Entergy Corp (ETR) — Q2 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 has questions, we request that 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. Good morning, everyone. Today, we are reporting strong second quarter adjusted earnings of $1.78 per share. Robust economic activity and supportive fundamentals drove favorable sales trends in our commercial and industrial sectors, and hot weather drove increased residential and commercial sales. We are also seeing growing residential customer counts supported by strengthening wage and employment data. Given the results to date as well as our view of the balance of the year, we are tracking towards the upper half of our 2022 guidance range and remain squarely on pace to achieve our longer-term 6% to 8% growth outlooks. While we're pleased with the strength of our business, I want to acknowledge that, due to global factors impacting natural gas prices, together with high electric usage caused by extreme heat, our customers, like many across the country, are receiving electric bills that are much higher than is typical even for this time of year. This is top of mind, as we continue to achieve outcomes that build upon our proven track record of results. We executed on the important customer, regulatory, operational, and financial deliverables that continue to improve quality across our business. As we discussed at Analyst Day, the attributes of Entergy's business align well with premium utilities. Given the bill pressures customers are facing, we continue to take strong and meaningful measures to help ease the burden of electric costs. Many of our past actions and investments are mitigating the impacts of high natural gas prices for our customers today. The investments we made over the last eight years and more efficient generation and renewable resources have lowered fuel costs by nearly $500 million annually compared to what they would otherwise have been. Going forward, investments in renewables, and highly efficient generating resources, like the Orange County Advanced Power Station, will further reduce customer exposure to natural gas prices. Our ongoing participation in MISO has provided more than $250 million per year of savings for customers and these savings increased during periods of higher fuel prices. Our top quartile O&M performance and customer-centric investments have delivered meaningful value for customers. We placed extra importance in helping customers who need it the most, with programs like the Power to Care, and initiatives to get LIHEAP assistance to customers that qualify. Otherwise, we help customers manage affordability include products like level billing, deferred payment plans, as well as analytics and AMI-driven usage alerts. To further address bill challenges today, we are working with our regulators on additional solutions. We've agreed to defer fuel recovery to mitigate fuel price impacts on customers' monthly bills. We are also waiving late fees for eligible customers and credit card fees for all residential customers. We've committed $10 million in shareholder donations for residential bill payment assistance programs. Additionally, given our strong industrial and commercial sales and hot weather, we are utilizing our flex program to increase spending on initiatives designed to lower customers' costs and improve reliability. As I mentioned, one of the largest drivers of higher customer bills has been the increase in natural gas prices. Looking ahead, the forward NYMEX curve indicates significant gas price declines over the next 12 to 24 months and we are seeing fundamentals that support that trajectory. While weather across the nation has driven up natural gas demand this year, causing inventories to be tight, US gas production is tracking roughly three Bcf per day ahead of last year. The US has ample natural gas resources that can be produced in shale plays at prices consistent with the long-term NYMEX curve. Over the last year, we've seen independent producer activity ramp up in Haynesville and Permian Basin shale plays. Haynesville gas rig counts have increased nearly 50%. Increased gas production is also reflected by higher oil rig counts in West Texas, where high levels of associated gas from Permian Basin shale represent significant natural gas supply additions. The old adage that nothing solves high prices like high prices is certainly true. And while we can't control commodity prices, we see relief for customers in sight. Our recent SERI settlement represents another way we have worked with our regulators to mitigate risk while also helping reduce customers' bills. In late June, we announced a settlement with the MPSC that resolved Entergy, Mississippi's 40% economic interest in complaints against SERI. The settlement is a big step forward in resolving risks surrounding system energy and improving our overall regulatory environment. The settlement also comes at an opportune time to provide much-needed bill relief to Mississippi customers. Entergy, Mississippi would use the cash payment from this settlement to provide immediate bill relief and help offset fuel impacts on customer bills. The Mississippi Public Service Commission recognized the opportunity to deliver meaningful value to customers today rather than wait for an uncertain outcome potentially years down the road. Looking beyond Mississippi, this settlement sets a marker and represents a catalyst opportunity to drive progress with the other commissions on broader SERI litigation resolution. Beyond SERI, regulatory progress was made at all of our utilities. We have submitted our annual FRP filings in Arkansas, New Orleans, and Louisiana. And as planned, Entergy, Texas filed a rate case reflecting the significant investments we've made across transmission distribution and generation resources to better serve our Texas customers. We also demonstrated strong operational quality in the quarter. We have a flexible, diverse, and reliable portfolio of generation and grid infrastructure that allowed us to reliably deliver power to customers during extreme weather. In fact, all of the states we serve recorded triple-digit temperatures during the month of June and Entergy system set a new peak load in MISO. Consistent with the accelerated resilience plan we laid out in Analyst Day, Entergy, New Orleans made its initial resilience and hardening filing. The filing included $1.5 billion of hardening projects over the next 10 years, including options for several microgrids spaced in neighborhoods throughout the city. All proposed projects create customer benefits. We will work with the City Council and other stakeholders to identify the optimal set of projects for Entergy, New Orleans and we'll make a formal filing later this year to seek approval for these projects. We are working towards similar resilience filings in Entergy, Louisiana in the fourth quarter and at