Entergy Corp (ETR) — Q1 2022 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 an effort to accommodate everyone who asks questions, we request each person ask no more than two questions. 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, Bill, and good morning, everyone. Today, we are reporting first quarter adjusted earnings of $1.32 per share, a very good start for the year. With favorable weather and higher-than-planned retail sales, we are ahead of schedule and solidly on track to achieve our 2022 objectives. And we remain on track for our longer-term outlooks. During the quarter, we continued to execute on both our near and long-term deliverables, just as we have over the last several years. We've made demonstrable progress on our operational, strategic, and financial objectives. Operationally, I'll start with some notable regulatory updates. We've continued to make meaningful progress on storm cost recovery. Texas is done and Louisiana's securitization proceeds from the 2020 storms, plus $1 billion towards IDA will be completed in the coming weeks. Entergy Louisiana's filing for the balance of IDA will be completed within the coming days, and the Entergy New Orleans filing will follow later this year. A financially strong utility is important for customers. Drew will discuss how securitization progress supports our balance sheet strength. As expected, Entergy Mississippi filed its annual formula rate plan which enables continued customer-centric investment and supports our financial outlooks. We're continuing to drive progress on enhancing the resilience of our system, which benefits customers, supports local economic activity, as well as our growth plan. Entergy Louisiana completed an important transmission upgrade in the southern part of the state. This $86 million project replaced approximately 80 structures to increase resilience along several miles of critical path transmission in La Pouch Paris, an area that was severely affected by Hurricane Ida last year. To create a solid foundation, the new infrastructure is placed in steel cases. The line was built to withstand wind speeds of 150 miles per hour and will improve the resilience of the electric system. Entergy Louisiana also completed a $100 million project in North Louisiana that positions the region for economic growth. The West Monroe project will provide additional transmission capacity, improve reliability and is built to withstand extreme weather events. What that means for customers is enhanced reliability and resilience, better integration of clean generating resources, and economic benefits to improved access to lower cost of power. Bottom line, the Entergy team continues to focus on delivering operational excellence across all facets of our business. Strategically, I'll start with our merchant business wind down. The last step in our merchant nuclear exit is nearly complete. Palisades is on track to shut down at the end of May with the sale to Holtec following around mid-year. The Palisades team is finishing strong, and I would like to thank them for their dedicated service. We have worked to help employees with their career goals beyond the plant shutdown. Many will continue to work for Entergy at other locations. Some will continue to work for Holtec on decommissioning and others are retiring. As you know, DOE recently announced a program to save nuclear plants that are about to shut down. Michigan's Governor issued a letter encouraging utilization of this program to keep Palisades open. We are supportive of federal initiatives to keep nuclear plants operating. However, we are five years into Palisades shutdown process. We're far down the path. There are significant technical and commercial hurdles to changing course at this point. That said, alongside Holtec, we will work with any qualified party that wants to explore acquiring the plant and obtaining federal funding. But I do want to be very clear, this does not change our strategy. Entergy is exiting the merchant nuclear business, even if Palisades continues to operate as a part of Entergy. Across all of our operating companies, we continue to be a critical partner to support strong economic development, bringing new businesses, new jobs, and new tax base in the communities we serve. For example, Entergy Arkansas, along with the Wynne Economic Development Corporation announced completion of the select site certification for a 37-acre industrial site. Certification streamlines the site selection process. Initiatives like this help attract new businesses and new projects like the U.S. Steel expansion that was announced earlier this year. Over the past five years, our economic development team has helped bring to fruition close to 300 announced projects, $42 billion of capital investments, and more than 25,000 jobs. These outcomes have been critical to the economic health of our communities and have been a significant factor in the 9% cumulative industrial sales growth we've achieved over the past five years. And we continue to expect significant industrial expansion in the next several years. As we have discussed, growth from our industrial customers has been driven in large part by cost, labor, logistics, and regulatory advantages of the Gulf Coast, as well as favorable commodity spreads, which continue to support expansion. Further, the current geopolitical state of the world makes the U.S. and the Gulf Coast in particular, a top choice for stability. LNG exporters in the Gulf are being called on to expand production to help reduce Europe's reliance on Russian energy influence. This opportunity represents a win for our customers, communities, and owners, not to mention the community. To help support our customers' growth and decarbonization objectives, we are driving progress to expand our renewables footprint. As of today, we have approximately 650 megawatts of renewable capacity in service, 625 megawatts of solar projects approved by regulators and in progress, 725 megawatts of announced projects, and up to 4,000 megawatts of RFPs. That's more than half of the 11,000 megawatts of renewable resources in our supply plan through 2030. We've made progress identifying