Entergy Corp (ETR) — Q3 2022 Earnings Call Transcript

Good morning and thank you for joining us. We will begin today with comments from Entergy’s CEO, Drew Marsh; and then Kimberly Fontan, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person has 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 Drew.

Thank you, Bill, and good morning, everyone. Yesterday, we implemented the planned leadership succession we announced in August. While I am honored to lead this great company, I am not alone. Leo remains as the Executive Chair for the next few months, and we will continue to execute effectively on our strategic path. Leo has built a strong bench of talented leaders. Kimberly Fontan has taken over as Chief Financial Officer, and Kimberly Cook-Nelson has assumed the role of Chief Nuclear Officer. Additionally, Chris Bakken will serve as the Executive Vice President of Entergy Infrastructure, providing leadership and mentorship to Pete Norgeot, who has recently been promoted to Chief Operating Officer, and Kimberly Cook-Nelson as they settle into their top operational roles. With the new senior leadership team in place, Entergy has a bright future ahead, and we expect to fulfill our commitments to our key stakeholders. Today, we are reporting strong quarterly adjusted earnings of $2.84 per share. This is yet another solid quarter that keeps us on track for the year. In fact, now that our biggest quarter is behind us, we are narrowing our 2022 guidance by raising the bottom of the range by $0.10 per share, and we are affirming our long-term outlooks for 6% to 8% annual growth through 2025. Last week, our Board of Directors raised our quarterly dividend by 6%, making the annualized amount $4.28 per share, consistent with our target payout ratio of 60% to 65%. During the quarter, we continued to execute on many important fronts. Steady predictable growth relies on steady predictable regulatory mechanisms. Four of our operating companies have annual formula rate plans that allow timely recovery of our investments to benefit customers. Mississippi’s FRP filing was approved in July. Entergy New Orleans and Entergy Louisiana’s FRP rate changes took effect on September 1st, and we expect Entergy Arkansas’ annual review to conclude in December. Entergy Texas filed a base rate case this year, and it is on schedule with hearings planned for December. Without a settlement, we anticipate a decision in the second quarter of next year. The New Orleans City Council approved a $206 million securitization financing for storm cost recovery and replenishment of Entergy New Orleans storm escrow. While we are still reviewing costs from Hurricane Ida, proceeding with the financing will benefit customers by minimizing interest rate risk. Louisiana’s review of Ida costs is also in progress. Staff has recently filed supportive testimony and recommended full cost recovery. Hearings are set for December, and we expect to receive securitization funds early next year. These developments are crucial in restoring our credit metrics to targeted levels. In September, we received a recommendation from the ALJ regarding our proposed Orange County Advanced Power Station. It was encouraging that the judges recommended approval for the project, acknowledging the significant economic and reliability benefits it would provide to our customers in Texas. However, the ALJ did not support the hydrogen capability for the plant, although we still believe that the ability to co-fire hydrogen from day one is in our customers' best interest. Notably, the Governor of Texas has indicated his support for the plant and its hydrogen capability. The hydrogen capacity represents less than 5% of the total investment and is a vital option for fuel diversity, ensuring the plant’s continued value in a low-carbon future. Furthermore, an economically viable hydrogen economy is on the horizon, with the Inflation Reduction Act enhancing hydrogen economics and accelerating clean hydrogen production. We believe Entergy’s region is uniquely positioned to seize this opportunity, with expectations for the Gulf Coast to lead the