Entergy, Texas next year. These filings and stakeholder engagement are important steps toward our 10-year accelerated resilience plan. Our plan will reduce risk for our customers and for Entergy both in terms of reduced outages and lower storm costs and further improve our operational and balance sheet quality. Another important accomplishment is the sale of Palisades to Holtec. This represents the last major milestone in our multi-year plan to exit the merchant nuclear power business. Turning to growth, overall, economic activity in our region was vibrant during the second quarter. Our commercial customers continue to show strong recovery from the pandemic. We've seen positive economic indicators for our residential customers. For example, the Louisiana wages increased more than 6% in 2021, which exceeded the national average. Further, Louisiana's unemployment rate hit a 50-year low of 3.8% this past June. Economic development and expansion across our region is robust. And as we've discussed, Entergy is a major facilitator of this growth. Across our system, residential customer accounts continue to grow and show energy efficiency gains. Both of these trends drive improved affordability. We had significant industrial growth this past quarter, which drives economic gains for the regions we serve and the load growth helps keep bills low for all customers. As we discussed at Analyst Day, Entergy has a robust and unique growth story stemming from our industrial customers with an expected 6% compound annual growth rate over the next five years. Commodity spreads and geopolitical conditions combined with the inherent Gulf Coast stability and competitive advantages are driving new customers to locate in our region and our existing customers to expand their businesses. Over the next five years, we have line of sight to the growth we outlined with a robust pipeline of projects. As we sit today, there are 100 identified projects in the pipeline. Roughly half of these projects have already made final investment decisions comprising almost 10.5 terawatt hours of annual load potential by 2026, further highlighting our growth opportunity. Sempra Infrastructure entered into an MOU with Entergy Texas for its Port Arthur LNG plant. Phase one of this facility includes two LNG trains with gas turbine compression, representing 270 megawatts of new load. Phase two would add two additional trains with plans for electric compression that would represent approximately 600 megawatts of new load. The Port Arthur project demonstrates the strong basis for the industrial load growth we expect over the next decade. As outlined in the MOU, Entergy Texas is developing options to accelerate the deployment of new renewable generation and to increase power supply resiliency. If Sempra's Port Arthur energy were to be supplied with 100% solar, it would represent more than 2,500 megawatts of new solar generating resources. Projects like Sempra Port Arthur highlight industrial expansion, with customers striving to grow in a carbon-neutral manner. For our broader industrial customer base to achieve their decarbonization goals, it goes well beyond mitigating emissions from business growth. They must decarbonize their existing operations. As we've previously discussed, Entergy's industrial customers have significant carbon emissions, representing 15% of the nation's industrial emissions, and the majority of our customers have aggressive decarbonization goals. For utility investors interested in driving decarbonization, Entergy represents a unique rate of change investment opportunity. Over the last quarter, we continued to make decarbonization progress for Entergy and our customers. Construction of Entergy Mississippi Sunflower Solar Station was completed. This 100-megawatt facility represents the first step towards Entergy Mississippi's 1,000-megawatt EDGE program which will support economic development in the state. In May, the Arkansas Public Service Commission approved our Green Promise tariff that offers 100 megawatts of capacity from Entergy Arkansas, Searcy and Chicot Solar resources for allocation to customers who signed letters of intent. We've seen robust customer demand for green products and this program is already fully subscribed. We intend to grow this tariff to accommodate the demand. Entergy Texas continued to move the Orange County Advanced Power Station through the regulatory review and approval process. When it comes online OCAPS will have the lowest heat rate of any combined-cycle plant in our fleet and will immediately provide fuel savings, reliability and environmental benefits for our customers. This hydrogen-capable facility will provide further benefits over time, through fuel diversity and long-duration clean energy storage. At our Analyst Day, we laid out a clear plan and path to support our customers’ significant growth potential over the next decade. This plan calls for greater investment in clean resources and accelerated resilience to meet our customers’ demands while we maintain our focus on affordability and drive continued quality gains across all aspects of our business, consistent with our premier utility objective. Entergy has an excellent near-term growth opportunity. When considering the broader electrification and decarbonization potential, our long-term growth opportunity is even better. We are excited about our future and proud of the progress we are making towards achieving it. I will 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. As Leo said, we've had a strong start to 2022, supported by our second quarter results. As you can see on slide three, our adjusted earnings were $1.78 per share. Our results included retail sales growth fueled by industrial growth and much hotter than normal weather. This strong start to the year is enabling us to flex our spending to benefit customers and we are affirming our guidance and longer-term outlooks. For 2022, we expect results within the top half of the range. In addition to EWC results, which included the sale of Palisades, the quarter's results had adjustments that rose out of two issues you've been following closely: storm cost recovery and the partial settlement on system energy cases at FERC. These developments included specific benefits for customers and reduced regulatory risk while the receipt of securitization funds also strengthened our balance sheet. We provide more details on these items in our earnings release. On Slide 4, you'll see the adjusted EPS drivers for the quarter. Retail sales were strong, partly driven by hot weather. Within our service area, cooling degree days were 15% higher than normal. All states in our service areas saw above-normal temperatures, with Texas experiencing record heat. We also saw strong growth even after excluding the effects of weather. Industrial sales grew approximately 6.5% for the second straight quarter, including higher