The Economy: Getting Better, But…

Itron EFG Meeting

May 10, 2012Ri h d L hRichard LynchManager, Entergy Sales Forecasting

Topics

A brief history of the recovery

Where are we now?

Risk factors

Regional trends Regional trends

1

The Economy as Art

The private sector, marching stalwartly forward in the midst ofchaos, high exogenous risks and persistently goofy monetary

2

g g p y g y yand fiscal policy

It’s Been a Slog

1.15

Length of Economic Recoveries# of Quarters to Regain Lost Real GDP

Source: U.S. Dept. of Commerce Ratio of GDP to Peak

1.00

1.05

1.10

0.85

0.90

0.95

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

It took nearly four years to regain the output lost from the 2007 recession

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1973 1981 1990 2001 2007

It took nearly four years to regain the output lost from the 2007 recession

Slowest recovery in post WWII era

Unusually steep decline and slow rebound due to financial nature of this downturn

3

downturn

Labor Market Particularly Soft

150,000

Long Term Employment TrendsTotal Nonfarm EmploymentSource: U.S. Dept. of Labor

110,000

120,000

130,000

140,000

Recession1973198119902001

3349

Months to Regain Peak2029

80,000

90,000

100,00020012007 51+

49

Each recession since early 70’s has seen progressively slower recovery in employment

70,000Jan-73 Jun-77 Nov-81 Apr-86 Sep-90 Feb-95 Jul-99 Dec-03 May-08

p y

Four plus years in on this one and counting – still over five million down and not likely to get them back for at least two more years

Structural changes at work – shift to services increased productivity foreign

4

Structural changes at work shift to services, increased productivity, foreign competition and jobs/skills mismatches

Growth Potential is Slowing

6 0%

7.0%

Long Term GDP TrendFive Year CAGRs

Sources: U.S. Commerce Dept and Moody's Analytics.

Decade Starting: Avg GDP Growth

3.0%

4.0%

5.0%

6.0% 19501960197019801990

3.3%3.1%3.2%

4.4%4.2%

0.0%

1.0%

2.0%

1952 1962 1972 1982 1992 2002 2012 2022

200020102020

1.7%2.7%2.0%

The U.S. economy will likely to grow more slowly in the future than the past

1952 1962 1972 1982 1992 2002 2012 2022

Work force is growing more slowly and is aging

Fewer workers supporting more retirees = problems for benefit programs

5

Productivity growth will be the key

Short Term Picture: Muddling Along

5.0

6.0

% of GDP Growth

Sector Contributions to GrowthSource: U.S. Department of Commerce

0.0

1.0

2.0

3.0

4.0

-2.0

-1.0

0.0

Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12

Personal Consumption Private Investment Net Exports & Gvt. Spending

Q1 GDP growth 2.2%, vs. 3.0%, 1.8% and 1.3% in prior quarters

Consumption growth quite strong in Q1 Consumption growth quite strong in Q1

Private investment soft due to expiration of accelerated depreciation tax break (from stimulus package) and deceleration in inventory accumulation

N t t d t di k t lik l t t d

6

Net exports and government spending weak spots – likely overstated

Jobs: Two Steps Forward, One Back

9.8

10.0

500

600 (in %)(in 000's)

Labor Market IndicatorsSource: U.S. Dept. of Labor

8.8

9.0

9.2

9.4

9.6

100

200

300

400

8.0

8.2

8.4

8.6

(300)

(200)

(100)

-

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

March payrolls up only 120,000

Change in Non-farm Payrolls Unemployment Rate

Mild winter likely resulted in some job growth borrowed from Spring Average of last four months of 215,000 – good, but not great Looks like we might not have to repeal “Okun’s Law” after all

7

Looks like we might not have to repeal Okun s Law after all

Retail Sales Robust

1.6%

Retail Sales% Change Prior Mo. Seasonally Adjusted

Source: U.S. Census Bureau

0.7%

0 3% 0 3%

0.7%

1.0%0.8%

0.5%

1.2%

0.9%0.8%0.8%

1.2%

0.3% 0.3%0.2%

-0.2%-0.4%

0.0%

0.4%

O t 11 N 11 D 11 J 12 F b 12 M 12

Kicking rear, taking names, three straight months

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12

Total Retail Total less Autos

Aided by booming car sales Consumers seem to be shrugging off higher gasoline prices, for now Is this sustainable?