new resources and active RFPs. Since our last call, Entergy Texas concluded evaluations of its 2021 solar RFP. Several resources were selected totaling at least 400 megawatts from owned and contracted proposals. We also made selections from the Louisiana and Arkansas 2021 RFPs earlier in the year. We will provide additional details about the resources selected from these proposals once parties reach definitive agreements. We are also soliciting the next round of renewables. Entergy Arkansas recently issued its RFP seeking up to 500 megawatts of renewables to provide cost-effective clean energy, which furthers fuel diversity. Entergy Louisiana also issued notice to proceed with renewable RFP seeking up to 1,500 megawatts in Louisiana. Our customers' demand for decarbonization solutions, including green products, is not slowing down. The long-term solar market continues to look favorable based on an improving technology curve and higher natural gas price scenarios. However, we fully recognize the near-term cost and schedule pressures that solar projects are facing. Supply chain constraints have been exacerbated by the Department of Commerce investigation, which we expect will drive additional delays and the potential for further cost increases. These dynamics are affecting the entire U.S. solar industry, but we are continuing to work through these constraints and are executing on our solar expansion plans. It's important to note that not all of our projects are affected. For example, Sunflower solar in Mississippi, our only owned project coming online this year, has its panels on site and installation nearly complete. Entergy's owned solar represents a relatively small portion of our three-year $12 million capital plan. Roughly half of owned projects in the three-year horizon are not experiencing impacts of recent marketing constraints. A greater portion of our own projects are expected in the latter half of the decade, which would be past the current working constraints. As we've said before, we have a large backlog of customer-centric investments with the ability to rotate capital into our plan as an opening presents itself. The bottom line is that we recognize the near and medium-term constraints, still see strong market fundamentals in the long term that supports our supply, demand, and customer objectives. On our last call, we told you about the new U.S. Steel expansion. In support of this project and the customers' decarbonization goals, Entergy Arkansas filed for approval to acquire the 250-megawatt Driver solar facility. Driver solar is an example of how we can partner with customers with their sustainability needs while accelerating the growth of our renewable portfolio in our regulated framework. It also highlights our unique growth strategy to help customers achieve the outcomes they desire, which in turn drives the outcomes for all Entergy’s stakeholders through more jobs and economic activity in our service area, increased capital deployment to support electrification, low growth to offset costs, and a higher rate of change towards societal decarbonization. Nuclear also plays a critical role in our customer decarbonization strategy. Entergy is one of the cleanest large-scale fleets in the nation due to our nuclear fleet. Customers are increasingly highlighting access to carbon-renewable resources as key to economic development. They are looking to reduce their carbon footprint, and many are indifferent to the type of carbon-free technology. We continue to see examples in the industry that reinforce the need to balance reliability, supportability, and environmental sustainability. Entergy's resource planning has always balanced these objectives. Our baseload nuclear plays an important role. We have discussed the significant long-term opportunity for Entergy to assist our industrial customers in decarbonizing and reaching their sustainability targets. We estimate an addressable market of around 30 terawatt hours by 2030, which is approximately 25% of our total retail sales in 2021. While we may not capture the entire market, we are focused on meeting our customers' needs and maximizing this opportunity. With many carbon reduction goals extending beyond 2030, we foresee greater opportunities in the next decade and beyond. Realizing this growth demands substantial investment that benefits all stakeholders, including meaningful transmission and distribution investments to reliably support the expansion of our renewable resources. Financially, we continue to enhance our balance sheet. In addition to the progress we've made with securitization, we have significantly reduced our remaining growth equity needs since 2020, with only 25% of the original amount discussed at our 2020 Analyst Day left. We are on track for steady, predictable growth in adjusted EPS and dividends, with potential for even greater outcomes. We are very eager for our upcoming Analyst Day on June 16, where we will provide a closer look at our multi-year strategy and financial plans. This includes our intentions to promptly advance resilient investments in our coastal region to reduce storm risks for our system, communities, and customers, as well as to further expand our renewables portfolio to support our customers' decarbonization efforts. As I said, we've had a productive start to 2022, and we will continue to successfully achieve the milestones that keep us on track to deliver steady, predictable earnings and dividend growth while maximizing operating efficiencies and investments to make our system the most resilient, reliable, clean, and affordable it can be. These are the outcomes our customers want, and by delivering them we create sustainable value for all our stakeholders. Before I conclude, I encourage you to see our recently released 2021 integrated report, 'The Future is On.' The report lays out how we delivered results in 2021, discusses why we're optimistic and excited about Entergy's future. You can see how we integrate the environmental, social, and governance objectives into all we do. I'll now turn the call over to Drew to review our first quarter results as well as our financial strength and outlook.

