability of long-term demand. In most cases, the Entergy
Power Group retains outside experts to provide industry data
and projections. 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, as discussed above, most of the permanent
debt financing that has been arranged to date for Entergy's
Exempt Projects is, by its express terms, non-recourse to
Entergy or any associate company (other than Exempt
Projects). This means that the non-recourse debt of each
Exempt Project is secured solely by its assets and revenues,
and creditors have no ability to seek repayment upon default
from Entergy or from any Excepted Company (including any
System operating company). This method of financing
provides assurances that Entergy's financial exposure with
respect to an Exempt Project is limited to the amount of its
equity commitment, and that the System operating companies
and their customers bear no risk of direct losses from an
Exempt Project's failure or financial distress.
As indicated above, Entergy has, in certain instances,
agreed to provide guarantees in connection with its Exempt
Projects, and Entergy may, in the future, determine to
provide additional such guarantees. However, these
financial supports have been limited in amount (aggregating
approximately $177.5 million as of December 31, 1997), are
carefully monitored by Entergy, and are treated as a part of
Entergy's equity commitment for regulatory reporting
purposes (including in calculating Entergy's "aggregate
investment" in Exempt Projects). In those instances where
there is recourse to Entergy under a guarantee, such
recourse is clearly defined and specifically limited through
carefully worded provisions in the guarantee. To date,
Entergy has never been called upon to fund its obligation
under any guarantee issued with respect to an investment in
an Exempt Project.
In addition to the non-recourse nature of Exempt
Project debt financing, such project debt is carefully
structured to correspond to the revenue stream 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 match debt service with cash flows
and to be of a similar term. For example, the Hub Power
project has non-recourse debt with a 20-year maturity
designed in light of the 25-year term of the project's power
purchase agreement.
Another financial 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 (and
will be, upon approval of Entergy's finance department, as
noted below) mitigated by purchasing financial instruments
that provide hedges against interest rate volatility. For
example, the interest rate risk on over $2 billion in
notional amount of non-recourse debt associated with the
CitiPower and London Electricity projects has been hedged
through the utilization of financial instruments. Entergy's
finance department is responsible for monitoring the use of
these instruments to ensure they are appropriately
structured.<FN13>
(e) Foreign Currency Exchange Risk. There are several
ways in which the Entergy Power Group has addressed foreign
currency exchange risk, 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 some countries, the
source of revenues can be tied in other ways to the United
States dollar.<FN14> 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.
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 (e.g., for London
Electricity) 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 an Exempt Project is payable in or indexed to
hard currency (almost invariably United States dollars).
For example, the revenue stream associated with the Hub
Power project in Pakistan is paid in a basket of hard
currencies which include 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. 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. 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.
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. Such local partners have included Endesa of Chile
(in connection with Exempt Projects in Chile and Peru),
Perez Companc of Buenos Aires (in connection with Exempt
Projects in Argentina) and Nantong Industrial Zone (in
connection with the Nantong project in China). 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 that would harm a project's
viability. For example, most of the debt related to the Hub
Power project is guaranteed by the World Bank; without such
a guaranty, the project would not have been completed. 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. The Entergy Power Group typically analyzes the
perceived political risk of a project and the costs
associated therewith and obtains insurance when the costs
associated with such risk exceed the costs of insurance
coverage.
(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
Exempt Projects 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, the U.K., Europe,
Australia, Asia and North America (outside the core
regulated business of Entergy). Substantial investments
have been made in Latin America, Australia and the U.K., and
extensive development efforts are underway in these areas,
Europe, North America and, to a somewhat 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, as indicated above, 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 (such as the Kingsnorth Power and
Saltend Cogen Exempt 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, the Entergy Power Group's development efforts have
targeted assets that are already in operation, either from
existing private owners (such as Entergy's acquisition of
London Electricity) or through privatizations (such as
Entergy's investment in Edegel). 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 has included interests in electric
distribution systems (such as Edesur), as well as in
electric generation facilities (such as Costanera) and
electric transmission systems.
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 Exempt Projects. In addition, while Entergy has
successfully developed significant investments in Exempt
Projects which are expected to produce positive long-term
results, it has also ensured that its portfolio of Exempt
Projects will add cash flow and earnings for its
shareholders in the immediate future, thereby supporting
share value and dividend growth.<FN15>
(h) Application of Project Review Process to Specific
Investment Decision.
The project review process described above was followed
in connection with Entergy's acquisition of London
Electricity. All of the risks described above (with the
exception of construction risk, which was not significant
for an electric distribution company such as London
Electricity) were carefully evaluated during the review
process and prior to Entergy's tender offer for the ordinary
share capital of London Electricity.
The acquisition of London Electricity was a strategic
fit with Entergy's internationalization goals. It provided
a large, densely populated distribution territory served by
a strong, well managed company. The investment also fit
well with Entergy's portfolio by providing regional
diversification in a strong and stable industrialized
country.
