U.S. Markets closed

Edited Transcript of ETR earnings conference call or presentation 30-Oct-19 3:00pm GMT

Q3 2019 Entergy Corp Earnings Call

NEW ORLEANS Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Entergy Corp earnings conference call or presentation Wednesday, October 30, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew S. Marsh

Entergy Corporation - Executive VP & CFO

* David Borde

Entergy Corporation - VP of IR

* Leo P. Denault

Entergy Corporation - Chairman & CEO

* Roderick K. West

Entergy Corporation - Group President of Utility Operations and Chairman, President & CEO of System Energy Resources, Inc.

================================================================================

Conference Call Participants

================================================================================

* Gregory Harmon Gordon

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Praful Mehta

Citigroup Inc, Research Division - Director

* Shahriar Pourreza

Guggenheim Securities, LLC, Research Division - MD and Head of North American Power

* Sophie Ksenia Karp

KeyBanc Capital Markets Inc., Research Division - Director & Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the Entergy Corporation Third Quarter 2019 Earnings Release and Teleconference. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, David Borde, Vice President, Investor Relations. Thank you. Please go ahead, sir.

--------------------------------------------------------------------------------

David Borde, Entergy Corporation - VP of IR [2]

--------------------------------------------------------------------------------

Thank you. Good morning, and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Leo Denault; and then Drew Marsh, our CFO, will review results. (Operator Instructions) In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website.

And now, I will turn the call over to Leo.

--------------------------------------------------------------------------------

Leo P. Denault, Entergy Corporation - Chairman & CEO [3]

--------------------------------------------------------------------------------

Thank you, David, and good morning, everyone. We are pleased to report third quarter adjusted earnings per share of $2.52. Drew will go over the details, but the bottom line is that these are strong results that allow us to raise our 2019 guidance midpoint by $0.05 and narrow the range. We also remain firmly on track to achieve our longer-term outlooks. With 3 quarters behind us, we've completed many of our key deliverables for the year to keep us on track to achieve our goal to be the premier utility, including a few important milestones this quarter.

Furthering our orderly exit from EWC, in late August the NRC approved our license transfer application for Pilgrim Nuclear Power Station. And shortly after that, we completed the sale to a subsidiary of Holtec International. This is the second sale that we have successfully completed of a nonoperating nuclear plant and the third in the industry. This is also the second time the NRC has determined that Holtec has the financial and technical capabilities to decommission nuclear plants. As a reminder, we have agreements to sell our last 2 remaining merchant nuclear plants to Holtec.

We've also had significant accomplishments at the utility. Providing added clarity to our investment plan, the Mississippi Public Service Commission approved our proposal to purchase the Choctaw generation station. We expect to close the transaction soon. The commission's order also included a stipulation supporting timely and full cost recovery of the asset. We expect the plan to be included in rates with minimal lag, similar to how we have recovered cost of past acquisitions in Mississippi. Purchasing this clean and modern 810-megawatt combined-cycle natural gas turbine is a good outcome for our stakeholders and is expected to result in approximately $100 million in net benefits for Entergy Mississippi's customers.

We also have a solid track record of completing major generation projects on time and on budget or better, supported by a solid capital projects management team. We are on track with Lake Charles Power Station and New Orleans Power Station, which are expected to come online next year. Montgomery County Power Station in Texas is also on schedule and expected to come online in mid-2021.

On the renewables front, construction has begun on one of the largest solar facilities currently planned for Louisiana. Capital Region Solar is a 50-megawatt solar project being built in West Baton Rouge Parish. Once completed, the facility will offset the equivalent of nearly 19,000 passenger vehicles' emissions each year. We will purchase the output under a 20-year agreement. We are working with our regulators to expand and customize our portfolio for renewable energy solutions to meet our customers' expectations and to achieve our sustainability goals.

Turning to regulatory proceedings. Entergy Louisiana's new rates became effective in September. The company's annual FRP evaluation provides a simpler process that aligns rates and costs better than traditional rate cases. In Arkansas, we've reached an unopposed settlement on the company's annual FRP, which we are filing today. The settlement is in line with our initial expectations. We anticipate a final decision from the Arkansas Commission by the end of the year.