Thank you, Leo. Good morning, everyone. Today, we are reporting strong results for the first quarter. As you can see on Slide 3, we had adjusted earnings of $1.32 per share. The drivers are straightforward and keep us solidly on track to achieve our financial objectives for the year. We remain confident in our continued success and we are affirming our guidance and longer-term outlook. Turning to Slide 4, you'll see the drivers for the quarter. As a result of our continued customer-centric investments, we saw higher levels of revenue as well as higher depreciation and interest expenses. Other O&M increases included higher customer service support and nuclear generation expenses. Results for EWC are summarized on Slide 5. The drivers for that business are largely due to the shutdown sale of Indian Point last year. As Leo mentioned, we expect to complete our exit of the merchant nuclear business in the coming months. That will be a major strategic milestone. Moving to Slide 6. Operating cash flow for the quarter was higher than last year at $538 million. Higher utility revenue, lower fuel and purchase power payments, and lower pension contributions were the largest drivers. As a reminder, fuel and purchase power payments were significantly impacted by winter storm Uri in 2021. Non-capital storm spending was higher than last year, which provided a partial offset. Turning to credit and liquidity on Slide 7. We continue to make progress on securitizations that will strengthen our balance sheet to produce significant cost savings for our customers. Our regulators recognize that financially healthy utilities benefit our customers. To that end, Entergy Texas recently completed securitization for its 2020 storms. And on the day of our last call, the LPSC approved storm recovery and financing for the 2020 storm plus a $1 million down payment on Hurricane Ida. The approval included replenishment of Louisiana storm escrow to $290 million. Louisiana securitization is expected to be off balance sheet, and we anticipate a $3.2 billion issuance in the coming weeks. Entergy Louisiana plans to file for Ida cost recovery in the coming days, as Leo mentioned, we are targeting to receive proceeds by year-end. The timing of recovery ultimately depends on the procedural schedule approved by the commission. Entergy New Orleans is seeking approval from the New Orleans City Council to issue $150 million in securitized bonds to replenish the company's storm reserve. If approved, this reserve would enhance credit and the ability to respond to potential future storms. In addition, ENO plans to file for Ida cost recovery later this year. Our net liquidity at the end of the quarter was $3.5 billion, being further supported by the tax securitization proceeds received on April 1, and the $3.2 billion Louisiana securitization proceeds once they are received. Beyond securitization and liquidity, we continue to focus on resilience, which we will discuss in detail at our Analyst Day. Part of that discussion will include how we are actively applying for federal funding to help pay for resilience investments and mitigate customer insights. Looking at Slide 8. It's been approximately two months since our last earnings call. In that time, we have reduced our equity needs by nearly $170 million through our ATM program, with roughly $570 million remaining to be executed between now and the end of 2024. Given the small amount, our plan is to close out the remaining days with the ATM program. The four sectors shown on Slide 9 represent nearly half of our industrial sales. The fundamentals for our industrial customers remained robust in support of continued growth expansion. In addition, expansion of LNG export facilities is coming into the spotlight again. The majority of these potential LNG expansion projects will provide and expand Entergy service territories. Looking forward to Slide 10, we have a solid base plan with good visibility to achieve our guidance and outlook. We are also monitoring situations surrounding inflation and interest rates. We did not see a meaningful impact on our operational results, and we remain on track to achieve our annual cost estimate. As a result, we are affirming our 2022 adjusted EPS guidance range as well as our longer-term outlook. As we move towards Analyst Day in New York in June, we're executing on our operational, strategic, and financial objectives and building on a solid foundation. In New York, we'll share our longer-term views on customer-centric investments and financial outlooks. And we look forward to seeing you there. And now the Entergy team is available to answer questions.

