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SECURITIES AND EXCHANGE COMMISSION(Release No. 35-27864; 70-10202)Entergy CorporationOrder Authorizing the Issuance of Preferred Securities and Debt Securities by Registered Holding Company, Financing Subsidiaries and Special Purpose Subsidiary Companies; Reservation of JurisdictionJune 30, 2004Entergy Corporation ("Entergy"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), and a Delaware corporation, located in New Orleans, Louisiana, has filed an application-declaration ("Application-Declaration") with the Securities and Exchange Commission ("Commission") under sections 6(a), 7, 9(a), 10 and 12(c) of the Act, and rules 46, 53, and 54 of the Act. The Commission issued a notice of the Application-Declaration on June 2, 2004 (HCAR No. 27852).I. BackgroundEntergy's public utility subsidiaries include Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., and Entergy New Orleans, Inc. (collectively, "Entergy Operating Companies"). The Entergy Operating Companies provide public utility service to approximately 2.6 million electric customers in portions of Arkansas, Louisiana, Mississippi, and Texas and 238,000 retail gas customers in Louisiana. Entergy also owns all of the voting stock, of two additional utilities: System Energy Resources, Inc. ("SERI") and Entergy Power Inc. ("EPI"). SERI owns and leases an aggregate 90% undivided interest in Grand Gulf Steam Electric Generating Station (nuclear), and sells all of the capacity and energy from that interest at wholesale to its only customers, Entergy Arkansas, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., and Entergy New Orleans, Inc. EPI is principally engaged in the business of marketing and selling bulk power at wholesale from its own generating resources. Entergy also engages through other subsidiaries in various energy-related and nonutility businesses. Other subsidiaries include exempt wholesale generators ("EWGs"), foreign utility companies ("FUCOs"), exempt telecommunication companies ("ETCs"), energy-related companies within the meaning of rule 58 under the Act ("Rule 58 Companies"), and other nonutility subsidiaries that Entergy was authorized by order of the Commission to acquire or own under the Act, (including certain subsidiary companies known as "O&M Subs" that provide operations and maintenance services for power projects to associate and non-associate power projects and certain subsidiary companies known as "New Subsidiaries" that engage in service and project development activities and/or acquire or finance the acquisition of the securities of other subsidiary non-utility companies). By order dated April 3, 2001 (HCAR No. 27371) ("April 2001 Order") and supplemented by order dated November 25, 2002 (HCAR No. 27608) ("November 2002 Order"), Entergy was authorized through June 30, 2004 to: (1) issue and sell common stock ("Common Stock") and, issue directly or indirectly through one or more special purpose finance subsidiaries, unsecured long-term debt and preferred or equity-linked securities in an aggregate amount not exceeding $2 billion; (2) issue and sell short-term debt in the form of notes to banks or commercial paper that in the aggregate, including then existing authority to issue short-term notes, would not exceed an outstanding principal amount of $2.5 billion; (3) enter into hedging transactions regarding its own debt and that of its special purpose finance subsidiaries or the nonutility companies; (4) form one or more special purpose finance subsidiaries; and (5) guarantee the securities issued by special purpose finance subsidiaries.II. Current RequestsEntergy now requests approval for a program of external financing and related proposals through June 30, 2007 (Authorization Period").A. Financing ParametersEntergy proposes that the following general terms will be applicable where appropriate to the financing transactions requested ("Financing Parameters")1. Common Equity Entergy represents that at all times during the Authorization Period, Entergy and each of the public utility subsidiary companies as defined under section 2(a)(5) under the Act will maintain common equity of at least 30% of total capitalization (based upon the financial statements filed with the most recent quarterly report on Form 10-Q or annual report on Form 10-K). 2. Investment Grade Entergy represents that no guarantees or other securities will be issued in reliance upon the authorization to be granted by the Commission in this Application-Declaration, unless: (a) the security to be issued, if rated, is rated investment grade; and (b) all outstanding securities of Entergy that are rated are rated investment grade (together, the "Investment Grade Ratings Criteria"). For purposes of this provision, a security will be deemed to be rated "investment grade" if it is rated investment grade by Moody's Investors Service, Standard & Poor's, Fitch Ratings or any one other nationally recognized statistical rating organization ("NRSRO"), as that term is used in paragraphs (c) (2) (vi) (E), (F) and (H) of rule 15c3-1 under the Securities Exchange Act of 1934. Entergy further requests that the Commission reserve jurisdiction over the issuance of any guarantee or other security at any time that one or more of the Investment Grade Ratings Criteria are not satisfied. 