way, generating jobs and economic benefits for our communities. The decision on Orange County will ultimately be made by the commission, and it is on the agenda for tomorrow’s meeting. If approved, OCAPS will be our first unit capable of burning up to 30% hydrogen on day one, with future plans for 100% hydrogen capability. The Gulf region is a prime target for onshoring growth opportunities. As discussed on Analyst Day, our industrial customers possess various inherent advantages that make them low-cost producers on the global stage, enhanced by recent supply chain and geopolitical conditions. Commodity spreads relevant to our customers remain positive and continue to support the outlooks we discussed on Analyst Day. We have seen announcements for new projects in our service area. For instance, Entergy Texas and New Fortress Energy signed an MOU to collaborate on developing renewable energy and hydrogen infrastructure, accelerating the green hydrogen economy in Southeast Texas. New Fortress Energy’s project will utilize industry-leading electrolysis technology from Plug Power to produce over 50 tons per day of green hydrogen. Entergy Texas will provide 120 megawatts of green power to support this facility, anticipated to be one of the largest of its kind in North America. In Louisiana, Olin and Plug Power announced plans to generate green hydrogen from a 15-ton per day plant. Both projects exemplify the blossoming hydrogen economy within our service territory. CF Industries has announced plans for a $2 billion carbon capture ammonia complex in Ascension Parish, which is expected to create over 400 jobs. This is another compelling example of customer growth linked to decarbonization. As previously mentioned, we've witnessed substantial progress over the last few months. We remain vigilant regarding the significant pipeline of opportunities for signs of broader economic uncertainty impacts. However, we have not observed any noticeable pause or pullback. As we stated at Analyst Day, the fundamentals of our region distinctly position the Gulf Coast for significant growth, even amid a challenging economy. We are also making headway in expanding our renewables footprint. We received approval for a 250-megawatt solar acquisition in Arkansas, which is being constructed near U.S. Steel’s expansion in Osceola and is expected to be completed in 2024, with U.S. Steel receiving the facility’s clean energy attributes. This illustrates our collaborative efforts with customers and regulators to promote growth, jobs, and sustainability in our region. In September, the Louisiana Commission approved four solar projects summing to 475 megawatts. They also greenlit our new Geaux Green tariff, which began accepting reservations from large commercial and industrial customers yesterday. Based on inquiries to date, we anticipate strong demand. The 365 megawatts allocated to the tariff were fully reserved in a matter of minutes, reflecting the strong demand for sustainability products. We also announced plans for two new renewable RFPs, with Entergy Texas seeking 2,000 megawatts of clean energy and Entergy Mississippi seeking 500 megawatts. Collectively, we now have eight active RFPs totaling 7,000 megawatts, with selections made in four and ongoing negotiations with counterparties. We will announce specific projects when agreements are finalized. Besides clean energy, resilience is essential for our customers, who increasingly depend on a reliable electricity supply. Since Hurricane Ida, we have invested in new infrastructure designed to withstand higher standards that enhance system resilience, including over 22,000 distribution poles, more than 2,200 transmission structures, and eight fuel stations. Our resilience investment plans are ongoing, and our base plan includes measures that will continue to fortify our system. We outlined our $15 billion 10-year accelerated resilience plan at Analyst Day, and we expect that our proposed investments will significantly mitigate physical and financial storm risks as we engage with stakeholders to substantiate our case. We submitted our first filing in New Orleans