Hey, guys.

Good morning.

Leo, from your prepared remarks, just quickly on Palisades, should we assume you don't want to even remain a short-term owner until the asset is potentially sold? So the viability of the asset is really a Holtec question or could there be changes to the Holtec agreement? And maybe just elaborate a little bit on some of the technical challenges like refueling and the capital that's needed to halt decommissioning and can they even be overcome?

I'm not going to go into details about what might or might not work. The operation of the plant will need to stop in May because we'll run out of fuel, and we have not ordered any fuel. There is significant work needed at the plants to keep them running beyond that time, but we haven't investigated what that work entails since we have been planning for five years to close the plant. We do have an agreement with Holtec, and most of the conditions have been met, except that the plant is still in operation. It's quite challenging to address this at the last minute. I want to emphasize that continuing the operation of the country's nuclear fleet is vital for the reliability of the electric system and our efforts to decarbonize the economy; shutting down those plants would be a step backwards. I'm optimistic about what the Department of Energy is planning for future plants, but at this moment regarding Palisades, it's a significant challenge.

Got it. And then just on credit metrics and equity would you guys potentially trending above your thresholds. Do you see any opportunities to maybe further downsize your $570 million of remaining needs? And as you're kind of getting closer to hitting your credit metrics and prepare to roll forward your capital plan, do you anticipate any improvements in credit metric thresholds especially as the business mix has improved and storm funding is moving closer to resolution? So would like, for instance, an improvement in thresholds, let's say, the 12% to 13% effectively leave you over-equitized versus the current projections?

Yes, Shar, this is Drew. When it comes to opportunities that might enhance our credit metrics, the one we've discussed, especially at the end of last year, pertains to pensions. Interest rates are impacting our pension liability, and the returns from the trust that supports the pension are not meeting our expectations, which is balancing things out. We are closely monitoring this situation; if interest rates remain high and returns align more with our expectations, it could provide additional headroom in our credit metrics. This is our primary focus right now. Additionally, we must complete the securitizations to remove some debt from our balance sheet, which will be significant milestones for us. We are also keeping a close eye on our capital expectations, which influence our equity needs. We have some capital related to solar in the short term, and I expect there will be questions about that later on. However, we have other capital projects ready, especially in resilience. If we have some flexibility due to delays in solar, there are substantial resilience investments our customers are anticipating from us. I don’t foresee any additional room on the capital side going forward.

I understand. I have a quick follow-up regarding your Analyst Day. I appreciate the insights you've shared about resiliency and the green tariffs. Considering the timing of the regulatory initiatives and the technical conferences, you mentioned how they would align with the Analyst Day. Should we view the Analyst Day as an extension of your base plan where you will discuss these opportunities qualitatively and perhaps include some scenario back testing analysis? Or might we actually see some of this spending incorporated into the capital plan? Thank you.

