Edgar Filing: ENTERGY CORP /DE/

425

Transmission Business

Update on

the Entergy Transmission

Spin-Merge Transaction into ITC

September 27, 2012

Presented by Entergy Texas

Filed by Entergy Corporation Pursuant to Rule 425

Under the Securities Act of 1933

Subject Company: Entergy Corporation

Commission File No. 001-11299

Entergy Forward-Looking Information

this

communication,

and

from

time

time,

Entergy

makes

certain

“forward-looking

statements”

within

the meaning of the Private Securities Litigation Reform Act of 1995. Except to the extent required by the

federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking

statements, whether as a result of new information, future events, or otherwise. Forward-looking statements

involve a number of risks and uncertainties. There are factors that could cause actual results to differ

materially from those expressed or implied in the forward-looking statements, including (i) those factors

discussed in Entergy’s Annual Report on Form 10-K for the year ended December 31, 2011, its Quarterly

Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, and other filings made by

Entergy with the Securities and Exchange Commission (the “SEC”); (ii) the following transactional factors

(in addition to others described elsewhere in this communication, in the preliminary proxy

statement/prospectus included in the registration statement on Form S-4 that ITC filed with the SEC on

September 25, 2012 in connection with the proposed transactions,

and in subsequent securities filings)

involving risks inherent in the contemplated transaction, including: (1) failure to obtain ITC shareholder

approval, (2) failure of Entergy and its shareholders to recognize the expected benefits of the transaction, (3)

failure to obtain regulatory approvals necessary to consummate the transaction or to obtain regulatory

approvals on favorable terms, (4) the ability of Entergy, Mid South TransCo LLC (TransCo) and ITC to obtain

the required financings, (5) delays in consummating the transaction or the failure to consummate the

transaction, (6) exceeding the expected costs of the transaction, and (7) the failure to receive an IRS ruling

approving

the

tax-free

status

the

transaction;

(iii)

legislative

and

regulatory

actions;

and

(iv)

conditions

the capital markets during the periods covered by the forward-looking statements. The transaction is

subject to certain conditions precedent, including regulatory approvals, approval of ITC’s shareholders and

the availability of financing. Entergy cannot provide any assurance that the transaction or any of the

proposed transactions related thereto will be completed, nor can

it give assurances as to the terms on

which such transactions will be consummated.

Additional Information and Where to Find It

On September 25, 2012, ITC filed a registration statement on Form S-4 with the SEC registering shares of

ITC common stock to be issued to Entergy shareholders in connection with the proposed transactions,

but this registration statement has not become effective.

This registration statement includes a proxy

statement of ITC that also constitutes a prospectus of ITC, and will be sent to ITC shareholders.

addition, TransCo will file a registration statement with the SEC registering TransCo common units to be

issued to Entergy shareholders in connection with the proposed transactions. Entergy shareholders are

urged to read the proxy statement/prospectus included in the ITC

registration statement and the proxy

statement/prospectus to be included in the TransCo registration statement (when available) and any

other relevant documents, because they contain important information about ITC, TransCo and the

proposed transactions. ITC shareholders are urged to read the proxy statement/prospectus and any

other relevant documents because they contain important information about TransCo and the proposed

transactions. The proxy statement/prospectus and other documents

relating to the proposed

transactions (when they are available) can be obtained free of charge from the SEC’s website at

www.sec.gov. The documents, when available, can also be obtained free of charge from Entergy upon

written request to Entergy Corporation, Investor Relations, P.O.

Box 61000 New Orleans, LA 70161 or by

calling Entergy’s Investor Relations information line at 1-888-

ENTERGY (368-3749), or from ITC upon

written request to ITC Holdings Corp., Investor Relations, 27175

Energy Way, Novi, MI 48377 or by

calling 248-946-3000.

Agenda

ITC Spin-Merge Transaction Overview

Financial Flexibility

Rate Effects of Spin-Merge Transaction

Benefits

ETR

–

ITC

Spin-Merge

Transaction

Approvals Required

Storm Response

The Merger Transaction –

End State

Proposed Spin-Merge of Transmission Business

Utility

OpCos

Entergy

Wholesale

Commodities

Entergy

Shareholders

Mid South

TransCo LLC

(New Holdco)

ITC

Shareholders

ITC Merger

Sub

Transco Subs

ITC After

–

Generation

–

Distribution

–

Retail

customer

service

Entergy Shareholders will own stock in two companies

ETR After

–

Transmission

$700M

recapitalization

(pre-close)

