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Edited Transcript of ETR earnings conference call or presentation 1-May-19 2:00pm GMT

Q1 2019 Entergy Corp Earnings Call

NEW ORLEANS May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Entergy Corp earnings conference call or presentation Wednesday, May 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. Christopher Bakken

Entergy Corporation - Executive VP of Nuclear Operations & Chief Nuclear Officer

* 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 Texas, Inc. - Group President Utility Operations & Director

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Conference Call Participants

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* Agnieszka Anna Storozynski

Macquarie Research - Head of US Utilities and Alternative Energy

* Charles J. Fishman

Morningstar Inc., Research Division - Equity Analyst

* Gregory Harmon Gordon

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

* Jonathan P. Arnold

Deutsche Bank AG, Research Division - MD and Senior Equity Research Analyst

* 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

* Steven Isaac Fleishman

Wolfe Research, LLC - MD & Senior Utilities Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Entergy First Quarter 2019 Earnings Release Teleconference. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference, Mr. David Borde, Vice President, Investor Relations. Sir, please go ahead.

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

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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'll turn the call over to Leo.

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

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Thank you, David, and good morning, everyone. We had a productive start to the year, and today, we are reporting first quarter adjusted earnings of $0.82 per share. While weather was a headwind, we remain firmly on track to achieve our full year guidance and our longer-term outlooks. We checked off every first quarter key deliverable and we added an important new milestone. We announced our agreement for a post shutdown sale of Indian Point to Holtec International. With this announcement, we now have definitive agreements to sell all of EWC's remaining nuclear assets. We will shut down Pilgrim this month and we plan to close on the sale of that plant by the end of the year.

We will then shut down Indian Point Unit 2 next year and Unit 3 in 2021. The sale of all Indian Point units is expected to close in the third quarter 2021, and we expect to complete the Palisades transaction after its shutdown in 2022. The sales of these plants are important. Not only do they secure our orderly exit from the merchant business, but they do so in a way that benefits stakeholders by accelerating the decommissioning time line, drawing on industry-leading decommissioning and site remediation expertise and experience and laying the foundation for future business development opportunities in the regions. We are grateful to our nuclear teams who remained focused on finishing strong with safe and secure operations. Our Pilgrim employees are a shining example of this hard work, commitment and dedication. In March, Pilgrim returned to normal baseline oversight by the NRC, moving to Column 1 in the agency's reactor oversight program. Over the last 2 years, Pilgrim's 600 employees exhibited professionalism and pride resulting in this important milestone for our organization.

At the Utility business, we also executed on key deliverables in the quarter. We continued to pursue our commitment to renewable resources and 2 of our operating companies, Entergy Arkansas and Entergy Texas have each issued requests for proposals for 200 megawatts of solar resources. Entergy Arkansas also announced plans for a 100-megawatt solar facility. This project, pending approval by Arkansas Public Service Commission, will be the largest utility-owned solar facility in the state and the first to feature battery storage. The facility is expected to be in service by 2021.

We are pleased with the progress we continue to make on developing renewable projects as they are an important resource beyond their obvious environmental attributes. They can provide cost-effective energy supply, fuel diversity and advance the adoption of distributed energy solutions for our customers. We currently have just over 230 megawatts of renewable resources in service, including hydro, solar and biomass technologies. We also have 185 megawatts of new solar projects that have been approved and are moving forward, just under 300 megawatts that are pending regulatory approval and the 400 megawatts that I mentioned from Arkansas in Texas RFPs. And as the economics and performance of renewable resources continue to improve, we will engage with our regulators and stakeholders to expand their use across our service area.

In January, we began installment of the first automated meters. Over the next 3 years, we will install approximately 3 million automated meters across our jurisdictions, with plans to activate 1 million new meters in 2019. The new meters will benefit our customers with faster outage identification, enhanced customer service and cost savings. Additionally, these meters will provide us with the tools to help our customers manage their energy usage and lower their bills. And we will recycle the lower meters after removal. They will be sustainably dismantled yielding copper and aluminum scrap that can be recycled.

Our new build CCGT projects remain on budget and on schedule. After a little over 2 years of construction, St. Charles Power Station is in its final commissioning phase, and that plant is expected to be placed in service this quarter. Construction activity at the New Orleans Power Station kicked into high gear after the Louisiana Department of Environmental Quality issued its Clean Air permit. The plant will be a much needed local resource of modern natural gas generated power for residents and businesses. In Mississippi, we continue to work through the Choctaw Generating Station acquisition to ensure that the plant is a good value for our customers. Our due diligence has identified a potential mechanical issue that may need to be addressed prior to closing. There is a possibility that closing may be delayed to allow time to resolve the issue. We will know more in the coming weeks and we'll provide an update on our next earnings call. At this point, we do not foresee a delay that would have a material financial impact. These are just a few examples of the investments we are making in our efficient and sustainable power system for the benefit of our customers.