sales to existing as well as new and expansion customers. For this quarter, many of our major industrial customer segments increased with chlor alkali and LNG seeing the largest increases. Sales to cogeneration customers were also higher, comprising one-third of the total growth. You can see on Slide 5 that the fundamentals underlying our industrial growth outlook remain strong. In addition to industrial sales being higher than last year, they were also higher than our guidance expectation. The largest driver was cogeneration sales. As a reminder, we don't rely on above-average cogeneration sales in our outlook. For the quarter, we also saw higher operating expenses from the effects of our ongoing customer-centric investments as well as higher other O&M, driven in part by increased spending on power delivery and customer service. This represents the beginning of the flex spending that Leo referenced to achieve customer outcomes for improved affordability, reliability, and customer experience. The results for EWC are summarized on Slide 6. The drivers for that business continue to be the shutdown and sale of our merchant nuclear plants. Moving to Slide 7. Operating cash flow for the quarter was $278 million, a decline compared to last year. The most significant driver was natural gas prices, which were more than 150% higher than the same quarter a year ago. Our deferred fuel regulatory asset increased by more than $600 million in the quarter. We have taken steps to help customers manage fuel costs in their bills, including delaying more than $300 million of fuel collections and the SERI settlement in Mississippi among other things that we have discussed. As we also said, the good news is the forward curve calls for natural gas prices to decline, and we are seeing fundamental indicators that support this outlook. Turning to credit and liquidity on Slide 8. I'll start with our net liquidity, which is strong at $3.7 billion. That includes $323 million in storm escrows, which is important as we move through the summer. During the quarter, we received securitization proceeds in both Louisiana and Texas. As we have done with previous Louisiana securitizations, we have guaranteed savings for our customers, sharing value created from the efficient securitization structure. The guaranteed amount is about $100 million, and that could eventually be higher. As you know, we reached the settlement with the Mississippi Public Service Commission for their 40% share of the SERI cases. If you are able to settle with all parties on the same terms, that would total $588 million, including Mississippi's share. Those refunds would temporarily impact FFO when cash moves to customers. The financing cost and other elements of the settlement, such as ROE and capital structure, would remain on an ongoing basis. We have not reached settlement with all parties. So without knowing the details, we have yet to decide how a full settlement would be funded. Regardless of how it's funded, our long-term objectives remain the same, achieving or exceeding 15% cash flow to debt, and 6% to 8% growth in our adjusted EPS. And any amount that we were to fund through equity could be easily achieved quietly and cost-effectively through the ATM program. I would also like to highlight that we have published a sustainable financing framework, which allows us to issue green, social, and sustainability directed financings to fund eligible projects that drive our business objectives, including our energy transition and resilience strategy. We engaged S&P Global to provide a second-party opinion, and they have affirmed the framework's alignment with accepted principles for these types of financing instruments. Both the framework and opinion can be found in the Investor Relations section of our website. A summary of our progress against our equity plan is shown on slide 9. In the second quarter, we reduced our equity needs by $250 million through our ATM program. That leaves a little more than $300 million remaining in the equity plan to be executed between now and the end of 2024. Slide 10 shows our guidance and outlook, which we are affirming today. We provided a thorough update at our Analyst Day in June, which offered a clear picture of the significant opportunities in front of us. In 2020, we reduced spending significantly in response to lower revenues from the pandemic. For 2022, as noted, we have had a strong first half of the year. Now we are flexing to increase our O&M and other costs to benefit our customers. This includes spending to improve reliability, affordability, and the customer experience. Even with these initiatives, we expect results for the year to be in the top half of our guidance range, consistent with where we've been in the last several years. Regarding longer-term outlooks, one recent item of note not yet reflected is the Inflation Reduction Act. Like everyone else, we are a week into the review. Overall, we are optimistic about the act's ability to create long-term economic benefits for our customers. The production tax credits will support renewable development in nuclear, which will help our customers decarbonize and reduce their exposure to natural gas prices. By leveling the playing field for renewable development with production tax credit transferability and avoidance of normalization, the act allows for greater customer economic benefits through utility ownership that provides long-term operational flexibility and investment optionality. And the act encourages emerging technologies like hydrogen and carbon capture that will help our industrial customers decarbonize. CCS and green hydrogen are part of Entergy's sizable clean electrification potential, and our region is uniquely positioned to support these technologies. Finally, we expect that after the first year, most of our customers should see a benefit in their bill from production tax credits in excess of the alternative minimum tax. For Entergy, that looks largely cash flow neutral after the first year, but we'll need to see the final law and work with the federal authorities and, of course, our retail regulators on implementation. In summary, we see the act as a positive. At Analyst Day, we discussed how we are demonstrating strong financial quality. We have a unique and significant sales growth opportunity due to organic industrial growth and decarbonization. We have a robust plan to invest in clean and renewable resources and improve the resilience of our grid. We also have a plan to achieve 6% to 8% EPS growth. And at the same time, we're focused on balance sheet quality and reducing risk. While our employees will always remain focused on our customers and all that we do, they remain world-class at getting stuff done with a track record of delivering on our commitments to prove it; we plan to continue that success. And now the Entergy team is available to answer questions.

