Entergy Corp (ETR) — Q1 2015 Earnings Call Transcript

Good morning and thank you for joining us. We'll begin today with comments from introduced Chairman and CEO, Leo Denault; and then Drew Marsh, our CFO, will review results. In an effort to accommodate everyone with questions this morning, we request that each person ask no more than two questions. In today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainty that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in the company's SEC filings. Now I'll turn the call over to Leo.

Thank you, Paula, and good morning everyone. 2015 is an important year for Entergy because it would be one in which we continue to execute the strategy that we’ve been pursuing for some time. As we report results for the first quarter, I’d like to start by putting the progress we’ve made in some perspective. Two years ago we laid out an ambitious agenda for the future we wanted to create, one in which Entergy was growing because our communities and customers were prospering. One goal in that agenda was to deliver stability and efficiency by maintaining solid financial footing and by making Entergy a more nimble organization more aligned with the changing energy landscape. To that end we joined MISO and also began the process to transform the way we work by removing costs from our business and aligning talent and resources with strategic company imperatives. Another goal was to provide clarity, a well-defined path forward identifying what business initiatives the company would focus on and the timeline for execution. We accomplished this by first articulating our vision and mission for the future simply but precisely. We filed and concluded several major regulatory proceedings including four rate cases representing 80% of utility retail sales which provide clarity on future earnings opportunities. We also ended our efforts to spin-off and merge our transmission assets with ITC. Finally, we said that our well-defined path would focus on seven major strategic imperatives which will refine down to growing the utility business, managing risk, and preserving optionality at Entergy wholesale commodities. As many of you may recall from our Analyst Day presentation last June, we outlined our plans to achieve these imperatives. Over the past year we have continued to provide greater detail as to how we intend to capture the opportunities available to us and today the picture is much more complete. We have filled in details of what we aim to achieve, how we will achieve it, and a timeline for execution. In terms of performance, results, and growth, we continue to be in line with our expectations. The near-term financial results for the first quarter of 2015 include operational earnings of $1.68 per share. That’s a strong start to the year and while it’s still early, it is clearly in line with our expectations for full-year results. Andrew will elaborate on this in a few minutes. On our strategic efforts, a brief look at that confirms the soundness of a number of the business decisions we made over the past two years many in partnership with our regulators. For example, joining MISO has proved enormously beneficial to our customers. In the first year alone, customers across the utility realized nearly $240 million in energy-related savings exceeding expectations. Consistent with our expectations, the utility also realized substantial capacity-related savings due to the lower reserve margin required within MISO’s larger footprint. With an industrial renaissance underway in the Gulf South region fueled by low natural gas and electricity prices, it became clear that Entergy’s utility business was well positioned to capture an enormous growth opportunity. In order to meet this opportunity, we expanded the number of people dedicated to growing our industrial customer base. This team laid out a detailed map of where the opportunities would likely materialize to develop the customized strategies to serve these new and existing customers. With an effective partnership with state and local officials, we have worked tirelessly to help attract industrial customers to the region and as of March 2015, the Entergy utility business has experienced seven straight quarters of industrial sales growth. As we said we would, we are leveraging this opportunity, this industrial renaissance provides to keep our customer rates low while modernizing our operations, strengthening reliability, and growing the rate base. Some important examples of this include our announcement last year to purchase the Union Power facility in Arkansas, the completed construction of Ninemile 6 ahead of schedule and under budget and planned transmission builds in Louisiana, Texas, and Arkansas. Importantly, we are also taking deliberate steps to create the financial flexibility we will need to drive even more growth. Our current effort to combine Entergy Louisiana and Entergy Gulf States Louisiana is one good example. Obtaining authorization for a purchased capacity either in Texas in addition to the existing transmission and distribution providers is another. Focusing specifically on 2015, as you can see on Slide 2, it promises to be another busy year. We have set our sights on accomplishing a number of important tasks this year and we are on track. For example, Ninemile 6 began commercial operation in late December and we were pleased to welcome the Louisiana State officials and members of the LPSV to its official grand opening in January and out of the construction of a new high voltage transmission project necessary to maintain reliability in the Lake Charles area load center, among the largest in Entergy’s history. MISO Board approved the project last week and we will be filing for LPSC certification very soon. In Arkansas, Governor Hutchinson signed legislation that establishes a formula rate plan for the forward test year and also addresses evidentiary considerations in setting return on equity and the proper method to determine the AFUDC rate. Because