We kicked off 2019's base rate filings with Entergy Mississippi's annual FRP, which was submitted on March 15. We are working through that process and expect new rates to be effective in June. We're also preparing to file our annual FRPs in Louisiana and Arkansas later this year. Our New Orleans rate case is ongoing and we remain on track to have new rates effective this summer and we've requested a formula rate plan to take effect next year.

In addition, proposed legislation in Texas could help reduce regulatory lag on generation investment in that jurisdiction. The legislation passed the House. It was also passed by the Senate Business & Commerce Committee, and it will now be considered by the full Senate. If signed into law, the legislation would allow the commission to approve a rider to recover reasonable and necessary generation investment, which would be more timely and less burdensome than the base rate case filing. This legislation is consistent with our desire to align regulatory structures with customer benefits. 3 of our 5 jurisdictions, which generate approximately 80% of the utility's revenue have annual formula rate plan mechanisms. These, combined with other constructs that allow for timely recovery of investments which benefit customers, provide clarity to our plans and solidify the financial commitments we've made to provide steady, predictable growth in earnings and dividends.

At Entergy, our people are critical to our success. Our employees make it possible to implement our strategy and achieve our objectives. Acquiring, retaining and developing the talent we need to meet today's business needs and to prepare for the workplace of tomorrow are important. As part of our employee focus, we are proud to promote supportive work environments for members of the National Guard and Reserve. In recognition of this, we won the 2019 Pro Patria Award from the Department of Defense, and we were a semifinalist for the 2019 Freedom Award.

Entergy is also committed to supporting businesses in the communities we serve. The Women's Business Enterprise National Council recognized our efforts, and once again presented the prestigious America's Top Corporations for Women's Business Enterprises award to Entergy. The national award recognizes companies with world-class diversity and inclusion programs that enable growth and innovation while breaking down barriers for women-owned businesses. These awards are a good validation of our mission to create value for all of our stakeholders, customers, employees, communities and owners. We recently released our annual integrated report entitled, When does 1 = more? It illustrates how our efforts to serve the needs of each stakeholder creates value for all. Our report outlines how the emergence of new technologies enables us to build more individualized relationships with our customers and partner with them on solutions that make their lives better, and how providing opportunities for our employees to adopt new skill sets to effectively implement and manage new technologies will drive transformative change.

Entergy is also recognized as an industry leader for taking action to address climate issues. In 2001, we were the first U.S. electric utility to commit voluntarily to stabilizing greenhouse gas emissions. In 2005, we upped that commitment to capping our carbon dioxide emissions at 20% below year 2000 levels through the year 2010. Then in 2011, we extended that commitment through 2020. Even though Entergy's carbon dioxide emissions rate continues to one of the lowest among our peers, the broad consensus of current scientific data on climate change indicates that, as an industry, we must do more to reduce our footprint and that of our customers and communities. Entergy sees this not as a choice, but as a responsibility and an opportunity. That is why, in addition to our integrated report, we also released our climate scenario analysis and evaluation of risks and opportunities. This report outlines our role in meeting the worldwide imperative to reduce risk that's posed by climate change and announces a new greenhouse gas emissions goal, to reduce our CO2 emissions rate to 50% below year 2000 levels by 2030. That means that for every unit of electricity we generate in 2030, we will emit half the carbon dioxide we did in 2000.

Entergy's leadership in sustainability and social responsibility makes us a successful Fortune 500 company with a conscience. Our actions and commitments to sustainability position us to effectively benefit our stakeholders today, while securing a bright tomorrow.

For the first quarter of 2019, we continue on track of steady, successful execution of our strategy, and 2019 will be another successful year for us. Our operating and financial positions are solid and our strategic direction is clear. We are an industry leader in critical measures of sustainability. We have among the lowest retail rates in the country, and we operate one of the cleanest large-scale fleets in United States. We also benefit from strong industrial growth within our service territory, we invest in our employees and our communities, and our strategy is aligned with the goals of our regulators. This is what makes Entergy a compelling long-term investment. And this is the foundation from which we will continue to grow and innovate for the benefit of all of our stakeholders.