ETR and

OpCos

reduce

debt by

$1.775B

$1.775B debt

transferred

with assets

Trust

Up to ~5%

ITC Shares

ITC

ETR

~5%

ITC Shares`

Expected closing in 2013

Benefits of ETR –

ITC Spin-Merge Transaction

ITC Spin-Merge Transaction Overview

Agenda

Financial Flexibility

Rate Effects of Spin-Merge Transaction

Approvals Required

Storm Response

Independence

Operational

Excellence

Financial

Flexibility

and Growth

Fosters

Regional

Planning

The Merger Transaction –

Benefits Customers and Other Stakeholders

•

Improves access to capital for transmission business and focuses

financial resources solely on transmission system performance

•

Strengthens ability of Entergy Operating Companies to make needed

investment in other areas of utility business

•

Ensures safe and reliable operations and continued strengthening

of overall grid performance through ITC’s singular focus on

transmission system performance, planning and operations

•

Leverages

Entergy

employees’

knowledge

and

experience

and

fully

utilizes Entergy’s world-class storm restoration process

•

Provides proven business model for owning and operating

transmission systems

•

Aligns with national policy objectives to facilitate investment in local,

regional and inter-regional transmission, advance open access

initiatives and promote access to competitive energy markets

•

Instills confidence in wholesale markets by encouraging greater

participation and disclosure by third parties

•

Leads to a more comprehensive planning process and a broader

regional view than would otherwise be possible

ITC Spin-Merge Transaction Overview

Agenda

Benefits

ETR

–

ITC

Spin-Merge

Transaction

Financial Flexibility

Rate Effects of Spin-Merge Transaction

Approvals Required

Storm Response

Capital Trends –

The Industry Facing a Huge Capital Need

Growth / Investment

Issues Facing Utility Industry

Over Next 20 Years

Generation

Transmission

Distribution

Projected Industry Capital Investments

Over Next 20 Years

???

Current Market Cap

Other = 0.15

Source: Internal analysis; Bloomberg

0.3

0.7

1.0

Projected

"a sustained, collaborative and open working relationship among the principal

vested interests will be critical to the execution of corporate, environmental and

public policy initiatives"

"we view most favorably those commissions that establish rates that reasonably reflect

the costs incurred by a utility, including a return on equity, and where timely

adjustments to these rates are made to recognize changes in costs"

"public service commissions continue to be reasonably supportive despite frequently

lower authorized returns."

"the real tests lie ahead, when federal environmental mandates and consequent

spending requirements are more certain, when state renewable portfolio standards

begin to command heightened expenditures in earnest, and when an aging

infrastructure reveals its vulnerability"

Challenges

facing the

electric

utilities

industry

Addressing

challenges

Standard and Poor's Outlook –

"Utility Credit Ratings Critical to Raising Capital –

Money Needed to Build Wires and Plants

Capital Trends –

Rating Agency Considerations

•

"For

industry

that

among

the

most

capital-intensive

the

United

States,

failure

maintain

investment

grade

could

have

significant

upward

cost

implications"

•

"a preference for expense deferrals may develop, and a proclivity for less competitive

authorized

returns

will

almost

certainly

prevail.

Such

turn

events

would

likely

result

shift

our

stable

outlook

overall

U.S.

electric

utility

credit

quality

negative."

Note: Comments sourced from Energy Biz article written by Richard W. Cortright, Jr., managing director in Standard & Poor's U.S. Utilities and

Infrastructure Ratings group dated Feb 07, 2012

•

Capital Trends –

Industry Responding with Different Approaches

Create larger footprint; upsize balance sheet

•

Duke / Progress

•

Northeast Utilities / NSTAR

•

PPL / LG&E

•

First Energy / Allegheny

•

Exelon / Constellation

Achieve greater certainty in regulations

•

e.g., Formula rate plans, future test years,

•

e.g., FPL Rate Hike Request

Align business model with capital needs

•

e.g., AEP TransCo

Consolidate

Build

Regulatory

Flexibility /

Certainty

Change

Business

Model

specific rider recovery, CWIP in rates, etc.

2015-2021

2011-2014

7.3

2007-2010

5.1

2003-2006

4.3

+19%

Capital Trends –

Rising Capital for Entergy Overall

???

Effect of EPA rules?

???

Effect of EPA rules?

Infrastructure

improvements?