it eliminates the need for a major base rate case every two to three years, this law will allow Entergy Arkansas to align rates with investments in a timely manner to focus time and resources on activities that create sustainable value for the state including job growth. In Mississippi, within the recently approved rate case and a new law passed this quarter, we now have a well-defined rate structure including forward-looking feature, available credit, and faster recovery that will allow us to attract new customers and businesses for the state. We’re also making progress on tasks that we have targeted for the second quarter. For instance, last Friday Entergy Arkansas filed its base rate case requesting to recover costs that result in a $167 million increase including a 10.2% ROE a formula rate plan with a future test year. The latter would be further supported by recently approved legislation. We expect new rates to go into effect in early 2016 with new rates associated with the formula rate plan to go into effect in early 2017. It is worth noting that after this case is resolved we expect to have two utilities operating under rate plans with forward-looking features. In fact, nearly 85% of expected rate base in 2017 will be under FRPs or other formula rate-making mechanisms. Over the next few years, at the utility our priority is to continue to implement our resource plan, which we are calling power to grow and which is designed to allow us to support the economic growth in our service territory and maintain reliable service to existing customers all while keeping rates low. By 2020, we foresee a need to construct approximately $3.7 billion in new generation resources consisting of six new power plants. We also expect 635 miles of new and upgraded transmission to come online by 2022. First most of these projects were subject to approval by our regulators; we will be making the necessary filings seeking those approvals. Let me give you a bit more detail about both the generation and transmission needs that comprise our utility's power to grow. On the generation front, utility supply plans include for example three new build CTs. More specifically, we are planning for, whether through self-build or other agreements, one 800-megawatt plant in the mid-south region pending the results of the RFP that is underway, to solicit proposals for new generation in this region of our system. The other plant would be in Wotab, specifically within the Lake Charles area, which is experiencing rapid industrial expansion. Completion of this facility is targeted for 2021. The third would be in Texas, specifically the Western region also by 2021. The generation resources are in addition to the planned acquisition of the Union Power facility as well as the construction of Ninemile 6. It is important to know that as with the 2020 Amite South facility, two of the projects with the other new plants I mentioned would be market tested via RFP or other mechanism as directed by our regulators. But the need to modernize as well as to meet growing demand is clear. In addition, to support near-term needs, we anticipate adding one CT plant in the Lake Charles Louisiana area by the end of 2020 as well as one CT in New Orleans in 2019. Both of these plants will further diversify our generation portfolio by providing quick start peaking capability, serve growth, and meet occasional reliability needs. On the transmission front, our resource plan includes significant investments in transmission to meet new and evolving NERC requirements as well as facilitate committed and expected growth and attract future growth. Major projects include the $62 million project we announced this month in Arkansas, building 24 miles of line in part to attract new industrial customers. In Texas, over the next two years, we have approval to build three 230 KV transmission projects filling more than 65 miles of line and more than $150 million in investment. In Louisiana, we plan to make significant investments of about $56 million in new high-capacity transmission facilities in mid-south which will make economic energy available to our customers and ensure reliable service in the heart of this industrial load pocket. In addition, we intend to build an approximately $187 million project including contingencies in the Lake Charles area and action recently approved by the MISO board. I'll make a note here that everything I've just listed has been part of our capital plan for some time. We began by identifying the context in need, moved to the level of investment we thought it would take, and have now named specific projects, which merely provide detail and clarity. As I have noted, the power to grow projects will bring significant economic and reliability benefits to the customers and communities we serve and if our plans are approved they'll translate to $8 billion of capital expenditures over the next three years resulting in $3 billion to $4 billion in incremental rate base growth. $1.05 billion to $1.1 billion in utility net income and utility parent and midpoint earnings per share are between $4.50 - $4.90 by 2017. In addition to this activity, we are in the early stages of reviewing new investments that could provide significant value to our customers. As we have before, we are identifying need in context and as these specifics begin to emerge, we will provide more. For example, in Louisiana, the staff of the public service commission issued a composed order establishing a pilot program that would deploy instruments to stabilize natural gas costs including acquisition of supply to a direct interest or joint venture. Recent Mississippi legislation also supports such investment by providing for rate recovery and capital investment in natural gas reserves in order to foster long-term stability in the cost of fuel. We will also continue to evaluate opportunities for operational, reliability, and customer service improvements as the industry continues to evolve, and these could involve investments