and plan to submit in Louisiana before year-end and in Texas by mid-next year. We have thoroughly researched, and the accelerated resilience plan is heavily informed by experiences from our neighbors in Florida, as their hardened assets performed well during Hurricane Ian, complementing the strong performance of our own hardened infrastructure over the past couple of years, which gives us confidence in our capability to substantially lower our storm exposure and provide significant benefits to customers. Affordability continues to be a top priority, and last quarter we introduced several initiatives to assist our customers facing increased bills due to warmer temperatures and higher natural gas prices. Through our recent customer affordability efforts, we have assisted over 35,000 customers with more than $5 million in bill credits. We have held energy fairs in 48 communities to provide valuable information to our customers on managing their bills and improving energy efficiency. Furthermore, we have weatherized many low-income customers’ homes and installed energy-efficient appliances, including new heat pumps and tankless water heaters. These initiatives are part of our broader effort to enhance affordability. Several of our prior actions are helping to mitigate the effects of high natural gas prices for our customers today. The investments we made over the last eight years in more efficient generation and renewable resources have led to a projected reduction in fuel costs of approximately $400 million based on 2022 gas prices, compared to what those costs would have been otherwise. Our long-term engagement in MISO has also yielded customer savings, totaling over $2 billion through 2021. Supporting economic development and growth in our service areas further aids customer affordability. Not only does it distribute fixed costs across a growing customer base, but it also fosters economic growth and job creation, which are essential for our communities. Continuous improvement is another lever for affordability, and it has never been more critical. We are utilizing continuous improvement to identify efficiencies that will counter inflationary pressures and create opportunities for new investments to support our customers. Entergy has a robust growth narrative. We are witnessing significant industrial growth as economic indicators for businesses in the Gulf South remain positive. This industrial growth not only drives investments for our owners but is also vital for our communities, particularly in the current economic climate. This opportunity is unique to Entergy and will benefit all our key stakeholders. We expect our growth trajectory will extend for years, as our customers seek our assistance in achieving their decarbonization objectives. This begins with expanding our clean energy capacity, which will help reduce our customers’ indirect emissions, and progresses to the electrification of industrial processes to diminish their direct emissions. We are very optimistic about both our near-term and long-term prospects and look forward to continuing this discussion with you at the EEI financial conference in a few weeks. Before concluding, I would like to address Leo Denault. He retired yesterday from his role as Chief Executive Officer after a long and successful tenure. While his daily presence will no longer be felt, the impact of his unwavering commitment to our four key stakeholders continues. Under Leo’s leadership, we streamlined our business to focus on core utilities, improved our nuclear operations, redefined our customer focus, expanded our ESG commitments, elevated diversity, inclusion, and belonging as a strategy, navigated through the pandemic and recent storms seamlessly, and established a clear vision for our future opportunities. Leo has famously completed 74 earnings calls over the past 19 years, being a steady presence for our key stakeholders. We will continue to work with him as Executive Chairman for the next few months as we pursue the vision and strategy he laid out. Now, I’ll turn the call over to our new Chief Financial Officer, Kimberly Fontan.

