File No. 70-9049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
AMENDMENT NO. 5
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 1. Description of Proposed Transaction.
Item 1 of the Application-Declaration in this File, as
previously amended, is hereby further 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") for a modification to the condition in Rule
53(a)(1) under the Act so that Entergy may provide guarantees and
use the proceeds of other securities issuances by Entergy (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 (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.; (3) a company that provides administrative and
other services primarily to the System operating companies -
Entergy Services, Inc.; (4) a company that provides management,
operations and maintenance services for the System's nuclear
facilities - Entergy Operations, Inc.; (5) a company that
primarily implements and/or maintains certain fuel supply
programs for the System operating companies - System Fuels, Inc.;
(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
develops energy and energy-related projects and businesses on
behalf of the Entergy System, and markets skills and intellectual
property developed or acquired by System companies - Entergy
Enterprises, Inc. ("Entergy Enterprises"); (8) a company that
provides operations, maintenance and management services relating
to nuclear generating facilities owned by non-affiliates and
affiliated EWGs - Entergy Nuclear, 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 subsidiary companies formed to develop,
acquire and own Entergy's interests in domestic and foreign
Exempt Projects, 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 2.5 million customers,
primarily in portions of the states of Arkansas, Louisiana,
Mississippi and Texas, and retail gas service in and around Baton
Rouge, Louisiana and in New Orleans, Louisiana.
Each of the System operating companies is subject to
regulation by state and/or local regulatory authorities.
Specifically, (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 and certain
other non-utility affiliates (Entergy Enterprises and such
affiliates are sometimes referred to herein, collectively, as
"Entergy Wholesale Operations" or "EWO"), has been actively
engaged in the development and acquisition of domestic and
foreign Exempt Projects.<FN3> Entergy's global power development
business is focused on building or acquiring power generation
facilities principally in North America and Europe, as well as,
to a lesser extent, in Latin America. In this regard, Entergy's
management recently announced a $9.8 billion capital investment
plan for 2000-2004 that includes investments of approximately
$3.9 billion in global power development and approximately $1.7
billion for the acquisition of nuclear generating facilities from
non-affiliates. Entergy's goal is to create a diversified
portfolio of generating assets by adding 1,500 MW of new electric
generating capacity and acquiring 1,000 MW of nuclear capacity
each year, beginning in 2000.
The most significant of Entergy's existing investments in
Exempt Projects 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.
Entergy's aggregate investment in EPDC is approximately $178
million.<FN4> EPDC's FUCO 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; Entergy's aggregate investment in Edegel is
approximately $100 million;
(b) a 4.8% 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; Entergy's aggregate investment
in Hub Power is approximately $14.7 million;
(c) a 25% economic interest, held through its wholly-owned
subsidiary Entergy Power Chile, Inc., in Compania Electrica San
Isidro S.A. ("San Isidro"), which owns and operates a 370 MW
combined-cycle electric generating plant located near Santiago,
Chile; Entergy's aggregate investment in San Isidro is
approximately $15.6 million;
(d) a 6% interest, held through its wholly-owned 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, representing an aggregate investment by Entergy of
approximately $10.5 million;
(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., which owns a 220 MW
gas-fired, combined cycle turbine generator located at the site
of the Costanera power plant in Buenos Aires, Argentina,
representing an aggregate investment by Entergy of approximately
$3.7 million;
(f) a 100% interest, held through its wholly-owned subsidiary
Entergy Power Damhead Creek Holding I, Ltd., in Damhead Creek
Limited ("Damhead Creek"), which will own a 740 MW (nominal)
gas-fired, combined cycle electric generating facility currently
under construction in the County of Kent, England; Entergy's
aggregate investment in Damhead Creek is estimated to be
approximately $52 million; and
(g) a 100% interest, held through its wholly-owned subsidiary
Entergy Power Saltend, Ltd., in Saltend Cogeneration Company
Limited ("Saltend Cogen"), which will own a 1,200 MW (nominal)
gas-fired, combined cycle electric generating facility currently
under construction in the County of Hull, England; Entergy's
aggregate investment in Saltend Cogen is estimated to be
approximately $72 million.