in the grid. We will work again in partnership with regulators and policymakers to achieve legislative and regulatory frameworks that support constructive outcomes, both for our business and those it serves. This is a long list, but we know that everything on it is important. If we continue to make progress on this list, as we expect to do, we continue to deliver good customer service with a more modern and reliable system that can accrue return levels and if we do it all while maintaining our rate advantage we will have created value for all of our stakeholders. The stability and financial flexibility created by these actions will help to put us in a position to discuss a dividend increase with our board of directors — a discussion that could come as early as this fall. Turning to EWC, over the past two years we've made progress on resolving numerous uncertainties and improving productivity. Most importantly, our EWC plants have operated safely and reliably. The nuclear fleet's average capacity factor over the past five years has exceeded 90%. We also made it a priority to better align our commercial and operational teams. If this alignment is foundational to everything we sought to achieve, the substantial values subsequently created by our risk management and hedging activities particularly during periods of extreme market volatility serve as evidence of success in this regard. Our confluence factors resulted in much lower prices and less volatility this past winter in Northeast markets. Our portfolio remains well positioned to capture upside from volatility as we see reserve margins decline and inadequate fuel supply infrastructure for the foreseeable future. We also made progress towards resolving some of the uncertainties surrounding the license renewal at Indian Point. We did this in part by successfully arguing the plant is grandfathered under the New York Coastal Zone Management Program. Although this decision is being appealed by the New York State Department of State, we continue to believe that based on the facts we will be successful in extending the license life at Indian Point into the next decade and beyond. We remain committed to working constructively with the state of New York and regulators in this process. While the recent shutdown of Vermont Yankee as well as the ongoing investment growth at utility has diminished its absolute and relative value, EWC remains an important asset in the Entergy portfolio. As we look to the future we will continue to focus on operational excellence and adaptable commercial approaches. We'll also continue to advocate for changes to price formation and reform of the Northeast market structure. Continued out-of-market policies and intervention at the state and regional level have made clear the critical need for federal guidance and direction in independent system operators to support competitive regional markets. In particular, we believe guidance is needed in implementing new policies for both capacity and energy pricing, which are market-based, provide more transparency, and fairly attribute value to each type of generating resource. Entergy has been an active participant in many proceedings, including those aimed at clarifying and strengthening competitive markets. Also, initial signs of problem recognition are emerging. Generators in restructured markets are calling for constructive changes to be implemented in the near future. Without such change, sustainability of otherwise viable existing generating units will continue to be at risk, especially given the investments required to properly maintain and reliably operate these facilities. We remain committed to working constructively with the FERC and the ISOs to achieve fair and balanced competitive markets in the Northeast. In 2017, based on market conditions at the end of March, we estimate EBITDA for EWC of $540 million. Two years ago we redefined our mission: to be a world class energy company in business to create sustainable value for all our stakeholders. We set plans and strategies to meet that aim. I am pleased to report on our achievements for each stakeholder. For our owners, we set our objective to deliver top quartile returns in 2014, we achieved that. For all our customers, we aimed to provide best-in-class service by maintaining power flow; when outages occur, we committed to restore power as quickly as possible. This June, the Southeastern Electric Exchange recognized Entergy with its Chairman's Award for our transmission team's work restoring power quickly and safely after last year's tornadoes. Also this year, for the 17th consecutive year, EEI awarded us with its Emergency Recovery Award. We said we would maintain our rate advantage and today, our average retail customer rates across all classes are 20% below the national average. We committed to support our communities; last year alone, we contributed more than $16 million to numerous agencies, foundations, and other organizations dedicated to making our communities better. Recognizing our performance in this area, we were recently named to Corporate Responsibility Officer magazine's ranking of the 100 best corporate citizens, placing 36th overall and being the top-ranked utility. Lastly, for our employees, we committed to cultivating a culture that rewards achievement. In doing so, we have created a company that everyone is proud to call their own. This effort will never have an endpoint. Everything I discussed today serves as evidence of our success in this area, and the credit goes entirely to the 13,000-plus people across Entergy. So again today, it is clear that Entergy is on a path to create sustainable long-term value for its stakeholders. We believe our track record of achievement over the past two years is evidence of what we can accomplish in the years to come. Again, in terms of performance, results, and growth at Entergy, we are where we expect to be. We are on track to accomplish what we set out to achieve. And with that, I'll turn it over to Drew.