Thank you, Drew, for that introduction. I am honored to join the leadership team and I am pleased to join you all on the call today. I am looking forward to working with all of you in the financial community. As Drew said, we have had another strong quarter, with results to keep us on track to meet our financial commitments. Summarized on slide three, our adjusted earnings were $2.84 per share. Consistent with comments on guidance last quarter, we are narrowing our guidance range by raising the bottom end $0.10. This result is consistent with our objective of steady, predictable earnings growth. We are also affirming our outlooks through 2025. On slide four, you will see the adjusted EPS drivers for the quarter. Higher retail sales was the primary driver as last year was impacted by Hurricane Ida. Weather this year was also warmer than normal. Excluding weather, sales growth in the quarter was 5.7%. Industrial sales were up 7%. We continue to see growth from new and expansion projects in line with our expectations. The primary contributors to the industrial growth were chlor alkali and transportation customers. Sales to small industrial and cogen customers were also higher than last year. O&M increased for the quarter due to several factors. Power delivery expenses increased, including higher vegetation costs in part driven by inflation. We also had increased costs for transmission maintenance and nuclear operations. Bad debt expense rose on the heels of higher bills this past summer. Other drivers for the quarter results include higher depreciation and interest expenses from investments we continue to make to serve customers. You can see on slides five and six that the fundamentals underlying our industrial sales and growth remained strong and we have not seen signs of a pullback. Industrial commodity spreads continued to support positive margins and robust Gulf Coast operational levels. Refining remains highly profitable with low product inventory supporting high operational rates. Record commodity spreads continue to drive Gulf LNG exports to Europe today and expansion of this capacity in the future. The U.S. Gulf ammonia producers are running at high rates to help fill the global supply gap. Beyond supportive commodity spreads, the Gulf Coast region continues to offer industrial customers inherent labor, infrastructure and global shipping advantages. And as we discussed at Analyst Day, this next wave of our industrial growth is being accelerated due to onshoring trends. These trends are caused by broken supply chains globally, manufacturers needing reduced geopolitical investment risk, as well as global customers who need energy security. The results for EWC are summarized on slide seven. The shutdown and sale of our merchant nuclear plants continue to be the main drivers for that business. Operating cash flow is shown on slide eight. The quarter’s result is $993 million, a decline compared to last year. Key variances, including the timing of fuel and purchase power payments, the wind down of EWC and increased O&M, offset partially by higher utility customer receipts. Turning to credit and liquidity on slide nine, we continue to work towards achieving in range or better credit metrics by the end of 2023. We continue to monitor our deferred fuel position, and in the third quarter, our balance increased approximately $150 million. We continue to work with our retail regulators to manage the impact of high fuel cost on customer bills. The forward curve for natural gas continues to decline, which helps with customer bills as well. As deferred fuel balances are recovered, our credit metrics should improve. We continue to make progress on the securitization front. A credit positive development in the quarter was the City Council’s approval for Entergy New Orleans to issue securitization bonds to establish a new storm reserve and recover Ida storm costs. This, of course, is subject to the City Council’s prudence review. Last quarter, we gave our early take on the impact of the Inflation Reduction Act for our customers and for Entergy’s cash and credit position. After additional analysis, we continue to be optimistic about the benefits from this legislation. One important note is that we do not expect to be subject to the minimum tax provisions until 2026. The chart illustrates the relationship between gas and power prices and the resulting nuclear production tax credits at various commodity prices. We expect to see meaningful value for our customers, though, as you can see, the value is dependent on volatile commodity prices. We will work with our retail regulators to flow the value of the production tax credits to customers in a manner that mitigates volatility on their bills. We see meaningful value from the solar PTCs as well. The PTCs increased the competitiveness of utility-owned solar. The value for customers will increase over time as we grow our renewables portfolio. We remain encouraged about the prospects for the IRA to create value for our key stakeholders. To date, of the $1.2 billion expected need through 2024, we have issued nearly $1.1 billion, most of which are equity forwards. We plan to exercise the equity forward and receive the cash proceeds by the end of the year. Moving to slide 12, given the added clarity from three quarters of actuals, we are narrowing our adjusted EPS guidance range and affirming our long-term 6% to 8% growth outlook through 2025. For the full year, we once again raised our expectation on sales growth. This is largely due to higher than planned sales to cogeneration customers. While a positive for 2022 going forward, we will continue to plan conservatively for this customer group as electric demand from these customers varies. Commercial sales also have been higher than we expected, a positive sign for economic health. The higher than planned revenue from weather and sales gives us the ability to spend in areas that benefit our customers and de-risk future periods. Our O&M estimate for the year reflects flex spending, including initiatives to improve customer call response time and the enhanced customer assistance programs that we have discussed. We are also able to absorb some higher than expected expenses like vegetation management and ammonia used to reduce NOX emissions at our power generation plants without having to reduce other costs. Actions like these help us ensure that we deliver steady, predictable adjusted EPS growth year in and year out. The Entergy management team will be in Florida in less than two weeks and we will provide our preliminary three-year capital plan and high-level drivers for 2023’s earnings expectations. Additionally, we will discuss Entergy’s long-term growth story, including our unique industrial growth opportunity, our accelerated resilience program, renewables expansion, IRA opportunities, and our role in the hydrogen economy. Entergy has great opportunities ahead for our key stakeholders. We have a strong base plan to meet our strategic objectives and we look forward to talking to you about our plans at EEI.