Entergy has a long history of successfully operating
distribution companies in the United States, and over the
past six years has been developing the expertise in
international operations. Entergy is able to draw upon the
extensive experience of its domestic and international
staffs in these areas. In this regard, experts from both
the United States and Australia participated in the review
process for the London Electricity acquisition. Entergy's
Australian experience, gained at CitiPower in Melbourne, is
particularly relevant. The Australian electric industry has
been segmented into generation, transmission and
distribution sectors. The distribution companies in several
Australian states, including Victoria where Melbourne is
located, have now been privatized. Deregulation of the
industry in Australia has been similar to, and somewhat
ahead of, the current deregulation efforts in England. All
of these factors contributed to the analysis and forecasts
for the London Electricity acquisition.
The English distribution sector remains regulated.
Competition has been introduced on a limited scale, a fact
which helped to mitigate the commercial risks in the London
Electricity acquisition. The ongoing commercial success of
London Electricity is partially dependent upon the company's
ability to compete in an unregulated environment. Entergy's
extensive expertise gained at CitiPower enabled it to
analyze both the revenue and cost structure of London
Electricity as well as the effects of the future regulatory
regime. Based upon these analyses, Entergy was able to
project future operating revenues for London Electricity.
Financial risks were mitigated both in the planning and
implementation stages by the retention of London-based
financial, tax and accounting advisors. In addition, the
non-recourse acquisition debt was denominated in Pounds
Sterling to match the operating revenue streams. After the
acquisition was completed, this temporary acquisition debt
was restructured into longer-term fixed interest non-
recourse debt, which is also denominated in Pounds Sterling.
To mitigate the currency exposure on Entergy's equity
investment (which is denominated in U.S. Dollars), Entergy
purchased foreign currency forward contracts.
The English legal system is well established. The
commercial legal system is very similar to the United
States. In addition, local English counsel were retained to
analyze the legal aspects of the transaction and advise
Entergy concerning the acquisition.
The United Kingdom has had a stable political history.
Therefore, political risk, in the sense of overthrow or
collapse of the government, was not considered a risk in the
London Electricity acquisition. National elections were,
however, contemplated within several months of the
transaction. The expected change in government was not seen
as a major threat to London Electricity or the other
recently privatized distribution companies, notwithstanding
the possible imposition of the windfall profits tax.
G. Earnings from Exempt Projects.
Entergy's investments in Exempt Projects have generated
modest but important contributions to earnings. For
example, for the year ended December 31, 1997, excluding the
effect of the windfall profits tax assessed on London
Electricity, Entergy's investments in Exempt Projects would
have increased consolidated net income by approximately $62
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 indicated above, on behalf of Entergy, the Entergy
Power Group is presently investigating, alone or in
conjunction with non-affiliates, additional investment
opportunities primarily in domestic and foreign power
projects and foreign utility systems. 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 six years, and Entergy has no
current plans to purchase additional common stock of any
System operating company for at least the next five years.
The System operating companies (except for Entergy Arkansas)<FN16>
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 (including investments by Entergy Arkansas) 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
anticipated need in the next five years for any 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.<FN17>
Investments in Exempt Projects also serve to diversify
Entergy's overall utility operations and thereby reduce
Entergy's 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 foreign energy markets that are largely
deregulated will help increase the chances of long-term
success in the domestic utility business. The lessons
learned from these markets will provide Entergy with
valuable insights about the features of market structures
that produce efficient and equitable results for consumers
and shareholders, and help Entergy to shape the evolution of
a competitive electric power industry in the U.S. For these
reasons, Entergy, through the Entergy Power Group, has
pursued 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 energy
markets.
III. Compliance With Rules 53 and 54.
Entergy hereby represents that, pursuant to Rule 54
under the Act, except as indicated above with respect to
Rule 53(a)(1), all of the criteria of Rule 53(a) and (b) are
satisfied, and that it will at all times remain in
compliance with the requirements of Rule 53(a) (other than
Rule 53(a)(1)). 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."
Item 3. Applicable Statutory Provisions.
Item 3 of the Application-Declaration in this File is
hereby amended and restated to read in its entirety as
follows:
"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<FN18>, 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, at present, Entergy does
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 a 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 (including guarantees) 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 December 31, 1997.
For example, investments in this amount would be equal to
only 12.7% of Entergy's total capitalization
($16,950,301,000), 11.9% of consolidated utility plant
($18,132,828,000), 8.0% of total consolidated assets
($27,000,700,000), and 29.3% of the market value of
Entergy's outstanding Common Stock ($7,359,905,233). By way
of comparison, the relevant measures for Entergy are well
within the ranges the Commission has found, in the cases of
The Southern Company ("Southern")<FN19>, Central and South West
Corporation ("CSW")<FN20>, GPU, Inc. ("GPU")<FN21>, Cinergy, Inc.
