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Entergy's long-term strategy is to leverage our scale and industry expertise to establish Entergy as a premier integrated wholesale energy company. Our defined strategic initiatives are to expand our nuclear generation portfolio, develop power projects in selected growth markets, build our commodity marketing and trading capabilities, and strengthen our core utility franchise. Our expertise in nuclear power operations, our unparalleled scale in natural gas-fired generation, and our strong commitment to customer service are the foundation for successful execution of our wholesale energy strategy.
Entergy Corporation is a holding company for utilities that supply electrical energy to over 2.5 million customers in the middle south of the United States, including Arkansas, Louisiana, Mississippi, and Texas. The nation's second largest owner of nuclear power plants, the company also owns plants run on coal, natural gas, oil, and hydroelectric power. Its subsidiaries also provide natural gas service in New Orleans and parts of Arkansas and Missouri. Another Entergy subsidiary buys and sells energy on a wholesale basis. Other services include nuclear plant decommissioning and license renewal, power plant construction, and energy distribution. A $10 billion energy powerhouse, Entergy faces controversial issues such as energy shortages, disposal of radioactive wastes, emission of air pollutants, and global warming.
Origins and Early History
Although Entergy was incorporated as a public company called Middle South Utilities (MSU) in 1949, its four constituent power companies had operated as an interdependent system for 25 years. These companies were Arkansas Power & Light, Louisiana Power & Light, Mississippi Power & Light, and New Orleans Public Service, Inc. In 1981 Arkansas-Missouri Power was merged into Arkansas Power & Light after having been owned by MSU since the early 1970s.
During the 1950s, the company was one of the fastest-growing utility systems in the United States, largely because of the industrialization of its territory and the ensuing rise in the standard of living. Much of this expansion sprung from industrial development programs initiated by MSU-supplied companies. Among the more significant and economically resilient industries founded were oil, natural gas, and chemicals. Large manufacturers, including General Motors, built plants in the region. Reynolds Metals brought the area the electricity-intensive aluminum industry. In addition, from 1945 to 1955, use of electricity per residential customer in the middle South rose faster than the national average. Three of the four constituent companies did not have a rate increase from the end of World War II until the early 1960s. From 1947 through 1951, MSU and its predecessor companies spent $236 million on plant expansions, financed by common stock sales in 1950, 1951, and 1952.
In 1953 MSU became involved in a dispute with the U.S. government. Edgar H. Dixon, head of MSU, and Eugene A. Yates, head of the Southern Company, proposed a plant to supply power to the Tennessee Valley Authority (TVA), which would make this power available to the Atomic Energy Commission. The plan stirred up a battle in Congress between those favoring government ownership of utilities and those favoring investor ownership, eventually causing U.S. President Dwight Eisenhower to void the contract. Although the government claimed that the contract's cancellation was based on a conflict of interest by an investment banker, Adolphe Wenzell, who was advising both the utilities and the government, the utilities sued the government in 1955. The U.S. Court of Claims found no conflict of interest and granted the utilities $1.8 million in damages in 1959.
1960s-80s: Nuclear Energy and Other Developments
Despite the legal battle, the 1950s were prosperous for Middle South, as the next decade would also prove to be. In 1961 MSU was one of 11 private power firms, headed by Robert Welch of Southwestern Electric Power Company, to offer to exchange energy with the TVA, whose surplus summer power would be exchanged for the companies' surplus power in the winter, effecting considerable savings for both parties.
In a similar agreement in October 1967, Middle South united with Southern Company to coordinate planning and operation of their facilities for ten years. Such partnerships were part of a general trend among utilities to foster joint ventures and cooperation. The plan included mutual assistance in case of emergencies that would reduce probability of large-scale power failures. The firms also planned to coordinate building of plants and long-distance power lines. The two systems were already directly connected with each other through transmission facilities in Mississippi and Louisiana and indirectly connected through neighboring systems.
The increasing need for electricity in MSU's region called for $1.12 billion worth of construction during the 1960s, or about $118 million per year during the decade. During the 1960s, total electric energy sales almost tripled, going from 10.4 billion kilowatt-hours in 1959 to 31 billion kilowatt-hours in 1969. Although annual electricity use per household increased more than two and a half times, and revenue per customer nearly doubled, increased efficiency meant that the average cost to the customer per kilowatt-hour decreased 28.6 percent during the decade.
When founded, MSU assumed unlimited availability of natural gas as its major fuel source. During the 1960s, however, gas became increasingly scarce, and MSU had to consider other fuel options. In 1967 the company began construction of its first nuclear plant, built by its Arkansas Power & Light subsidiary. The $140 million plant was erected in Russellville, Arkansas, at the Dardanelle Reservoir on a 1,110-acre parcel of land. It began producing energy in 1974. Beginning in 1969, due to the Federal Power Commission's heightened restriction of interstate natural gas delivery, MSU founded its System Fuels, Inc. subsidiary to provide fuel for utility operations. By 1974 the subsidiary had located six natural gas wells. It also purchased fuel oil. By 1974 MSU was building four 700-megawatt coal-fired units, the first to go into operation in 1978. MSU bought the coal for these units from Kerr-McGee Oil Company and Peabody Coal Company.
