Entergy 2002 Annual Report Download - page 5

ENTERGY CORPORATION AND SUBSIDIARIES 2002 3
Entergy Chairman
Robert v.d. Luft (center)
talks with Kyle Vann,
Chief Executive Officer
of Entergy-Koch, LP,
and Kathleen Murphy, a
member of Entergy's
Board of Directors,
before the October 2002
board meeting.
plants saturated the wholesale power market,
the earnings we expected from power
development failed to materialize, but we
replaced them with new opportunities in our
nuclear business and at Entergy-Koch.
We have followed a strict discipline to
maintain the capital reserves necessary to
handle any unforeseen needs of our own, or to
take advantage of market opportunities as
others run into trouble. We expect to have
more than $3 billion to invest over the next
three years in a market desperately in need of
good operators with cash in hand.
From our point of view, the oversupply in
electric generation will likely last longer than
expected, and power prices will remain
depressed in many regions.
As industry participants reposition themselves
for survival, we expect assets worth $50 billion
to $100 billion or more to change hands. We
will remain disciplined with respect to the
returns we seek, the risks we will take, the
commercial terms we will accept, and the types
of assets or positions we will purchase.
For example, we remain interested in
acquisitions of nuclear plants, where our
operating record is stellar, but prices or terms in
some of the most recent transactions have been
outside our self-imposed limits. Still, we have a
strong track record in closing transactions, and
we’re ready to seize attractive opportunities as
they become available once again.
One of our top priorities is to build on the
unique point of view, pricing methodology, and
physical optimization skills of Entergy-Koch.
One of the necessary conditions to grow this
business profitably is the maintenance of
Entergy-Koch’s “A” credit rating.
Building Entergy-Koch’s balance sheet with
sound assets, such as regulated pipeline and
storage facilities, will help support its credit
position. Acquiring a high-quality pipeline with
a solid customer base and various supply
sources would (1) add earnings from the
operation of the asset itself, (2) provide access
to new customer relationships, and (3) increase
the capital that Entergy-Koch can put at risk
without endangering its strong credit.
Much of the severity of the industry’s
financial problems can be traced to a belief
that, as long as you can access capital, the
transaction is sound. But even though a
company may not be capital constrained at the
moment, it must still operate within the
constraints of the risk it is taking. Warehousing
risk can be highly profitable when things go
well but can be disastrous when the market
turns. Entergy will not jeopardize our liquidity
requirements or violate our self-imposed limits
on a particular risk. Further, we will not
“One achievement
deserves special
recognition:
Entergy employees’
outstanding
performance in the
face of two major
tropical storms a
week apart.”