("Cinergy")<FN22> and American Electric Power Company, Inc.
("AEP")<FN23> to represent a relatively small commitment of
capital.<FN24>
(b) Entergy's consolidated retained earnings grew
by an average of approximately 12.3% per year over the
period of 1993 to 1996. Entergy's consolidated retained
earnings during the year ended December 31, 1997 decreased
by approximately $184 million, or 7.9%, as compared to the
previous fiscal year due to regulatory developments in Texas
affecting Entergy Gulf States, and the recording in July
1997 of the U.K. windfall profits tax imposed on London
Electricity.<FN25>
(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.<FN26>
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 51% 65% 40%
EBIT/Cash Interest (times) 3.2 4.6 2.0
Funds from Operations/Interest (times) 4.2 5.9 2.5
* (Source: Moody's Investors Service Electric Utility
Sourcebook, October 1997)
Entergy's consolidated debt capitalization ratio as of
December 31, 1997 was 56% (including short-term debt of
approximately $429 million), which continues to be within
the industry range set by the independent debt rating
agencies for BBB rated utilities (40% to 65%).
(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 1997 are shown below:
1993 1994 1995 1996 1997
P/E Ratio:
Entergy 13.4 10.1 12.4 11.1 12.3
Electric Industry* 13.0 11.1 12.8 12.3 14.8
Market-to-Book Ratio:
Entergy 127% 78% 103% 97% 103%
Electric Industry* 167% 136% 140% 145% 172%
* (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. Entergy
believes that the performance of its 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 financial flexibility sought in this filing to
invest in additional Exempt Projects as appropriate
opportunities arise.
(e) Entergy's dividend payout ratio (percentage
of earnings paid out in dividends) over the past several
years as compared with the electric utility industry average
is indicated below:
1993 1994 1995 1996 1997
Entergy Payout Ratio (%) 61.3 82.9 76.6 72.6 80.0
Electric Industry* 78.5 79.5 75.7 73.3 74.5
* (Source: Goldman Sachs Unweighted Average for 79 U.S.
Electric Utilities)
(f) The market's favorable assessment of the
overall quality of Entergy's portfolio of Exempt Projects is
further demonstrated by the success that Entergy has had in
obtaining non-recourse debt to finance the acquisition and
ownership of these projects. For example, in connection
with the acquisition of London Electricity, the Entergy
Power Group was able to arrange non-recourse debt financing
in an original principal amount of approximately $1.7
billion through a credit facility with a group of
international banks. The debt issued under the credit
facility was secured solely by the assets of Entergy Power
UK plc and was not guaranteed by, or otherwise recourse to,
Entergy or any of the System operating companies.
(g) None of the conditions described in paragraph
(b) of Rule 53 is applicable. Specifically, (1) there has
been no bankruptcy of any significant Entergy subsidiary
company, (2) as previously noted, Entergy's average
consolidated retained earnings for the four most recent
quarterly periods have not decreased by 10% from the average
for the preceding four quarterly periods, and (3) Entergy
has never reported "operating losses" in any fiscal year
attributable to its Exempt Projects in excess of 5% of
consolidated retained earnings. No associate Exempt Project
has ever defaulted under the terms of any financing
document.
* * * * *
(2) The proposed use of financing proceeds for
investments in Exempt Projects in amounts which would cause
Entergy's "aggregate investment" in Exempt Projects to not
exceed 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,<FN27> 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 for the past
five years have generally been, and should continue to be,
consistent with the industry average for BBB rated electric
utilities (which was 53% as of the end of the third quarter
of 1997).
Debt as % of 1993 1994 1995 1996 1997
Capitalization
Entergy Arkansas 53.7 52.8 52.7 52.3 52.4
Entergy Gulf States 52.5 57.0 55.2 52.9 51.4
Entergy Louisiana 52.2 51.0 50.6 51.0 50.7
Entergy Mississippi 51.7 51.0 50.3 49.8 49.3
Entergy New Orleans 51.0 52.2 53.0 52.6 52.7
* (Source: BBB industry average-Calculated using Merrill
Lynch & Co., Electric Utilities Data Sheet, Third
Quarter, 1997)
Debt levels of each of the System operating companies
generally are projected to remain stable or decline over the
next several years. The reduction in debt levels in recent
years 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 $25 million to Entergy Mississippi). Entergy
does not anticipate that it will need to make any additional
equity investment in any System operating company for at
least the next five years.
System operating companies - Construction Expenditures:
Actual (1993-1997) and projected (1998-2000)
expenditures, net of Allowance for Funds Used During
Construction ($ million):
1993 1994 1995 1996 1997 1998 1999 2000
537 610 570 508 417 512 492 504
Percent internally generated:
1993 1994 1995 1996 1997
209% 210% 247% 251% 347%
Entergy currently estimates that cash flow from operations
will be sufficient to fund projected construction
expenditures through 2000.