3. Effective Cost of Money The interest rate on long-term debt will not exceed at the time of issuance a gross spread over U.S. Treasury securities that is consistent with similar securities of comparable credit quality and maturities issued by other companies, but in no event will the interest rate exceed 500 basis points over U.S. Treasury securities having a remaining term comparable to the term of such series, if issued at a fixed rate, or 500 basis points over the London Interbank Offered Rate ("LIBOR") for the relevant interest rate period, if issued at a floating rate. The dividend rate on any series of equity-linked securities or preferred securities will not exceed at the time of issuance a rate that is consistent with similar securities of comparable credit quality and maturities issued by other companies, but in no event will the interest rate exceed 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term comparable to the term of such series, if issued at a fixed rate, or 500 basis points LIBOR for the relevant interest rate period, if issued at a floating rate. The effective cost of money on short-term debt will be consistent with similar loans of comparable maturities to companies of comparable credit quality, but in no event will the interest rate exceed 300 basis points over LIBOR for the relevant interest rate period. 4. Issuance Expenses The fees, commissions and expenses, including underwriting fees, arrangement fees and up-front fees, incurred or to be incurred in connection with the transactions proposed will not exceed 5% of the proceeds of the transactions in the case of Common Stock, Equity-linked Securities, Preferred Securities and Long-term Debt and will not exceed 5% of the commitments of the lenders in the case of Short-term Debt. 5. Use of Proceeds Entergy proposes to use the proceeds from the above financings for general corporate purposes, including: (a) financing, in part, investments by and capital expenditures of Entergy and its subsidiaries; (b) the repayment, redemption, refunding or purchase by Entergy of any of its securities under rule 42; and (c) financing working capital requirements of Entergy and its subsidiaries. Entergy represents that no financing proceeds will be used to acquire the equity securities of any company unless the acquisition has been approved by the Commission in this proceeding or in a separate proceeding or is in accordance with an available exemption under the Act or rules, including sections 32 and 33 and rule 58. A portion of the proceeds of the financings authorized under this Application-Declaration may be used to make investments in: (a) certain energy-related nonutility assets, which are authorized pursuant to Commission order, dated January 5, 2001 (HCAR No. 27334) ("Energy Asset Order") and (b) certain Energy Assets and/or Energy Asset Companies for which Entergy has filed a post-effective amendment to the Energy Asset Order. Further, Entergy represents that proceeds of financing to fund investments in rule 58 companies will be subject to the applicable limitations of that rule. Entergy states that unless otherwise authorized by the Commission, the aggregate amount of proceeds of financing approved by the Commission in this proceeding, when added to Entergy's "aggregate investment" (as defined in rule 53) in all the entities at any point in time, will not exceed 100% of Entergy's "consolidated retained earnings," as set by Commission order dated June 13, 2000 (HCAR No. 27184) ("June 2000 Order"). Specifically, related to long-term debt, equity-linked securities and preferred securities, the proceeds from these financings would enable Entergy to replace short-term debt with more permanent capital and provide an important source of future financing for the operations of, and for investments in, non-utility businesses that are exempt under the Act. B. Financing RequestsEntergy requests authority to issue and sell from time to time during the Authorization Period: (1) common stock ("Common Stock") (in addition to any separate authority relating to benefit and dividend reinvestment plans);1 (2) indirectly through one or more finance subsidiaries ("Finance Subsidiaries"), unsecured long-term indebtedness ("Long-term Debt") and equity-linked securities ("Equity-linked Securities") having maturities of up to 50 years, including units consisting of a combination of incorporated options, warrants and/or forward equity purchase contracts with debt, preferred stock or preferred securities; (3) directly or indirectly through one or more Finance Subsidiaries, preferred securities, including specifically trust preferred securities or monthly income preferred securities ("Preferred Securities") having maturities of up to 50 years; and (4) unsecured short-term indebtedness having maturities of 364 days or less ("Short-term Debt") in an aggregate principal amount at any time outstanding (including the aggregate outstanding principal amount of any short-term notes and commercial paper issued under the November 2002 Order) not to exceed $2.5 billion ("Short-term Debt Limit"). The aggregate amount of all securities listed in 1 through 3 above is not to exceed $2 billion ("All Other Securities Limit"). In addition, Entergy requests authority to enter into various hedging transactions and for Finance Subsidiaries to pay dividends to Entergy. 1. Common Stock Entergy requests authority to issue and sell Common Stock, options, warrants or other stock purchase rights exercisable for Common Stock in accordance with the Financing Parameters. Public distributions may be through private negotiation with underwriters, dealers or agents, as discussed below, or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. All Common Stock sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive capital markets. Entergy seeks authority to issue Common Stock or options, warrants or other stock purchase rights exercisable for Common Stock in public or privately negotiated transactions as consideration for the equity securities or assets of other companies, provided that the acquisition of any equity securities or assets has been authorized in a separate proceeding or is exempt under the Act or the rules, such as rule 58. 