Entergy Corp (ETR) — Q3 2020 Earnings Call Transcript

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. 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.

Thank you, David, and good morning, everyone. Today, we are once again reporting strong quarterly results, which keep us firmly on track to meet our financial commitments. Third quarter adjusted earnings were $2.44 per share, and we're on pace to exceed our $100 million O&M cost savings target for the year. With 3 quarters behind us, and the confidence and clarity we have for the remainder of the year, we are narrowing our 2020 guidance range, which is now $5.60 to $5.70, and we are affirming our longer-term outlooks. 2020 has presented challenges for all of us around the world. We've endured a global pandemic, including its economic impacts. We've witnessed social unrest, and we've had a record-breaking storm season with back-to-back hurricanes hitting our service area. Yet no matter what 2020 threw at us, we remain steadfast in delivering on our commitments to our customers, our communities, our employees, and our owners. That's what our stakeholders expect from us. For the past several years, we've built the culture, processes, and resources to successfully deliver on our commitments even in the face of extraordinary times. Our comprehensive incident and storm response plans ensure we are always ready and prepared to respond to extraordinary events. Our best-in-class capital projects management team delivers projects on budget and on schedule, even in challenging environments. Our proven cost management program helps us confront financial headwinds so we can meet our financial commitments. And our disciplined continuous improvement program identifies permanent cost savings to deliver incremental sustainable value for all of our stakeholders. Our strong results today amid these extraordinary times demonstrate the progress we've made over the past 7 years to build a simpler, stronger, and more resilient company. We are on track to achieve not only our commitments for 2020, but also the long-term strategic, operational, and financial objectives we laid out at Analyst Day. We have a strong 5-year customer-centric capital plan that will elevate our customer experience. We will create incremental value for our 4 stakeholders through continuous improvement. We will continue our legacy of sustainability and environmental leadership for a cleaner world. And we will maintain our long-term vision for a steady, predictable growth in earnings and dividends, and we see a path to continue that growth beyond 2024. The professionalism and dedication of our employees and our organization were once again on full display when Hurricane Delta made landfall in Southwest Louisiana on the heels of Hurricane Laura. Delta caused 493,000 outages at its peak. With the help of our mutual assistance partners, we were able to deploy 12,000 workers, and nearly all of our customers were restored within 5 days. We showed why we are best-in-class in storm response as we successfully managed to back-to-back major hurricanes all amid a global pandemic. That's what we prepare for, and that's what we do. In fact, Zeta is expected to make landfall this evening in Southeast Louisiana. We've activated our storm response plan, and we are fully prepared and ready to respond. For our restoration efforts, we have received broad support from local, state, and federal officials, and as one local official put it best during Hurricane Laura, as soon as the storm passed, Entergy was everywhere. Of course, our thoughts and prayers are with everyone who is impacted by these storms, especially those in Southwest Louisiana and Southeast Texas who endured the most damage. Beyond our thoughts and prayers, we've provided financial support to affected communities. Entergy shareholders granted more than $730,000 during the third quarter to help families and communities recover. We are deeply grateful for our employees and partners who dedicated themselves to restoring the electric service that is so critical to the communities we serve. The storms also proved the strength and resiliency of our modern infrastructure. For example, in the past two years, we completed the Lake Charles and the Nelson Dermaina transmission projects in the Lake Charles area. Those projects were designed to withstand 140-mile per hour winds. Every structure from those projects remains standing after enduring the brunt of Hurricane Laura, the strongest storm to hit Louisiana in over 150 years. This is a direct result of our plan to improve the resiliency of our infrastructure and provide a high level of service to our customers. By contrast, many older structures in the same path, which were built to less resilient standards, were destroyed. We rebuilt those structures using modern design and technology, and they remained intact throughout Hurricane Delta. These improvements to our transmission system will provide benefits to our customers for many years to come. In the midst of all of this, we continue to make progress on our key long-term deliverables. Our renewables efforts have escalated over the past few years. And this quarter, we've achieved several important milestones. Louisiana customers began to receive power from the capital region Solar, the largest solar facility in the state. We have a 20-year power purchase agreement for the output from the 50-megawatt facility. Entergy New Orleans completed Louisiana's largest commercial rooftop solar project. Approximately 7,000 solar panels provide 2.4 megawatts of clean energy to New Orleans residents. We announced 3 new solar projects from our request for proposals. Entergy Arkansas is planning to purchase Walnut Bend, a 100-megawatt solar farm. Entergy Texas announced 2 projects from Insuranceage renewable RFP. The first, Liberty County Solar, will be a 100-megawatt owned resource. The second, Embrel Solar, will be a 150-megawatt facility from which we will purchase the output. We are requesting approval from our regulators to move forward with these selections where required. We also continue to make progress on partnering with our customers to offer renewable resource options to help meet their sustainability goals. 