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 following table shows the senior debt securities
ratings of each of the System operating companies over the
previous five years:
Senior Debt Ratings: 1993 1994 1995 1996 1997
Entergy Arkansas BBB BBB BBB BBB BBB+
Entergy Gulf States BBB- 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
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 continue to 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, Entergy believes that its
investments in Exempt Projects to date have not adversely
affected the senior debt ratings of the System operating
companies.<FN28>
(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. In particular, as discussed above, the financing
arrangements used for Entergy's Exempt Projects are
carefully structured to fully insulate the System operating
companies from the direct effects of any losses that may be
incurred in connection with such projects. 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.
As a practical matter, it may not be feasible to
insulate the System operating companies from a potential
increase in the cost of capital that could result from a
major loss in connection with Entergy's investments in
Exempt Projects. However, in the event that any investments
in Exempt Projects were to have 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
the Entergy Power Group 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.
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 5. Procedure.
The last full paragraph under Item 5 of the Application-
Declaration in this File is hereby amended and restated to
read in its entirety as follows:
"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, 70-8105, 70-8839 and 70-8903."
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
D-1 - Conformed copy of Letter,
dated October 30, 1997, from the LPSC to
the Commission
D-2 - Conformed copy of Letter,
dated March 26, 1998, from the CNO to
the Commission, together with Attachment
B thereto
D-3 - Conformed copy of Letter,
dated April 7, 1998, from the MPSC to
the Commission
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned company has
duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERGY CORPORATION
By: /s/ Michael G. Thompson
Michael G. Thompson
Senior Vice President, General
Counsel and Secretary
Dated: May 18, 1998
_______________________________
<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> Although Entergy Arkansas is subject to retail rate
regulation by the Tennessee Public Service Commission
with respect to retail service provided by Entergy
Arkansas to 58 customers in southwestern Tennessee,
Entergy Arkansas' revenues from such service are
immaterial, accounting for less than 1% of its total
operating revenues.
<FN3> 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).
<FN4> See HCAR No. 26322.
<FN5> Specifically, Entergy Enterprises is authorized under
the June 1995 Order to provide such services as well as
consulting services to subsidiaries of Entergy that are
Exempt Projects or other Entergy subsidiaries 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.
<FN6> Entergy Enterprises is currently authorized under the
June 1995 Order 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").
<FN7> The credit arrangements authorized in the Commission's
order dated February 26, 1997 replaced 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.
<FN8> As of December 31, 1997, the indebtedness outstanding
under these credit arrangements was approximately $75
million.
<FN9> Such Guarantees may also be provided for Entergy's
other non-utility investments.
<FN10>In addition to the $140 million net decrease in
Entergy's consolidated retained earnings attributable
primarily to the U.K. "windfall profits tax", during
the fourth quarter of 1997, Entergy's consolidated
retained earnings decreased by approximately $90
million due primarily to (a) the establishment of a
$227 million (net of tax) reserve for potential
regulatory adjustments based upon management's
estimates of the financial effect of potential adverse
rulings in connection with Entergy Gulf States' River
Bend Steam Electric Generating Station (nuclear) and
pending rate proceedings in Texas, and (b) the net of
tax write-off of $7.4 million of previously deferred
radioactive waste facility costs.
<FN11>In addition to the foregoing, EPDC owns an interest in
Entergy Power Asia, Ltd.("EPAL"), which is an EWG but
currently owns no electric generation or transmission
facilities. As of December 31, 1997, Entergy's
"aggregate investment" in EPAL was approximately $1
million.
<FN12>For example, the Entergy Power Group recently
negotiated a refinancing of the indebtedness it
arranged to acquire Edegel. As part of the original
financing, Entergy guaranteed $65 million of such
indebtedness. This $65 million guarantee has been
terminated, so that none of the indebtedness associated
with the Edegel investment is recourse to Entergy.
<FN13>The finance department has responsibility to review,
analyze and compare the costs of such instruments and
the perceived interest rate risk, to approve the
purchase of such instruments when the costs associated
with such perceived risk exceed the costs associated
with such instruments, and generally to monitor the use
of such instruments in connection with Entergy's Exempt
Projects.
<FN14>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.
<FN15>For example, in 1997, Entergy sold its 9.75% interest
in Transener S.A., a company that owns an electric
transmission system in Argentina, to an unaffiliated
third party for a total cash consideration of $27.5
million. Entergy's original investment to acquire
Transener S.A. in 1993 was $18.5 million.
<FN16>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.
<FN17>Entergy has committed to State and local regulators
under settlement arrangements entered into in 1992 and
in conjunction with this Application-Declaration to
give first priority in the allocation of resources to
the capital requirements of the System operating
companies. As discussed above, the capital
requirements of the System operating companies are
expected to be satisfied for the next five years
without additional equity investments by Entergy.
<FN18>As discussed below, none of the conditions specified in
Rule 53(b) is applicable.