2. Long-term Debt, Equity-linked and Preferred Securities Entergy seeks to have the flexibility to issue Long-term Debt and/or Equity-linked Securities, indirectly through one or more special-purpose Finance Subsidiaries, and to issue Preferred Securities, indirectly through Financing Subsidiaries. In connection with the issuance of Long-term Debt, Equity-linked Securities or Preferred Securities by the Finance Subsidiaries, Entergy requests authority to issue unsecured subordinated debentures, unsecured promissory notes or other unsecured debt instruments ("Notes") to the extent of the related issuance of Long-term Debt, Equity-linked Securities or Preferred Securities in an aggregate amount not to exceed during the Authorization Period the All Other Securities Limit and in accordance with the described Financing Parameters. The terms of the Notes (e.g. interest rate, maturity, amortization, pre-payment terms etc.) would be designed to parallel the terms of the securities issued by the Financing Subsidiary to which the Notes relate. The Long-term Debt proposed to be issued by Entergy: (a) may be convertible into any other securities that Entergy is otherwise authorized to issue; (b) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at premiums above the principal amount; (c) may be entitled to mandatory or optional sinking fund provisions; (d) may provide for reset of the coupon pursuant to a remarketing arrangement; and (e) may be called from existing investors by a third party. The maturity dates, interest rates, redemption and sinking fund provisions and conversion features, if any, with respect to Long-term Debt of a particular series, as well as any associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding. The Equity-linked Securities and Preferred Securities may be issued in one or more series with rights, preferences, and priorities as may be designated in the instrument creating each series, as determined by Entergy's board of directors. Dividends or distributions on Equity-linked Securities and Preferred Securities will be made periodically and to the extent funds are legally available for the purpose, but may be made subject to terms which allow the issuer to defer dividend payments for specified periods. Equity-linked Securities will be exercisable or exchangeable for or convertible, either mandatorily or at the option of the holder, into Entergy Common Stock or indebtedness or allow the holder to surrender to the issuer or apply the value of a security issued by Entergy as approved by the Commission to the holder's obligation to make a payment on another security of Entergy issued as permitted by the Commission. For example, Entergy may issue Common Stock or Common Stock warrants linked with debt securities. The holder will be obligated to pay to Entergy an additional amount of consideration at a specified date for the Common Stock but is authorized to surrender the linked debt security to or for the benefit of Entergy in lieu of the cash payment. Any convertible or Equity-linked Securities will be convertible into or linked to Common Stock, Preferred Securities or unsecured debt that Entergy is otherwise authorized to issue by Commission order directly, or indirectly, through Financing Subsidiaries on behalf of Entergy. Any Preferred Securities may be convertible or exchangeable into Common Stock or unsecured debt that Entergy is otherwise authorized to issue by Commission order and may be issued in the form of shares or units. 3. Finance Subsidiaries Entergy requests authority (a) to acquire directly, or indirectly through an intermediate subsidiary, the equity securities of one or more special-purpose subsidiaries ("Finance Subsidiaries"), organized solely to facilitate financing, (b) to guarantee the securities issued by the Finance Subsidiaries, to the extent not exempt under rule 45(b) and rule 52, and (c) to have the Finance Subsidiaries pay dividends out of capital to Entergy. The Finance Subsidiaries may be organized as corporations, trusts, partnerships or other entities, created specifically for the purpose of facilitating the financing of the authorized and exempt activities (including exempt and authorized acquisitions) of Entergy through the issuance of Long-term Debt, Equity-linked Securities or Preferred Securities, and any other type of security authorized by rule or order, to third parties. If required, Entergy proposes to guarantee, provide support for or enter into expense agreements to the extent of the obligations of any Finance Subsidiary that it organizes. Entergy states that the amount of any Long-term Debt, Equity-linked Securities or Preferred Securities issued by any Finance Subsidiary shall be counted against the All Other Securities Limit to the extent that Entergy guarantees the securities. Entergy further represents that the Finance Subsidiaries authorized under this Application-Declaration will not be merged or consolidated with any previously authorized finance subsidiary created by Entergy Louisiana, Inc., Entergy Mississippi, Inc., or Entergy Gulf States, Inc. under Commission orders dated December 29, 2003 (HCAR No. 27783) (as supplemented by order dated January 8, 2004 (HCAR No. 27783A), December 29, 2003 (HCAR No. 27787) and December 29, 2003 (HCAR No. 27786). Entergy requests authority for Finance Subsidiaries to dividend (including dividends out of capital), loan or otherwise transfer the proceeds of the financings to Entergy. However, the Finance Subsidiaries will not declare of pay any dividend out of capital or unearned surplus unless the applicable Finance Subsidiary (i) has received excess cash as a result of the sale of its assets; (ii) has engaged in a restructuring or reorganization; and/or (iii) is returning capital to an associate company. In the event that the Finance Subsidiaries loan the proceeds of the financings to Entergy, Entergy will issue Notes to evidence the borrowings. The terms of the Notes (e.g. interest rates, maturity, amortization, prepayment terms etc.) would be designed to parallel the terms of the securities issued by the Finance Subsidiaries to which the Notes relate. 