61 tax-exempt companies subscribe to Entergy Arkansas' Solar energy purchase option, purchasing power generated by the Stuttgart Solar energy Center. By participating in this utility level arrangement, these customers will save anywhere from 18% to 28% on their electricity usage. These renewable projects will bring clean energy to our customers and will help us achieve our environmental commitments. At Analyst Day, we laid out our climate strategy, and we told you how renewable investments will continue to grow significantly as we move towards achieving our 2030 carbon reduction goal and ultimately, our commitment to achieve net zero emissions by 2050. We already are the largest provider of renewable energy in both Louisiana and Arkansas. In Entergy, Mississippi is building the largest utility-owned solar facility in that state. We have a meaningful commitment to grow our renewable portfolio for which we plan significant investment by the end of the decade. As always, subject to the approval and direction of our regulators. We will continue to engage and work with our regulators and stakeholders to expand the use of renewables under a framework that ensures we balance reliability, affordability, and sustainability. In 2002, we established our portfolio transformation strategy to replace aging, less efficient assets with modern, cleaner, highly efficient assets. We've deactivated approximately 6,500 megawatts of older generation with an average heat rate of approximately 13,000. And we've added more than 9,000 megawatts of modern generation with an average heat rate of approximately 7,300. These newer resources have, on average, a 50% lower emissions profile than the assets we deactivated. And not only are they cleaner, but they also provide significant savings to our customers from lower fuel costs. Looking ahead, we will propose building resources that will have fuel optionality to be powered with hydrogen. We'll also look at retrofitting existing assets to enable the use of hydrogen fuel and carbon capture and sequestration technology. We are already working to make this a reality. We recently submitted a proposal in Entergy Texas' RFP for resources that, if selected and approved, will be developed with the option to be powered partially or fully with hydrogen. And that asset could also utilize carbon capture and sequestration when that technology becomes economical. Our portfolio transformation strategy has led to measurable undeniable results. For the past 2 decades, our emissions rate has been well below the sector average. Our utility CO2 emissions rate has decreased approximately 30%. And today, we operate one of the cleanest large-scale fleets in the country. And we will only continue to get cleaner as we maximize the use of new modern technologies to serve our customers at the lowest reasonable cost while meeting our environmental commitments. We've talked to you about our unique framework, which illustrates the certainty of our capital plan. 90% of our capital plan is based on the need for system modernization and is not dependent on customer growth. More than 90% will be recovered through timely rate mechanisms, and approximately 85% of our capital plan is ready for execution from a regulatory approval standpoint. Our constructive and progressive regulatory mechanisms provide clarity to our plan and give us confidence in meeting our financial commitments. On October 15, New Orleans City Council approved the unanimous settlement agreement that resolves Entergy New Orleans' rate case and FRP filing. Under the agreement, Entergy New Orleans will submit the first of 3 annual formula rate plan filings in mid-2021. The agreement also sets Entergy New Orleans' equity ratio at 51% for the duration of the FRP. The settlement does not address the 9.35% allowed ROE. We continue to believe that this ROE does not adequately reflect Entergy New Orleans' business risk profile as evidenced by the recent downgrade by S&P. We will continue to explore adjustments to the allowed ROE in our discussions with the City Council and its advisers. Entergy Texas also submitted its first filing, utilizing the new generation rider recently established by the Texas Commission. The filing requests a $91 million annual revenue requirement from Montgomery County Power Station effective when the plant is placed into service. At Entergy, we play a vital role in every region where we operate. This responsibility is never clearer than during our incident response to events like major storms and the current pandemic. But our commitment to sustainability extends far deeper than just incident response. We demonstrate our leadership through our daily actions, such as our climate strategy, attracting talent and developing our workforce, our commitment to diversity, inclusion, and belonging, and initiatives that strengthen the well-being of our communities. At our Analyst Day, we published a comprehensive ESG presentation that outlines our leadership in sustainability, which I encourage you to review. As I said at the outset, 2020 has validated that we are now a simpler, stronger, and more resilient company. We are prepared to successfully respond to challenges, and that's been important this year more than ever. With much of 2020 behind us, we've delivered strong results despite the challenges of a global pandemic and its economic impact, social unrest across the country in an active storm season with back-to-back hurricanes hitting our service area. We are excited about the prospects ahead of us. The fundamentals of our company are strong, and the value drivers that uniquely position us to be the premier utility remain in place. We are strategically, operationally, and financially on track to meet the commitments we've made to our stakeholders. We have some of the lowest rates in the United States and are committed to maintaining that advantage. We have a significant investment plan that improves the level of service for our customers through innovative solutions that meet the outcomes they expect. We have one of the cleanest large-scale generation fleets in the country. And we are a leader in sustainability with a commitment to achieve net zero carbon emissions by 2050. We have a clear line of sight to 5% to 7% growth in earnings. And by the end of next year, we'll start to grow the dividend commensurate with those earnings. And as we mature in our continuous improvement efforts, we aspire to lower our costs and do even better for the benefit of our stakeholders. We look forward to continuing the conversation with you at the EEI Financial conference, and Drew will now review the quarter's results.