Hi, good morning, Leo and team, it's actually Constantine here for Shar. Congrats on a great quarter.

Good morning.

Good morning.

I wanted to start off on the strong results for the quarter and some of the changes in assumptions for 2022 guidance. You're now in the top half, obviously, and you have a big EPS offset for the remainder of the year in the O&M flex category, but whether it keeps looking strong. And how does that potentially set a base for growth in 2023? And maybe just curious, on the recurring elements in this slice, and how that carries into 2023 assumptions and contingency.

Sure. This is Drew, and I'll begin and Leo can add on. We expect to be in the top half of the range while considering the impact of our actions. It's promising to see significant growth from our customer base, although not all of it will continue at the same rate. Some of the growth relates to cogeneration, and we anticipate a more typical cogeneration rate moving forward. Regarding the specific line items you mentioned, our O&M has increased due to higher sales, which comes with additional costs. We also discussed customer initiatives last week, which are part of our efforts to support our customers and are reflected in our 2022 outlook and guidance. Furthermore, in O&M, we have other operational matters, such as visitation management, and we've made investments aimed at improving reliability and enhancing customer experience, particularly during this time. These investments aren't solely focused on 2023 but are intended to reduce risk for the future by fostering continuous improvement today. Leo or Rod, do you have anything to add?

I think that's fair. We're encouraged by the beginning of the year. We're using those results to make sure that we're doing the right things for our customers here and now, and certainly see a lot of reasons why that industrial load growth should continue, not only this year but for years to come, to support our outlook.