Thank you, Leo, and good morning, everyone. Before I get to the quarter's results, I would like to spend a few seconds on our new quarterly earnings package. The release and appendices focus largely on results; our forward-looking disclosures are primarily in the webcast presentation. We have also made a few additions that I’ll highlight as I discuss the results. In case you're having trouble finding a particular item, we have provided a cross-reference on page 22 of the release. Our earnings package is organized a little differently, but the disclosures that you depend on are still provided. I hope you will find the new items responsive to your feedback. If you find that is not the case, please report it to us now. Now let's turn to the quarterly results. Slide three summarizes first quarter consolidated earnings per share. Operational results exclude special items from the decision to close Vermont Yankee and the HCM implementation in 2015. Operational earnings per share were $1.68 in the first quarter of 2015, lower than the $2.29 per share earned in 2014. The quarter-over-quarter decline was largely attributable to lower wholesale energy prices at EWC. Slide four summarizes first quarter EPS with the utility and parent and other. Combined operational EPS was $0.97 per share in the current period compared to $0.90 in the first quarter in 2014. Utility net revenue was the base driver and billed retail sales increased 1.5% on a weather-adjusted basis. Once again the strongest growth was in the industrial class. Quarter-over-quarter non-fuel O&M increased mostly in line with our expectations. In the near term, expenses were higher by $0.07 due primarily to planned maintenance outages. Nuclear spending increased by $0.04 due largely to higher regulatory compliance expenses. Other expenses increased by $0.10 in the quarterly variance, most of which were direct cost recovery in net revenue including energy efficiency costs and MISO administrative fees. Utility first quarter 2015 results also included an income tax benefit. You probably noticed that we added a new adjusted earnings view that highlights the underlying performance of the utility business with parent and other combined on the basis of our dividend policy. Turning back to industrial sales for a moment on slide 5, they came in at 2.9% higher than last year. The growth was again across almost all customer segments. Chemicals saw the highest increase primarily due to core alkali and petrochemical customers. The transportation segment was also strong. However, while industrial sales increased, they were lower than we expected due to customer outages and some delays with new customers and expansion projects. Moving to EWC, slide 6 shows both EBITDA and EPS for the quarter. EWC operational adjusted EBITDA was $254 million in the current quarter, down from about $200 million in the last year. The closure of Vermont Yankee and its mostly unhedged position last year contributed to more than half of the quarter-over-quarter decrease. The closure of VY also affects every line item and that makes understanding detail drivers difficult. Therefore, slides 27 and 28 in the appendix provide additional information to help you navigate. Excluding VY, net revenue will still remain a main driver for the EBITDA decline, as wholesale energy prices in the first quarter of last year were significantly higher. Now in VY, nuclear generation increased on fuel refueling outage. On an EPS basis, EWC’s operational earnings were $0.71 per share, lower than the $1.39 a year ago. In addition to the drivers already noted, EWC had a higher effective tax rate and higher realized earnings on decommissioning trusts, about half of which was for VY. Briefly moving to slide 7, OCF was $611 million in the current quarter, about $150 million lower than 2014. The most significant driver was lower net revenue from lower wholesale energy prices with EWC, partially offset by higher net revenue at utility. Now let’s turn to forward-looking information. Slide 8 summarizes our 2015 operational earnings guidance which we affirm today with the midpoint of $5.50 on a range of plus or minus $0.40. We are ahead of expectations through the first quarter as we enter the year, and our expectations for the full year remain on track with our original guidance. Looking at the longer term expectation, slide 9 summarizes our EWC EBITDA outlook based on market prices as of quarter end. You will note that they have not changed much from the end of the year, despite the volatility between then and now. We remain bullish on power and natural gas relative to the current market but not as bullish as we were, meaning that we now expect EWC’s EBITDA to be below our previous point of view expectation. That said, we received consistent feedback that the POV-based EBITDA has been a source of confusion since we introduced it last summer. Markets have fluctuated within our point of view range and below our point of view many times over the last year. As we have reiterated, EWC markets and, by extension, earnings are volatile. To simplify, we are returning to our previous practice of externally communicating only the market-based EBITDA expectation and related guidance for today. We will continue to provide our point of view on the market but not those specific point of view EBITDA estimates. While on EWC, we continue to receive questions regarding impairment. As in the current quarter we’ve not incurred an impairment loss but we continue to monitor this issue, which includes consideration of future economic conditions, particularly price levels. Keep in mind, impairments would not affect our decisions regarding continued operations of the plant. Slide 10 reflects our 2017 outlook for utility and Parent and Other. The utility outlook remains on track for 2017 operational earnings of $1.05 billion to $1.1 billion. As we have said before, this includes our statutory tax rate and pension discount rate of 5%. The foundation for utility growth outlook is capital investment plans; we continue to expect 5% to 7% growth through 2017. Nearly $1 billion for the Union acquisition and other potential generation refresh our aging fleet as well as to meet new customer load demands. Additionally, we will execute on rate cases in Arkansas and Texas this year to achieve our objectives. A few final comments on financing activity before I conclude; Entergy Corporation has $550 million in five-year notes which will come due in September this year. We may finance those notes far in advance of the maturity date, possibly as early as this quarter. We are also amending Entergy Corporation's $3.5 billion credit facility along with $650 million of companion operating company line of credit to extend for one year and to account for the ELL-EGSL business combination. Lastly, on March 31st, S&P revised its rating outlook for Entergy Corporation and its subsidiaries to positive from stable. S&P specifically noted our increased focus on regulated businesses, the expectation for above-average utility sales growth, the recently passed Arkansas legislation, and other factors that are expected to strengthen our business risk profile over time. As we have mentioned, we’ve made a lot of progress in the last couple of years and remain on track to achieve our objectives over the next few years and create real and sustainable value for our key stakeholders: our owners, our customers, our employees, and our communities. And now the Entergy team is available for questions.