<FN19>See HCAR No. 26501 (April 1, 1996).
<FN20>See HCAR No. 26653 (January 24, 1997).
<FN21>See HCAR No. 26779 (November 17, 1997).
<FN22>See HCAR No. 26848 (March 23, 1998).
<FN23>See HCAR No. 26864 (April 27, 1998).
<FN24>Specifically, the respective percentages for Southern
(as of December 31, 1995) were 16.3%, 15.4%, 11.0% and
20.4%, for CSW (as of June 30, 1995) were 23%, 23%, 14%
and 31%, for GPU (as of June 30, 1997) were 24.9%,
34.2%, 19.4% and 49.8%, for Cinergy (as of March 31,
1997) were 16%, 16%, 11% and 19%, and for AEP (as of
September 30, 1997) were 16%, 13.8%, 9.8% and 18.5%.
<FN25>Notwithstanding such reduction, Entergy's consolidated
retained earnings for the four most recent quarterly
periods have not decreased by 10% from the average for
the preceding four quarterly periods (cf. Rule
53(b)(2)).
<FN26>The consolidated capitalization ratios provided herein
include non-recourse debt that is consolidated for
financial reporting purposes.
<FN27>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.
<FN28>For example, 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.
On February 11, 1997, following Entergy's announcement
of its intent to acquire London Electricity, Standard &
Poor's Ratings Group affirmed its outstanding ratings
on the System operating companies' senior secured debt.
EXHIBIT D-1
[Letterhead of the LPSC]
October 30, 1997
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Katz:
Entergy Corporation ("Entergy") and Entergy Louisiana,
Inc. ("ELI") and Entergy Gulf States, Inc. ("EGSI") have
advised the Louisiana Public Service Commission ("LPSC" or
"Commission") that Entergy will be requesting SEC approval
for an increase in its authority for investments in exempt
wholesale generators and foreign utility companies and
beyond that permitted under existing Entergy orders and Rule
53 promulgated under the Public Utility Holding Company Act
of 1935. In connection with such activities, Entergy has
requested that the LPSC provide to you a certification of
the LPSC's authority to protect the ratepayers of ELI and
EGSI.
As the Commission having jurisdiction over the retail
electric rates of ELI and EGSI in the State of Louisiana,
please be advised that this Commission: 1) has the authority
and jurisdiction to protect the ratepayers of ELI and EGSI;
and 2) intends to exercise such authority.
This certification is applicable to all exempt
wholesale generators and foreign utility companies in which
Entergy or its subsidiaries seek to obtain an ownership
interest. The certification is subject to being revised or
withdrawn by this Commission in the future. Entergy
Corporation has represented that it will timely inform this
Commission of any efforts by Entergy to seek an ownership
interest in other exempt wholesale generators and foreign
utility companies.
Sincerely,
/s/ Lawrence C. St. Blanc
Lawrence C. St. Blanc
Secretary
cc: Office of Public Utility Regulation - SEC
EXHIBIT D-2
[Letterhead of the CNO]
March 26, 1998
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Katz:
Entergy Corporation ("Entergy"), Entergy Louisiana, Inc.
("ELI"), and Entergy New Orleans, Inc. ("ENO") have advised
the Council of the City of New Orleans ("CNO" or "Council")
that Entergy has requested SEC approval for an increase in
its authority for investments in exempt wholesale generators
and foreign utility companies (collectively "Exempt
Projects") from 50% to 100% of Entergy's consolidated
retained earnings. In connection with such activities,
Entergy has requested that the Council provide to you a
certification of the Council's authority to protect the
ratepayers of ELI and ENO. The Council and Entergy have
agreed to a set of conditions appropriate to ensure that the
retail ratepayers within its jurisdiction are protected from
adverse consequences of Entergy's increased investment in
Exempt Projects, a copy of which conditions are attached
hereto.
As the regulatory body having jurisdiction over the retail
electric rates of ELI and ENO in the City of New Orleans,
please be advised that the Council: 1) has the authority and
jurisdiction, pursuant to the Home Rule Charter of the City
of New Orleans, to protect the ratepayers of ELI and ENO;
and 2) intends to exercise such authority.
This certification is applicable to all exempt wholesale
generators and foreign utility companies in which Entergy or
its subsidiaries seek to obtain an ownership interest. The
certification is subject to being revised or withdrawn by
the Council in the future. Entergy Corporation has
represented that it will timely inform the Council of any
efforts by Entergy to seek an ownership interest in other
exempt wholesale generators and foreign utility companies.