MSU was a leader in the trend toward nuclear energy. In the 1970s it planned to derive 43 percent of its new capacity--2,965 megawatts--from nuclear power plants. Among the company's most significant research projects were those underway at the Southwest Nuclear Research Center near Fayetteville, Arkansas. Installed there was the Southwest Experimental Fast Oxide Reactor, which at the time was the only reactor in the United States fueled with plutonium oxide. Its purpose was to verify the safety and desirability of breeder reactors. To back the project MSU joined with 13 other investor-owned companies, called Southwest Atomic Energy Associates, as well as General Electric, the U.S. Atomic Energy Commission, and the Karlsruhe Nuclear Research Center of Germany.
In 1974, with the company's Arkansas nuclear plant in operation, two MSU subsidiaries, Mississippi Power & Light and Middle South Energy, Inc., began construction of two more nuclear plants at the Grand Gulf station in Mississippi. During the early 1970s, however, the system continued to rely on natural gas. In 1974 oil provided 27 percent of total fuel requirements, gas 68 percent, and nuclear and hydroelectric production about 5 percent.
In 1975, to secure a steady fuel supply until its nuclear and coal-based facilities would be in full operation in the 1980s, MSU entered a joint project with Northeast Petroleum and Ingram Corp. The companies founded Energy Corporation of Louisiana to build a $300 million refinery in Garyville, Louisiana, producing low-sulfur fuel oil. Floyd Lewis, who began as a lawyer with New Orleans Public Service, became president of MSU in 1970. He led the company through a decade of growth despite mounting economic stress. Debilitating outside factors included the Middle East oil embargo and the attendant rise in fuel costs; environmental and other controls on construction; inflation and interest rates that increased building costs; and the nuclear accident at Three Mile Island that strengthened the resolve of the U.S. antinuclear movement. In 1977 sales topped $1 billion, a 23 percent increase from 1976.
By 1977 MSU was involved in its most ambitious construction program ever. From 1970 through 1976, it had spent $2.67 billion on plant expansion. Expenditures of $2.37 billion were anticipated for 1977 through 1979. However, while new production sites formerly lowered utility rates, the opposite became true: new plants, whether coal or nuclear, were time-consuming and expensive to build--six to eight years for a coal-run facility and ten to 14 years for a nuclear plant, with a cost of $1,000 to $2,000 per kilowatt. MSU sought numerous rate increases to cover its costs, but regulators would not allow the construction costs to be reflected in rates until the plants were operational. MSU continued to build, tying up capital in plants under construction that it was unable to invest to generate income for most of the decade. From 1974 through 1985, MSU sank $6.1 billion into construction of its Grand Gulf and Waterford nuclear plants. During construction, MSU was able to disguise its financial weakness through the allowance for funds used during construction, which allowed it to register the profits it would make on its construction assets if the plants were in fact producing. In 1985 such noncash credit constituted 91 percent of MSU's earnings.
Reality set in, however, after production began at Grand Gulf in mid-1985. The facility, owned by MSU subsidiary System Energy Resources, Inc., sold power wholesale to MSU's four operating companies according to an allocation established by the Federal Energy Regulatory Commission. The commission also set the wholesale cost of Grand Gulf's power. The rate increases needed to cover these costs were so high--up to 20 percent--that state regulatory commissions initially refused any increase at all.
The company absorbed more than $330 million in Grand Gulf construction costs, planning to recover the rest through gradual rate increases over the next decade. It also took a substantial loss on its $950 million investment in the rudiments of the second Grand Gulf plant, whose construction was halted by the Mississippi Public Service Commission (MPSC). MSU stopped paying its common stock dividends in order to save money. Mississippi regulators finally granted a $326 million interstate wholesale rate increase to Mississippi Power & Light in September 1985.
In 1986 President and Chairman Floyd Lewis was hospitalized, and Edwin Lupberger assumed Lewis's duties as MSU's difficulties continued. The interest rate the company had to pay on its debt rose, and common stock sold for 50 percent to 75 percent of book value, as contrasted with the 110 percent to 120 percent typical of a healthy utility stock. Lupberger, in an interview with Forbes, July 28, 1986, characterized the company's situation as "more uncertain than it's been since the Depression."