Could you first discuss the sales growth? You covered it in detail earlier, but can you explain the 1.5% growth in the first quarter compared to the full-year target? Additionally, it seems that in your guidance, you mentioned utility revenue expected to increase by $0.55 for the year. However, it appears net growth is around $0.25. Can you clarify this and update us on the EPS as well? What is the expected percent change in the EPS for the utility?

Theo, why don’t you start, and then if you could.

So Julien I’ll maybe address your first question in terms of the growth. As Drew said, the 1.5% was primarily impacted by what we saw in the industrial sector in terms of where it came in at 2.9%; most of that was driven primarily in two areas: the timing of new and the expansion projects, that we expected in the first quarter, as well as one-time unexpected issues with just some of our existing customers. And those two issues roughly represented about 50% of the difference in terms of what we expected versus where we ended up. So clearly that seems, we’ve had some softening in the first quarter. Clearly some of that we will see pick up as we go out into the year in 2016 and 2017. So it doesn’t change our overall expectations regarding 2017 at this point in time. What I’ll also say, though, even with the 1.5% growth as you mentioned, our revenues were still strong and revenues got fairly close to our expectations. And so it’s still early and we’re still assessing what we believe will be as we go through the year, but I mean the first quarter delays clearly could dampen our 2015 results but again, as Drew mentioned early, we still see ourselves in our earnings guidance for 2015.

Yes, this is Drew, and I’ll just add that in addition to what Theo said, we do have some costs in that top line which are offset in O&M. So I think in my comments I talked about around $0.10 for some things like MISO costs and energy efficiency costs that we’re a little ahead of where we expected them to be and they’re offset in that net revenue line. So that’s that part of why the net revenue line is higher than maybe what you were anticipating as well.

Got it. But just to be clear on the sales growth, its fundamental delays are not necessarily a shift in the fundamental outlook for a decline in the commodities, etc.?

Yes, I mean what we thought primarily was just our shifts and timing. As we’ve said from an oil price perspective, we still don’t see any significant impact. I mean we fundamentally believe a large majority of our industrial growth through ’17 is coming from projects that are already in advanced stages of development and the first quarter didn’t change that.