Excellent. That's helpful. And on the litigated process for SERI at FERC. The Mississippi settlement obviously took care of a large portion of the dispute. I think they're one of the major parties, but other parties are less willing to accept those terms, in their comments. How should we think about the process, and kind of options going forward here? Where does the settlement currently fit within that longer-term 6% to 8% guidance, are the impacts kind of above or below the midpoint, as they're currently set?

Rod, why don't you give them the process and then Drew, you can help out on that.

Yes. From a process standpoint, the conversations and negotiations with the other jurisdictions are ongoing. They expressed their public stance in response to the Mississippi filing, but we are not in a position to comment or share further details regarding the status of those negotiations. However, we are actively engaging in discussions with each of those jurisdictions, despite their public position on the Mississippi settlement. I would like to highlight that the FERC trial staff, which we found constructive, indicated that the settlement was fair, reasonable, and in the public interest. We believe that this provides a productive framework for our continuing discussions with each of the individual jurisdictions.

In our outlook regarding the financials, we have incorporated the Mississippi settlements on an ongoing basis. Since we are still in discussions with everyone, we cannot comment on return on equity, capital structures, or any other specifics at this time.

Okay. Perfect. Thanks for taking my questions.

Thank you.

Hi, good morning and thank you.

Good morning, Paul.

Good morning, Paul.

And just to make sure I understand correctly, it sounded like under the draft IRA, you believe the regulated nuclear assets will be eligible for the production tax credits. And just if you could talk about how that could work in the regulated construct. That would be helpful.

Sure. Paul, this is Drew. We do think that they are eligible based on our reading of the act. As you know, our nuclear units do compete in the MISO markets. They bid their power in every day. And so we have a busbar price – a wholesale market price and that's the revenue that comes to the company every day because it ultimately gets netted off in rates and stuff like that through the normal regulatory process. But we do participate in the wholesale power markets every day. And so that's how we believe we'd be eligible.

Okay. I understand. That makes sense. And then shifting over to coal. And if you could talk about the Texas rate case filing and the new target dates for Nelson and Big Cajun, it seems like you're accelerating there. And just broadly how could some of the more stringent EPA NOX requirements lead to changes in coal timing renewables and related?

It's Rod. I can frame up the Texas rate case filing. Between October and through the end of the year, you'll see the procedural schedule laid out and I'll direct you to Page 34 of our materials just for some context. But it's about a $131 million base rate change in our case and our proposed ROE is 10.8%, reflecting a 10.5% midpoint with the 30% – I mean the 30 bps performance adder with equity ratio around 51%. And the procedural schedules laid out as is and certainly reflects the continuing benefit of our transmission, distribution, and generation riders as we move to incorporate OCAPS and other assets in our capital plan.

Yes, this is Drew. Regarding coal, it isn’t a significant issue in the Texas case right now. As you know, Paul, with high gas prices, there isn't much economic incentive to speed up retirements at the moment. However, there are potential new regulations that could require us to make considerable investments in our coal facilities to comply. If these regulations come into effect within our planned timeframe, they could accelerate the retirement process. We wouldn't make large capital investments in those coal plants for short-term benefits, so that's something we would consider in our timeline for coal plans if those regulations arise.

Okay. Thank you.

Thanks, Paul. And I'll add one more thing. We do not have a lot of control technologies on our coal plants today. And so there would be a lot of incremental investment for us. So I just make sure that that's clear as well.

Yes, thank you.

Hi, good morning.

Good morning.

Just want to start off with Entergy, New Orleans and the resilience filing there. Have there been any initial reactions that you could share with us or other takeaways, especially as we think about Louisiana and Texas on this front?

It's Rod. Initial reactions to the actual filing have been positive. The pace of the investment details is important, especially in the current economic climate. We are trying to understand the overall impact. We expect the council will organize additional technical conferences, with one scheduled for the 18th of this month. Ultimately, the council will guide us toward a filing that aligns with their current thinking, likely appearing towards the end of the third quarter into the fourth. The initial response has been encouraging. However, let’s be clear that our main focus right now is on addressing the immediate challenges our customers are facing due to inflation and rising gas prices in New Orleans. This is currently a priority for the council. Overall, we view the initial reactions positively, and you will see the council's procedural schedule in the fall outlining our next steps.