In New Orleans, the city -- the Council Utility Committee issued a resolution that if adopted would set a revenue requirement that is below what we believe to be just and reasonable for Entergy New Orleans and our customers. We continue to work with council members to reach a fair outcome when the council takes up the matter in early November. This continued progress on regulatory proceedings is an important component of our success as it improves clarity on the recoverability of our investments and solidifies our financial commitments.

Another growing part of our company that we are excited about is our innovation center. This group is developing product and service concepts to meet the evolving expectations of our utility customers and the communities we serve. The team employs a rigorous work process, focused on exploring customer frictions and feedback, product design, market opportunities and more. For example, last quarter, I highlighted Entergy New Orleans' new program that puts solar panels on low-income customers' homes. Under this program, Entergy will install the rooftop solar system at no cost from the customers and give them a credit on their monthly bills. That idea came out of our innovation team.

Another concept developed that is now being implemented is a customer-sided backup generation solution for commercial and small industrial customers. The generators will be owned by Entergy and would allow those businesses to operate as usual during widespread outages. For example, retail businesses would be able to provide services to the general public during significant weather events. In other times, when needed, the resource can be deployed by the utility, which benefits all customers.

Entergy-owned, customer-sided generation is an innovative win-win solution. It provides an economical alternative to businesses to remain open when our communities need them most and it provides us the utility and added resource when the system needs it. Entergy Texas recently announced a pilot of this concept in its service area and Entergy Mississippi has a filing pending before the Public Service Commission. Our plan is to eventually implement this idea at all operating companies.

Innovation and new technologies will be an important part of our business as we continue to explore solutions to improve our customers' everyday lives.

As many of you know, there have been 3 significant storms in the last few months. Hurricane Dorian made landfall on the East Coast in early September. Entergy sent nearly 500 workers to the Carolina coast to help with the restoration efforts. Then a few weeks later Tropical Storm Imelda made landfall in Texas bringing 20 to 40 inches of rain over the impacted service area. We deployed more than 1,000 workers both from Entergy and from other utilities. At the peak, we had approximately 38,000 customers without power. Service was restored in 95% of our customers within 4 days. Just this past weekend, Tropical Storm Olga moved through Louisiana. The storm brought heavy rain and winds in excess of 50 miles per hour. At its peak, Olga disrupted electric service to more than 92,000 customers. The storm team of more than 1,000 workers restored the vast majority of outages within 2 days. Entergy employees have a long history of working together after natural disasters. They work to restore power for our customers and to assist our communities after an event. They also help coworkers who are impacted. In addition to volunteer support, the company has established employee assistance funds to provide financial assistance for affected employees.

Providing support in times of need, whether manpower or financial contributions, is important. Ongoing efforts that support our communities are also vital to our success. In September, for the 12th consecutive year, Site Selection magazine named Entergy as one of the nation's top utilities in economic development. Entergy plays a vital role in economic development efforts across our service area, which brings business, jobs, and community support to our states. Sustainability is a key focus here at Entergy. Once again, we were named to the Dow Jones Sustainability North America Index. We are very proud of this achievement. DJSI is one of the most respected independent sustainability measures in the world. We are the only electric utility to receive this honor 18 years in a row. And for the past 5 years, we have made a perfect score in the climate strategy category. To be named to this respected list year-after-year is a clear acknowledgment of Entergy's commitment to implementing sustainability practices that serve our customers, employees, communities and our owners.

Last Friday, our Board of Directors declared a quarterly dividend of $0.93 per share. This is the fifth straight year of steady predictable growth in our dividend and with this declaration, we'll pay a total of $3.66 per share in common dividends this year, just under 70% payout at our guidance midpoint. As we mentioned last quarter, we expect to grow our dividend each year and plan to increase the growth to be more in line with our earnings, starting in 2021.