Well, I think, Shar, we're going to let the punch lines of Analyst Day show up on Analyst Day.

All right. Thanks, Leo. I get that part.

Got it. Thanks.

Hey. Good morning, team. Thanks for taking the question.

Good morning.

So I just wanted to hit solar supply chain risks quick and just the impact. Could you just help us just size the amount of megawatts going into rate base that would potentially be at risk? I think you said roughly half you're secured on over the three-year horizon. So is that like 300 to 400 megawatts? And just to confirm, I heard your last comments right, to the extent that capital shifts, you were just going to backfill that with potential distribution resiliency spend?

Yeah. This is Rod. Good morning. From Leo's comments, the near-term risk we mentioned regarding existing owned projects is about 280 megawatts, particularly with respect to West Memphis and Walnut Bend. In terms of capacity, this amount is not significant. We want to clarify that. Also, Leo noted that most of our renewable capacity will appear later in the decade. We are highlighting this because we acknowledge some near-term constraints, but they do not affect our overall build-out strategy.

And I think to your last point, Nick, I think Drew mentioned it and I mentioned it in the script, we've got a capital plan and timing that's laid out. We've got other things waiting in the wings that we could or couldn't accelerate. So the ability to roll something else into the plan that provides benefits to our customers in a different way is always there.

Absolutely. And then just Drew's comments on inflation. If anywhere, where would you kind of call out that you're kind of seeing the most pressure to the plan? And can you just kind of talk about just the current state of power markets, how you're kind of managing customer bill impacts and the ability to just continue to extend your rate base growth here, perhaps any levers that make your jurisdiction more unique than others, that would be helpful. Thanks.

Thanks, Nick. This is Drew. I find your perspective on the plan interesting; however, I believe it enhances the plan's economics. Considering how inflation affects our main investment themes, particularly in renewables and resilience, it seems that inflation actually makes a stronger case for customers to pursue these initiatives. With rising gas prices, there is currently more economic leeway, which is pushing us to implement renewables more swiftly. We've already made significant improvements in gas efficiency with our historically built CCGTs and the high-efficiency Orange County Advanced Power Station. These advancements are beneficial and should expedite our renewable plans. Furthermore, a critical element of our resilience strategy involves the costs of installing hardened distribution and transmission lines before storms compared to the costs incurred afterward. Inflation will likely amplify that cost difference, emphasizing the urgency for customers to act proactively. While these actions will affect customer bills, the consequences of not acting would have a greater negative effect. Thus, we anticipate that customers will be motivated to accelerate our plans, including investments in renewables and resilience.

That was very detailed. Thanks for the response. See you in New York.

All right. Thanks, Nick.

Hi. Good morning.

Good morning, Jeremy.

All right. Just want to come back to DOE a little bit more, if I could. And for 2023 projects, if you could just break down price risk versus timing risk. And do you see C&I demand kind of insulating the project to a degree on both these factors?

I would like to clarify the question about price risk. Drew and I are discussing who will address which aspects of it, as I recognize there was a question related to price risk included.

Yeah. Just price and timing for 2023 projects.

So on the projects that we just referenced that being Sunflower, for instance. Sunflower is not at risk. That's one of our own projects. We're expecting that one, as Leo alluded to, to be in service sometime in August. So we're looking good there. The other ongoing projects that we are expecting a bit of delay of the ones I referenced earlier, West Memphis and Walnut Bend. We're working with our BOT partners, both of whom are reputable firms, to lock down both price and schedule certainty. And so there is some risk on both because of the delays for both the supply chain as well as the DOE issues. But beyond that, we'll see if Drew adds anything to that.

I want to add to what Rod said that most of our expectations are beyond the next two years. We have issued RFPs, and the DOE has accepted them, fully aware of all supply chain concerns and risks. Before the DOE took action, they were already informed about tariff activities in that area. We believe the partners we are working with from the RFP will be well positioned to navigate the current environment and fulfill the expectations outlined in their proposals. We anticipate that the DOE fees will be resolved relatively soon, with many of our contacts suggesting by the end of the year. However, even if it takes a little longer, we don’t think our overall expectations will be compromised. In the short term, as I mentioned, there are many other initiatives we can accelerate to meet other customer needs if any projects are delayed.