In 1987 the Mississippi Supreme Court rescinded the MPSC's 1985 rate increase. Mississippi Power & Light appealed to the U.S. Supreme Court, saying that cancellation of the increase would bankrupt it. At the same time, Louisiana regulators reduced by $28 million a $76 million increase granted to another subsidiary. Standard & Poor's lowered its ratings on $7 billion worth of MSU debt and preferred stock. On June 28, 1988, the U.S. Supreme Court ruled that the 1985 Mississippi rate increase was valid, and as a result MSU's security ratings were upgraded. More than $200 million that had been collected, but held in escrow pending the court's decision, was released on August 11, 1988. Although earnings continued to be lower than the previous year, overall financial stability of the organization was on the upswing, as evidenced by the reinstatement on September 10 of its quarterly common stock dividend for the first time since its 1985 suspension. By the end of 1988, the company's financial recovery was basically complete, although its stock continued to sell at 75 percent of book value, nearly 39 percent less than the industry average. In late 1988, MSU consolidated the management of all four of its nuclear plants at System Energy Resources, a move expected to lower costs by $23 million.
Lawsuits questioning other nuclear investments continued to plague MSU. Lupberger, fearing the uncertainty and strain of more drawn-out litigation, negotiated a compromise agreement called Project Olive Branch, settling the suits out of court. This hoisted the company's return on capital nearer to the industry average of 8.6 percent. Its stock price rebounded as well.
Developments in the 1990s and Beyond
At the annual meeting on May 19, 1989, shareholders approved changing MSU's name to Entergy Corporation. Heading into the 1990s, the company had largely regained financial stability. In 1991 its New Orleans Public Service subsidiary reached an agreement with the New Orleans City Council that let the utility recover a portion of its investment in the Grand Gulf nuclear plant. Late in 1991 Entergy increased its common stock dividend.
One of the biggest changes in the nuclear power industry came with federal deregulation that began in the early 1990s. Public entities sold their nuclear plants for very low bids. Most private companies did not want such risky ventures, but Entergy decided to expand its nuclear power operations. In 1999 it purchased the Pilgrim Nuclear Power Station in Plymouth, Massachusetts. The following year it acquired two more facilities: the Indian Point 3 plant in Westchester County, New York, and the James A. Fitzpatrick plant in Oswego County, New York. In 2001 it expected to close its purchase from Con Edison of Indian Point 1 and 2 plants.
Thus Entergy played a key role in the resurgence of the nuclear power industry. Entergy and Exelon, the industry leader, spent almost $4 billion to buy 15 nuclear plants. The private owners of such plants by the late 1990s had "reversed years of mismanagement and cost overruns to turn the plants into the reliable, profitable atomic engines they were meant to be," said Time's Daniel Eisenberg. Of course, the storage of radioactive waste remained a challenge for the nation's 103 operating nuclear plants that produced about 20 percent of the country's electricity.
Meanwhile, Entergy owned, managed, or invested in many fossil-fuel and hydroelectric generating plants that in 2001 generated over 30,000 megawatts of electricity in the United States and other nations. Only five of its generating units used hydroelectric power. Seven units used coal. According to its web site, Entergy had 58 units that used oil, natural gas, or a combination of the two energy sources.
Entergy Corporation's operating revenues went from $7.16 billion in 1996 to $9.53 billion in 1997, $11.49 billion in 1998, and $8.77 billion in 1999. Its consolidated net income in 1996 was $490.6 million. That went to $300.9 million in 1997, $785.6 million in 1998, and then $595 million in 1999.
The firm's 2000 annual report described a good year for Entergy. It had four quarters of record earnings, and its stock price at the end of the year was at a record level. Entergy ranked first among surveyed American utilities for its one-year progress in customer satisfaction, according to a study published in April 2000. Other 2000 highlights included forming a joint venture called Entergy-Koch, L.P. with Koch Industries, a major energy trading and marketing firm, and cooperating with The Shaw Group to create EntergyShaw, L.L.C., a power plant construction firm. Entergy in 2000 also acquired TLG Services, a nuclear decommissioning company, and signed a contract with Framatome Technologies to help nuclear plants renew their licenses.
In 2001 Entergy and other power companies continued to deal with divisive issues such as global warming and climate change. Since some blamed carbon dioxide emissions from fossil fuel plants for the so-called greenhouse effect, Entergy and some other energy companies committed themselves to the reduction of such emissions.
Another power controversy in 2001 was electrical transmission. Entergy proposed a privately funded expansion of the grid system that was disputed by municipal power agencies and other critics. Such public policy disputes kept Entergy's leaders busy as they dealt with state regulatory bodies and the Federal Energy Regulatory Commission (FERC).
The good news for the power industry was the growing population's increased demand for electrical energy. That helped fuel Entergy's rising stock prices. Its shares increased 63 percent over one year to about $41 per share at the end of April 2001. If Entergy continued to meet the needs of the American people during what some called an energy crisis, its future looked promising.
Principal Subsidiaries: Entergy Arkansas, Inc.; Entergy Gulf States, Inc.; Entergy Louisiana, Inc.; Entergy Mississippi, Inc.; Entergy New Orleans, Inc.; Entergy Operations, Inc.; System Energy Resources, Inc.; Entergy Nuclear Generation Company; Entergy Nuclear Operations, Inc.; Entergy Thermal.
Principal Competitors: AEP Industries, Inc.; Reliant Energy; Southern Company.
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