Thank you, Leo. Good morning, everyone. As Leo noted, our strong results this quarter demonstrate the progress we've made to build a strong resilient company, prepared to deliver on our commitments through extraordinary times. We're on pace to exceed our $100 million cost savings target for the year. And with the confidence and clarity we have for the remainder of the year, we are narrowing our 2020 adjusted EPS guidance range, which is now $5.60 to $5.70. We're also affirming our longer-term outlooks as we remain focused on building the premier utility. Entergy adjusted earnings for the quarter were $2.44 per share. Drivers were straightforward. Starting with utility on Slide 6, we saw the positive effects of regulatory actions associated with our customer-centric investments in Arkansas, Louisiana, Mississippi, and Texas. We experienced lower sales volume due to the impacts from Hurricane Laura, COVID-19, and less favorable weather. O&M was once again lower in the quarter as we successfully managed through a challenging environment for the benefit of our stakeholders. And depreciation and interest expenses were higher as a result of our continued customer-centric investments. At EWC, on Slide 7, as reported earnings were $0.15, $0.85 higher than a year ago. The key driver was lower asset write-offs and impairment charges due to the sale of Pilgrim in the third quarter of 2019. In addition, strong market performance for EWC's nuclear decommissioning trust funds positively contributed. The quarter's results also reflected lower revenue and lower O&M, primarily due to the shutdown of Indian Point 2. Slide 8 shows operating cash flow decreased approximately $145 million. The main drivers were lower collections from customers due to the impacts from COVID-19 and higher pension funding, a $70 million reduction in the unprotected excess ADIT returned to customers partially offset the decrease. Before we turn to outlooks, I'd like to quickly cover Hurricane Delta. As you can see on Slide 9, we estimate the total cost to be between $250 million and $300 million. We plan to consolidate these costs with those from Hurricane Laura in our regulatory recovery filings. Of course, we are also monitoring Hurricane Delta and will act on those costs appropriately based on the need and working closely with our retail regulators. Now turning to Slide 10. We have a good line of sight on the remainder of the year, and we are narrowing our 2020 adjusted EPS guidance, which is now $5.60 to $5.70. We are also affirming our longer-term outlooks. For 2020, we're successfully managing lower revenues from weather, COVID-19, and major storms. And to date, we are on track to exceed our $100 million cost reduction target, which allows us to deliver on our commitments to our customers, employees, communities, and you, our investors. Our credit metrics and liquidity position are outlined on Slide 11. Our liquidity remains strong, and you can see that as of September 30, our net liquidity, including storm reserves, was $4.3 billion. Our parent debt to total debt was 22.4%, and our FFO to debt was 11.8%. The FFO metric included the effects of returning $119 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 have been 12.5%. Clearly, our FFO-to-debt ratio this quarter is unusually low. As you would expect, this is largely due to the effects of COVID-19 and Hurricane Laura and the acceleration of cash being returned to customers as a result of COVID-19, such as deferred fuel. Debt has also increased as a result of financing of storm costs near term. We expect these to cycle through over time. We remain firmly committed to achieving an FFO to debt target at or above 15%. And we are confident we will reach that level, but the timing will be affected by the recovery of our storm costs. We expect to achieve our targeted metric when storm securitizations are received. This is consistent with what we have communicated to the rating agencies. And both S&P and Moody's have written constructively about our credit post storms. In fact, Moody's expects us to meet our FFO-to-debt target in 2022, which aligns with a non-expedited securitization plan. And S&P raised Entergy's business risk profile to excellent, S&P's best business risk profile. This is an important outcome as it recognizes the work we have done over the past few years to de-risk our asset portfolio and build a strong, resilient business. While we have made great progress, as Leo mentioned, we are nonetheless disappointed by the recent downgrade of Entergy New Orleans. S&P's actions demonstrate the importance of supportive regulatory constructs, ROEs, and capital structures to maintain the financial strength of our utility operating companies. Preserving credit quality is essential to keep costs low and fund needed investment for customers. This past summer, we had another successful quarter. Despite the impact from storms and COVID-19, we delivered on our customer, employee, community, and investor objectives. We are meeting key goals as reflected in our 2020 deliverables. And as we demonstrated at Analyst Day, the fundamentals of our business are strong, and we remain uniquely positioned to be the premier utility. We look forward to continuing the conversation with all of you at EEI. With the conference so soon after Analyst Day, we will not provide additional materials. Nevertheless, we did include in the appendix of today's webcast presentation, our preliminary 2021 drivers and our 3-year capital plan through 2023 by operating company, two disclosures we typically provide to you at EEI. And now the Entergy team is available to answer questions.