Hi. Good morning.

Good morning, Jeremy.

Thanks. Just want to start off with the 2,500 megawatts add in RFPs. Just what is your expectation for utility owned opportunities there versus PPAs?

Hey. Thanks for the question, Jeremy. Good question. Our current expectation is at least 50% or better from an owned perspective, and that’s what’s assumed in our outlook.

And does...

It’s consistent with where we were. Sorry, Jeremy, this is Drew. It’s consistent with where we were at Analyst Day.

Got it. Does IRA present the opportunity that this could be a bit higher?

Sure. That’s certainly something that we are looking at. Recall that a lot of our investments in renewables are in the back half of the decade, so we certainly expect to see benefits from IRA in that period and we will talk more about that at Analyst Day. But we do think that the IRA provides upside, as well as reducing the need for tax equity partnerships on that front.

Got it. That’s helpful. And just if I could ask about U.S. Gulf Coast industrial activity expansion, just wondering what cadence do you see for that growth as far as LNG export capacity and other factors? What time frame do you see that ramping up and how do you think about the secondary impact where you bring kind of more and better jobs into the area and what that does for your residential customers?

I appreciate the question, Jeremy. This is Drew. I’ll begin, and then Kimberly or Rod can contribute. At Analyst Day, we outlined a 6% compound annual growth over the next five years, with a significant part of that at around 24%, which represents the largest increase in our forecast. However, it's still aligned with what we previously stated, and we expect it to remain strong. Regarding jobs, this will certainly benefit our local employment and support the growth of our residential and commercial customer bases. It's not as significant as it was three decades ago due to the level of automation and other factors in contemporary industrial operations. Yet, this also enables us to be more competitive globally. These factors present a balance of trade-offs, but they make our region particularly appealing. Rod, do you have anything to add?

No. I think that makes the point. The message we sent at Analyst Day around the back half of the decade, representing the lion’s share of the growth, and even at Analyst Day, we showed what sectors we thought would populate that growth as well, tying in our industrial expansion with the electrification and ESG concerns of our customers. So we ought to leave it at that.

Okay.

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

Thanks, Jeremy.

Hey, guys. Good morning.

Good morning, Shar.

Drew, maybe just starting off around your earnings guidance, just, I guess, looking at your O&M run rate increase and interest rate headwinds for 2023, how are you sort of thinking about the contingency and plan levers on offset, etc.? I guess how does sort of this inflationary environment change your planning parameters versus the Analyst Day expectations, especially as we are looking to bridge into next year with a sort of a $0.30 band at the top and bottom end?

Thanks, Shar, for that question. I will start with your O&M question. The drivers for 2022 were really around our flex levers, which includes both pull-forwards and one-time items like the enhanced customer assistance program that we talked about earlier this year. The pull-forwards give us ramp to pull-forward things from future years and de-risk future periods. The other impact from 2022 was inflation, as you noted, and we were able to cover that in 2022 through the increased weather and volume that we had in the first three quarters of the year. That said, we have included a level of inflation in our forecast for 2023 and we expect to meet our outlook as said, and we cover that with continuous improvement opportunities that we have been working on. As it relates to your interest rate question, I think, at Analyst Day, the outlook was about 5% or 5.25%. We have increased the interest rate expense to about a little less than 6% on the long-term debt and about 5.25% on the shorter-term debt and that’s included in our outlook. That said, our treasury team has done a lot of work over the last few years to help mitigate exposure to potential rising interest rates by refinancing long-term debt in the periods of lower interest rates to help us offset in future periods.

Got it.

And Shar, I will just add one thing on that last piece. We have a lot of cash expected to come in. Kimberly mentioned that we are intending to exercise the equity forwards, and then we have the securitizations, which we should be finishing up over the next several months. Those two things should alleviate some borrowing needs in the near-term, I should say.

Okay. Perfect. And then just to ask, maybe just shifting to financing, I mean, obviously, your capital growth opportunities are increasing with resiliency, hardening, green tariffs, etc. I guess, how are you sort of thinking about more accretive ways to finance this growth in this current really challenging capital markets environment? I mean, there’s been some press highlighting that you could be looking to raise about $2 billion through a minority sale of your utilities combined into a holding company, excluding Texas. I guess any sort of general comments here, any sense on timing, is there a process that started? I mean, you certainly won’t be the first utility that’s looking to optimize an asset in lieu of traditional financing?

Yeah. So I will hand this over to Kimberly to address it first.

Yeah. Thanks, Shar. There’s no new news on this front. I know we had talked to you about the value difference between private capital and public capital markets, and to the extent that we can capitalize on that, and there’s a difference there, we would be compelled to do that. But there’s no new news on that front at this point.

Okay. Got it. Figured this is Drew’s first CEO call, I was going to try to put him on the spot. Thanks, guys.

And I hand it to Kimberly very softly.

But give you the flex. You did perfectly. Thanks.

Thank you.

Hey. Good morning. Thanks very much for taking my question.

Good morning.