8

Is this sustainable?

Car Sales Particularly Strong

16 000

Automobile SalesThousands of Units, Seasonally Adjusted Annual Rate

Source: U.S. Dept. of Commerce

13 000

14,000

15,000

16,000

10 000

11,000

12,000

13,000

G ll i i i l i l b hi i

9,000

10,000

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

Generally, rising gas prices mean slumping car sales, but not this time Cars are getting so old (>10 year average fleet age) that it may not matter New cars are so much more fuel efficient that high gas prices may be a

lli i t

9

selling point

Consumption Surge Being Financed

4.04.5

Personal Income and Spending% Change Prior Year

Source: U.S. Dept. of Commerce

1.52.02.53.03.54.0

-0.50.00.51.0

Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12

Inflation adjusted spending outstripping incomes

Real Personal Disposable Income Real Spending

Savings rate has plunged to recession-like 3.7% Caveats abound: income data may be understated, car loans are up, etc. Still ?

10

Still…?

Manufacturing Led Recovery to Date

66

ISM Manufacturing ReportSource: Institute for Supply Management

46

50

5458

62

30

34

3842

46

00 0 02 03 0 0 06 0 08 09 0 2Jan‐00 Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12

ISM Expanding Economy Expanding Manufacturing

High commodity prices, rising exports, auto industry recovery, need to rebuild inventories all factors driving industrial recovery

Starting to get a little long in the tooth, especially exports

11

But Growth Now Moderating

6 6%9%

% Change

Industrial Output Sources: U.S. Dept. of Commerce

0.3% 0.3%

5.0%

0.7%

6.5%

2.2%

6.6% 5.3%

0%

3%

6%

-0.2% -0.9% -0.5%-1.8%

-0.3%

-2.0%

-6%

-3%

0%

Manufacturing Chemical Petroleum & Coal

Paper Wood Primary Metals

Plastics & Rubber

March industrial production slipped pretty much across the board

Coal Metals Rubber

vs. Prior Month vs. Prior Year

Positives – autos still strong and a modest revival in construction Negatives – exports fading, refining fundamentals weak and cyclical

recovery about spent

12

Baton is passing to consumers and service sector – up to the challenge?

Services Are Picking Up Pace

65

ISM Services ReportSource: Institute for Supply Management

>50 Indicates Service Sector Expansion

45

50

55

60

65

30

35

40

45

Jan‐00 Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12

Last three months above 56 consistent with strong growth

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12

Services ISM Expanding Economy

Last three months above 56, consistent with strong growth Employment component indicates hiring is picking up Broad-based improvement: 16 of 18 industries are expanding

13

Natural Gas – Getting Ridiculous

4,000Tcf

Natural Gas StorageSource: Energy Information Administration

Working Inventories Compared to Five-Year Range

40

PetroChem Competitiveness RatioRatio of Oil to Natural Gas Prices

Source: American Chemistry Council and Moody's Analytics

2,000

2,500

3,000

3,500

15

20

25

30

35

1,000

1,500

,

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

Min Max Avg Current Year

0

5

10

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

PetroChem Competitiveness Ratio Line of Doom (>7 is good)

Mild weather and bodacious production are causing inventories to swell and prices to plunge

Drillers pulling back on pure-play gas by switching to oils and liquids plays; isn’t helping because “associated” gas flowing abundantly

Regionally, good news for consumers and industrials, E&P companies and service providers feeling the pinch

14

service providers feeling the pinch

Low NatGas Prices Stimulating Usage

6 3% 5 6%6 1%8%

% Change from Prior Year

Natural Gas Usage by SectorSource: U.S. Energy Information Administration

Natural Gas Usage by Sector% of 2011 Full Year

3.3%

6.3% 5.6%

0.0%-1.1%

1.9%3.9% 2.9%

6.1%

2.5%

-2%

0%

2%

4%

6%Res

19.4%

Power

Other8.6%

-9.9%

-4.6%

-12%

-10%

-8%

-6%

-4%

Res Comm Ind Power Other Total

Comm13.0%

Ind27.8%

31.2%

Q4 YTD

Residential and commercial usage soft in 2011 due to very mild weather But drop in prices has been good news for industrial and utility users

15

Energy Exploration Booming, But…

2,900

North American Oil & Gas Rig CountsSource: Baker Hughes Inc.

