Q1 2020 Earnings Call
At which time, we'll take one question and one follow up as a reminder, studies program is being recorded I would now like to introduce your host for todays program, David <unk>, Vice President Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining US we will begin today with comments from Entergys, Chairman and CEO Leo didn't old Andrew Marsh, our CFO will review results.
In an effort to accommodate everyone has questions we request that each person ask no more than one question and one follow up.
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 SCC 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 todays press release and slide presentation, both of which can be found on the Investor Relations section of our website.
I'd also point out that our initial earnings release. This morning can say the clerical error relating to the March 31st 2020 balance sheet and we have since posted a corrected version of the release on our website.
And now I will turn the call over to Leo.
Thank you David good morning, everyone.
We appreciate you all joining our call today and I hope that you and your families are well.
The past few months have presented extraordinary circumstances that had been difficult for every one around the world.
So many have stepped up to the play to help people communities and our country and this time of need.
We truly appreciate all of their efforts.
Providing safe and reliable power is essential, especially during times like these that's why it entergy, we plan and prepare for extraordinary events.
Our robust comprehensive tried and tested incident response plan contemplates many.
Including storms cyber attacks emergency leadership succession.
And Pandemics.
To ensure preparedness, we run drills routinely so that everyone knows their roles and responsibilities and when activated the plan run smoothly.
In 2007.
He developed our pandemic response plan specifically to address events like the one we are facing today.
For Cobot 19, we mobilized our teams on January 16th very early on.
Our focus has been on four primary objectives.
Ensuring the safety and wellness of our employees.
Maintaining safe reliable service for our customers.
Mitigating financial impacts.
And ensuring our ability to continue to plan for the future.
Formed by lessons learned from the event not only challenges to normal operations, but also improvements that can be made.
Oh response is working as designed.
We're meeting the needs and expectations of our customers and communities are.
Our major projects remain on track.
And our capital plan is unchanged.
The actions of our employees in the midst of this pandemic have been exemplary.
They have shown once again their dedication and resilience to work through hurdles to safely keep the power and gas flowing for our customers.
I cannot express how proud I am of our Entergy family.
[music] Entergy has a critical role to play and this is the time that we must step forward not back.
Our customers in communities are depending on us more than ever to power their homes as many work remotely or have responsibilities to care for children their loved ones at home.
Businesses like grocery stores and pharmacies required reliable power to continue to operate and address essential needs and our healthcare workers are relying on us to keep hospitals clinics and care facilities powered.
In short the services, we provide our vital to helping our customers our communities our families and our neighbors successfully manage this crisis.
It's a great responsibility that we do not take lightly.
Our capital investment plan is also a critical component for our economy and our communities.
Our plan is designed to benefit our customers, while also creating jobs and stimulating the economies in the states where we operate.
We have taken specific actions for each of our stakeholders.
For employees still working at plants and in the field, we've implemented preventative measures.
So they can focus on safety on and off the job.
We're suspending disconnects for customers, which is important and times, where many may not have a steady income.
You're talking with regulators about the importance of keeping our capital plan on track to preserve the reliability and economic benefits for our customers and our communities.
We're talking to our largest customers to understand issues, they face and to determine how we can support them.
Our supply chain team is working diligently with suppliers to ensure we have what we need to keep our operations and major projects on track.
We're working with regulators to support timely resolution of both special and routine matters.
We have received accounting orders for cost associated with coated 19 in four of our jurisdictions and we expect to receive a similar order for Entergy New Orleans in the near future.
We are grateful for the leadership and partnership that our commissions have demonstrated.
We're also supporting our communities through a cold at 19 response fun.
Our charitable foundation employees and executive team have already committed more than $1.3 million to help community nonprofits and qualifying customers, who are struggling with the financial impact of the pandemic.
Looking ahead uncertainty remains as to the depth and length of this pandemic, but today, we are affirming our guidance and outlooks as we see a path to achieve those results.
The foundation that supports the strength and sustainability part business remains in place.
We have among the lowest retail rates in the country.
Our capital plan benefits, our customers and our local economies.
We have constructive and progressive regulatory mechanisms.
We're a leader.
Critical measures of sustainability.
We have one of the cleanest large scale generation fleets.
And while we have seen some recent slowed down in industrial activity. Our industrial base is among the most economically advantaged in the world and we expect they will lead to recovery in their respective industries.
The foundation that we've established overtime remains firm and we're committed to our objectives and our resolve to be the premier utility.