This is Leo, Jul, I’d just add. We’ve mentioned this before but I guess just it garnered some reinforcement. Many of these expansions into our new customers are big projects targeting to date that it’s not uncommon for capital projects in the hundreds of millions of dollars or in some cases the multi-billion dollar range to face one or two month delays. So that may or may not occur in line with what we would have expected from time to time also.

And then secondly, if you don't mind, a kind of bigger picture question on dividend; you alluded to it earlier. What's your targeted payout ratio? Or how do you think about the dividend in the context of the EWC business and the utilities at this point or prospectively?

Well from EWC business, you don’t think about it at all. The dividend is purely from utility Parent & Other, and we had outlined at the Analyst Day that our expectations of a 65% to 75% payout ratio of utility Parent & Other Earnings was our target.

Got it. So perhaps in looking at that initially here, remaining towards the top end of that range, would that be a fair statement as you think about growing that in the 2016 timeframe?

Well, when we look at it, just to put some context around it, our objective is to return capital to shareholders and to do so on an attractive sustained basis. We’re looking to create an era of sustained dividend growth. So as we look at their growth in that segment of the business, we’re going to chase the payout ratio and avoid fluctuations in the dividend. We’re looking for sustained growth in the business, and we’ll make recommendations to the board to establish a structured path for the dividend consistent with those long-term earnings growth projections. We review this as we always do every year, and when we get into this fall, it's going to be reviewed in the context of the growth that we continue to believe will occur within that segment, as well as other factors that the board will consider like reinvestment dollars into the dividend or into the utility business.

I was a bit confused by the decommissioning benefit mentioned in the release. I remember that there were expectations for an increase in decommissioning expenses. So, I am curious about how we should interpret the decommissioning in your guidance, specifically regarding the decommissioning trust fund and the benefit observed in the quarter compared to the rest of the year.

It’s a good question, Paul. So when we were in EEI, we talked about $20 million to $25 million of net income drag from decommissioning in ’15, in ’16, and then it trails off to about $10 million after that. So we do expect that the decommissioning process lines up closer to the shutdown date, and we started needing to make decisions around how we’re going to manage that decommissioning trust. It's become clear that we needed to de-risk that trust as we moved to the first phase of decommissioning, which will require us to turn over a portfolio a little more than we had previously anticipated. We’re trying to do this at a steady pace as we move through the year, starting a little bit last year and possibly continuing into the first quarter or even next year. But it should be about $0.04 or so each quarter, which is kind of what our expectation is. Overall, for the year, we would anticipate now it will be about flat or maybe even slightly positive, I’d say about flat is the expectation.

For the full year?

Full year.

I was curious about the impact of the zone changes in New England on your operations. Specifically, has there been any measurable change in your perspective? I understand that you are generally optimistic, but has your market outlook changed in any quantifiable way?

Yes, Paul. We have in fact lowered our point of view from our natural gas perspective, and obviously that carries through to power prices. However, we still remain bullish compared to the overall market. As it relates to the zone in New England; it’s really a tough call in terms of where those markets end up. We’re still working through that, but there is a wide range of outcomes depending on the supply-demand balance. So right now, I don’t have anything to share specifically as it relates to a price range. We’re trying to get more information from the ISO and further evaluate that.

Can you discuss your earned return on equity in Arkansas? With the recent changes in the regulatory structure there and your plan to file under the new structure, what trajectory do you expect for improvement in that return?

Excuse me, yes, sure Greg, this is Bill. I believe if you look at the webcast pocket, it was slightly normalized; it was about 5.9% for the last 12 months ending March 31 of this year. And clearly with the performance of the rate case filing, we expect that you should think about the impact of that rate case filing and the revenue impact as well as net income impact. We see Arkansas improving as we go forward into ’16 and beyond with the formal rate plans including forward test here, making significant movement to earnings there.

Okay. So you think you’ll be litigating that case for the balance of 2015 and to the extent there is a change, we’ll see that show up in 2016?

Yes. I mean, hopefully anyone affected, there is a large statutory period in Arkansas and while we don’t have a procedural schedule set just yet, we would expect to see the case playing out through the remainder of 2015 and we would see the latest rate impact in March from the filing date which was last Friday.