4. Short-term Debt Entergy proposes to issue and sell unsecured Short term Debt in an aggregate principal amount at any time outstanding not to exceed the Short-term Debt Limit in any combination of notes to banks and commercial paper (including the aggregate principal amount of any notes and/or commercial paper issued and outstanding under the November 2002 Order). Entergy proposes to sell commercial paper, from time to time, in established domestic or European commercial paper markets. Commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. Entergy expects that the dealers acquiring commercial paper from Entergy will reoffer the paper at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. It is anticipated that Entergy's commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations. In connection with the sale of the commercial paper, Entergy may obtain letters of credit from one or more banks in support of the commercial paper obligations. Entergy also proposes to increase its currently established bank lines and establish additional bank lines as necessary to have bank lines in an aggregate principal amount not to exceed the proposed aggregate Short-term Debt Limit. Loans under these lines (which terminate no later than five years from the establishment of the facility) will have maturities not more than 364 days from the date of each borrowing. Entergy proposes to engage in other types of short-term financing generally available to borrowers with comparable credit ratings as it may deem appropriate in light of its needs and market conditions at the time of issuance. 5. Hedging Entergy requests authority to enter into hedging transactions ("Interest Rate Hedges") with respect to indebtedness of Entergy, and the Finance Subsidiaries in order to manage and minimize interest rate costs. Entergy also requests authority to enter into hedging transactions ("Anticipatory Hedges") with respect to anticipatory debt issuances of Entergy and the Finance Subsidiaries in order to lock-in current interest rates and/or manage interest rate risk exposure, with the Interest Rate Hedges and Anticipatory Hedges to be entered into with respect to debt issuances in aggregate principal amount not to exceed $2 billion. Entergy seeks to enter into Interest Rate Hedges with respect to indebtedness of Entergy and the Finance Subsidiaries, subject to certain limitations and restrictions, in order to reduce or manage interest rate cost or risk. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or whose parent companies' senior debt ratings, as published by Standard and Poor's Ratings Group, are equal to or greater than BBB, or an equivalent rating from Moody's Investors' Service, Fitch Investor Service, or Duff and Phelps. Interest Rate Hedges will involve the use of financial instruments and derivatives commonly used in today's capital markets, such as interest rate futures, swaps, caps, collars, floors, and structured notes (i.e., a debt instrument in which the principal and/or interest payments are indirectly linked to the value of an underlying asset or index), or transactions involving the purchase or sale, including short sales, of U.S. Treasury or agency (e.g. FNMA) obligations or LIBOR-based swap instruments. The transactions would be for fixed periods and stated notional amounts. In no case will the notional principal amount of any Interest Rate Hedge exceed that of the underlying debt instrument and related interest rate exposure. Entergy will not engage in speculative transactions. Fees, commissions and other amounts payable to the counterparty or exchange (excluding, however, the swap or option payments) in connection with an Interest Rate Hedge will not exceed those generally obtainable in competitive markets for parties of comparable credit quality. In addition, Entergy requests authorization to enter into Anticipatory Hedges with respect to anticipated debt offerings of Entergy and the Finance Subsidiaries, subject to certain limitations and restrictions. Anticipatory Hedges would only be entered into with Approved Counterparties, and would be utilized to fix and/or limit the interest rate risk associated with any new issuance through: (a) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward Sale"); (b) the purchase of put options on U.S. Treasury obligations (a "Put Options Purchase"); (c) a Put Options Purchase in combination with the sale of call options on U.S. Treasury obligations (a "Zero Cost Collar"); (d) transactions involving the purchase or sale, including short sales, of U.S. Treasury obligations; or (e) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, including, but not limited to structured notes, options, caps and collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions traded on the Chicago Board of Trade or the Chicago Mercantile Exchange, the opening of over-the-counter positions with one or more counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. Entergy will determine the optimal structure of each Anticipatory Hedge