I'll now turn the call over to Drew who will provide more detail on our first quarter financial results.

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

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Thank you, Leo. Good morning, everyone. As Leo said, the first quarter was a productive start to the year, and we are firmly on track to meet our full year guidance and longer-term outlooks. Today, we are officially starting to report earnings using our simpler Entergy adjusted earnings measures, to better reflect the nature of our business going forward. And our materials and disclosures are more streamlined as a result.

Let's now turn to the numbers. As you can see on Slide 4, on a per share basis, Entergy adjusted earnings were largely flat quarter-over-quarter. Turning to Slide 5. Results of Utility are straightforward. Net revenue increased primarily from the effect of rate activity in Arkansas, Louisiana and Texas. Also with the enactment of tax reform, last year's results included regulatory charges to return the benefits of the lower federal tax rates to customers, and that lower tax rate is now reflected in customer bills.

Partially offsetting was lower volume due to the effect of weather, which was unfavorable this quarter compared to 1 year ago. Finally, a higher share count affected this quarter's results on a per share basis.

EWC's first quarter results are summarized on Slide 6. And as a reminder, EWC is now excluded from our Entergy adjusted measure. As reported, earnings were $0.60 higher than the prior year. The key driver was strong market performance on the quarter for EWC's nuclear decommissioning trust funds. A tax item, which resulted from the sale of Vermont Yankee partly offset the increase. Before leaving EWC, I would like to affirm that after accounting for the transaction cost for Indian Point, we still expect EWC to provide slightly positive net cash to parent from '19 through '22.

Slide 7 shows operating cash flow for the quarter of $501 million, a $56 million decrease from a year ago. The change was driven by the return of approximately $100 million of unprotected excess ADIT to customers as well as the effects of unfavorable weather. Lower pension contributions partially offset the decrease.

We are affirming our 2019 earnings guidance and financial outlooks, which are summarized on Slide 8. As I mentioned, we experienced unfavorable weather in the quarter. Nevertheless, we remain on track to coming around the midpoint of our 2019 guidance.

Our credit metrics are shown on Slide 10. Our apparent debt to total debt has improved to 21.7%. This was largely due to the settlement of a portion of the equity forward in December. Our FFO to debt is 11.1%, but this includes the effects of returning $692 million of unprotected excess ADIT to customers. Excluding this giveback and certain items related to our exit of EWC, FFO to debt would be 15%. We expect cash flows to improve as soon as next quarter and throughout the remainder of the year assuming normal weather. We remain committed to our targeted ranges of at or above 15% for FFO to debt by 2020 and below 25% for parent debt to total debt as well as maintaining our investment grade profile.

We had a productive first quarter and we see 2019 as another successful year. The foundation is in place for us to meet our financial commitments to deliver steady, predictable growth and earnings and dividends through customer-centric investment. As Leo mentioned, our operating and financial positions are solid and our strategic direction is clear. We are continuing our mission to create sustainable value for all of our stakeholders, and we look forward to the opportunities ahead.

And now the Entergy team is available to answer questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Praful Mehta with Citigroup.

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

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So I guess first question on the earnings guide for 2019. It looks like you reduced the O&M expectation for the full year from $0.30 the $0.20. Is that -- firstly, is that helping in maintaining your earnings guide? And what's helping keep that -- or bring that O&M down from your original $0.30 assumption to now the $0.20?

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [3]

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Yes, Praful, this is Drew. That is helping us to maintain that amongst a couple of other things. That includes some efficiencies we found early in the year, our good operations have led to some rebates for insurance premiums, a little bit of a timing into the periods like 2020, but it's not enough to change any expectations out there. And we've also seen some offsets in other areas like interest expense. We had a very active quarter, in $1.5 billion of refinancings and new money issuances. And since interest rates were lower, we were able to capture some of that versus our previous expectation. So the combination of all those things are what's helping us maintain our expectations for the year.

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

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Got you. That's helpful, Drew. And then secondly, on the operating cash flow drop, which is significant, but it sounds like it's primarily driven by the ADIT, which it seems like you are front-loaded even within the year. Is that fair in terms of understanding how the ADIT will be paid out in 2019?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [5]

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Yes, that's correct. And that's a 12-month kind of view. And so we would see -- I'm talking on top of the FFO kind of measures would be a 12-month kind of view. We do see it continue to trending down over the course of the year, both on 12-month rolling bit and in the quarters. And you see our operating cash flow continue to improve over the course of the year. We're about 70% done with the return of the cash, so far, to our customers.