This has been another successful quarter for our company and our stakeholders, as we continue to execute on our path to be the premier utility in every aspect of our business. We have among the lowest retail rates in the country. The states we serve benefit from strong industrial growth. We are an industry leader in sustainability. We invest in our communities and we invest in our employees and our culture. The fundamentals that underlie our steady predictable growth are strong. First, we have a robust capital plan which benefits our customers and supports the growth of the business and economic development in our communities. We have no shortage of investment opportunities beyond our current forecast period. As a utility with some of the lowest rates in the country, we always remain diligent in managing the cost impact to our customers and will continue to do so. Second, we have constructed regulatory mechanisms, which give us the opportunity for fair and timely recovery of our capital plan. As we've noted in the past, we have a unique line of sight with approximately 90% of our capital plan ready for execution from a regulatory perspective and approximately 90% expected to be recovered through annual FRPs and riders. And third, we have a proven track record and ability to execute on major capital projects with cost and schedule certainty. This clear line of sight [and] our ability to execute our capital plan on time and on budget combined with the progressive regulatory mechanisms that ensure timely recovery of our investments supports our outlooks today.

And as we continue to identify sources of customer savings, including O&M and production cost efficiency, energy efficiency and industrial growth, we aspire to do even better.

I will now turn the call over to Drew.

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thank you Leo. Good morning, everyone. As Leo mentioned, we had another successful quarter and with our strong results, we are raising the midpoint of our 2019 guidance by $0.05 and narrowing the range. Also we remain firmly on track to meet our longer-term outlooks.

As you can see on Slide 4, on a per-share basis, Entergy adjusted earnings were $2.52, $0.17 higher than the third quarter of 2018, including the effect of dilution. Turning to Slide 5, rate actions in Arkansas, Louisiana, Mississippi and Texas contributed positively to the quarter's results as did higher sales volume in the unbilled period.

Overall, revenue was a little higher than we anticipated due to weather. Bill sales volume declined versus last year, which was in part due to fewer days billed. Volume in the unbilled period was positive as they capture the offset, the fewer days billed, as well as warmer weather at the end of September. Other drivers for the quarter's results included regulatory charges last year -- included regulatory charges last year to return the benefits [in] the lower federal tax rate to customers, higher other O&M due largely to higher spending on information technology and customer initiatives, including distribution operations, partially offset by lower nuclear cost. Drivers related to our growth such as higher depreciation expense, including the St. Charles Power Station, which came online at the end of May, lower decommissioning trust fund returns and lastly, a higher share count affected this quarter's results on a per-share basis.

Looking at EWC on Slide 6. [As] reported earnings were $1.27 per share lower than the prior year. Drivers for the quarter included the absence of tax items recorded in the third quarter 2018, lower revenue due to the shutdown of Pilgrim as well as lower capacity pricing, lower decommissioning trust fund returns and higher asset write-offs and impairment charges related to the sale of Pilgrim. Partially offsetting the decrease was lower other O&M due to lower spending on nuclear operations and looking ahead, we still expect EWC to provide slightly positive net cash [to parent] from 2019 through 2022.

Turning to Slide 7. Operating cash flow for the quarter was $1.065 billion, a $286 million increase from a year ago. The change was driven by lower amount of unprotected [excess] ADIT returned to customers, lower pension contributions and lower ARO spending at EWC. Partially offsetting were higher severances and retention payments at EWC.

Turning to our guidance and outlook on Slide 8. For 2019, we have raised the midpoint to $5.35 as a result of weather returning back to normal for the year and mitigating strategies we put in place earlier in the year. We expect our results to come in around the midpoint of our updated range. Our targeted adjusted EPS growth remains at 5% to 7% off of our original 2019 guidance midpoint. Our outlooks include a new year, 2022, which is in line with this growth rate. More information will be available in our EEI materials.