I would like to begin by discussing the operational and maintenance savings you've achieved this year. Can you update me on your year-to-date progress? What factors are contributing to your success in reaching and exceeding your target? Additionally, how much of this can be expected to recur next year? I'm looking to understand these elements better.

Yes, Jeremy, this is Drew. That's a good question. It relates to the operating leaders in the company following the plan we established earlier this year. We discussed this during our first-quarter call about how we intended to achieve the $100 million, which has now been identified. We have essentially executed the exact strategy we outlined at that time, which involved operational planning and deferring some maintenance during outages while prioritizing reliability and safety at all times. Additionally, we identified several items related to COVID-19, including employee expenses and travel costs. Now that we're working more decentralized, these represent the bulk of the opportunities we've identified. Typically, in any given year, we have what we call Flex spending opportunities, which include the items I just mentioned. However, not all of these are repeatable, as there may be different options available each year. Our objective is to achieve steady, predictable earnings and dividend growth as this provides the financial flexibility and credit quality necessary for continued growth. At the same time, we actively seek continuous improvement opportunities that could arise from the adjustments we've made, such as reduced travel. We're closely examining these aspects to determine how they can fit into our continuous improvement initiatives and be reflected in our ongoing efforts to create additional capacity for our customers for incremental investment.

Got it. That's very helpful. And just one more, if I could. Could you provide kind of color on local sales trends? And what assumptions went into kind of underpinning your expected 3% growth in 2021? How have your thoughts kind of evolved since the Analyst Day?

I'll take that one as well. They haven't really evolved much in Analyst Day. They're pretty much exactly where they were at that point. But we do expect continued rebound in the economy year-over-year. And so that's where the growth is mostly coming from. I will say, like I said at Analyst Day, our experience to date has been the so-called V-shaped recovery. But at Analyst Day, we said that given the economic forecast that we had seen, we were not forecasting a continuation of that being necessarily. We were smoothing that out and making it a little bit of a longer-term recovery. And so that's what's reflected in our forecast. And that is sort of that 3%. So we're not seeing as much of a rebound as we might have if we saw more of the V-shaped recovery. That opportunity is still potentially out there because, like I said, our experience has been more of the V-shape thus far. So perhaps we have a little bit of conservatism built in. If the economy does, in fact, slow down, we should be well positioned.

