Entergy 2011 Annual Report Download - page 5

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Many in our industry see transmission as a way to grow
earnings or rate base, or they have a strategy that seeks ways to
get bigger through mergers with other investor-owned utilities.
So why? Why shrink our company, particularly by a spin-off of
a fast-growing business? Our obligation is to the shareholders
of the company and, of course, other stakeholders like our
customers and employees. These are the real people. The
“company” is an artificial “person” created by law. If the owners,
customers, employees and other stakeholders are better served,
then the company has achieved the purpose for which it was
created. In today’s changing environment, focus is far more
valuable than size. In the world of mammals, most scientists
will tell you larger species, like dinosaurs, may evolve faster,
but become extinct more quickly: live harder, die faster. In
business, sustainability is no different.
After closing the merger with ITC, Entergy’s transmission
business will be part of a completely independent electric
transmission company. ITC is a leading independent transmission
company with an excellent track record of service and
safety. Entergy Corporation becomes a smaller company by
approximately $3 billion of assets that will be spun off to our
owners. There’s no gain to the corporation and less immediate
earning power for Entergy. On the other hand, the ITC transaction
allows Entergy to maintain its financial flexibility, which we
believe will enable ongoing investment, better access to capital
and protect credit quality needed to serve our customers. The
expected annual capital needs of the transmission business are
four to five times the cash provided by the depreciation allowance.
Moreover, this outcome is consistent with congressional intent and
the Federal Energy Regulatory Commission policy and direction
and addresses transmission issues raised by other entities that rely
on our utility operating companies’ transmission system. We are
listening to our regulators now to gain a better understanding of
their perspectives and any concerns. Completion of the transaction
is targeted for 2013, subject to receipt of necessary approvals.
Nobody likes the sound of “shrinking the company” or
admitting that maybe a different organization can meet certain
needs better than your current organization. Our employees do
a phenomenal job as evidenced by receipt of the Edison Electric
Institute Emergency Response Award for 14 consecutive years.
As a vertically integrated utility and generation company, we
handle nuclear operations, license renewal of nuclear plants,
establishment of new distribution standards to meet the risks of
rising sea levels, storm surges, and stronger and more frequent
hurricanes, and a host of other issues. ITC wakes up every
morning and only thinks transmission. They bring a single focus,
and for those enamored with size, it will be one of the largest
electric transmission companies in the country, with more than
30,000 miles of transmission lines.
As Adam Smith pointed out in “The Wealth of Nations,”
when ownership is separated from management, the latter will
inevitably begin to neglect the interests of the former. That
is a trap we are determined to avoid. A corporation exists to
serve its shareholders, not to serve itself to the detriment of its
owners. I am convinced Entergy’s owners will be better served
by this transaction and I have no doubt an independent electric
transmission company that is part of an RTO with real-time
markets for power is superior to any other model for customers
and suppliers.
Our board has always recognized the importance of the
dividend, which is taking on a more prominent role for our
shareholders in today’s low interest-rate environment. Even with
some of the earnings growth associated with the transmission
business migrating to ITC, the current long-term financial outlook
supports maintaining Entergy’s dividend at the current $3.32
per share annualized level after closing the ITC transaction. Any
dividend from ITC that our shareholders are expected to receive
would be in addition to the Entergy dividend.
Entergy Corporation and Subsidiaries 2011
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