File No. 70-9049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
AMENDMENT NO. 4
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)
C. John Wilder Geoffrey D. Roberts
Executive Vice President President
and Chief Financial Officer Entergy Enterprises, Inc.
Entergy Corporation Parkwood Two Building
639 Loyola Avenue 10055 Grogan's Mill Road
New Orleans, LA 70113 Suite 400
The Woodlands, TX 77380
(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 Associate General Counsel
Entergy Power Development Corporation Entergy Services, Inc.
Parkwood Two Building 639 Loyola Avenue
10055 Grogan's Mill Road New Orleans, LA 70113
Suite 400
The Woodlands, TX 77350
Thomas C. Havens, Esq. Kent R. Foster, Esq.
Whitman Breed Abbott & Morgan LLP Entergy Services, Inc.
200 Park Avenue P.O. Box 8082
New York, NY 10166 Little Rock, AR 72203
<PAGE>
Item 3. Applicable Statutory Provisions.
Item 3 of the Application-Declaration in this File, as
previously amended, is hereby further 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<FN10>, 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.
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, 1999. For example, investments in this amount would
be equal to only 19.2% of Entergy's total capitalization
($14,505,090,000), 18.0% of consolidated net utility plant
($15,500,756,000), 12.1% of total consolidated assets
($22,985,087,000), and 45.3% of the market value of Entergy's
outstanding Common Stock ($6,155,200,458). By way of comparison,
the relevant measures for Entergy are within the ranges the
Commission has found, in the cases of The Southern Company
("Southern")<FN11>, Central and South West Corporation ("CSW")<FN12>,
GPU, Inc. ("GPU")<FN13>, Cinergy, Inc. ("Cinergy")<FN14>, American Electric
Power Company, Inc. ("AEP")<FN15> and New Century Energies, Inc.
("NCE")<FN16> to represent a relatively small commitment of capital. <FN17>
(b) Entergy's consolidated retained earnings grew by an
average of approximately 3.5% per year over the period of 1995 to
1999.<FN18>
(c) Entergy's consolidated capitalization and interest
coverage ratios for 1998 and 1999 were within industry ranges set
by the independent debt rating agencies for BBB rated electric
utility companies, as shown in the table below.<FN19>
Actual 1998 Capitalization and Interest Coverage Ratios:
Total Debt/Capital 48.6 %
EBIT/Cash Interest (times) 2.26
Funds from Operations/Interest (times) 3.19
Actual 1999 Capitalization and Interest Coverage Ratios:
Total Debt/Capital 49.0 %
EBIT/Cash Interest (times) 2.25
Funds from Operations/Interest (times) 3.12
Industry Ratios for BBB Related Companies*
Average High Low
Total Debt/Capital 52% 65% 42%
EBIT/Cash Interest (times) 2.8 4.3 1.9
Funds from Operations/Interest (times) 4.6 6.0 2.7
*(Source: Moody's Investors Service Electric Utility
Sourcebook, October 1999)
Entergy's consolidated capitalization ratio as of December
31, 1999 (approximately 51% equity and approximately 49% debt,
including short-term debt of approximately $315 million) is well
within the industry range set by the independent debt rating
agencies for BBB rated utilities (40% to 65% debt).
(d) There is no indication that Entergy's investments in
Exempt Projects have adversely affected its ability to raise
common equity. Except for issuances of Common Stock pursuant to
the DRIP, as described in Item 1, Entergy has not issued new
common equity since 1985.
Entergy's price-earnings and market-to-book ratios and an
average of the price-earnings and market-to-book ratios for 29
U.S. electric utilities included in Standard and Poor's utility
index (SPELEC) for the period 1995 through 1999 are shown below:
1995 1996 1997 1998 1999
P/E Ratio:
Entergy 13.7 15.1 29.1 10.4 11.4
SPELEC* 13.9 12.8 17.1 19.1 12.5
Market-to-Book Ratio:
Entergy 103% 97% 110% 108% 87%
SPELEC* 144% 137% 168% 186% 141%
*(Source: Average of Standard and Poor's
U.S. Electric Companies (29 Companies))
It is difficult to say with certainty why the market values
Entergy's Common Stock as it does. To the extent that the market-
to-book and price/earnings ratios for Entergy's Common Stock are
under downward pressure, the reason relates, in one way or
another, to uncertainties surrounding potential retail
competition in Entergy's service territory and the prospect of a
restructuring of Entergy's domestic utilities. Each of the five
jurisdictions in which Entergy's domestic retail utility
subsidiaries operate are engaged in processes that are leading or
may lead to open access for retail electric supply sometime in
the future. Implicit in these processes is the prospect that
public utilities, including Entergy's utility subsidiaries, will
have structures and financial characteristics that are
significantly different from those of the past. All of these
factors create uncertainty, which is reflected in the market's
valuation of Entergy's Common Stock. In this respect, the market
price of Entergy's Common Stock is behaving no differently than
that of many other U.S. electric utility companies.
As indicated above, Entergy's investments in Exempt Projects
that have reached the operational stage are now contributing, and
are expected in the future to continue contributing, to Entergy's
consolidated net income. Therefore, Entergy believes that the
market's assessment of Entergy's future growth and earnings
potential, and hence the valuation of Entergy's Common Stock,
will increasingly be influenced by Entergy's ability to augment
its earnings from domestic utility operations with earnings from
investments in Exempt Projects and other non-regulated
businesses. For these and other reasons, 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 average of the dividend payout ratios for 29 U.S.
electric utilities included in Standard and Poor's utility index
is indicated below:
1995 1996 1997 1998 1999
Entergy Payout Ratio (%) 85 98 175 50** 53
SPELEC* 62 73 92 54 62
*(Source: Average of Standard and Poor's U.S. Electric
Companies (29 Companies))
**In the third quarter of 1998, Entergy reduced its Common
Stock dividend from 45 cents per share to 30 cents per share.