(2) Entergy Nuclear Generation Corporation ("ENGC"), an indirect
wholly-owned subsidiary of Entergy, is an EWG formed to acquire,
own and operate the Pilgrim Nuclear Power Station, a 670 MW
nuclear plant located in Plymouth, Massachusetts, which ENGC
purchased from Boston Edison Company in July 1999. Entergy's
aggregate investment in ENGC is approximately $89 million.
(3) 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. Entergy's
aggregate investment in EIH is approximately $535 million
(consisting principally of proceeds from the sales in 1998 of
Entergy's investments in London Electricity plc and CitiPower
Pty.).
(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 provided O&M Services to
Liberty Power, Ltd., which owns a gas-fired, combined-cycle
electric generating facility located in Pakistan. Two other
wholly-owned subsidiaries of EPOC, Entergy Power Operations U.K.
Limited and Entergy Power Operations Damhead Creek Limited
Partnership, were organized to provide O&M Services to Saltend
Cogen and Damhead Creek, respectively. Entergy's aggregate
investment in EPOP is approximately $500,000.
Reference is hereby made to the relevant Certificates of
Notification on Form U-57, to applications to the Federal Energy
Regulatory Commission (the "FERC") for EWG determinations and to
Entergy's Form U5S for the year ended December 31, 1999 for
further information regarding Entergy's Exempt Projects.
C. Financing of Exempt Projects.
Entergy is currently authorized under the terms of
Commission orders and supplemental orders issued in File Nos.
70-8839, 70-8903 and 70-9123 (collectively, the "Financing
Orders") to finance the acquisition of Exempt Projects by issuing
and/or selling debt and equity securities. Entergy's
authorization under the Financing Orders may be summarized as
follows:
(1) File No. 70-8839. Pursuant to the Commission's 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).
From June 1996 through December 31, 1999, Entergy had sold a
total of 16,770,812 shares of Common Stock pursuant to the DRIP.
(2) File No. 70-8903. Pursuant to the Commission's orders
dated February 26, 1997 (HCAR No. 26674) and December 22, 1999
(HCAR No. 27117), 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. Entergy is authorized to
use the proceeds of Borrowings for general corporate purposes,
including financing the acquisition of securities of, or other
interests in, Exempt Projects.<FN5>
(3) File No. 70-9123. Pursuant to the June 1999 Order,
Entergy is authorized, among other things, to finance its
investments in Exempt Projects through providing guarantees or
other forms of credit support ("Guarantees") in respect of the
securities or other obligations of Exempt Projects in an
aggregate amount (inclusive of, among other things, any
guarantees previously issued by Entergy and outstanding under a
prior Commission order in such File) not to exceed $750 million.<FN6>
(Such Guarantees, together with the debt and equity securities
authorized under the other Financing Orders and any subsequent
Commission financing order, are sometimes referred to herein,
collectively, as "Securities").
For the reasons stated herein, Entergy 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, each
in accordance with and upon the terms and conditions of this
Application-Declaration, the applicable Financing Order and any
subsequent Commission financing order, in an aggregate amount at
any time outstanding which, when added to Entergy's aggregate
investment in 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
(approximately $1,072,322,020 at December 31, 1999) represented
approximately 39.7% of Entergy's consolidated retained earnings
as of December 31, 1999 (approximately $2,698,573,250). Giving
effect to the authorization sought in this File would allow, on a
pro forma basis as of December 31, 1999, the financing by Entergy
of investments in additional Exempt Projects in an amount equal
to approximately $1.6 billion. Entergy is not requesting
authority herein to issue any specific additional securities for
purposes of financing the acquisition of Exempt Projects.