Got it. Thank you for that thought. That's helpful. And just kind of pivoting a bit here to nuclear and really small modular reactors. Just want to know your thoughts on, I guess, how this could unfold going forward. And we saw one of your peers potentially partnering with the university to build an SMR. Is this something that Entergy would consider doing to demonstrate the viability of the technology? Or any thoughts like us on SMR when and if that could be something that Entergy is really moving more towards or exploring?

We're closely watching developments in the small modular reactor space. Our nuclear team is actively engaged in advisory roles with various organizations to stay informed about progress in this area. The success of this technology is essential for meeting the economy's decarbonization goals. Building smaller, cost-competitive, and carbon-free projects presents challenges, especially regarding the large capital budgets required for existing technologies, which can be as substantial as the companies funding them. This can lead to complications during construction. We're optimistic about the potential of this technology and how it may align with our needs in the future, although it's challenging to make definitive statements at this moment. Nonetheless, I believe there's potential for this technology to become established. We are spending, I know probably more of our efforts in the hydrogen space because of the unique position that we have in the hydrogen market with producers, consumers, and stores, transported all in the heart of our service territory. So there's a unique advantage there. But it doesn't mean we're not staying involved in what the SMR technology could do for us and for the economy in general.

Got it. It's very helpful, I leave it there. Thanks.

Thank you.

Good morning, everyone. It's been a while, Drew. Just following up on a previous question. Can you confirm whether the storm Ida balance of costs, for which you haven't received regulatory approval, still stands at $1.7 billion? I believe that was the figure mentioned at the end of the fourth quarter call. If you could provide either confirmation or an update, that would be appreciated.

The total cost estimate for that storm is still at $2.7 billion, with $1 billion expected to be included in the first securitization pricing in the coming weeks. The remaining amount will be addressed towards the end of the year. The complete $2.7 billion will be part of our upcoming filing in the next few days. Just to clarify, we need to obtain approval for the full amount to recover those costs. The $1 billion down payment does not constitute pre-approval of those costs; it is simply prefinancing.

I see. So essentially, you'll be seeking approval for the full $2.7 billion and the $1 billion that you've gotten already will be applied towards it. Is that the right way to think about it?

That is correct.

Okay. Thank you very much. I appreciate the call today. Thanks guys.

Thank you.

Hi. Good morning, team and thanks for the opportunity here. Congratulations on continued results. If I can, just to focus on the first quarter and some of the dynamics here. Can you comment a little bit on the industrial demand and the 6.5% in the first quarter here? And how do you see this trend through the balance of the year as you think about it, especially given the potential for export-oriented industries to do particularly well here? And could you talk also, in tandem, at the same time about some of those trends that you observed specifically around accelerating customer desire for renewables? You had specifically identified at the start of this year, a number of very large customers. But I have to imagine, based on your comments already that there are actually several other larger customers that you're talking to.

Yes, this is Drew. I will address the first part and then hand the second part to Rod. Regarding our sales expectations, we experienced higher-than-expected industrial sales this quarter. Most of it aligned with our forecasts. Refiners performed well due to high crack spreads. However, we faced some unplanned outages in the chemical and petrochemical sectors, which impacted us negatively. But we also had unplanned outages with our Cogent customers that offset some of those losses, resulting in strong performance from that segment. The other outages among our regular customers were quite significant too. Overall, our results were slightly above our expectations. As we move through the rest of the year, we anticipate that key industries will maintain high utilization rates. They will make efforts to minimize both planned and unplanned outages to maximize output due to the current commodity environment. Additionally, while not mentioned on that slide, LNG utilization rates are also very high. Now I will pass it over to Rod to discuss further.