+43%

Note: Excludes storm CapX for historical data; ETR Utilities includes EAI, ELL, EGSL, EMI, ETI, ENOI, SERI, ESI, EOI, SFI

Entergy Utilities Capital Investment

Total Spend

($B)

Capital spending could significantly increase over the next

10 years due to the potential for new environmental

regulations and improvement of infrastructure

Capital Trends –

Rising Capital for Entergy’s Transmission Business

Entergy Projected Transmission Capital Investment

2012E-2014E

($M)

Projected

Depreciation

Expense

100

200

300

400

500

600

2012E

2013E

2014E

Capital Trends –

~$3.2B Spent on Major Storms from 2005-2010

Event

Year

Spend ($M)

Hurricane Katrina

2005

1,099

Hurricane Rita

2005

645

Hurricane Gustav

2008

680

Hurricane Ike

2008

625

Ice Storm EAI 2009

2009

119

Ice Storm EAI Jan 2010

2010

In the past, ETR

utilities have had to

effectively respond

to major storms

which have required

unplanned capital

expenditures

~$3.2 billion over

2005-2010

Strong balance sheet and credit ratings critical for quickly

mobilizing capital and resources to respond to emergencies

1. Includes capital and O&M spend

Note: 2011 CapX estimated to be $1.94B. 2011 capital spend related to major storms was $112M

2015-2021

2011-2014

2007-2010

2003-2006

Note: Excludes storm CapX for historical data

Capital spending could significantly increase over the next

10 years due to the potential for new environmental

regulations and Entergy’s infrastructure

Capital Trends –

Rising Capital for ETI

ETI Capital Investment

Total Spend

($M)

822

573

587

-2%

???

Effect of EPA rules?

???

Effect of EPA rules?

Infrastructure

improvements?

+44%

Financial Flexibility

ITC Spin-Merge Transaction Overview

Agenda

Benefits

ETR

–

ITC

Spin-Merge

Transaction

Storm Response

Rate Effects of Spin-Merge Transaction

Approvals Required

Storm Response –

Utilizing Best Practices

ETR System Incident

Commander (SIC)

John Mullins

ITC System Incident

Commander (SIC)

System Section

Chiefs

System Planning

Chief

Supply Chain

Operations

Resource

Logistics

Administration

Planning Support

Branch Director

Restoration

Prioritization

Risk Analysis

Situation Branch

ITC Storm

Response

Organization

ITC-ETR

liaison

(New

position)

ITC Technical/Management

employee assigned to

ETR storm response

center in Jackson

Preliminary pre-design phase vision

Final design scheduled 9/2012

ITC employee

ETR employee

Functional Incident

Commanders

(ex. Fossil, Distribution,

Nuclear, Gas)

Storm response organization will be modified to ensure

close coordination and interaction between Entergy and ITC

Storm Response

Financial Flexibility

ITC Spin-Merge Transaction Overview

Agenda

Benefits

ETR

–

ITC

Spin-Merge

Transaction

Rate

Effects

Spin-Merge

Transaction

Approvals Required

Rate Effects –

Significant Variability in Average Residential Bills

Illustrative

Note: Residential bills are the average of the Typical Monthly Bills in that year for a residential customer using 1,000 kWh, excluding taxes

Source: Entergy Regulatory Services, Typical Bill Report

Henry Hub

Gas Index

($/mmBtu)

2.7

3.1

5.4

5.9

8.3

6.5

6.9

9.0

3.8

4.4

4.0

Henry Hub Gas Index

$/mmBtu

ETI

Avg.

Monthly

Residential

Bill

–

1,000

kWh

($)

Henry Hub Gas Index

Yearly variation between $2 and $17 over 2001-2011

150

100

2011

108.73

2010

98.06

2009

103.32

2008

113.06

2007

107.24

2006

116.92

99.77

2004

86.55

2003

2005

2002

75.72

2001

89.41

88.24

4% reduction in customer

bills since 2008

-1.69

(-2%)

+17.15

(+17%)

-4%

ETI Avg. Monthly Residential Bill-

1,000 kWh($)

Rate Effects –

Transmission ~5.8% of Typical ETI Customer Bill

Typical ETI Customer Bill

Transmission

Non-Transmission

Note:

Average

January

2011

–

December

2011

typical

bills

for

residential

customer

using

1,000

kWh

per

month;

non-transmission

portion

monthly

bill

includes

fuel

and

portions

the

fixed

customer

charge

and

energy

charge

allocated

generation

and

distribution

functions,

well

the inclusion of various riders.