At December 31, 1999, the outstanding amount of Guarantees
provided by Entergy in respect of indebtedness or other
obligations of Exempt Projects was approximately $170 million.
Such amount is included in Entergy's total aggregate investment
in Exempt Projects at December 31, 1999, as set forth above.
D. Future Investments in Exempt Protects.
In addition to the foregoing investments in Exempt Projects,
Entergy is currently investigating, alone or with others,
potential investments in foreign and domestic power projects. In
particular, as discussed above, Entergy is focusing primarily on
investment opportunities in Europe and in North America. Most of
these potential domestic and foreign 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 financial
flexibility necessary to pursue such investments.
Among Entergy's most significant planned investments in
Exempt Projects are the following:
(1) Indian Point 3/FitzPatrick Nuclear Plants. Entergy
recently agreed to acquire two nuclear power plants from the
Power Authority of the State of New York ("NYPA") - the Indian
Point 3 Nuclear Power Station, a 980 MW facility located in
Westchester County, New York, and the James A. FitzPatrick
Nuclear Power Station, an 825 MW facility located near Oswego,
New York. Under the purchase agreement, Entergy would pay NYPA
$50 million in cash at closing, plus seven annual installments of
approximately $108 million each commencing one year from the date
of closing and eight annual installments of $20 million each
commencing eight years from the date of closing. Entergy
anticipates that, subject to the receipt of necessary regulatory
approvals, the acquisition of the NYPA nuclear facilities will
close by the end of the fourth quarter of 2000.
(2) Freestone Project. Entergy Wholesale Operations is
developing a 1,000 MW gas-fired, combined-cycle merchant power
plant (the "Freestone Project") near Fairfield, Texas, adjacent
to Entergy Gulf States' retail service territory. The total
cost of the Freestone Project is currently estimated to be
approximately $320 million. Financial closing for the Freestone
Project is expected to occur during the second half of 2000.
(3) Warren Power Project. Entergy Wholesale Operations is
developing a 300 MW gas-fired, combined cycle peaking plant (the
"Warren Power Project") in Vicksburg, Mississippi, on the site of
Entergy Mississippi's Baxter Wilson electric generating station.
The total cost of the Warren Power Project is currently estimated
to be approximately $140 million, with construction expected to
commence in the third quarter of 2000.
(4) Castelnou, Spain. Entergy Wholesale Operations is
proposing to develop an 800 MW gas-fired, combined cycle power
plant near Castelnou, in the Aragon region of Spain,
approximately 124 miles west of Barcelona. The total cost of the
project is currently estimated to be approximately $500 million,
and financial close could occur as early as 2001, following
receipt of governmental permits.
(5) Maritza East III Project. Entergy Wholesale Operations
is working with the National Electric Company of Bulgaria ("NEK")
to modernize and upgrade Maritza East III, an 840 MW coal-fired
power plant owned and operated by NEK and located in eastern
Bulgaria. The total cost of the project is currently estimated
to be approximately $460 million, and financial close is expected
during the third quarter of 2000.
E. Risk Profile of Entergy's Investments in Exempt Projects.
Investments in Exempt Projects involve risks that may be
different from those present in the traditional, regulated,
electric utility industry. Entergy has established comprehensive
procedures to identify and address (i.e., limit and/or mitigate)
such 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 Exempt
Project investment is subjected to a series of formal reviews to
ensure the project's soundness. The process begins with a
consideration of Entergy's strategic plans, which employ a
variety of tools to assist in the evaluation of project 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 project
development efforts are pursued. 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 (if applicable)
the specific country risk, is first presented to executive
management. If an investment in a particular foreign country is
being considered, the analysis includes a review of the political
and economic stability of the 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.
Development costs which do not exceed $10 million may be
approved by the president of EWO. If the cumulative amount of
development costs plus investment exceeds $10 million, then the
proposed investment is presented to the Entergy Corporation board
of directors. At each of the above review and approval levels,
there is an evaluation of 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 or Entergy
Enterprises with oversight responsibilities for the relevant risk
factor.