I have two quick questions. First, Drew, you addressed the FFO on a quarter-over-quarter basis. I also saw in your slides that the average share count for 2021 is now 204 million shares compared to 201 million in 2020. Can we infer that you've made a decision on the type of equity you'll pursue in 2021, and are there any timing considerations we should keep in mind?

No new considerations on timing. We are going to have to access equity capital by the end of next year, which is consistent with what we've been talking about. So you can see that in the numbers. But we haven't made definitive decisions on exactly how we're planning to go source that at this point, but we have some placeholders to reflect different opportunities.

Okay. And so you're still looking also, I guess, at the preferred option, too, is one of the things you talked about that the shareholder?

Yes, we do still have that on the table, and we will be seeking shareholder approval for that with our proxy in the spring.

Got it. And last question here. At slide 15, just looking at the Entergy Arkansas, there was a date here, I guess, today, where you were expecting potentially a stipulation or a settlement deadline. Do you think that we'll hear anything on that today?

It's Rod. I can answer that. Today, with the deadline for settlement on the FRP filing, and so not the extension. And we're actually working with both the commission and the stakeholders to extend that deadline another day or so to give the parties an opportunity to continue to work through the issues. The nuance there is that there are a number of issues around the FRP that might implicate the actual extension, and we're trying to narrow that list down. So today, you might hear of an extension, but just know that that's an intentional effort on our part to provide some clarity to the commission on the issues that we've addressed between the actual FRP and the actual extension, which has a longer another month or so timeline from a settlement perspective, but they're connected. So that's what's going on there.

Understood. So you're basically just trying to narrow the scope?

That's exactly right.

I would like to address the last point regarding the Arkansas staff's strong position on the FRP extension. Should we now anticipate a timeline for clarity on that being extended past the December 4 settlement deadline, potentially moving towards a fully litigated process? Or do you still hold hope for reaching a settlement on this matter?

No. So our point of view, our optimism around getting that business done has not changed. What you're seeing with the recent filings, both the staff and other stakeholders is the normal part of the process that essentially sets the conversations that we have when we're actually in negotiations as we are now. So between now and the actual extension of the settlement timeline, the beginning of December, I believe, we'll be going to work to close out the very issues that I alluded to before. So no, I don't expect there to be any difference because of what was filed, all of which have been expected.

Yes. I suspect the answer to this may be sort of storm, et cetera. But I was just curious on the balance sheet, there was a really big move in accounts payable seemed to go up about $1.3 billion over the second quarter and just a lot bigger than usual. Anything you can provide there as an explainer?

Yes. That's exactly what that is, Jonathan, and there is a corresponding regulatory asset in there that offsets that. And ironically, that is part of the challenge. A lot of that cash hasn't actually flowed out the door yet. But it's reflected in our FFO because we've taken out the working capital piece. So the payables are taken out, but the asset is still in there. So it looks like the cash has flowed in the FFO metric.

Great. And then could I just sort of ask for an update on arrears and bad debts? And you thought that on the balance sheet went up another $30 million versus June. And I guess on the rule of thumb you shared with us last quarter, you tend to book 30% of your arrears as bad debt. So does that imply an incremental $100 million over the sort of $100 million increase you had in the second quarter? Or is there another way of thinking about that?

That's about right, Jonathan. We have booked a little bit of over $50 million in terms of bad debt expense. And you're right, it's about a third typically of our overall customer arrears. And so that math would lead to about $150 million overall in that ballpark.

Okay. You mentioned that last quarter there were individuals who had the ability to pay but chose not to. What is your current perspective on that?

Yes. Since the onset of COVID, we had a perspective on the customer experience regarding non-payment, which coincided with our dunning process that did not involve disconnecting customers for non-payment. We are observing that our expectations are coming to fruition, with some conservatism factored in. As you may recall, we received regulatory accounting orders from our commissions as a safeguard against potential outcomes related to bad debt and customer arrears. We are seeing the situation unfold as anticipated. At some point in the near future, although we haven't set a specific date, we plan to return to a more normal business operation. When that occurs, we will initiate filings to recover amounts from customers, including through regulatory mechanisms related to bad debt and other COVID-related expenses.