1 900

2,100

2,300

2,500

2,700

1,100

1,300

1,500

1,700

1,900

900Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Shale gas revolution now rolling over into oil Gas glut will lead to shakeout in that industry Offshore finally recovering from Deepwater Horizon fallout

16

Offshore finally recovering from Deepwater Horizon fallout

Gasoline Prices Coming Off Boil

3 30

3.40

109

111($/Gallon)($/Barrel)

Daily Oil and Wholesale Gasoline PricesSource: Moody's Analytics

2.90

3.00

3.10

3.20

3.30

101

103

105

107

109

2.50

2.60

2.70

2.80

95

97

99

101

Jan

Jan

Jan

Jan

Jan

Feb

Feb

Feb

Feb

Mar

Mar

Mar

Mar

Apr

Apr

Apr

Both oil and gasoline prices have dropped over the past month

3‐ 10‐J

17‐J

24‐J

31‐J

7‐F

14‐F

21‐F

28‐F

6‐M

13‐M

20‐M

27‐M 3‐A

10‐A

17‐A

Oil (WTI) Wholesale Gas

g p pp p Soft demand in U.S., ongoing European crisis and slowdown in China are

principal factors, offsetting geopolitical issues Refining margins tightening again after respite

17

g g g g g p

Probably A Good Thing, Too

4.0%

30%

40%

Retail SalesGasoline

Gasoline Prices vs. Retail Sales% Change 3- Month Rolling Avg

Source: Moody's Analytics

0.0%

1.0%

2.0%

3.0%

-10%

0%

10%

20%

30%

-4.0%

-3.0%

-2.0%

-1.0%

-60%

-50%

-40%

-30%

-20%

Jan-02 Feb-03 Mar-04 Apr-05 May-06 Jun-07 Jul-08 Aug-09 Sep-10 Oct-11

Gasoline (U.S. Avg. Retail) Retail ex. Autos & Gas Stations

Gas price go up, retail sales not so good, and visa versa May not be quite so negative an impact this time around due to low utility bills

this winter (less stress on consumers)

18

Refining Industry Getting Tough

3 100

Vehicle Miles TraveledSource: U.S. Bureau of Transportation Statistics

12-month Rolling Sum in Billions of Miles

2,950

3,000

3,050

3,100

2 750

2,800

2,850

2,900

2,700

2,750

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

People are driving less and cars are more efficient Gasoline usage nationally likely dropping 3-4% over prior year When combined with tighter margins – not good news for refining industry

19

When combined with tighter margins – not good news for refining industry

Housing Has Bottomed

6.0

6.5

Total Home SalesSeasonally Adjusted Annual Rate in Thousands

Sources: U.S. Dept. of Commerce and The National Assoc. of Realtors

4 0

4.5

5.0

5.5

11.0

Mortgage Deliquency Rate% at Least 30 Days Past Due

Source: Mortgage Bankers' Association

3.0

3.5

4.0

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

7.0

8.0

9.0

10.0

4.0

5.0

6.0

Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Mortgage delinquencies are falling and sales are rising Still a long and rocky road, but the worst is likely past

F l ill till lik l i i i th d t b kl

20

Foreclosures will still likely rise in coming months due to backlog

Housing Bust Wasn’t Equal

1.6%

% Change Entering

Foreclosure TrendsSource: Mortgage Bankers Assoc. And Moody's Analytics

0 8%

1.0%

1.2%

1.4%

1.6%

0.2%

0.4%

0.6%

0.8%

0.0%Q1'06 Q1'07 Q1'08 Q1'09 Q1'10 Q1'11 Q1'12

Entergy States US

Housing never got as crazy in some areas even during bubble years Foreclosure rates are expected to slowly fall within Entergy region for the