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

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Got you. That's super helpful. And finally, congrats on Indian Point. Just wanted to clarify is it fair to understand that the decommissioning trust risk or the performance of the decommissioning trust risk is now primarily in the hands of the buyer, where if there is any underperformance it won't really impact the transaction economics?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [7]

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That's correct.

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Operator [8]

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Our next question comes from the line of Angie Storozynski with Macquarie.

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Agnieszka Anna Storozynski, Macquarie Research - Head of US Utilities and Alternative Energy [9]

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I wanted to ask a longer-term question. So you mentioned that you might increase renewable power spending if the economics of wind and solar assets improve. I mean given some set of tax subsidies, so those wouldn't be -- would it -- wouldn't you consider actually accelerating some of the CapEx?

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [10]

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I'm sorry, Angie, the connection wasn't good enough for us to catch that.

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Agnieszka Anna Storozynski, Macquarie Research - Head of US Utilities and Alternative Energy [11]

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Can you hear me now?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [12]

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Yes, sounds a little better. Yes.

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Agnieszka Anna Storozynski, Macquarie Research - Head of US Utilities and Alternative Energy [13]

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I'm sorry. I was just wondering about your regulated renewable power CapEx. You mentioned that some of your jurisdictions might consider more renewable spending going forward once renewables become more economic, but given that there is some sort of some of the tax subsidies, would you -- wouldn't you consider actually potentially accelerating this CapEx?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [14]

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I'm not sure really that we would see any acceleration in those. Most of these projects will be showing up at the end of the plan in the 2021 and beyond time frame, and I really wouldn't see us accelerating it much. We've got to work into this. So the resource plan where they make economic sense and serve the right purpose for the grid. So as the prices come down and as the technology continues to evolve, which we fully expected to do, we should see it playing a bigger role in the resource plan as it competes well with other resources for the type of operational characteristics that they have.

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [15]

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And I’ll just add, Angie, our low-cost rates make it a little less economic for some of these projects. And of course, we still have to go through the regulatory processes associated with each of these transactions. And so I think we are going at a pretty good clip given what we think the regulatory bandwidth is at this point. Of course, if the economics took a step change, certainly, we would look at something different. So we are looking at it, but we're not anticipating an acceleration like Leo said.

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Operator [16]

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Our next question comes from the line of Steven Fleishman with Wolfe Research.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [17]

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I know you kind of addressed this. Leo, could you maybe talk a little bit more about the impacts of the Texas legislation to your plan and what it -- could it be impactful to your guidance or your capital plan?

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Roderick K. West, Entergy Texas, Inc. - Group President Utility Operations & Director [18]

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Steve, it's Rod. The Texas legislation, while certainly positive, is not material enough for us to change our guidance and outlooks, keeping in mind that it's really providing both the commission as well as the company additional tools as we think beyond Montgomery County. So the answer to your question is, not material enough in terms of a financial impact to change our outlooks.

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Leo P. Denault, Entergy Corporation - Chairman & CEO [19]

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I'll add to that, Steve. It's a good risk reduction opportunity, right? It aligns up the benefit that customers get from the addition of new generation with the timing of regulatory recovery. That's a lot more efficient than the way we would anticipate going about it now rate case around every new generating asset, which works fine for something large like Montgomery County, but if you start adding smaller generation or sharing the renewable space, it becomes a little bit more problematic to provide that benefit to the customers at the same time you get regulatory approval.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [20]

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Okay. Okay. And then just the Choctaw issue that you mentioned. Could you remind what the investment there is? And just is there -- is this a fixable issue or is there a risk that you just decide not to acquire the plant?

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [21]

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Yes, Steve, this is Drew. It's -- our planned investment there is about $400 million, including some of the upgrades and other things that we have planned. At this point, we don't know exactly what the issue is. We just know there are some vibrations and other things. But we believe it's probably fixable, and we'll be able to get to the transaction close before too terribly long.

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Operator [22]

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Our next question comes from the line of Greg Gordon with Evercore.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [23]

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I have a larger question, bigger picture question for you since the specific questions I had were just answered. We are seeing here our macro view on the U.S. economy continues to accelerate. The data just keeps getting better with the -- just notably with an absence of underlying core inflation in the economy. You guys have a particularly economically sensitive jurisdiction that is -- your region of the country is sort of -- has a concentrated exposure to certain types of industries related to petrochemicals, et cetera. I know that you guys are trying to do a really good job of sort of constantly evolving your thought process on underlying demand growth. Like what does the current economic climate look like in terms of the risk of being sort of either over or under you base case demand growth expectations?