Sincerely,
/s/ Jim Singleton
Jim Singleton, Chairman
City Council Utilities Committee
cc: Office of Public Utility Regulation - SEC
<PAGE>
ATTACHMENT B TO R-98-187
SETTLEMENT AGREEMENT
APPLICABLE TO ENTERGY'S NONREGULATED INVESTMENTS
This Settlement Agreement, by and among Entergy
Corporation ("Entergy"),<FN1> Entergy New Orleans, Inc., Entergy
Louisiana, Inc., and the Council for the City of New Orleans
("Council") provides as follows:
Whereas, Entergy has filed an Application-Declaration
with the Securities and Exchange Commission (the "SEC")
seeking a waiver from certain of the requirements of Rule 53
under the Public Utility Holding Company Act of 1935
("PUHCA") in order to obtain the right to increase its
aggregate investment in foreign utility companies and exempt
wholesale generators (collectively "Exempt Projects") to an
amount not to exceed 100% of Entergy's consolidated retained
earnings; and
Whereas, Entergy desires the Council to file a letter
with the SEC indicating that the Council has the authority
and the resources to protect the retail ratepayers within
its jurisdiction from adverse consequences of Entergy's
increased investment in Exempt Projects, and that the
Council intends to exercise such authority; and
Whereas, Entergy and the Council have agreed to a set
of conditions appropriate to ensure that the retail
ratepayers within its jurisdiction are protected from
adverse consequences of Entergy's increased investment in
Exempt Projects; and
Whereas, the Council has agreed to provide the above
referenced letter, a copy of the text of which is attached
hereto and made part hereof, and has agreed to take no
action adverse to Entergy's obtaining the waiver referenced
above, in exchange for Entergy agreeing to accept the
conditions set forth herein;
Whereas, this Agreement supersedes and replaces the
rights and obligations of Entergy and the Council as set
forth within the October 1992 Settlement Agreement executed
by and among Entergy, the Council, the Mississippi Public
Service Commission and the Arkansas Public Service Agreement
("1992 Settlement Agreement");
Therefore, in consideration of the mutual covenants
contained herein, Entergy and the Council agree as follows:
Access to Books and Records
Entergy shall ensure that the Council has access to any
books and records of Entergy and of each of its
subsidiaries, affiliates,<FN2> and Entergy participants in joint
ventures<FN3> which reasonably relate to transactions within the
Council's jurisdiction.
Audit of Affiliate Transactions
Entergy shall, upon the request of the Council, submit
to a periodic audit, the scope of which audit shall be all
affiliated transactions between the Regulated Utilities<FN4> and
Nonregulated Businesses<FN5> provided that an audit of such
affiliated transactions shall occur no more frequently than
once every two years. Following the issuance of a written
audit notice by the Council, the Council shall have 60 days
to solicit qualifications of, receive proposals from, and
interview candidates to perform such an audit. The Council
shall select three qualified candidates and notify Entergy
of its selection. Within 30 days of such notifications,
Entergy shall select one of the three auditing firms to
perform the audit. The cost of the audit shall be funded by
Entergy, with such costs to be included in the regulated
cost of service for this jurisdiction. During the course of
the audit, which shall be supervised by the Council, Entergy
shall make all documents available to the auditors or the
Council's representatives regarding Regulated Utilities and
Nonregulated Businesses which reasonably relate to
transactions within the Council's jurisdiction. Further,
Entergy personnel shall cooperate in supporting auditor's
requests for documentation and other data, and in its
interview of management personnel.
Internal Controls to Facilitate Council Review and Protect
Against Cross-subsidization
Entergy and each of its subsidiaries or affiliates,
shall use accounting and other procedures and controls
related to cost allocations and transfer pricing to ensure
and facilitate full review by the Council and to protect
against cross-subsidization of Nonregulated Businesses by
the retail customers of utilities regulated by the Council.
Entergy shall set forth such affiliate transactions
policies, procedures, and controls in a corporate manual.
Such manual shall be filed within 60 days of the Securities
and Exchange Commission's granting of the relief requested
in Entergy Corporation's Application-Declaration seeking
waiver from the requirements of Rule 53(a)(1) under PUHCA,
and any updates thereof shall be filed with the Council
within 30 days of their effective date. In the event such
procedures and controls fail to ensure and facilitate full
review of affiliated transactions between the Regulated
Utilities and Nonregulated Businesses by the Council and
protect against cross-subsidization, the Council may
exercise its authority in acting, for retail ratemaking
purposes, as if effective procedures and controls had been
in place.
Entergy and each of its subsidiaries, affiliates, or
Entergy participants in joint ventures, shall keep their
books in a nanner consistent with generally accepted
accounting principles and, where appropriate, the Uniform
System of Accounts.
General Reporting Requirements
Entergy shall furnish the Council with all quarterly
and annual financial statements, including, but not limited,
to those regarding the following: financial statements of
the holding company; annual statements regarding the nature
of intercompany transactions concerning Entergy, including
the basis for cost allocation and transfer pricing; balance
sheets and income statements of the nonconsolidated
subsidiaries and affiliates of the holding companies; and
all periodic reports filed with the Securities and Exchange
Commission.