This is what makes entergy a compelling long term investment.
In April our board of directors declared a quarterly dividend as planned.
As part of that decision the board considered our response to the current situation scenario analysis regarding future uncertainty and the strength of our business going forward.
We are committed to creating sustainable sustainable value for all of our stakeholders, including our owners and the dividend declaration is consistent with that objective.
Now I'll turn to our strategic execution.
Today, we are reporting solid first quarter adjusted earnings per share of $1.14.
And while the pandemic has affected the way, we do business it hasn't stopped us from making progress against our key deliverables.
We placed lake Charles Power station in service in March well ahead of schedule and on budget.
This new resources another milestone in our portfolio transformation strategy to replace older generation with cleaner more efficient assets and it will provide important benefits to our customers.
We've also made good progress at the New Orleans power station.
Commissioning of the plant is in progress and we recently synchronize the units to the grid for the first time.
We expect that project to come online in June.
Our other major generation projects remain on track.
We are not experiencing any significant equipment or staffing issues.
This is a testament to the experience of our capital projects management team and the strength of our relationships with our suppliers and contractors.
We continue to deploy automated meters as planned.
More than one third of the way through our am I project with 1.3 million meters installed.
We are leveraging the data from these meters to understand changes in usage among our various customer segments.
In April we received approval for sunflower solar in Mississippi, and Searcy solar in Arkansas.
These 100 megawatt resources will be the largest utility on solar projects in their states.
Large scale solar facilities provide the most cost effective solar power for all customers.
Keeping rates low while delivering the best value for renewables.
Both facilities are expected to be in service in 2021.
As part of our firm commitment to provide our customers with greater renewable power options, we expect to meet even more of our supply planning needs with renewables as technology and economics continue to improve.
Since our last earnings call, we announced two new request for proposals for generation assets.
Entergy, Texas seeking proposals for 1000 to 1200 megawatt combined cycle gas turbine in mid 2025 to mid 2026.
Entergy, Texas will include a self build option and submissions are due in August.
Entergy, Louisiana, seeking 250 megawatts of new build solar resources.
The RFP will accept proposals for owned and contracted projects. We've targeted in service dates of no later than the end of 2023.
We continue to implement rate changes through our formula rate plans and riders.
[music] rates recently were implemented in Mississippi and these included a new vegetation management writer.
In Texas, we filed a new distribution rider.
Entergy, Louisiana plans to request renewal or extension of its formula rate plan, and we will make our final are.
Annual F. R P filing in Arkansas This coming July.
In April we received an initial decision from the administrative law judge in one of system energies opened dockets at FERC.
I won't go through all the details feel free to call David If you need additional explanations.
Bottom line is that we disagree with much of the initial decision and we believed that it incorrectly seeks to resolve important policy issues that FERC ultimately must opine on.
The actions, we've taken creates significant benefits for our retail customers and we feel strongly that our positions on the law and the facts are correct.
We will file our brief on exceptions in June asking fercs to reject the adverse rulings in the initial decision and we look forward to the first review.
There is no mandated deadline for the Commission's decision.
And he WC Indian point unit, you were shut down on April Thirtyth.
This milestone brings us one step closer to fully exiting the merchant business.
We remain committed to our employees and all qualified employees, who are willing to relocate have been offered positions.
We look forward to them starting the next phase of their careers with us.
As you can see it's already been it very active and productive start to the year.
Cobot 19, as global pandemic, the disinfecting lives around the world.
At Entergy reactivated our response plan early.
Which positions us well to face the challenges head on.
We were prepared and we will remain diligent focus and flexible to ensure we make the right decisions at the right times.
To mitigate the impacts as best we can.
Well uncertainty remains for all of us.
We've made progress against our key strategic deliverables, while meeting the needs and expectations of our customers and communities in this critical time.
Our major projects remain on track our capital plan is unchanged and the foundation that supports the long term strength of our business. It makes entergy a compelling investment remains in place.
We are stepping forward not back to be leaders in our communities at a time when they need us to most.
Recent events have not changed our objective is to create sustainable value for our stakeholders or weakened our resolve to be the premier utility that can deliver on its commitments through economic cycles.
Before I turn it over to drew I encourage you to read our recently released 2019 integrated report building the Premier utility.
Report outlines what we believe it takes to be the premier utility and why we're well on our way.
I'm also happy to confirm that we still plan to host an analyst day this year.
Because the situation to of cope at 19 continues to be fluid the event will be virtual.