Okay. What do you think the trajectory is from here? As you discuss your expectations, do you anticipate it rising further, or have we reached a certain level?

It's too early to say, candidly, because there's the unknown as to what are going to be the continuing impacts of COVID as we round out the fourth quarter into the new year. What will likely be different is the stance of the regulators relative to the relief we provided to customers relative to that bad debt. And so that's going to be a to-be-continued. On our end, we're going to be prudent in the way that we continue to provide service to customers, but take advantage of the opportunities given to us by the regulators to at least present to them what, if any, trends we're seeing. On arrears beyond sort of the path that we're currently on.

Just two quick questions here. I appreciate the transparency on issuing the '23 guidance. Can we just talk a little bit about the cadence of the earnings growth year-over-year? Because it seems that at the midpoint of those ranges, you're expecting more tailwind growth rather than sort of front years of the plan, i.e., 5% in the front year, 7% closer to the '23 time frame. So just wanted to maybe get a sense on what's driving that? Is it the equity in the front end of the plan? So just kind of curious how we should think about the guidance.

Yes, I believe it's fairly consistent, approximately around that 6%. We performed a bit better last year and are on track for slight improvements this year, but we are not projecting that trend into future years just yet. It seems that as we move from our starting point for 2020 into the future, the growth rate may decelerate a bit. However, if you examine our original guidance midpoints, you would notice that the expected growth remains quite predictable at 6%.

Got it. So don't look at the year-over-year midpoint growth and assume that it is going to be more back-end loaded?

No, not from the revised spot. If you start from the original spot, I think you'll get to that same place.

Understood. Just a quick follow-up, Juan, regarding the equity question. There are a lot of factors at play, including storm recoveries and another impending one, along with lower volumes and somewhat reduced credit metrics. How should we consider the timing regarding equity? It appears there’s some planned for 2021. Should we expect equity to be more front-end loaded rather than back-end loaded, or should we think of it as more of an annual consideration, given the factors mentioned and those highlighted by Leo in the prepared remarks?

Yes. We are not planning any changes to our equity strategy at this time due to COVID or the storms. We still expect to have some equity available by next year to maintain our trajectory, although we may not meet our FFO-to-debt target exactly as before. We have assured the rating agencies that we will have equity in the market and will continue with this approach over the next five years, but there are no significant changes resulting from the storm or COVID at this time.

Sorry about that. I apologize, I wasn't quite sure if it was open. Listen, I'll make it easy or quick. I'm curious as to how you would characterize the totality of the storms and the bill impacts incurred this year. I appreciate it doesn't necessarily fit into the traditional framework, should we call it, of the FRP. But really, just curious how you think about that and to the extent to which it may shift timing of CapEx or otherwise, as you think about bill impacts in future years is securitization and otherwise filter their way into rates.

It's Rod. I'll address how we approach this issue. As you noted, the storms fall outside the traditional frameworks, yet they still affect the overall customer bill. Our focus remains on exploring ways to mitigate the bill impact. We start from a favorable position, as we have among the lowest customer rates in the U.S., but we recognize that these storms will ultimately affect our customers. We are working with federal agencies, as we discussed during Analyst Day, to find ways to alleviate some of the customer bill impacts related to the storms. We have taken advantage of securitization in previous storms to reduce the immediate costs of storm recovery for our customers, alongside our efforts to lower the overall cost of service. With our partnerships with the federal government, the Department of Energy, regulatory structures, and our own initiatives, we will continue to strive to minimize the impact on our customers. We view the storm costs similarly to any other expense incurred to deliver reliable service. This will be an ongoing effort, but our goal remains the same—maintaining the reliability, sustainability, and affordability of our services is part of our routine operations, and there will be no changes in that approach.

Julian, I'll just add, this is Leo. We talked about at Analyst Day, given what our current rate level is and what the current trajectory is without the storm costs are manageable. And we still believe that they're manageable within the capital budget that we've got. And as Rod mentioned, that's totally consistent with the way that we've operated over the years; it's totally consistent with the way we've gotten recovery of storm costs over the years. And it is our objective to attempt to continue to try and do better for all of our stakeholders. So through continuous improvement and everything, we anticipate that we can even make that a little bit better for our customers. So we think it's all manageable in the context of the size of the balance sheet, the size of our asset base, and everything to be able to make all this work.