Moving to our credit metrics on Slide 9, our parent debt-to-total debt is 20.5% and our FFO to debt is 14.2%. This includes the effects of returning $469 million of unprotected excess ADIT to customers over the last 12 months. Excluding this giveback and certain items related to our exit of EWC, FFO to debt would be 17.6%. But we still have to return some unprotected excess ADIT to customers. I'm happy to report that the bulk of the credit impact is now behind us. We remain committed to our targets of at or above 15% for FFO -- for FFO to debt by 2020 and below 25% for parent debt-to-total debt as well as maintaining our investment-grade profile.

This is another successful quarter with strong results. We were able to raise our 2019 guidance midpoint and we're firmly on track to achieve longer-term outlooks. We continue to execute on our plans to deliver steady, predictable growth in earnings and dividends through customer-centric investments. And as Leo mentioned, we aspire to do even better as we continue to develop our culture of continuous improvement.

And now, the Entergy team is available to answer questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question is from Praful Mehta from Citi.

--------------------------------------------------------------------------------

Praful Mehta, Citigroup Inc, Research Division - Director [2]

--------------------------------------------------------------------------------

Congrats on a good quarter. So just wanted to first understand, in terms of nuclear operations, I know we haven't touched on it in a while, just wanted to see where it stands today, how are operations and are there any others NRC items to be watched right now?

--------------------------------------------------------------------------------

Leo P. Denault, Entergy Corporation - Chairman & CEO [3]

--------------------------------------------------------------------------------

Praful, this is Leo. Effectively, everything is on track with what we laid out a couple of years ago in terms of spending, staffing, capital investments in the plants, and so performance is as we would expect. I think the last remaining thing you will see from a NRC standpoint is the return of Grand Gulf to column 1, it's in column 2 at the moment, but we would anticipate that, that would happen this year. Other than that, it's just a continuation of the plan. We should start to see a leveling off of the cost of construction there. As we mentioned before, given the fact that we've done the ramp out into staffing and put the processes and procedures in place that we need to keep things on track. So that's kind of it, that will be the next thing that you'll see publicly. As I mentioned before, I think, in the last call, we have one more outage at Grand Gulf that would be considered part of the catch-up in terms of investment profile. So it will be a long outage. Our next outage in 2020 at Grand Gulf will be the final one in terms of getting things back to where they need to be, then it's just a continued climb to excellence.

--------------------------------------------------------------------------------

Praful Mehta, Citigroup Inc, Research Division - Director [4]

--------------------------------------------------------------------------------

Got you. That's super helpful, Leo. And then maybe on the operating cash flow. It was great to see the significant increase versus 2018, but I guess that part of that is the ADIT, could you just talk about what portion of that increase was ADIT? And what was just overall improvement in cash flow?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [5]

--------------------------------------------------------------------------------

Praful, this is Drew. Yes, so on the ADIT, it's a little bit -- around $200 million, I think, is ADIT year-over-year element. And then a little bit of that is pension expense. So rest is continued improvement in our operating cash flow. And you can see that in our -- you will be able to see that in our 3-year outlook on operating cash flow for EEI, especially if that ADIT piece rolls off. So in our 3-year outlook, we should be back up over $10 million when we get to EEI.

--------------------------------------------------------------------------------

Praful Mehta, Citigroup Inc, Research Division - Director [6]

--------------------------------------------------------------------------------

Got you. And just a quick follow-up on that, which is, it's great that the ADIT is rolling off because I look at the FFO to debt and you're still below your 15% target. So just wanted to see how that 15% target flows through over the next year or so once ADIT rolls off?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [7]

--------------------------------------------------------------------------------

Yes. So by the end of next year, we should be at that -- around that 15% level. And if you look at the number this year without the -- this quarter without the excess ADIT and it's up actually over 17%. So we are on track to move towards that target.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

(Operator Instructions) And our next question comes from Julien Dumoulin-Smith from Bank of America.