I was initially going to focus on the LNG aspect, but I won't delve into specifics regarding Analyst Day since we'll share our perspective on the five-year outlook then. However, we are noticing a growing interest in signing offtake contracts, which reinforces our belief in expanding within the LNG sector. We'll allow our customers to guide that discussion, but we want to highlight that 85% of the projects currently under FID consideration in the LNG sector are located within Entergy's service territory. This further bolsters our view that we have a distinctive growth opportunity, as our customers also have unique growth potential. Our capability to support their expansions while assisting them in achieving their ESG goals continues to represent a growth opportunity for us, and we remain optimistic about it.

Excellent. And then just one other nuance here. I'm just seeing a lot of headlines here on insurance costs. I'm sure you guys have seen the headlines in Florida but also in Louisiana itself, especially as it relates to catastrophic storms. Can you comment about any potential pressures from an inflationary perspective on your business specifics?

You're talking about insurance specifically, Julien?

Yeah. I mean I was thinking about insurance specifically, obviously, a broader backdrop here, but insurance seems to be getting headlines here outside of the utility space of very late.

Okay. We are not permitted to insure our poles and wires, so that has not influenced that area. Like others, we have experienced overall pressure on insurance premiums, and we are addressing this across various types of coverage, including property and general liability. We are also focusing on cyber insurance to ensure we meet our operational and maintenance expectations moving forward. As you mentioned, this reflects a wider trend regarding inflation. We have certainly noticed inflation in fuel costs, which we are managing with our stakeholders in the short term. In the long run, we anticipate that the natural cycles of commodities will eventually help reduce prices. Regarding inflation in capital expenditures, we have observed it in solar projects and other materials for our capital initiatives. However, it's important to note that while we're encountering inflation for current marginal capital projects, these are being incorporated into a much larger rate base that is already established and fixed. Thus, the impact on customer bills is relatively minor. We are closely monitoring fuel costs, and we haven't encountered significant pressure from other operating expenses recently. However, we remain vigilant and are committed to continuous improvement efforts to stay ahead of any emerging challenges.

Got it. It doesn't sound like it's an outsized impact to you all here. It sounds like you guys have it under control. And also it sounds like a pretty good update here at this Analyst Day. So we're going to stay tuned. Thank you, guys.

Thanks, Julien.

Good morning. Regarding the resilience plans you mentioned, last year you discussed having conversations with key stakeholders. Can you provide any updates on how those discussions have progressed? Do you sense any urgency from them on this matter? Any insights would be appreciated.

Thanks, Steve. It's Rod. Good morning. We have just finished analyzing the risk scenarios, likely as a result of storms, and we're currently in the evaluation phase of the capital expenditure investment scenarios. What you mentioned marks the start of both formal and informal technical discussions and stakeholder conversations, which will start in earnest tomorrow in New Orleans. The feedback process is just getting underway, and we will provide more details at Analyst Day. I can share that we have had some informal discussions as we began the analysis, and there's a strong interest in understanding our perspective on the risks and benefits of moving forward quickly. Given the current economic climate, stakeholders—including customers and regulators—are particularly interested in our thoughts on cost and bill impacts. We are just starting, but I anticipate active engagement from stakeholders as we move forward in New Orleans, particularly in relation to our first formal filings expected in July for the City of New Orleans and the state of Louisiana around that time as well. In Texas, we've also started sharing ideas on how they might approach resiliency. Their sense of urgency could differ compared to Louisiana and New Orleans, but they are definitely paying attention, especially considering the role of our Texas service area in industrial growth and their interest in resiliency. To sum up, we're just beginning, and we will have more updates at Analyst Day, Steve.

Okay. So it sounds like at the very least, you'll have better data scenarios for the Analyst Day of what different options are. And obviously, the results will be over time, depending on what customers states want. Okay. Thank you.

Thank you.

Good morning, everyone. One question I have is, can you provide some insight into your awareness of commodity and gas prices? I understand your points about the long-term advantages of your investment strategies, but what is the current build trajectory you anticipate over the next few months? It would be great to focus on that.