On the AMT, I just wanted to check, how much of an impact are you expecting once we reach 2026? I think you had in one of the slides in terms of when the corporate AMT would start impacting the business. And I was wondering in the interim over the next couple of years, just given that same slide, we are currently seeing Henry Hub forward prices kind of in the 450 range or above over the next few years. Is there an AMT impact at all in like 2024, 2025 that’s offset by the nuclear PTC level? I am wondering if you could just compare those two impacts.

Sure. Good question. As the slide indicates, we don’t expect the corporate minimum tax until 2026. That’s not being offset in 2024, 2025. If you think about how that’s being calculated, it’s a 3-year historical average, and then we can replace book with tax depreciation. So that enables us to not expect to have a minimum tax until 2026. That said, to your point on the graph on the right, we do think that we have significant opportunity on the nuclear PTCs. But it is dependent on the gas and the power prices and where those are at the time. But those do start coming in, in 2023 and 2024 and so we would expect those to come in earlier than that corporate minimum tax. And we will work with our regulators to provide benefits to our customers, but also offset the effects of that corporate minimum tax when we do have exposure to that.

Okay. Great. Thanks. That’s helpful. And then on the upcoming Louisiana Resilience filing, I was just wondering if there’s any feedback or initial conversations from relevant stakeholders in the state around the importance, the priority of kicking off this work and what the appetite might be?

Hi, it’s Rod. The short answer is that stakeholders in Louisiana are very interested in resiliency. They recognize the demand following several discussions about reliability and resiliency. The commission will always be focused on how we proceed, especially considering the sensitivities of the current economic situation and its impact on customer bills. As we mentioned in Drew's opening comments, it's clear that the insights gained from NextEra emphasize the importance of our efforts to align on the necessity of increased resiliency spending. The final decision will come through the resilience filing when the LPSC establishes a procedural schedule. However, all the research we've conducted, including the recent lessons from Florida, supports our strong belief in the urgency of this initiative. While we cannot preempt our regulators, we are confident that we are making progress in securing agreement among our stakeholders.

Okay. Great. Thanks so much.

Thanks, Dave.

Hey, team. Good morning and congrats Drew your first call and Kimberly to you as well.

Thank you.

Thank you.

Yes. Of course. All my other questions have been answered. I was just wondering if you could update if there’s an update to share on the SERI settlement. I know you had this settlement with Mississippi, but anything there that we should focus on as we get into the year-end or next step there?

It’s Rod again. No new news that I can communicate publicly. I can share affirmatively that we are actively engaged with relevant stakeholders and trying to contact a settlement and find common ground and I can only report that, that work is ongoing, but nothing public.

Okay. That’s helpful, guys. Thank you.

Thank you.

Hi. Good morning. Thank you.

Good morning, Paul.

If I could just follow up on Shar’s question a little bit and thanks for the details on the O&M. If you could just break down that, I believe it’s $0.60 higher than the original guidance, basically how much is that acceleration versus more the inflation and kind of organic pieces of that?

There are several factors at play, including both pull-forwards and inflationary pressures. It’s challenging to pinpoint an exact figure. From an inflation standpoint, we are primarily observing impacts in fuel and chemical costs, as well as on the capital expenditure side, while the labor market has seen less effect. We have accounted for a consistent level of inflation. Regarding flexibility, we have previously mentioned our strategy to increase flexibility when opportunities arise, whether due to volume changes or other business developments. This is reflected in our ability to invest where we can effectively support our customers and stakeholders.

Yeah. And Paul, this is Drew. I will add that the inflation effects, they are touching us. We are not immune to that, like the rest of the industry. The places where we are seeing it start to creep in on the labor side or Kimberly mentioned the commodity-type effects. And so we are also seeing, what I would say, in commodity services area. So vegetation is a big area where we have seen inflation and so we have been ramping up, as you mentioned, our continuous improvement efforts to offset that because the inflation piece doesn’t go away easily, and so there are continuous improvement efforts are ramping up to offset that over the next however long we need it. And we are finding actually good success in the offset. So we are very comfortable that we are going to be able to manage through the inflation effects that we have seen so far.

Okay. Great. Understand there. And staying on the hot topic of inflation, just as you think about the next Arkansas FRP filing, do you think that this is probably another one that’s going to be at the rate change cap or do you think you can manage a little bit below that level?