--------------------------------------------------------------------------------

Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [9]

--------------------------------------------------------------------------------

So perhaps just to pick up off of Praful's last question here. Can you talk about through the forecast period given the success that you've seen this year in Arkansas specifically in moderating the pace of just overall bill inflation in O&M? What you're seeing to the forecast period as best you look at your plan today? I just want to understand how sustainable some of the more moderate trajectory of overall rate inflation is against your current capital budget. Just want to revisit that in light of the success. And then perhaps, I'll ask the second question at the same time. Can you talk a bit more about CapEx reflected in your outlook around both renewables in light of what AEP and Wind Catcher are doing in Arkansas and prospects to mirror that to any extent? And also given your peers in MISO if there's been any change in transmission? I suspect not, but I figure it out. So a lot to throw at you, but I figured it out all at once.

--------------------------------------------------------------------------------

Leo P. Denault, Entergy Corporation - Chairman & CEO [10]

--------------------------------------------------------------------------------

That was a very robust question, Julien. I'll go ahead and start and I'll let others fill in. Our objective, and we believe we'll continue to meet it, has been to keep our bill inflation level consistent with inflation. And as you recall, even in last quarter, when we were able to come up with some continuous improvement ideas and change our capital plan, the bill pass actually went down from where it would have otherwise been. So we think we're going to continue to be able to manage that with the current capital plan that we have going forward. On the -- I'm not sure, I'm going to remember all of these, but I think, on the renewables from a CapEx standpoint, we mentioned on the last call that we still see the need to replace the significant amount of our aging generation and that a portion of that will be gas, a portion of that could be renewables. We outlined a 7,000 to 8,000-megawatt need and a roughly 50-50 gas to renewables standpoint there. We're not really doing anything outside of meeting our own customers' needs with the generation that we've got, so that's -- that '22 to '30 time frame. So that's still, obviously, we're adding some scale on the renewable front, but -- and [there are] scale economies obviously of us doing it. So we continue to see that as a part of our resource plan, but it's really just part of the resource plan like everything else given the fully integrated nature that we have. As far as transmission expenditures, nothing has really changed in that from the last quarter. And I'll open it up to my team to correct me or -- and I think I answered all of the questions.

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [11]

--------------------------------------------------------------------------------

I don't have anything to add.

--------------------------------------------------------------------------------

Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [12]

--------------------------------------------------------------------------------

Got it. Just to clarify quickly. I mean I suppose if I were to summarize what AEP's efforts in Arkansas seemed to be with respect to Wind Catcher, there's something of an acceleration given the tax [cut] regime. And obviously, they're focused on wind. Depending on the receptivity from the commission and staff around those efforts on the second go-around, could we see any pivot in how you guys are approaching the state and some of that resource [need] in the '22 through '30 period in light of the credit situation?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [13]

--------------------------------------------------------------------------------

Julien, this is Drew. So we are still looking -- Leo mentioned that we have over 1,000 megawatts that we have in various stages of development and that we are looking at scale and what does that mean to us. And as renewables become a bigger portion of our portfolio, we think there might be opportunities for us to take scale into consideration and have a -- and use that as part of the program. I don't know if that's going to take the same path as perhaps AEP is taking. There isn't -- Leo mentioned, we want to have renewables near our customers. There isn't a whole lot of wind. They may be solar -- more solar oriented, but we are thinking about that scale opportunity and what that might look like for us as well.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Our next question is from Greg Gordon from Evercore ISI.

--------------------------------------------------------------------------------

Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [15]

--------------------------------------------------------------------------------

Congratulations, you guys are having a great year. Couple of questions. The call earlier today, I know it's not your region, but -- and you have different industrial drivers than they do, but Southern Company was talking about how they too are seeing a little bit of slowdown in demand expectations versus their initial forecast. Can you sort of point to anything in particular that you are seeing as it relates to perhaps the global economic conditions, trade war or other things that might be driving things on power demand to the -- below your prior guidance range. You give pretty good sensitivities in your -- in the appendix of how we should think about those impacts should they deviate from the forecast. But then, again, we also see that you're underearning in Arkansas and there could be improvements there. So as we think about how you sort of stay inside the skid sort of the high end and the low end of your guidance range through time? How are you adjusting to those conditions?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [16]