We also plan to delay the event until later in the year most likely in late October.
We look forward to continuing our conversation with you about our strategy to continue to grow our business for the long term.
Stay tuned for more details.
I'll now turn the call over to drew who will review, our first quarter results as well as our outlooks.
Thank you Leo good morning, everyone.
We have sentiment I'd like to express my appreciation for all those helping people and community is affected by Copel 19.
Extraordinary efforts of so many are inspiring.
That includes our employees, who have quickly adapting to changing working conditions.
Once again risen to challenge as they have so many times the past.
I will review the quarter results and then move to guidance in the longer term outlook before I get to that I want to highlight the bottom line for entergy.
After a solid first quarter, we are affirming our adjusted EPS guidance and outlooks.
We expect revenue to be a $120 million to $140 million lower as a result of cobot 19.
We are implementing a $100 million have identified spending reductions for 2020.
We received constructive regulatory accounting orders to defer cobot 19 costs.
Our capital plan remains the same our liquidity remained strong.
And we still do not see a need for equity until 2021.
Those are the key takeaway.
Our first quarter results were solid as Dave from orders did not begin until very late in the quarter.
As you can see on slide eight on a per share basis Entergy adjusted earnings were $1.14 32 cents higher than first quarter 2019, due to increased earnings at the utility.
On slide 19, you'll see the primary drivers for the utilities positive quarter were straightforward.
We saw the positive effects of rate actions in Arkansas, Louisiana, Mississippi and Texas.
Oh NIM was lower as we took action to reduce spending in response to mild weather, which was apparent early in the quarter.
And we had favorable tax benefits a portion of which was shared with our customers.
You also see a higher effective tax rate apparent and other which partially offset.
[music].
Higher depreciation and interest expenses, resulting from our continued growth also partially offset the increase as did the higher share count.
On slide 11, E.W. sees as reported loss with 55 cents compared to positive earnings of 50 cents a year ago.
Losses on decommissioning trust investment and lower revenue, primarily due to the shutdown a pilgrim were the main drivers.
Partially offsetting the decline was lower own them lower impairment charges and attacked on recorded in first quarter 2019.
Slide 12 shows the nearly $160 million increase in operating cash flow.
The main drivers were higher collections for fuel and purchase power costs and a roughly 65 million dollar reduction in the unprotected excess FDIC returned to customers.
The first quarter also benefited from higher nuclear insurance refunds and lower nuclear refueling outage spending at TWC.
Unfavorable weather and higher pension contributions partially offset the increase.
Now I'd like to talk about our 2020 guidance and our longer term outlooks.
On slide 13, we are affirming our 2020 adjusted EPS guidance range of $5.45. The $5 in 75 cents and our 2021 and 2022 outlooks remain unchanged.
We've laid out the path to achieve our results on slide 14, So you can better understand our current expectations.
And 2020.
We expect sales to be lower due to the unfavorable unfavorable weather, we experienced the first quarter and the impact to cope with 19.
On slide 15, we developed the point of view on sales for the remainder of 2020 based on extensive discussions with our industrial and commercial customers analysis of data available from our advanced meters.
On a weather adjusted basis, we expect commercial and industrial sales to be lower than the original guidance assumption.
Commercial sales are expected to have the largest decline at 90.5% for the full year.
The most impacted or schools restaurants movie theaters and churches.
Stay at home orders have shuttered many of these institutions temporarily.
Industrial sales are expected to be 7% lower and our refinery and steel customers have been the most impacted.
The refiners in our region have been less affected than in other parts of the country.
This is partially offset by residential sales about 2% higher as usage per customer increases due to stay at home orders.
As you can see.
Second quarter to be the most impacted assuming stay at home orders start to phase out in mid may to early June.
We then expect slow improvement through the year as the economy recovers.
We will work to mitigate the impact of lost sales. This includes a 100 million dollar reduction and owing in spending for 2020 on slide 16.
That will not affect safety reliability.
Already identified where we will achieve the savings.
Where we are reducing employee expenses, reducing contractor and consulting work prioritizing when vacancies are filled.
Adjusting the timing and scope of power generation outages.
These are extraordinary times for our customers and communities and extraordinary times demand extraordinary measures.
We are taking these onetime measures to compensate for the lower sales we anticipate this year.
Continue to look for efficiencies in our business to drive long term value for all of our stakeholders.
Our work over the last few years to improve our regulatory frameworks also helps further mitigate impacts.
And we are utilizing efficient regulatory mechanisms available to us.