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [24]

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Greg, this is Drew. As we look at our industry load, we continue to see positive signs, frankly. So our industrial customers are looking at a number of spreads, commodity spreads, crack spreads, gas versus oil, geographic spreads between Henry Hub and yes, MVP for example or Brent. And so all of those -- all of the indicators continue to be green for us. Inventories are reasonable and exports are picking up. The low nature of just energy prices here on the Gulf Coast is extremely competitive worldwide. And so we are very confident in what we can see. Our current forecast is based on what we can see from an industrial perspective, and that includes petrochem, LNG, sub metals and not much core alkali.

It's new at this point, but core alkali has been a very strong performer for us and that market continues to get tighter. And as we look forward, we do see new opportunities in the core alkali space, in the petrochem space, there is potential for new LNG and other things. So all of that bodes well for our industrial sales expectations, and while that's good for us, the really important thing for us is it gives us incremental headroom to create investment and whether it's for those industrial customers or supported distribution operations in new ways. There is significant investment opportunity within our business as we highlighted last July. And so all of that industrial opportunity may create additional headroom for us to make those investments.

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Operator [25]

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Our next question comes from the line of Jonathan Arnold with Deutsche Bank.

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Jonathan P. Arnold, Deutsche Bank AG, Research Division - MD and Senior Equity Research Analyst [26]

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Could I just inquire -- can you give us some -- an update on just how things are going with the discussions around Pilgrim for the transfer? There has been quite a lot of noise locally, but hoping you could sort of cut through what matters for us?

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A. Christopher Bakken, Entergy Corporation - Executive VP of Nuclear Operations & Chief Nuclear Officer [27]

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This is Chris Bakken. As Leo said, we do expect the transaction to close before the end of the year. We are following very closely the license transfer application and the other issues that lead to closure and we're confident we can maintain that schedule.

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Jonathan P. Arnold, Deutsche Bank AG, Research Division - MD and Senior Equity Research Analyst [28]

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Okay. And so these kind of push for the -- for an approval at the state level. Do you see that as a concern or not at this point?

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A. Christopher Bakken, Entergy Corporation - Executive VP of Nuclear Operations & Chief Nuclear Officer [29]

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I think we're quite confident we can work through that.

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [30]

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And Jonathan, there isn't any state approval required in Massachusetts, it's just NRC that we're seeking.

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Jonathan P. Arnold, Deutsche Bank AG, Research Division - MD and Senior Equity Research Analyst [31]

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Right. I know but I heard some noise of people kind of pushing to have something. So it's good to hear that you don't think that's going to gain some momentum. And then just on Indian Point, it's similar. Can you give us -- is it sufficiently similar to what you proposed elsewhere that you see this as being reasonably formulaic or any sort special considerations to think about as you move into the approval process there? Anything to comment regarding local policymakers' views around New York and timing?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [32]

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Well, I'll answer this particular one. From the NRC's perspective, I think it should be pretty straightforward. Of course, we will be working with Holtec and the state to figure out what's the best thing to do there, but it's still early in the process and too early to tell exactly what would be required there.

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Operator [33]

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Our next question comes from the line of Julien Dumoulin-Smith with Bank of America.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [34]

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A lot of questions have been asked already, but I wanted to come back to the Texas legislative side, obviously, making good progress there, but I wanted to understand a little bit the puts on takes on earned ROEs at the Texas subsidiary itself. Just as you think about it, perhaps leaving aside the legislation itself. How do you think about the ability to earn your ROE, both the puts and takes over the next few years, and what -- how do you think about the cadence of the benefit of legislation just year-over-year here, given the -- its potential impact?

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Roderick K. West, Entergy Texas, Inc. - Group President Utility Operations & Director [35]

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It's Rod. I think it's important to note that the reason why we're suggesting that the proposed legislation, keeping in mind we're -- it's still in the midst of negotiations at the legislature does not change our outlooks in terms of Texas' performance in large part because of the timing of the existing rate case process or rate case filing in Texas. So we made some headway over the last several years in Texas to reduce risk to improve the likelihood of us earning our allowed ROE through mechanisms such as the transmission, cost recovery rider, the distribution cost recovery rider, with the objection -- objective rather of moving Texas closer to, as a Leo mentioned, the other jurisdictions that have more formulaic rate mechanism. So we view the proposed rider as a step in the right direction of reducing the risk in Texas and improving our ability to earn and sustain our allowed ROE. So while it's accretive structurally, it's not material enough for us to change our outlook. So putting that rider in some context, I think is appropriate.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [36]

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Got it. Okay. Fair enough. And then turning elsewhere, I just wanted quick clarifications, if you can, actually. Back to Angie's question, I think if I understand you right, you're evaluating opportunities in the renewables side, but because it's principally solar type resources rather than wind, does the time element around PTC exploration to simply doesn't jive it with respect to your own efforts, in contrast to perhaps AEP's efforts in Arkansas, for instance? Again, I just want to make sure I'm -- I understand some of the prepared remarks that you made?