Entergy shall notify the City Council and its Advisors
subsequent to Entergy board approval and/or prior to any
public announcement of any acquisition of a Nonregulated
Business or interest in acquiring a Nonregulated Business.
Entergy shall provide such notice in writing by submitting
such information pursuant to a protective order, acceptable
to Entergy and the Council, to the City Council Utility
Committee.
On a quarterly basis, Entergy shall provide the Council
with a report detailing the Regulated Utilities'
proportionate share of the consolidated total of Entergy's
assets, operating revenues and number of employees, and
total operating and maintenance expenses.
Avoidance of Diversion of Personnel to Detriment of
Regulated Utilities
Entergy shall avoid a diversion of management talent to
its Nonregulated Businesses that would adversely affect the
Regulated Utilities.
Entergy shall provide to the Council an annual report
identifying nonclerical personnel transferred from any
Regulated Utility to its parent holding company or any of
the holding company's nonutility subsidiaries, affiliates or
joint ventures.
Prior Notice of Asset Transfers
Any regulated Utility shall notify the Council in
writing within 30 days of any transfer of assets to Entergy
or its Nonregulated Businesses, whether or not such utility
considers the assets to be necessary or useful in the
performance of its public utility obligations.
Intellectual Property and Similar Rights
Where product rights, patents, copyrights, or similar
legal rights are transferred from a Regulated Utility to
Entergy or any of its Nonregulated Businesses, a royalty
payment may be required to ensure that ratepayers receive
appropriate compensation.
If a Nonregulated Business markets a product which was
developed by a Regulated Utility all profits on the sale of
the product shall be split evenly between the Regulated
Utility which was responsible for developing the product and
the Nonregulated Business responsible for marketing the
product to third parties, after deducting all incremental
costs associated with making the product available for sale,
including the direct cost of marketing such product.
Priority of Resource Allocation
Entergy shall give first priority in allocating
resources to the capital requirements of its domestic public
utility subsidiaries.
Transfer Pricing
A charge of five-percent will be applied to the cost of
services provided to the Nonregulated Businesses by
Regulated Utilities. Alternatively, the five-percent charge
will be imputed for retail ratemaking purposes of the
Council, even if the five percent is not actually charged to
the Nonregulated Businesses.
The transfer from a Regulated Utility to a Nonregulated
Business or to Entergy of either (i) generating assets, fuel
or fuel-related assets and real property and improvements
exceeding a fair market value of $100,000, or (ii) market,
technological or similar data, shall be priced at fair
market value, unless such pricing method is detrimental to
ratepayers. This policy is intended to ensure that the
Regulated Utility is compensated and that ratepayers are
indifferent to the transaction. If Entergy fails to utilize
this pricing method, then the Council may treat the transfer
for retail ratemaking purposes as if it had occurred at fair
market value.
Competitive Bidding for Procurement by Regulated Utilities
No utility regulated by the Council may make a
procurement in excess of $100,000, either directly or
indirectly, from a Nonregulated Business except through a
competitive bidding process, or as otherwise authorized by
the Council. The terms and conditions of any competitive
bidding procedure for such procurements must be approved in
advance by the Council. If the utility regulated by the
Council fails to obtain Council approval for such
procurements, then, pursuant to the retail ratemaking
process, the Council may subject such utility to
disallowances for amounts expended by such utility in excess
of market price or the cost of such procurement, whichever
is lower.
Cost of Capital
When the Council sets the cost of capital for any
utility regulated by the Council, Entergy will not oppose in
principle a mechanism that separates the risk of Entergy's
regulated and nonregulated ventures. Entergy will retain
its rights to challenge any particular methodology as being
unsupported by evidence necessary for a lawful Commission
finding, and other rights it may have.
Testimony of Officers and Employees
The officers and employees of Entergy, its subsidiaries
and affiliates, including those of its Nonregulated
Businesses, shall appear and testify in Council proceedings
with respect to nonregulated business transactions asserted
to have an effect upon retail electric rates when such
testimony and appearance is reasonably related to the
exercise by the Council of its jurisdiction with respect to
matters and activities that relate to retail electric rates
subject to the Council's jurisdiction.
Confidentiality Provision
The Council agrees to grant, subject to applicable
provisions of state law, a protective order acceptable to
Entergy and the Council and necessary to protect the
confidentiality of commercially sensitive or competitive
information produced in accordance with this Agreement.
Most Favored Nations Clause
Entergy agrees that, in the event that any settlement
agreement containing any conditions other than those
provided to the Council hereby, is provided to any of
Entergy's other retail regulatory commissions in exchange
for the above-referenced letter, Entergy will offer that
same settlement agreement with all of its terms and
conditions to the Council in lieu of this Settlement
Agreement, provided that (1) the alternative Settlement
Agreement be accepted in total by the Council, and (2) that
the Council elects to give consideration equivalent to that
given by the other regulatory commission(s).