Got it. Yes. That was kind of the next part of the question here. Just conversations in Louisiana about higher customer bills as mentioned in your prepared remarks. So, what type of role do you see this playing in discussions about CapEx in general, and particularly regarding resiliency given the inflationary pressures you mentioned?

We are aligned on the objectives and the focus on the resiliency conversation. We postponed the resiliency filing in Louisiana to October to allow us to better refine the benefit case we plan to present to the commission. In Louisiana, as well as in New Orleans and our other jurisdictions, the emphasis is on providing immediate relief to our customers, and we are in agreement with the commission regarding this resiliency discussion. I also want to emphasize that the timing of our October resiliency plans for Louisiana does not alter our current strategy. Both the timing and the structure of our capital plan for short-term resiliency investments in Louisiana remain unchanged. We will have more updates as we progress through the summer and get deeper into the rate plans and hurricane season, but early indications suggest we remain strongly aligned with the regulators on the goal of resiliency.

Got it. That's very helpful. And just a last one if I could here, as it relates to equity needs in 2025 and 2026. While the ATM can satisfy these needs here, just wondering how you think about asset recycling at this point, if this is on the table, or could you speak to broader considerations here?

Yes, we discussed this at Analyst Day. I believe there isn't much new to add beyond what we covered there. There is a difference in valuation between private and public capital markets, which prompts us to consider this approach. However, it's not a straightforward process as we've mentioned before. Depending on the method chosen, it may not be as simple as raising equity in public markets. This could result in longer timelines and increased risks. We are taking these factors into account as we think about what we're referring to as strategic financing, as it needs to align with our broader strategic objectives.

Got it. That’s helpful. I will leave there. Thanks.

Thank you.

Thank you.

Hi. Good morning, guys.

Good morning.

Can I ask about the $300 million of fuel you've deferred? Is that the full extent of what you're planning to do with that particular tool, or is that just what you would recognize through the second quarter on this June balance sheet?

We have proposed to the retail regulators a delay in the collection of deferred fuel. At the end of the second quarter, the balance sheet reflects an additional $600 million of deferred fuel. Some of this may be delayed until the fall, and some could be postponed until next year, with a significant portion located in Louisiana, amounting to about $130 million, along with smaller amounts in other regions.

So, that's sort of the current proposal across the portfolio and to the rest of the deferred fuel from in the first half of the year we should see that sort of catch up a little quicker.

I would say that is quite recent. It includes deferrals from June and July, and possibly some from August as well. We are fairly up to date on our thoughts regarding this. Jonathan, regarding your question about further delays, we are nearing the end of summer, and I do not expect these delays to extend into the fall.

Okay. And then could you just sort of maybe help frame for us a little bit some of the other things you're doing to try and mitigate pressure on customers, maybe sort of put some quantification around that in the context of the fuel deferral number? Is that the biggest thing? I'm guessing it probably is, but just curious about what are the other pieces of the strategy.

Yes. This is Rod. Leo mentioned that the fuel deferral would be the largest single financial impact across customer classes. We are offering $10 million towards bill assistance programs in our areas. There is a moratorium on disconnects in New Orleans, and we are voluntarily extending that in our other regions. We are also working on credit card fee waivers and late fee waivers in different jurisdictions, along with the bill payment programs that Leo discussed. Our goal is to provide some relief to customers during what we see as a challenging time, especially in Louisiana and New Orleans where high usage coincides with high gas prices. Unlike some other areas, Louisiana and New Orleans have specific fuel recovery mechanisms that capture the impact of high gas prices every month. These efforts are intended to address immediate needs for our customers with the support of our regulators. We expect to evaluate the relief initiatives towards the end of the cooling season, around October-November, with our regulators. Additionally, I want to highlight the importance of what Drew mentioned regarding our ongoing investment strategy, which has a significant long-term impact on lowering customer bills, alongside the strong growth in the industrial sector that also benefits customer rates in the long run.

The only thing I would add to that, Jonathan, is certainly for Mississippi customers, the SERI settlement is probably the biggest bang for the buck that we've had in terms of near-term bill relief.

Could you remind us about the SERI?