Just going back to the point of view comment or kind of the change there, I think previously it looked like you had about $100 million or $150 million of POV uplift for 2017. How much has that point of view changed? And does that have any bearing on kind of the 2% to 4% EPS growth target you guys provided starting back at your Analyst Day?

This is Drew. I’ll take first crack and then I will let anybody else jump in. But as it relates to the EBITDA uplift that we were talking about before I think it was $650 million to $700 million. And as we've gone along and prices have remained low and gotten closer to those periods, it’s less likely we would hit that range. Our point of view has slipped in the timeframe we’ve discussed below the $650 million mark, I think. Last quarter we were right about the edge and now we’re a little bit below. So that’s what’s happening within the outlook. Looking out, we still have a bullish point of view that’s likely to rebound as we get beyond the period that we’re discussing, but it’s been pushed further out as we've gone along. So while we wouldn't say we can’t make it back into the 2% to 4% range, EWC’s part of that earnings mix currently doesn’t seem like it will allow us to make it back into that particular range. However, you know how unpredictable factors can be, so we wouldn’t want to rule out any surprises in 2017, especially since it’s still pretty far away. So right now, as we look at our view, we’re probably just below that level.

Got it. Thank you. And I guess just on the gas reserves and rate base conversation, can you maybe just share a little more detail on how those two processes are going to work? And what do you have from an overall annual natural gas burn rate?

In terms of that, Dan, it's Theo. We have the pilot program Leo mentioned in Louisiana, and we will be filing comments relative to that this month, and that will progress based on the commission's directives, regarding how that moves along. At this point, we are just exploring options. The timing will depend on the structure of the investment and again how that plays through the regulatory process.

I would just say, Dan, I mean obviously given the nature of our fleet, our gas burn is pretty significant. I don't have it off the top of my head, the specific numbers. We are talking about that.

I'd say, it’s true – I’d add it's going to comprise a small amount of our overall gas burn to begin with. We are not going to be able to jump in and hedge our entire supply. As Leo said, it’s very large, and we’re spending around $3 billion a year on gas supply, maybe a little lower because prices are lower today. But it’s a significant amount, so we aim to carve out at least an initial small layer that would allow us to understand exactly how this will work through various barriers, operational processes as well as regulatory requirements.

And I don't want to ask a detailed question, but I'm not going to anyway. The EWC guidance for this year at $0.70 versus the $0.71 you did in the first quarter, I know you don't want to update guidance too early, but is there a plausible case where you guys would not make money at EWC for the rest of the year?

Well, if prices went lower, yes. But I don't think that's our expectation. I think we are a little ahead of schedule through the first quarter and we expect to earn a little bit more, but as we are going along, the nature of the EWC business has gotten highly seasonal and anchored towards really the winter timeframe. And so we do expect to make a little bit more money at EWC during the course of the year. The bulk of the earnings at this point are attributed to the completed first quarter.

Can you provide some insight into the potential investment size for the natural gas pilot in Louisiana and Mississippi? Instead of focusing on the amount of gas, could you give us a rough idea of the scale of these investments, whether it's in the tens of millions, hundreds of millions, or billions?

This is Drew. It's certainly not in the billion range at this point, and tens of millions is probably too small. So it's going to range around $200 million to $300 million as an initial estimate, but it could be a little higher or lower depending on final decisions.

Is that just Louisiana or is that both states?

That would probably be both states. I mean, Louisiana would account for the bulk of it.

Okay. And you mentioned in your prepared remarks that you have no impairments on EWC, as of the current quarter. Why did you even mention that? Is there something that you are particularly focused on there to bring that up?

It's something we get questions on from time to time and because of that we think it’s important for investors to know that we are paying close attention to this issue. That was the primary reason for mentioning it.

Okay. And just lastly, in the overall utility outlook that you provided through 2017, would you say the improved Arkansas environment was considered in there? Or would you say it's a potential kind of upside to the utility point?

Hi, Steve this is Leo. I mean clearly as we lay out our plan, we are in expectation of improving our results in Arkansas. I would say, if you look at the growth that we see, there are three main elements especially when moving from 2015 to 2016 utility: sales growth, regulatory improvement in Arkansas, and clearly it’s the union investment. So we did have an expectation to provide improved results in Arkansas as we laid our plans for 2016 and 2017.

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