First, regarding the O&M, you have exceeded expectations in O&M costs this year. However, when I review the guidance slide, it appears that the full-year target remains unchanged. Should we anticipate a reversal of O&M cuts in Q4, or will you aim to maintain the cost-cutting efforts until the end of the year?

Sophie, this is Drew. We're going to get a little bit above that $100 million. So it might get to the $120 million range or so by the end of the year, that's baked into the new narrowed range that we talked about this morning.

Got it. And then on equity and sort of balance sheet, again, there is a real possibility as we sit here today that we will see some form of better reversal of the tax cuts from 2016 right under the Biden administration, which is presumably would be balance sheet positive for utilities. Would that influence your thinking about equity needs? Would you wait to get more clarity on that type of development?

Yes, this is Drew. We are definitely considering that. Our equity plan spans five years, so I anticipate we will gain insight on how the new tax rate will affect our rates over time. If these changes result in deferred taxes, the additional cash flow could help offset our equity needs. However, I can't say it will completely cover all of our equity requirements. There are also other proposals, like alternative minimum taxes, which remain unclear at this moment, and we will need to keep a close eye on those as well. However, you are correct in assuming that if the federal tax rate increases from 21% to 28% and those taxes are deferred, it should positively impact our funds from operations and lessen our equity needs.

I wanted to check in on regulated nuclear operations. I know you've made a lot of investments in that regard. I was just curious have those investments been paying off? Are the metrics you point to just in terms of how the operations are going on that side?

Thank you, Stephen. They are paying off. We've seen the benefit of putting those investments into the plants, in the operations of the plants, improving. And so everything is on track for those. As we mentioned, we just came out of the last big outage as it relates to the program that we went under as we went from 2016 to this point throughout the regulated fleet as we were preparing most of those for their new extended lives. So we are seeing the benefit of those investments. We continue to have investments to make, although they're not the kind of the size of what we've been doing over the course of the last couple of years.

Got it. That's really helpful. And then just going back to storm damage and thinking through that, I appreciate you have a lot of tools at your disposal to think about the customer bill impact. One tool I was just curious about is the duration of recovery whether that, over time, might be adjusted. I guess one thing I've been thinking through is just if we annualize some of the damages we've been seeing of late. It does start to show a more material impact on the bill, but if you have the ability to kind of spread that out over a longer period of time, that could help alleviate the impact a bit. How do you think about that element of in the toolbox?

Yes, Steven, this is Drew. All of our retail regulators are going to expect us to utilize securitization to reduce the cost of capital related to that. Currently, a 10-year securitization has a cost of capital around 1%. If we extend it to 15 years, the cost might be slightly higher, but it would also extend the overall bill impact. We are considering this as a way to minimize the impact on the customer bill. While we always explore structural ideas, you might remember our previous initiatives like affiliate preferred that aimed to lessen the effect on bills. We are actively looking at structural alternatives that could help mitigate this as well.

Just one quick question about the FFO to debt. I noticed that you've shifted the target from Q4 2021 to mid-2022. Can you share what gives you confidence that you'll achieve this by mid-2022? Is it related to the regulatory approvals for storm cost recovery, or was this determined through discussions with the credit agency? Any insights regarding the timing of these targets and credit metrics would be appreciated.

That's a good question. We were quite specific about mid-2022, but it's really tied to when our securitization happens. Once we have the securitizations in place, we expect to reach FFO-to-debt ratios that align more closely with our targets. Moody's mentioned 2022 in their assessment, and considering the typical timeline for securitization is 18 to 24 months, we anticipated 24 months from when Laura joined. However, now that we're reviewing the data, 24 months might extend a bit. We're aiming for expedited treatment in this process, which could help us advance the timeline.

Thank you. A couple of questions on EWC. One would be, can you help us understand what the objections are for New York and transferring the Indian Point license? And do you think that, that's going to hold up a potential transfer of license to Holtec? And can we also get maybe a little bit of an update on the cash flows that you're now expecting between now and when EWC winds down?