We have been working in the Arkansas area. The continuous improvement will help us reduce costs in that space. We certainly monitor expenses to stay under the caps, ensuring affordability for customers while also creating value for all our stakeholders. We believe we will continue to address inflation and manage it with ongoing improvements. The specific amount we will file in Arkansas next year is still being developed, but it will certainly take inflation into account.

And we are a little over the cap for what’s coming for the formula plan this year. So we are above the cap already there.

Yeah. Yeah. Okay. Understood. Thank you both and see you soon.

All right. Thanks, Paul.

Hey, guys. Thank you for taking my question, and again, congrats, not just to Drew and Kimberly, but obviously, Leo. It has been a long time since coming over from Indiana. I have a couple of easy questions. One is your demand growth, especially on the C&I side has been really, really healthy, not just this year but last couple of years, and this quarter, we saw a turn in residential demand growth. You have proposed Orange County in Texas, but just curious, even though you are adding a lot of renewable in lots of the jurisdictions, what your thoughts are around in some of the other jurisdictions to any need for any more conventional generation?

Yeah.

We plan for the long term and are focused on growth while monitoring the growth that is happening. Our strategy includes a significant investment in renewable energy, with plans for 14 to 17 gigawatt hours of investment over time. We will also incorporate baseload generation and smaller units as necessary to maintain reliability and meet our customers' needs. Currently, the Orange County project is on our agenda.

Orange County is an example of our approach to hydrogen capability, given the long-term need for a targeted transition to clean energy as our customers demand. In the near term, we don't require additional capacity to address this. However, if energy demand increases, we will need to reassess our position. Currently, we anticipate that the need for additional capacity, whether through storage solutions or converting natural gas to hydrogen, will become evident toward the end of this decade.

Got it. And then one on related follow-up, can you provide an update on the positive developments in Louisiana? The securitization process appears to be progressing smoothly, although we are still awaiting the final steps. It will be interesting to monitor the grid resiliency docket. Just curious, can you remind us of your revenue request for the formula rate plan compared to what has been authorized? Additionally, how are you planning to move Louisiana closer to achieving authorized rates of return?

Yeah. So you are referring to the fact that we have sort of been at the bottom of our band in the formula rate plan. Is that what you are referring to, Michael?

Either the bottom or in some periods not at the bottom, depends how long you look?

We are continuing to collaborate with retail regulators on options for more efficient recovery, especially as we start to enhance our resilience efforts. In our resilience filing, we have requested more timely cost recovery. We have implemented more efficient mechanisms for transmission and distribution investment in Louisiana, and we will need to secure extensions for those. These are the tools we are utilizing to help address the delays we have experienced in Louisiana, specifically.

So if I look at your EPS guidance over the next couple of years, does this assume that Louisiana at some point in that timeframe that it kind of how far out gets closer to the midpoint of the range?

It certainly seems that the last year of the FRP will be next year's filing, so we will need to navigate a new rate case or a renewal of the FRP. We are collaborating with the commission to achieve outcomes that align with the business's needs, and that is what we will be preparing for in our outlook.

Meaning your outlook assumes you are not at the low end of the band, you are back towards the middle or does it assume kind of what you have delivered over the last couple of years?

I think I’d have to look specifically what it assumes, but it certainly assumes that we work constructively with our regulator in order to move us further up in that band.

I don’t think we are assuming any new mechanisms will suddenly appear in the forecast. We are assuming that the existing mechanisms are in place. However, we will need to improve these mechanisms to achieve all of our financial targets, particularly the credit metrics we are aiming for going forward.

Understood and thank you. A lot of things improving in Louisiana over the last five years to seven years in terms of regulation and look forward to seeing this on a go-forward basis as well. Thanks, Drew.

Thank you, Michael.

Good morning, Drew. Good morning, Kimberly. How are you?

Good morning.