Sure, this is Drew. In the near term, it really depends on the jurisdiction, with Louisiana being the most relevant in this context due to the securitization costs involved. The final pricing of those securitization bonds will likely lead to an increase of around 10% once all the costs are added to bills. This also accounts for a slight rise in interest rates, which our customers are already aware of. We are managing this situation with our stakeholders, and most of the necessary approvals have already been granted by the commission, so we are moving forward as planned. Regarding gas prices, the impact varies by jurisdiction, but in Louisiana, Texas, and New Orleans, these prices are usually reflected in bills quite rapidly. While there is some hedging in Mississippi, it's fairly limited, and our customers are accustomed to the fluctuations in gas prices. We are actively addressing this through various initiatives, including a continuous improvement program and levelized billing options for our customers, which helps them manage their bills and mitigate some of the volatility. Over time, gas prices are slightly higher than we previously anticipated but remain within a manageable range. As mentioned, our planned investments should help mitigate risks associated with gas prices and inflation in the long run.

When you say over time, Drew, you're talking about sort of further out on the curve, right? Can you frame for us what the sort of 2022 impact on sort of top of the securitization might end up being on Louisiana customers, for example?

In 2022, it's going to be partly related to what I mentioned earlier because it's not just about the overall securitization costs. It's likely to be about two-thirds of that, leading to a 5% or 6% increase once those costs are reflected in the bills later this year.

And then I think the commodity piece is incremental to that? Or is that included in that number? I guess my...

No. You're asking about gas prices? Yes. A general guideline is that a sustained increase of about $1 per MMBtu would lead to a 3% to 4% rise in gas prices over a year. We haven't experienced that yet, but that's the idea.

Thank you for that information. I have one more question. When I review your slide that shows progress against guidance in areas like utility operations and maintenance, along with the interest line and the parent line that has been added, it appears you're experiencing more pressure than anticipated for the year in the first quarter. I understand that the tax aspect is expected to be more front-loaded. Is this timing consistent across all areas, or are there elements that are building up, with the hope that an uptick in sales will mitigate impacts? I would appreciate any clarification on this.

Yeah. Sure. So in terms of O&M, I think in the first quarter, you're talking to the timing elements. We are on track for our expectations for the balance of the year. And in terms of the interest expense element, we are seeing some interest expense that's a little bit higher than we would expect to stick as we go through the course of the year. But there's also some timing elements in that sort of category that we are seeing in the first quarter that will turn back around. So you're not seeing all of the interest expense in the first quarter, and it goes away. It actually is going to be building over the balance of the year, but there are some timing elements in the first quarter that will turn around. But I think those are the two things that are going on.

Thank you for that. Good luck. I look forward to the next update.

All right. Thank you.

Hi. Good morning, everyone.

Good morning, James.

Just a real quick clarification just post Julien's question. With a slightly better sales outlook you guys have, have the drivers related to mix changed materially, Ergo? Is this really being driven more by a more robust C&I sales? Or are you seeing higher demand across all classes despite an increasing trend for return to work at this point?

This is Rod. I think the short answer is it's been actually going the way that we expected. With residential demand trailing off as our residential customers are going back to work, school and kind of a pre-COVID life. And the growth story being driven by the C&I space that you alluded to. So from our vantage point, we're actually tracking according to plan there with a little bit of robustness in the C&I space, but that's about it.

Okay. Great. Just to clarify about the 10% increase you mentioned, that's a 10% increase across total retail sales in Louisiana, correct?

Yes.

Is there a difference in rate design between residential, commercial, and industrial? It might be too detailed to discuss now, but I can follow up on this later.

I think Bill can address that for you later because I can't provide an answer right now. There is a difference, of course. A significant portion of distribution costs will primarily affect residential and commercial customers, with less impact on industrial customers.

Okay. Great. I’ll follow up with Bill. Thanks so much.

Thank you, Jonathan, and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on May 5, 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 webpage 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.