rest of the year even as national rates rise

21

The Fed’s ‘70’s Tribute Show

3500

Federal Reserve Banks' Consolidated Balance SheetTotal Assets

Source: U.S. Federal Reserve Board

12

Real Short Term Interest RatesFederal Funds Rate Minus Inflation

2000

2500

3000

3500

2

4

6

8

10

12

0

500

1000

1500

-6

-4

-2

0

1970Q2 1976Q2 1982Q2 1988Q2 1994Q2 2000Q2 2006Q2

Fed Board Policy has been exceptionally loose since financial crisis

2007‐01‐03 2007‐10‐10 2008‐07‐16 2009‐04‐22 2010‐01‐27 2010‐11‐03 2011‐08‐10

First wave of “Quantitative Easing” (QE1) probably saved financial system Second wave (QE2) has been less successful and likely is setting stage for

inflationary surge

22

Then There is Europe

6 0

7.0

8.0

Ten Year Government Bond Yields 

2.0

3.0

4.0

5.0

6.0in Percent

0.0

1.0

1‐Jan‐09

1‐Mar‐09

1‐May‐09

1‐Jul‐0

9

1‐Sep‐09

1‐No

v‐09

1‐Jan‐10

1‐Mar‐10

1‐May‐10

1‐Jul‐1

0

1‐Sep‐10

1‐No

v‐10

1‐Jan‐11

1‐Mar‐11

1‐May‐11

1‐Jul‐1

1

1‐Sep‐11

1‐No

v‐11

1‐Jan‐12

1‐Mar‐12

Europe in “when, not if” mode. Central bank easing at end of year pushed reckoning back some

Spain Germany US

Market got by “orderly” Greek default; Spain now focus of worries Federal Reserve Board leaning towards QE3 – may not have a choice This won’t end well

23

This won t end well

Moody’s Analytics Regional Outlook

8.0%

% ChangeEntergy vs. U.S. Long Term

Source: Moody's Analytics

2.0%

4.0%

6.0%

-4.0%

-2.0%

0.0%

1997 1999 2001 2003 2005 2007 2009 2011 2013

Moody’s estimates that Entergy region has outperformed nation eight of the past nine years; likely to continue over next few years

Entergy US

past nine years; likely to continue over next few years Not that we’re bragging or anything Moody’s expectation for 2012 regional growth 3.3% and for 2013 to 3.7%

% %

24

National outlook 2.4% and 2.8%, respectively

Location, Location, Location

% Change f rom Prior Year

Weather Adjusted Electricity Output Sources: Edison Electric Institute and Entergy Sales Forecasting

3.3%

1.9%

0.5%0.3%0.1%

2.7%

1.8%1.1% 0.5%

1.0%

2.0%

3.0%

4.0%Prior Year

-0.4%-0.9%

-2.1%

-0.1%

0.1%

-1.0%

-3.0%

-2.0%

-1.0%

0.0%

New Central Southeast South Rocky Pacific NW Total U. S.England and Mid-Atlantic

Industrial & West

Central

Centraly

Mountain and SW

Current Quarter YTD

Electricity growth during 2011 varied widely depending on location Strongest areas had limited exposure to real estate bubble and associated

industries and larger exposure to commodities

25

Bet This Happened to You

6.0%

% Change from Prior Year

Retail Electricity Usage by SectorSource: U.S. Energy Information Administration

1.2%

4.0%

0 0%

2.0%

4.0%

6.0%

-5.2%

-2.5% -2.4%-1.4% -1.8%

-0.2%

-6 0%

-4.0%

-2.0%

0.0%

-6.0%Residential Commercial Industrial Total

Q4 YTD

It was mild all over this year, leading to flat as reported sales Anecdotally, utilities across the country were reporting weak sales on a

weather adjusted basis – was it the economy? overcompensating for th ? I t f ffi i i ?

26

weather? Impact of efficiencies?

Summary It’s not your imagination – recovery has been slow

But national economy is slowly improving But national economy is slowly improving

Major threats hovering:G i Gas prices

European and U.S. financial problems

W til t d th h War, pestilence, assorted other horsemen

Economic growth and electricity sales trends differ across regions producers trumping consumersacross regions – producers trumping consumers

27