5.8%

94.2%

•

Transition from current retail rate construct to FERC-regulated rate construct

expected for ITC

•

Analysis assumes MISO base ROE for Entergy transmission business

(12.38%) and capital structure currently utilized by ITC operating companies

(60% equity/40% debt)

•

Benefits

credit

quality

improvement

resulting

from

transition

FERC-

regulated rate construct partially offset ROE and capital structure impacts

Rate Effects –

Split into Rate Construct, Rate Timing and

Other Effects for Retail Customers

WACC

Effects

Rate

Timing

Effects

•

Forward

Test

Year:

Eliminates

regulatory

lag

recovery

capital

investments

•

On-

time impact of conversion to forward test year

•

Reflects amounts that would have been collected in future years

•

MSS-2 construct eliminated post transaction

•

Current

estimation

reflects

effect

paying

load

ratio

Transmission

cost factoring in zonal investment and retail share of Transmission

investments

Net Other

Effects

Rate Effects –

Increase

Expected

Typical

ETI

Customer

Bill

Illustrative

*Refer to previous slide where rate construct and other assumptions are detailed

Note:

Contents exclude estimated

one-time rate timing effect of

$0.37 in 2014 due to

conversion to forward test

year –

reflects amounts that

would have been collected in

future years

140

2014

WACC Effects

~0.52

Illustrative Bill

if ETR owns

T assets –

status quo

108.73

~(0.21)

(0.2)%

Illustrative Bill

if ITC owns

T assets –

post-transaction

~108.52

2014

Net Other Effects

~(0.73)

ETI Residential Bill –

1,000 kWh

($)

120

100

Note: $108.73 is the average of the 2011 Typical Monthly Bill for a residential customer using 1,000 kWh, excluding taxes. Calculation is indicative

of the rate effects of the spin-merge transaction and is not meant to project an actual future customer bill. Illustration does not include rate timing

effects such as adoption of forward test year.

Over the long term, customer

bill effects expected to be

mitigated by...

Enhanced Financial

Flexibility

Reliability, System

Performance, Scale

efficiencies etc.

Independent and

transparent ITC model,

which supports robust

markets and competition

Operational Excellence

Illustrative

Over the long term, customer

bill effects expected to be

mitigated by...

•

Enhanced Financial

Flexibility

•

Operational

Excellence

–

Reliability, System

Performance, Scale

Efficiencies, etc.

•

Independent and

transparent ITC model,

which supports robust

markets and competition

Note:

Contents exclude estimated

one-time rate timing effect of

$228.18 in 2014 due to

conversion to forward test

year –

reflects amounts that

would have been collected in

future years

ETI LIPS Bill –

5,000 kW, 80% Load Factor

($)

170,000

168,000

166,000

164,000

162,000

4,000

2,000

~0.46

0.0%

Illustrative Bill

if ITC owns

T assets –

post-transaction

~166,962.81

2014

Net Other Effects

~(451.91)

2014

WACC Effects

~452.37

Illustrative Bill

if ETR owns

T assets –

status quo

166,962.35

Note: Illustrative bill is the average of the 2011 Typical Monthly Bills for a Large Industrial Power Service (LIPS) customer using 5,000 kW at an

80% Load Factor, excluding taxes. Calculation indicative and illustrative of the rate effects of the spin-merge transaction and is not meant to project

actual

future

customer

bill.

Illustration

does

not

include

effects

any

future

potential

changes

fuel

prices,

rate

cases

between

now

and

transaction close date, or rate timing effects such as adoption of Forward Test Year or modified depreciation schedules.

Rate Effects –

ETI Typical LIPS Bill Unaffected As Well

Storm Response

Financial Flexibility

ITC Spin-Merge Transaction Overview

Agenda

Benefits

ETR

–

ITC

Spin-Merge

Transaction

Approvals Required

Rate Effects of Spin-Merge Transaction

Pathway to Completion –

Required Approvals

Authority

Requirements

Entergy retail

regulators

•

Change of control of transmission assets

•

Affiliate transaction approvals related to steps in the spin / merge

•

Authorization to incur debt in some jurisdictions

FERC

•

Change of control of transmission assets (203 filing)

•

Acceptance of jurisdictional agreements (205 filing)

•

Authorization to assume debt / issue securities (204 filings)

•

Changes to System Agreement to remove provisions related to transmission

planning and equalization

•

ITC filing to establish new rate tariffs for the ITC operating companies

Nuclear Regulatory

Commission

•

Required for internal corporate reorganization in connection with spin-merge,

and to satisfy license conditions

Hart-Scott-Rodino

Act

•

Pre-merger notification to review potential antitrust and competition issues

IRS

•

Private letter ruling substantially to the effect that certain requirements for the

tax-free treatment of the distribution of Transco are met

Securities and

Exchange

Commission

•

ITC Form S-4 and Proxy Statement (including audited Transco financial

statements and disclosures), and

•

Transco Registration Statement

ITC shareholders

Approvals required for:

•

Merger,

•

Issuance of shares to ETR shareholders, and

•

Amendment to ITC charter to increase authorized number of shares