(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 Saltend
Cogen and Damhead Creek projects, EWO was able to arrange
non-recourse debt financings in an aggregate principal amount of
approximately $1.7 billion through credit facilities with various
international lenders. The debt issued under such credit
facilities is secured solely by the respective assets of Saltend
Cogen and Damhead Creek projects, and is not guaranteed by, or
otherwise recourse to, Entergy or any of the System operating
companies.
(g) As indicated in Item 1 above, 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 any
present or 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,<FN20> 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
52% as of the end of 1999).
Debt as % of 1995 1996 1997 1998 1999
Capitalization
Entergy Arkansas 52.7 52.3 52.4 50.8 51.4
Entergy Gulf States 55.2 52.9 51.4 49.8 49.9
Entergy Louisiana 50.6 51.0 50.7 50.0 51.0
Entergy Mississippi 50.3 49.8 49.3 49.5 51.9
Entergy New Orleans 53.0 52.6 52.7 51.9 54.6
*(Source: BBB industry average from Moody's Investors
Service Electric Utility Sourcebook,
October 1999)
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 $25 million to Entergy Mississippi). Entergy does
not anticipate that it will need to make any additional equity
investment in any System operating company for at least the next
three years.
System operating companies - Construction Expenditures:
Actual (1995-1999) and projected (2000-2002)
expenditures, net of Allowance for Funds Used During
Construction ($ million):
1995 1996 1997 1998 1999 2000 2001 2002
570 508 417 544 738 1054 893 734
Percent internally generated:
1995 1996 1997 1998 1999
247% 251% 347% 322% 177%
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: 1995 1996 1997 1998 1999
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 have not adversely affected the senior debt ratings of
the System operating companies.
(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 Exempt Projects. In addition,
Entergy and its affiliates have been subjected to audits by the
FERC, 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 commits
to each of its State Regulators, that Entergy will not seek recovery
through rates to the System operating companies' customers for any
possible losses that Entergy may sustain on investments in Exempt
Projects or for inadequate returns on such investments.
(d) Entergy has complied and will continue to comply with
the requirements of Rule 53(a)(2) (regarding the preparation and
availability of books and records and financial reports for
Exempt Projects), and the limitations in Rule 53(a)(3) (regarding
the use of System operating company employees in connection with
providing services to Exempt Projects).
Entergy's need for the support of personnel provided by the
System operating companies in connection with Exempt Projects has
been, and is projected to remain, minimal. The vast majority of
the operational employees of the Exempt Projects are hired or
contracted locally, even where an Entergy affiliate is the
project operator. Moreover, project development, management and
home office support functions for the Exempt Projects are largely
performed by Entergy's non-utility affiliates and by outside
consultants. The increased levels of investment in Exempt
Projects proposed herein are not expected to have any significant
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 Entergy's request for a modification of the
condition set forth in Rule 53(a)(1)."
<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 23, 2000
_______________________________
<FN10> As discussed below, none of the conditions specified in Rule
53(b) is applicable.
<FN11> See HCAR No. 26501 (April 1, 1996).
<FN12> See HCAR No. 26653 (January 24, 1997).
<FN13> See HCAR No. 26779 (November 17, 1997).
<FN14> See HCAR No. 26848 (March 23, 1998).
<FN15> See HCAR No. 26864 (April 27, 1998).
<FN16> See HCAR No. 26982 (February 26, 1999).
<FN17> 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%, for
AEP (as of September 30, 1997) were 16%, 13.8%, 9.8% and
18.5%, and for NCE (as of September 30, 1998) were 13.7%,
11.8%, 9.1% and 12.5%.
<FN18> Entergy's consolidated retained earnings grew during this
period notwithstanding a decrease of approximately $184
million in Entergy's consolidated retained earnings during
1997 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 plc.
<FN19> The consolidated capitalization ratios provided herein include
non-recourse debt that is consolidated for financial reporting
purposes.
<FN20> To provide additional assurances in this regard to the
Commission, Entergy requested each State Regulator to provide
a letter certifying to the Commission that it will exercise
its authority under relevant state law to protect ratepayers
from any such adverse effects.
In conjunction with these letters, Entergy has agreed to
various conditions that enhance the ability of the State
Regulators to protect consumers. For example, Entergy has
agreed with the PUCT to comply with PUCT regulations that
provide, among other things, for the filing of periodic
reports concerning Entergy's existing and proposed investments
in Exempt Projects. In addition, Entergy, Entergy Arkansas
and the APSC have entered into a Stipulation and Agreement
containing a number of mechanisms designed to shield Arkansas
ratepayers from increased capital costs associated with
Entergy's Exempt Projects. Entergy also has executed a
revised Settlement Agreement with the CNO and the MPSC,
that will replace a 1992 settlement agreement with such commissions,
that includes access to books and records, audit rights, use
of internal controls regarding cost allocation, transfer
pricing requirements, and other provisions to protect CNO and
MPSC jurisdictional customers from adverse consequences of
Entergy's increased investments in Exempt Projects. Finally,
the LPSC continues to benefit from "affiliate interest
conditions" adopted in 1993 that contain provisions
substantially similar to the revised settlements between
Entergy, the CNO and the MPSC. Reference is hereby made to
Exhibits B-1 through B-5 for further information concerning
these conditions.