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [37]

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Well, certainly, we already have quite a bit happening in Arkansas. In particular, we have one project up and running. We have another one that's proposed, and then, of course, we have all the other ones that we've listed out in more detail in the materials today. So we are very focused on that, I mean that's 1,000 megawatts of renewables. That's quite a bit for us to move through all of our various jurisdictions. Like I said earlier, we will continue to keep an eye on things. If renewables started to become much more economic and the window was still open on the production or the investment tax credits, certainly, we would look to accelerate if we thought that was the right thing.

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Leo P. Denault, Entergy Corporation - Chairman & CEO [38]

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And just to be clear, they just fit -- they’re fitting in just to the resource plan to meet needs that we have on the system, including the environmental benefits and including, obviously, the fact that when we put these in, we get some experience with how they interact with the system, real life experience. So we're moving thoughtfully through it in a bid to benefit our customers as much as we can.

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Operator [39]

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And our last question comes from the line of Charles Fishman with Morningstar Research.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [40]

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Leo, you mentioned in your opening remarks that the annual dividend review will occur as it regularly does in the fourth quarter. Your payout ratio, based on your guidance, should be in the bottom half of your range. You have the bulk of the risk with respect to Indian Point now behind now, and then finally, your CapEx has got a little bit of a downward trajectory with some of the generation being completed. Does this put the Board in a better position to increase the dividend closer to the EPS growth rate? And I realize you can't speak for the Board, but do I at least have the right factors or is there something else I'm forgetting?

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Leo P. Denault, Entergy Corporation - Chairman & CEO [41]

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Well, you're correct. I can't speak for the Board at this point. But I'll -- so I'll just tell you kind of a process that we go forward through. Obviously, our objective is to get to the point where your earnings and dividend growth more closely match than they have over the last few years. That's why we started the dividend increases long before we got into that payout ratio target. Certainly, tax reforms had an impact on that. One thing that I would say in your discussion that is not necessarily true is the capital plan reduction. If you go back to the 2013 to 2015 time frame, that 3-year period, our capital plan was about $6 billion over the 3 years. I think the one in the presentation today is $11.7 billion, so it's a doubling of CapEx in that time frame, while we've been able to maintain some of the lowest rates in the United States. So we would anticipate if we can continue to manage the business with rate levels as attractive as they are, keep customers' bills low, then that gives us the opportunity to continue to invest more on behalf of our customers to improve technology to higher level of service at a lower price. That's our objective.

So that piece of your discussion where CapEx should be trending downward is not necessarily correct. In fact, I would think it would be going the other direction. So all of those things will come into consideration. You are right on our objective is to get to the point where our earnings growth and dividend growth more closely match. It is something that we'll come up toward the end of the year normally where the Board refreshes its point of view on that and then we will take it up with them. But on tax reform, the growing capital budget, where we are in a range what we see earnings going and the opportunities associated with that, will all be factors that play into it.

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Andrew S. Marsh, Entergy Corporation - Executive VP & CFO [42]

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And this is Drew. Just to clarify what Leo said around the capital. We know what we showed you in July at our Analyst Day was a capital plan that declined, so by the time we get out there, we're not anticipating that it would be at that level. We expect it to continue to grow.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [43]

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Yes, you know what my mistake was, I was only looking at generation, your D is going up in that RT&D.

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Leo P. Denault, Entergy Corporation - Chairman & CEO [44]

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Yes, the distribution, we expect to grow with all of the investment opportunities that our peers are already into, but we have the distribution automation, automated meters, 1 million going in this year, stuff like that, which we think will begin to provide a platform for us to continue to invest into over the next several years.

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Operator [45]

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And that concludes today's question-and-answer session. I would like to turn the call back to David Borde for closing remarks.

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David Borde, Entergy Corporation - VP of IR [46]

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Thank you, Liz, and thanks to everyone for participating this morning. Our annual report on Form 10-Q is due to the SEC on May 10 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 statements 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 of 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.

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Operator [47]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.