transaction at the time of execution. Entergy may decide to lock in interest rates and/or limit its exposure to interest rate increases. Entergy will comply with Statement of Financial Accounting Standard ("SFAS") 133 (Accounting for Derivative Instruments and Hedging Activities) and SFAS 138 (Accounting for Certain Derivative Instruments and Certain Hedging Activities) or other standards relating to accounting for derivative transactions as are adopted and implemented by the Financial Accounting Standards Board ("FASB"). Entergy represents that each Interest Rate Hedge and each Anticipatory Hedge will qualify for hedge accounting treatment under the current FASB standards in effect and as determined as of the date the Interest Rate Hedge or Anticipatory Hedge is entered into. The Applicants will also comply with any future FASB financial disclosure requirements associated with hedging transactions. The proposed transactions are subject to the requirements of rules 53 and 54. Under rule 53(a), the Commission shall not make certain specified findings under sections 7 and 12 in connection with a proposal by a holding company to issue securities for the purpose of acquiring the securities of or other interest in an EWG, or to guarantee the securities of an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) are met, provided that none of the conditions specified in paragraphs (b)(1) through (b)(3) of rule 53 exists. Specifically, the Entergy system has complied with, and will continue to comply with, the record keeping requirements of rule 53(a)(2), the limitation in rule 53(a)(3) on the use of Entergy system domestic public utility subsidiary companies' personnel in rendering services to affiliated EWGs and FUCOs, and the requirements of rule 53(a)(4) concerning the submission of certain filings and reports under the Act to retail regulatory commissions. Finally, none of the conditions set forth in rule 53(b) exists (under which the provisions of rule 53 would not be available). With respect to the condition set forth in clause (1) of rule 53(a), Entergy's "aggregate investment" in EWGs and FUCOs (approximately $2.5 billion) is equal to approximately 56% of Entergy's "consolidated retained earnings" as of March 31, 2004 (approximately $4.5 billion). Although Entergy's current aggregate investment in EWGs and FUCOs exceeds the limit specified in rule 53(a)(1), but are within the limits of the June 2000 Order. Entergy states the action requested in the instant filing, considered in conjunction with the effect of the capitalization and earnings of Entergy's EWGs and FUCOs, would not have a material adverse effect on the financial integrity of the Entergy System, or an adverse impact on Entergy's public-utility customers. Income from Entergy's investments in EWGs and FUCOs has contributed positively to its overall earnings during the period since the Commission issued the June 2000 Order. Entergy's consolidated retained earnings have grown by an average of 12% annually during the period since the Commission issued its June 2000 Order (i.e., from June 30, 2000 through March 31, 2004). As of March 31, 2000, the most recent calendar quarter preceding the June 2000 Order, Entergy's consolidated capitalization ratio was approximately 50.0% debt and approximately 50.0% equity, consisting of approximately 5.0% preferred stock and approximately 45.0% common stock. As of March 31, 2004, Entergy's consolidated capitalization ratio was approximately 47.3% debt and approximately 52.7% equity, consisting of approximately 1.9% preferred stock and approximately 50.8% common stock. These ratios are within industry ranges set by the independent debt rating agencies for BBB-rated electric utility companies or better. Therefore, since the date of the June 2000 Order, the capitalization and earnings attributable to Entergy's investments in EWGs and FUCOs have not had an adverse impact on Entergy's financial integrity. The fees, commissions and expenses, including, but not limited to underwriting fees, arrangement fees and up-front fees, incurred or to be incurred in connection with the transactions proposed herein will not exceed 5% of the proceeds of the transactions in the case of Common Stock, Equity-linked Securities, Preferred Securities and Long-term Debt and will not exceed 5% of the commitments of the lenders in the case of Short-term Debt. No state commission, and no federal commission, other than the Commission, has jurisdiction over any of the transactions proposed in this Application-Declaration. Due notice of the filing of the Application-Declaration has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that except with respect to those matters over which jurisdiction has been reserved, the applicable standards of the Act are satisfied and that no adverse findings are necessary. IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, except as to those matters over which jurisdiction has been reserved, that the Application-Declaration be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act and in addition Entergy will, within 60 days after the end of each of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur the following:
IT IS FURTHER ORDERED that jurisdiction is reserved, pending completion of the record, over: (1) securities issued in reliance upon the authorization granted by the Commission in this order where upon issuance the security is rated below investment grade, and (2) the issuance of any guarantee or other securities at any time that the Investment Grade Conditions are not satisfied. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland Endnotes
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