Entergy Corporation

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Entergy Corporation

225 Baronne Street
New Orleans, Louisiana 70112
(504) 529-5262
Fax: (504) 569-4269

Public Company
Incorporated: 1949 as Middle South Utilities
Employees: 13,373
Sales: $3.98 billion
Stock Exchanges: New York Midwest Pacific

Entergy is a holding company for utilities that supply electric energy to the middle south of the United States, including Arkansas, Louisiana, Mississippi, and southeastern Missouri. Its subsidiaries also provide gas service in New Orleans and parts of Arkansas and Missouri. At the end of 1990, the company provided 1.7 million customers with electricity.

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 inititated 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 region 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.

Despite the legal battle, the 1950s were prosperous for Middle South, as the next decade would 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% 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% of its new capacity—2,965 megawatts—from nuclear power plants. Among the company’s most significant research projects were those under way 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% of total fuel requirements, gas 68%, and nuclear and hydroelectric production about 5%.

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% 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 fourteen 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 % 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 Gulfs power. The rate increases needed to cover these costs were so high—up to 20%—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% to 75% of book value, as contrasted with the 110% to 120% 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 reinstitution 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% of book value, nearly 39% 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%. Its stock price rebounded as well.

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 Grand Gulf. Late in 1991 Entergy increased its common stock dividend.

Principal Subsidiaries

Arkansas Power & Light Company; Louisiana Power & Light Company; Mississippi Power & Light Company; New Orleans Public Service Operations, Inc.; System Energy Resources, Inc.; Entergy Power, Inc.; Entergy Operations, Inc.; Electee, Inc.