It is significant to note that the final project review
process is to a large extent replicated by the lenders who agree
to provide construction or permanent debt financing for Entergy's
Exempt Projects, since repayment of that debt may depend solely
or primarily upon the success of the particular Exempt Project.
Project debt maturities are often long-term (e.g., 15 or more
years), meaning that the lenders' exposure to the risks of a
project extends for many years after closing or completion of
construction. Typically, project debt documents require the
establishment of plant overhaul, debt service and other funded
reserves, all of which are designed to preserve the asset and
protect the financial performance of the project against
interruptions in revenues and other contingencies. Entergy's
success in arranging appropriate levels of non-recourse financing
for its Exempt Projects thus 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 that participated in the large
non-recourse debt offerings arranged by Entergy for its
acquisitions of CitiPower Pty. and London Electricity plc in 1996
and 1997, respectively.
(5) Risk Mitigation of Exempt Projects. Entergy carefully
evaluates the potential risks of an Exempt Project before funds
are committed.
(a) Operating Risks. Entergy has limited, and will
continue to confine, its project development efforts to
generation technologies with which it has existing competencies
in thermal generating sources such as coal, gas, nuclear or
oil-fired generation, as well as hydroelectric generation. Due
diligence of operating assumptions is carried out by 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 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 or "tolling" agreements with a power
purchaser. 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 an Exempt Project 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 construction 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 an affiliate of Entergy 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. Exempt Projects often rely on
"off-take" commitments from one or more power purchasers, such as
a power marketing company, to eliminate all or most of the risk
of variation in revenues. In such cases, Entergy makes an
assessment of the credit-worthiness of the power purchasers
and/or establishes a contingency plan in the event of off-take
defaults.
With most projects operating in competitive power markets,
long-term off-take contracts generally are not available and
electricity prices are determined by supply and demand. EWO
conducts extensive investigations of these electricity markets to
ensure the viability of long-term demand. In most cases, EWO
retains outside experts to provide industry data and projections.
Further, EWO 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. Entergy addresses the financial
risks of Exempt Projects in a variety of ways. First, 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 Project
companies). 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 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 investment or commitment, and that the System operating
companies and their customers bear no direct risk of loss 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 only approximately $170
million as of December 31, 1999), 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 projected revenue stream of the particular
project. For example, when the value of a project depends on a
fixed-price off-take contract (i.e., a power purchase contract),
the project debt may be 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 treasury department, as noted below) mitigated by
purchasing financial instruments that provide hedges against
interest rate volatility.<FN7>
(e) Foreign Currency Exchange Risk. There are several ways
in which Entergy 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.<FN8> 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 revenues 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 (e.g., for the
Saltend Cogen project), the non-recourse project debt is borrowed
in the same currency as the project's revenues, thereby ensuring
a match between debt service obligations and operating income.
In addition, in countries that 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, Exempt
Project investments outside the United States can entail
country-specific risks related to political or economic
performance. As indicated above, EWO 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, the government's support for
private ownership in that sector, and the presence of an
established and stable legal system. Most important, the country
review process 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, EWO seeks local partners who are experienced in doing
business in the host country. Such local partners have in the
past included Endesa of Chile (in connection with Exempt Projects
in Argentina, Chile and Peru), and Perez Companc of Buenos Aires
(in connection with Exempt Projects in Argentina). 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 an Exempt
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. EWO
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 risks 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 currently is focused on
investment opportunities in Europe and North America, and
substantial investments have been made in the U.K. and in Latin
America, as described above. Entergy has sold its investments
in Australia and seeks no further investments there or in Asia at
this time.
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 Damhead Creek and Saltend Cogen
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 in
the future.