Effectiveness of Agreement
The effectiveness of this agreement is subject to and
conditioned upon the granting by the Securities and Exchange
Commission of the relief requested in Entergy Corporation's
Application-Declaration seeking waiver from the requirements
of Rule 53(a)(1) under PUHCA. The Agreement becomes
effective as of the date of such grant of relief by the SEC.
If the Council subsequently withdraws the certification
evidenced by the letter attached hereto and the SEC
withdraws its grant of waiver from the requirements of Rule
53(a)(1) of PUHCA, then the parties shall be released from
their obligations under this Settlement Agreement. If the
parties are released from their obligations hereunder
pursuant to the above provision, then, effective with the
date of such release, the 1992 Settlement Agreement shall
become effective and shall continue in full force and effect
with respect to Entergy and the Council and their rights and
obligations thereunder. The effectiveness of this
Settlement Agreement is not subject to or conditioned upon
the approval of this Settlement Agreement by the Securities
and Exchange Commission.
Omnibus Condition
In the event that Entergy does not comply with the
above conditions, the Council will be free to act for retail
ratemaking purposes as if the obligation had been complied
with. The Council may exercise its authority to make, for
retail ratemaking purposes, adjustments for misallocations
of costs from Nonregulated Businesses to Entergy New
Orleans, Inc.
Entergy Corporation Chairman, Council Utility Committee
Entergy New Orleans, Inc.
Entergy Louisiana, Inc.
Date: March 26, 1998
_______________________________
<FN1> For purposes of this Agreement, except as the context
otherwise dictates, the term "Entergy" shall mean the
entire Entergy holding company system, including but
not limited to the registered holding company, the
nonreguatled businesses (as defined herein), and the
regulated utilities (as defined herein).
<FN2> For purposes of this Agreement, the term "affiliates"
shall have the meaning set forth in the Public Utility
Holding Company Act of 1935 at 15 U.S.C. 79(b)(11).
<FN3> For purposes of this Agreement, the term "joint
venture" shall mean any participation through
investment, ownership, or control, by Entergy in any
nonregulated business (as defined herein), either
within the United States or outside the United States,
irrespective of the ownership structure of, or form of
participation in, such business.
<FN4> The term "Regulated Utility" shall include Entergy New
Orleans, Inc., Entergy Louisiana, Inc., Entergy
Operations, Inc., System Fuels, Inc., System Energy
Resources, Inc., and Entergy Services, Inc., and such
other similar subsidiaries as Entergy shall create
whose activities and operations are primarily related
to the domestic sale of electric energy at retail or at
wholesale to affiliates, or the provision of services
or good thereto, and whose costs are directly or
indirectly recovered in retail rates of customers
located in Orleans Parish, Louisiana.
<FN5> The term "Nonregulated Business" shall include Entergy
Power, Inc., Entergy Enterprises, Inc., and such other
subsidiaries and affiliates as Entergy has or shall
create which are not domestic regulated electric
utilities primarily engaged in the business of selling
electric energy at retail or at wholesale to affiliates
or are not primarily engaged in the business of
providing services or goods to regulated electric
utility affiliates.
EXHIBIT D-3
[Letterhead of the MPSC]
April 7, 1998
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Katz:
Entergy Corporation ("Entergy") and Entergy
Mississippi, Inc. ("EMI") have advised the Mississippi
Public Service Commission ("MPSC") that Entergy has
requested SEC approval for an increase in its authority for
investments in exempt wholesale generators and foreign
utility companies (collectively "Exempt Projects") from 50%
to 100% of Entergy's consolidated retained earnings. In
connection with such activities, Entergy has requested that
the MPSC provide to you a certification of MPSC's authority
to protect the ratepayers of EMI. The MPSC and Entergy have
agreed to a set of conditions appropriate to ensure that the
retail ratepayers within its jurisdiction are protected from
adverse consequences of Entergy's increased investment in
Exempt Projects, a copy of which conditions are attached
hereto.
As the regulatory body having jurisdiction over the
retail electric rates of EMI in the State of Mississippi,
please be advised that the MPSC: 1) has the authority and
jurisdiction to protect the ratepayers of EMI; and 2)
intends to exercise such authority.
This certification is applicable to all exempt
wholesale generators and foreign utility companies in which
Entergy or its subsidiaries seek to obtain an ownership
interest. The certification is subject to being revised or
withdrawn by the MPSC in the future. Entergy Corporation
has represented that it will timely inform the MPSC of any
efforts by Entergy to seek an ownership interest in other
exempt wholesale generators and foreign utility companies.
Sincerely,
Mississippi Public Service
Commission
/s/ Bo Robinson
Chairman Bo Robinson
/s/ George Byars
Vice-Chairman George Byars
/s/ Commissioner Nielsen Cochran
Commissioner Nielsen Cochran
/pw
Enclosure
cc: Robert G. Waites
Robert C. Grenfell