--------------------------------------------------------------------------------

Greg, this is Drew. And I'll start and then Rod can add in. The first thing I think from our perspective is that the macro fundamentals that we see that have been driving our industrial growth are still very much in place. The low inputs from energy perspective, low gas prices, for example, or low power prices, the spreads of natural gas to oil or the spread geographically to Europe or Asia, those still remain very fundamentally sound along with, of course, some of our natural advantages here on the Gulf Coast, access to the Gulf Coast; access to the river; the ready, willing and able workforce; the strong and supportive communities, all those things continue to be very supportive. And so -- and then you take our industrial base, it is some of the most modern and competitive in the world and so we expect it to continue to run. In fact, that's what we have seen for our large industrials this year. We've seen our refiners, our chlor-alkali facilities, our petrochem facilities continue to perform very well. Where we've had challenges are people that are coming up online. So we have new construction that is in place or taking place and it's just not ramping up as fast as we anticipated. We've been talking about that for a couple of quarters. And the small industrial space, our small industrial space has been surprisingly strong despite all the economic headline, except for one area in Arkansas, we've had some agricultural customers, which are seasonally oriented and typically are pumping a lot of water. We had a lot of floods in the spring and that carried over into the summer into our 3 -- into this quarter. So our small industrial sales were down, but that was 2/3 of the driver right there. And so we continue to see opportunities in the industrial space with all the fundamentals still in place. And I'll turn it over to Rod to talk about what we have been seeing.

--------------------------------------------------------------------------------

Roderick K. West, Entergy Corporation - Group President of Utility Operations and Chairman, President & CEO of System Energy Resources, Inc. [17]

--------------------------------------------------------------------------------

This is Rod West. Because of the fundamentals that Drew just mentioned and the fact that over the last 5 years, we have been upskilling and upscaling our commercial and economic capabilities, we are actually engaged with not only our large existing customers, but we have direct line of sight with the pipeline that we're probability weighting to determine how we think about our outlook from a growth perspective. So today, we have approximately 1,000 megawatts of project that we probability weighted such that we're comfortable putting those in the plan. What we don't and we have not yet disclosed because of where those potential pipeline projects are in their industrial development cycle. We have about 4x that 1,000 megawatts that's in the potential pipeline. But we're tracking that in real time with those prospective companies, who have expressed an interest in locating our service territory. The significant ones being Louisiana and Texas taking advantage of those macroeconomic advantages that Drew just made reference to. But our line of sight gets clearer and clearer as we further refine our outlooks because we've been successful in upscaling our internal capabilities.

--------------------------------------------------------------------------------

Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [18]

--------------------------------------------------------------------------------

That's fantastic. And then in terms of -- you also gave a very good detailed list of all the rate activity and what your earned ROEs look like today. And it does look like you sort of deserve the opportunity to get better outcomes. In Arkansas, do you expect the rate activity there should drive better earn returns in the next 12 to 24 months?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [19]

--------------------------------------------------------------------------------

Greg, this is Drew. So when you look at our sort of trailing 12 months view and Arkansas and you actually see this in Mississippi as well. Last year, we overearned and in the fourth quarter, because of that we took a charge to get us back down to the allowed return levels in both those jurisdictions. We haven't overearned this year, but we still have the charge. So you see our [ROE's stronger than] you would normally anticipate in both those jurisdictions. But I guess the short answer to your question is, yes, we would anticipate the ability to earn our allowed return in both Arkansas and Mississippi.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Our next question is from Sophie Karp from KeyBanc.

--------------------------------------------------------------------------------

Sophie Ksenia Karp, KeyBanc Capital Markets Inc., Research Division - Director & Senior Analyst [21]

--------------------------------------------------------------------------------

Congrats on the quarter. Most of my questions have been answered. So very little discussion on volumes. So I'll just jump back in the queue.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Our next question is from Shahriar Pourreza from Guggenheim Partners.

--------------------------------------------------------------------------------

Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [23]

--------------------------------------------------------------------------------

Let me just shift to Texas for a second, and maybe just around Montgomery County. I mean, obviously, it's progressing really well. Can we just get a sense on how we should think about the recovery, i.e., GRC process or using the current rider that was approved? And more or less post Montgomery County, how we should think about the rider mechanism because it was obviously approved after you guys came out with the original plan? So as you guys thinking about adding additional generation in the rider, is that sort of incremental to your growth prospects?