To balance these greenfield project development efforts,
Entergy's development efforts also have targeted assets that are
already in operation, either from existing private owners (such
as Entergy's purchase of the Pilgrim nuclear plant and the
planned acquisition of NYPA's nuclear plants) 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, Entergy is beginning to develop
"brownfield" generating projects at existing power plant sites
owned by affiliates (such as Entergy Mississippi, in the case of
the Warren Power project) and by non-affiliates (such as NEK, in
the case of the Maritza East III project).
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 made 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.
F. 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, 1999, Entergy's investments in Exempt
Projects increased consolidated net income by approximately $165
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, Entergy is presently investigating a
number of additional investment opportunities in domestic and
foreign Exempt Projects. Entergy intends to make additional
investments in Exempt Projects for a number of reasons, including
the following:
(1) Investments in Exempt Projects are a key component of
Entergy's strategy for delivering shareholder value. Such
investments 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. 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. For these
reasons, Entergy has in the past pursued investments in regions
or countries (such as Latin America, Australia and the United
Kingdom) which had already moved to deregulate energy markets and
introduce competition at the wholesale and retail levels. The
lessons learned from these markets have provided Entergy with
valuable insights about the features of market structures that
produce efficient and equitable results for consumers and
shareholders, and will help Entergy shape the evolution of
competitive electric power in its service territory.
(2) 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 eight years, and Entergy has no current plans to
purchase additional common stock of any System operating company
for at least the next three years. The System operating
companies' anticipated needs for capital investment in new
generation, transmission and distribution facilities over the
next three years 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. Since there is no anticipated need in the next three
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.<FN9>
III. Compliance With Rules 53 and 54.
Entergy hereby represents that, pursuant to Rule 54 under
the Act, all of the criteria of Rule 53(a) and (b) are satisfied.
Specifically, (1) Entergy's aggregate investment in Exempt
Projects at December 31, 1999 represented approximately 39.7% of
Entergy's consolidated retained earnings as of December 31, 1999,
(2) Entergy maintains books and records relating to its Exempt
Project investments in accordance with Rule 53(a)(2), and (3) no
more than 2% of the employees of the Entergy System's domestic
public utility companies render services at any one time,
directly or indirectly, to Exempt Projects in which Entergy,
directly or indirectly, holds an interest. Entergy hereby
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, 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:
(3) 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 18.6% of Entergy's total capitalization
($14,505,090,000), 17.4% of consolidated net utility plant
($15,500,756,000), 11.7% of total consolidated assets
($22,985,087,000), and 43.8% 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, consisting of approximately
46% common stock and approximately 5.2% preferred stock, 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.
* * * * *
(4) 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 extensive
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/ Steven C. McNeal
Steven C. McNeal
Vice President and Treasurer
Dated: June 13, 2000
_______________________________
<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 less than 100
customers in southwestern Tennessee, Entergy Arkansas'
revenues from such service are immaterial, accounting for less
than 1% of its total operating revenues.
<FN3> Pursuant to a Commission order dated June 22, 1999 (the "June
1999 Order" ), Entergy Enterprises and other non-utility
subsidiaries of Entergy are currently authorized, among other
things, (1) to conduct development activities with respect to
potential investments by Entergy in Exempt Projects and other
non-utility businesses, (2) to provide management and
administrative support services to certain associate
companies, (3) to market intellectual property developed by
other System companies, and (4) to provide consulting services
to certain associate companies and to non-associate companies,
primarily in the areas of power generation, transmission and
distribution and ancillary operations.
<FN4> Entergy's aggregate investment in EPDC primarily represents
capitalized development costs and proceeds from the sale of
interests in other FUCOs.
<FN5> As of December 31, 1999, the indebtedness outstanding under
these credit arrangements was approximately $120 million.
<FN6> Guarantees may also be provided for Entergy's other
non-utility investments.
<FN7> The Treasurer's 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.
<FN8> In addition, back-up guarantees or other undertakings by a
foreign 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.
<FN9> 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.
<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,
replacing 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.