Okay. This is Drew. On the regulatory front, we are in discussions with various agencies in New York as well as the NRC is getting closer to the end of its process. And of course, they are evaluating the operational capability and the financial capability of Holtec to do the decommissioning. And we have full confidence that they will pass the screens from the NRC. From the state's perspective, they're asking the same questions really. And so it's just a matter of working through the process in New York. It's not a defined process as well as it is at the NRC but we are working through. We're having conversations, and we still believe that at this point, we are on track to close sometime around the middle of next year. In terms of the cash flows, I believe they are still positive from kind of 2020 through 2022, cash back to parent. That's the kind of the metric that we've used. If you just used EBITDA, of course, you might not be looking at that. We don't have much capital left in these plants before they are retired. But our overall cash back to parent is still slightly positive.

Great. Any order of magnitude there?

Oh, less than $100 million.

Sorry I was on mute there. Just a very quick follow-up on O&Ms. You say you're on track to exceed $100 million. I think I heard $120 million, but I see you're continuing to call for $2.7 billion for 2021. I guess my question is, as you go through the year, are you still thinking those savings won't be repeated or recurring? Or is your reiteration of $2.7 billion conservative?

This is Drew. That's a good question. It's a question that Leo asked me every day about why we're still at $2.7 billion. We do have a lot of costs that came out of this year that did move into next year. And so a lot of these things, that I mentioned at the outset, we're a part of operational changes that we made during outages, maintenance decisions that we made, and things like that that we do have to make in order to maintain the safety and reliability of our assets. So that's probably the main thing. But as I said, we have learned some things, and we have some continuous improvement opportunities that are coming out of that. Some are pretty immediate, like travel expenses. Others may take a little bit of time, like trying to realize real estate savings from a smaller footprint or something of that nature. So there are going to be some opportunities that result from what we've done this year that become continuous improvement. And those will be baked into our expectations over time.

Yes. Andrew, this is Leo. Andrew is being a little bit funny about what I ask him every day. He's trying to be a comedian today on the call, I guess. But the fact of the matter is we think we're in a pretty good position in terms of the business model, the investment opportunities we have, and the ability to create value for our customers. I went through in my prepared remarks. Just consider the value of the new transmission infrastructure versus the old transmission infrastructure on a day-in, day-out basis, but certainly in times like what we've seen the anomaly that has been of 2020 all the way around. We've learned a lot about the way we operate the business, both from our flex levers, our continuous improvement, and the things that Drew was talking about, what we're capable of when we put our mind to it. Obviously, when we talk about how we're teeing up sales growth and how we're teeing up O&M, certainly for next year and the years beyond, there's a lot of uncertainty out there that we just need to make sure that we're prepared for. And so we've set ourselves up to be prepared for that uncertainty. The biggest one being obviously the pandemic, how long does it go, when is our vaccine? We can control what we can control. We can't control the public health crisis. So we're going to control what we can control. For example, the posture that we're in today as it relates to our travel schedules and our remote work schedules, our meeting schedules and all that. We've announced to our employees that we're going to continue in that process until the middle of 2021 at a minimum. So obviously, there could potentially be some opportunities in there. There could be some opportunities, as Drew mentioned, in the sales forecast. But those are dependent in some respects on things that we don't control. So I guess the play being is we're going to control everything that is under our control. And then we're going to prepare ourselves to be able to handle the stuff that we can't control, whether it's continuation of the pandemic and a sales forecast that shows up different than our sales experience has been. But also give ourselves some capability to manage on the cost side, too, if that happens. So we feel like we're in a pretty good place, teeing up for 2021. Certainly, by the time we get to the end of 2021, we would anticipate that we get back to a much more normal trajectory. And we're prepared for a continuation of 2020, if we have to. We're really excited about how we can perform under normal circumstances.

Yes. No, that's very helpful. Certainly hoping for a return to normal sometime soon, but I think it's going to be imminent. And Leo, I think we all know that you give Drew a hard time day in and day out in a very good way. So keep it up.

Thank you, Jimmy, and thanks to everyone for participating this morning. Our annual report on Form 10-Q is due to the SEC on November 9 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.