--------------------------------------------------------------------------------

Roderick K. West, Entergy Corporation - Group President of Utility Operations and Chairman, President & CEO of System Energy Resources, Inc. [24]

--------------------------------------------------------------------------------

Shar, it's Rod. As we stated in prior conversations, that rider was not going to create an immediate material difference in our outlook. What we talked about was, particularly, given the schedule with Montgomery County that we would shape the rate case to the extent that we needed to ensure that the recovery of Montgomery County that's reflected in our existing plan, it was shaped with the timing of that rate case. That said, the rider that was passed gave us an opportunity as we look beyond Montgomery County to have more contemporaneous rate recovery. From a regulatory process perspective, we still have to have the -- remember the legislation only enabled the commission to [provide] that relief, we still have to go through the process of rulemaking through the PUCT to put that rider in effect. And from our vantage point, as we think about the capital plan in Texas, we have not yet determined how we wish to time the availability of the rate cases and mechanism and the contemporaneous rulemaking around that rider. We still have to [through] the PUCT and candidly, that conversation is ongoing because they are the parties who would be part of that regulatory process. But think about it this way. We'll go to the commission to ask for rulemaking that would take advantage of the legislation to put the actual rider in effect for ongoing recovery. So from a timing standpoint, we don't want to set an expectation that there is this immediate upside. So we'll be shaping the rate case and the regulatory process around that rider as we make the capital plan for Texas in the generation space a little more clear. There will be more on that, but it is not something immediate. I don't want to set that expectation.

--------------------------------------------------------------------------------

Leo P. Denault, Entergy Corporation - Chairman & CEO [25]

--------------------------------------------------------------------------------

And I'll add on. In terms of [chart driving] future capital, I mean, the resource plan will be what the resource plan will be. I mean that's a dynamic of our business across all the generation types is that we've got that aging fleet that needs to be refurbished and we've been doing that for over 10 years. And if you look back in time, since we started our portfolio transformation, we've added and deactivated roughly equal amounts of capacity and we'll continue to do that going forward. Obviously, what the regulatory mechanisms do is provide an opportunity for there being more certainty for our customers and for our investors in terms of us having the financial flexibility to make sure we continue to make those investments. Same goes with -- on renewable front. They will be part of the resource plan to meet the needs our customers have. We're not doing them outside of that customer base to meet any other needs. So the regulatory process isn't going to drive a need for a new power plant. For example, that it will provide a lot of certainty around the financial flexibility we have to invest in those power plants.

--------------------------------------------------------------------------------

Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [26]

--------------------------------------------------------------------------------

Got it, got it. And at minimum, I guess, improved some of the regulatory lag, okay. And just -- and I'm sure Drew is going to be excited to talk about this at EEI. But just -- maybe just a little [preclude] as far as equity needs. And do you -- I guess, do you envision seeing a change from what you prior disclosed around equity being somewhere between 5% to 10% of your CapEx needs post '20? Do you see that at all changing?

--------------------------------------------------------------------------------

Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [27]

--------------------------------------------------------------------------------

Shar, this is Drew. We don't anticipate any changes to that outlook from an equity needs perspective. And it still remains the same as it was at our Analyst Day a little over a year ago. And those needs wouldn't kick in until 2021 and beyond.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

At this time, I'm showing no further questions. I would like to turn the call back over to David Borde for closing remarks.

--------------------------------------------------------------------------------

David Borde, Entergy Corporation - VP of IR [29]

--------------------------------------------------------------------------------

Thank you, Gigi, and thanks to everyone for participating this morning. Our annual report on Form 10-Q is due to the SEC on November 11 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statement in accordance with Generally Accepted Accounting Principles. Also as a reminder, we maintain a web page as part of Entergy's Investor Relations website called Regulatory and Other Information, which provides key updates on regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.