I was going to add Jon, the securitization that we did, we got $100 million of benefits to Louisiana customers. I mean, there's a number of things that we've done that have some big dollars associated with them. We haven't really talked about our gas hedging program that's been beneficial to the customers in these high gas price environments. So there's a number of things that we've done to help mitigate customer bills.

Great. Thank you. Could I just ask about SERI that that settlement goes into effect regardless of not having reached agreement with the parties correct? And then what's the timing on when that benefit flows?

Yes, that is correct. We're asking FERC to approve and ratify that settlement by November, but Mississippi is already taking steps to implement the benefits for customers. November is the timeframe from FERC's perspective.

Okay. Did you include the Mississippi aspect of this settlement in your guidance? Is that the total impact assuming other areas follow a similar path, or is it only related to Mississippi?

Right now, it's assuming a grossed-up element, an inclusive everybody got the same as Mississippi, but we're not commenting beyond that about where it might end up given we have ongoing discussions.

Okay, great. Thank you very much, guys.

Thank you.

Hi, good morning. Thanks so much for taking the question.

Good morning.

Oh, hi, good morning. I was curious on the Inflation Reduction Act. Do you have a view at this stage just how much that could improve your competitiveness on the renewables front and whether it could unlock additional opportunity to rate base renewables within the play going forward versus the proportion that you've been assuming thus far?

I don't have specific numbers to share right now, but I can say that we believe it enhances our competitiveness. We won't need to go through the normalization process, and if everything proceeds smoothly, we might avoid some of the tax equity partnerships we've relied on, which would reduce certain complications and enable us to deploy more capital effectively. These changes are beneficial from both a utility and ownership standpoint. Additionally, our customers will gain from ongoing operational improvements that directly benefit them, rather than a third party. This ownership structure creates greater flexibility around our assets, allowing us to respond more efficiently to any issues without third-party involvement. Overall, there are numerous advantages to utility ownership that we struggled with previously, and now our customers will reap the full benefits. We believe this will lead to long-term advantages for them, though I don't have a specific number at the moment.

Great. Yeah. Thanks. That's helpful. And you had also mentioned on the cash flow side of things. It sounded like it was neutral. Is the way to think about that that you're already planning to see a cash tax bill that's at least at the level of the AMT that's been floated out there such that there wouldn't be an incremental cash flow drag as you see it?

David, this is Leo. I don't think that's the case. I think it's just the case that we'll be able to utilize the credits against the AMT plus, the transferability of the credit allows for us to be able to get that to neutral.

Yeah. And I will add that that's on an ongoing basis. I referenced the first year. There is a timing element that's out there that we had to pay close attention to between the A&T starting in 2023 and the bulk of our tax credits would be from the nuclear tax credit and those would start until 2024. So there's that 2023 gap that we'll have to figure out how to work through. The good news is it should be an offset to deferred taxes. So that means our rate base should go up. But we got to work through that. We got to get the final bill work through that with retail regulators, talk to rating agencies and the like.

Yeah. Okay. Thanks. So that does assume essentially that you get the nuclear tax credits that you're able to collect them and that's what helps you offset that AMT cash drag?

Correct, correct.

Okay, great. Thanks so much.

Thank you.

Hey, good morning.

Good morning.

Good morning.

Just on Grand Gulf according to the NRC data, it's been down since July 12. I just wanted to know why has it been down? When do you expect it to come back online? And then maybe just remind us in terms of the mechanisms you have in place for replacement costs and so forth? Thank you.

Yes, operationally, we encountered some equipment issues that required us to take the plant offline for repairs, which are currently in progress. The plants should be back online soon, especially after the recent refueling outage where we upgraded a lot of equipment following last year's remarkable performance. On a related note, I want to highlight that River Bend station achieved its longest continuous run online as of today, so congratulations to them. As for the mechanisms, Rod, would you like to add something?

Yeah, it's a monthly formula rate plan where the flow-through of cost of operating the plant are part of the FRP.

And the contracts back to the operating companies are unit contingent. So they would just replace the purchased power in the market as they do every day and that would flow through the fuel costs.

Of each of the individual

As each of the individual operating companies.

Got it. Okay. Makes sense. Thank you.

Thank you.