Congratulations on the official new roles, I guess, as of yesterday. Most of my questions have been asked, but just a couple for me. So going back to Rod’s comments on the Louisiana resiliency filing and lessons learned from Hurricane Ian. I guess one of the lessons learned was the system did very well. But there were parts of it, obviously, that didn’t perform as well and there’s been some discussions, I guess, in Florida around undergrounding those portions of the system that are higher risk. Has that entered sort of the conversation in Louisiana yet or can you provide some color or context around that?

Sure. It’s Rod again. The short answer is yes. All of the above is included in the analysis. You wouldn’t be surprised to hear us say that we expect the conversation to focus on cost-benefit and risk-reward. When considering the locations at which the risk of high winds versus high water occurs, it varies by the specific part of the region. In Louisiana, there is definitely consideration of the advantages of undergrounding, which has historically led to a lower frequency of outages with underground facilities. However, when disruptions do happen, the duration of outages tends to be longer. This is after accounting for the initial costs of undergrounding, which in our service area have traditionally been quite high. What’s different now, considering the recent positive experiences with storms and potential improvements in costs and benefits of undergrounding, is that it is part of the discussion.

All right. That’s fantastic. Thank you. And then maybe one just on LNG expansion. We have seen some softening in LNG prices. I think that probably has more to do with weather in Europe than anything else. But I know it’s days, are you still seeing a lot of interest there, obviously, you touched on this a little bit, but what interest specifically are you seeing around maybe use of electric drives for future projects and putting renewable energy into those electric drives to the extent possible to sort of make the profile of future projects green.

Yeah. Yeah. It’s at the core of most of the conversations we are actually having with our LNG customers. We noted the recent earnings call for Energy Transfer on the Lake Charles LNG project where they are spending the gamut in consideration of the electric drives, gas compression, as well as a carbon capture. But across the landscape, we are seeing the expected acceleration of development of the LNG projects in the service territory. And we remain bullish as are our customers, notwithstanding the current economic environment. I think Drew alluded to some of the structural benefits or advantages that those customers have, and that’s continuing to show up, not just in the expansion, but also in the ESG components of the LNG expansion as well.

I would like to add that the trend of using LNG with electric drives and producing a cleaner product is not limited to LNG alone. We are observing similar developments in other industrial processes where companies, especially those establishing new facilities, are aiming to electrify as much as possible. Existing facilities are also being upgraded to include electrification. Whenever new projects are initiated, whether in metals, LNG, or petrochemicals, there is a push to electrify those industrial processes that traditionally relied on fossil fuels. This trend is evident across a wide range of industrial sectors.

Yeah. That’s fantastic, Drew. Thank you and see you all in a couple weeks.

Great. Thanks, Ross.

Hi. Good morning and thank you for taking my questions. I wanted to revisit the topic of SERI, approaching it from a different perspective. It's now down to just three or four slides in your presentation. Have you considered a more strategic solution regarding these assets instead of addressing each docket individually? Perhaps a comprehensive regulatory approach or a global settlement? Are there any ideas you could share that you might have?

Sure, Sophie, this is Drew. I will address that. The settlement Rod mentioned refers to the agreements we have in Mississippi, and we are in discussions with others to explore a global resolution. Before our current efforts at FERC and the various proceedings we are involved in, we went for a long time without significant litigation concerning SERI. I anticipate that once we navigate through this, things will return to that previous state. However, we will have to see how it plays out. Exploring a strategic option in that context is something we consider, but we won't be able to pursue any options until we resolve the litigated settlement. If we can progress through the litigation, we could look into that, but returning to a normal run rate might not be the best approach for us. Therefore, we will need to monitor how things unfold, and until we resolve the current discussions at FERC, we won't be able to move forward strategically.

All right. Thanks for the color. That’s all for me.

Thank you.

Thank you, Jonathan, and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on November 9th and provides more details about our financial statements. Events that occur before the date of our 10-Q filing that provide additional evidence of conditions existing at the date of the balance sheet will be reflected in our financial statements according to generally accepted accounting principles. Also, we have a webpage as part of Entergy’s Investor Relations site called Regulatory and Other Information, which offers key updates on regulatory proceedings and important milestones in our strategic execution. While some of this information may be material, it is advised not to rely solely on this page for all relevant company information. This concludes our call. Thank you very much.