Hey, guys. Congrats on a great quarter, and thank you for taking questions. I don't know if this is a Leo or Rod one, but I'm just curious process-wise, the grid hardening or the system hardening proposals in Louisiana and Texas, how does that – how do you think that will look from a docket perspective? And how will – what you're thinking about recommending there how will that mature? How will that interface with the existing ratemaking structures that are already in place in those states, meaning the formula rate plans in Louisiana and the DCRF and the transmission recovery and the general rate case process in Texas?

Hey, Michael, it's Rod. We discussed this at our Analyst Day, but it really depends on the timing of our agreement in Louisiana. How Louisiana views the capital plan concerning resiliency will determine whether we can manage the capital costs through the existing formula rate plan and recovery riders or if we need to consider other options. This is also a matter of scale, as we mentioned at Analyst Day that our capital program was set to increase from $2 million to $4 million focused on accelerated resiliency, mostly in Louisiana, and we intended to utilize existing mechanisms for that. Whether we need a different approach will rely on how the commission collaborates with us regarding the timing of capital expenditures. In Texas, we adjusted the timeline for the accelerated resilience filing to 2023 due to changes in the rate case and OCAPS timing. We want the resiliency filing to follow these events. The situation in Texas is not significantly different from Louisiana. Ultimately, it will depend on how the commission and our customers perceive the timing of resiliency spending. The question will be whether we can incorporate that capital expenditure through the current transmission and distribution recovery riders or if we need to adjust the regulatory recovery mechanisms. We will need to see how this unfolds, but our thought process remains consistent.

And Michael, this is Leo. I'll add that in addition to what Rod mentioned regarding the integration within existing regulatory frameworks, there is a subtlety concerning assets we intend to replace that have not yet been fully depreciated. This is a modification we may need to consider. As you remember, we encountered a similar adjustment in the regulatory process for AMI across various jurisdictions, where we were replacing functioning meters with new ones that would be more cost-effective and enhance service quality for customers in the future. The situation here is analogous. We have the $2.2 billion already included in our plan, which aligns with the current regulatory structures and fully depreciated property standards. However, our regulators have publicly advocated for the replacement of equipment that was built 15 years ago, reflecting industry standards that have since changed. This raises the question of how we will recover costs for equipment that isn’t fully depreciated. Again, we see a precedent in all jurisdictions with the meters, and this concept is the same, but it’s an adjustment we may need to ensure is accounted for across those jurisdictions.

Do you need to address the situation in Louisiana? It seems there's currently a lag there. I would say Louisiana might be one of the more challenging areas for you to get authorized. Are you concerned that if there's no change in ratemaking, meaning a more forward-looking structure in the formula rate plan, continuing to use the existing framework could further contribute to the lag?

It's always a concern. And our primary objective is to match the CapEx for customer benefits with the recovery mechanisms for the stakeholders and including you guys. So yes, that is a constant tension as we work through the forward-looking view of our capital plan and recovery mechanisms, Michael. So it is very much a part of the conversation.

And Louisiana has some good precedence around this. I mean, Leo was talking about AMI and the AMI dockets in Louisiana; we were able to get more contemporaneous recovery. And of course, on the capacity side, we have a long history of getting generation assets into rates when they get to COD. So I think there are examples of how this could work differently in Louisiana, but we certainly echo Rod's concern.

Got it. Thank you guys. Much appreciate it.

Thanks, Michael.

Thank you.

Hey, guys. Good to hear voice. Just procedurally back to the SERI settlement, it seemed like no party. Well, at least none of the state commissions objected to the settlement at all. Is there any reason why the November approval can't happen any earlier; or how should we think about that the potential for the FERC approval assuming that they approve it?

The FERC is the one in control of the procedural schedule, and while we respect that, we can't dictate their timeline. However, they are typically responsive to us and other stakeholders, especially as we aim to minimize concerns regarding SERI and the associated risks, along with maximizing benefits for customers. Our goal is to expedite this process as much as possible, while balancing our interests with other stakeholders involved in the first docket, which includes more than just Entergy. We appreciate any efforts by FERC to speed up the review of this customer-friendly settlement in Mississippi.

Awesome. Some parties are suggesting splitting up certain proceedings. I understand the public documents and the discussions you’re having, but just generally speaking, if I’m correct, with the most favored nation provision in the settlement, does that mean that any litigated portion is not subject to the most favored nation adjustment?

I think you got that right.

Okay. Okay. That’s it for me. Thanks so much.

Thank you, Paul.

Thank you.