We have formula rate plans and four of our five jurisdictions and three have forward looking features.
Plans reset Wraith annually in addition to jurisdictions, Arkansas and Mississippi.
Look back provisions to take into account under or over earnings from the previous year.
And as Leo mentioned, we've received accounting orders in Texas, Mississippi, Arkansas, Louisiana for the deferral of costs, resulting from Koeppen 19.
We are aware that there are these are very difficult time for our customers and their families.
Therefore, we are implementing new customer payment plans to help make built more manageable debt.
To reduce customer bills now versus in the future.
We're also cognizant of the in the economic impact Cobot 19 is having on our communities.
And we're working to keep our capital plan on track well using local workforces, so that our customers in our communities can reap the benefits from those investments.
Such as economic stimulus and improved reliability.
Looking ahead to 2021 at 2022, we expect some of the economic effects of Koeppen 19 to linger.
When sales are projected to be slightly below what we previously planned.
Our current regulatory mechanism will help.
And we will be ready to manage own them as necessary.
For industrial sales, our long term expectations for growth remained largely intact.
None of our planned new or expansion projects have been canceled, although if you have announced delays.
Long term for commodity spreads remain supportive of key industries in our region.
While there is uncertainty around the cobot 19 recovery of future oil prices.
Our industrial base remains among the most economically advantaged in the world due to low cost feedstock highly flexible modern facilities.
Economies of scale World class infrastructure highly productive workforce supportive communities and easy to access domestic and global markets.
We expect they will lead recovery in their respective industries.
This is our plan today, but obviously uncertainty remains for all of us as to the depth and length of the koeppen 19 impact going forward.
And even things turn out differently, there would be a number of factors to consider.
Near term there is timing as the seasonality of sales could result in different outcome.
And we would like and we would look to own them to help to the extent possible without affecting safety and reliability.
Longer term regulatory processes would address revenue deficiencies overtime.
We would look to continuous improvement to help offset customer impacts.
Our liquidity position remains strong as you can see on slide 17 as of March 30, Onest, our net liquidity, including storm resort reserves was over $3.2 billion.
We've had success accessing capital markets despite market volatility.
Nearly $1.1 billion in new long term debt. So far this year all at the operating companies.
This covers the operating company maturities and helps fund our capital plan.
In addition, we have renewed the lines of credit at two of the operating company, which also provides liquidity in times of neat.
We still plan to access the debt market to fund $450 million apparent bonds that mature later this year.
Our credit metrics are outlined on slide 18.
Our parent debt to total debt is 22.2% and our FFO to debt is 14.3%.
The FFO metric includes the effects of returning $236 million unprotected excess 80, IP to customers over the last 12 months.
Excluding this give back in certain items related to our exit of either of you see if a voted that would have been 16%.
While we remain committed to achieving FFO to debt at or above 15%, our customer support to offset cobot 19 impacts will push our timing to fourth quarter 2021.
We've had conversations with the rating agencies on this.
Public publicly expressed their intent to take a long term view regarding cobot 19 impacts.
Finally, we still do not the need for equity until 2021.
Another topic that may be on your mind is pension.
As of March 30, Onest, our pension asset balances $5.4 billion and through April this had improved to $5.7 billion.
The March 31st pension asset balance is incorporated into our outlooks.
As we updated these are extraordinary times for everyone and we have a vital role to play to help our customers and our communities successfully manage this crisis.
We are well positioned to manage these challenges head on.
At this time, although economic uncertainty remains we have a path to achieve our financial objectives.
And as Leo said, we will continue to monitor the economy remained diligent focus and flexible to mitigate impacts as best we can.
Now the entergy team is available to answer questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephoned we ask that you. Please limit yourself to one question and one follow up if your question has been answered if you'd like to remove yourself from the Q. Please press the pound key our first question comes from the line of sharp price from Guggenheim Partners. Your question. Please.
Hey, good morning, guys good morning sharp.
Just a couple of questions here.
So first thinking about the headwinds youre, calling out at this point to 100 120 million you mentioned some relief for koby costs can you just the specific on what those costs are how we should think about ultimate recovery. How long you can kind of deferred them and then you know thinking about the cost reductions you pull today.
Hey to offset the cold it impacts our these onetime in nature, we sort of thinking about them as being somewhat perpetual ongoing benefits.
Now to follow.
Yes, that's all I'll I'll address the cost so far so I think theres theres kind of.
Two buckets of costs that were looking at some of our incident response costs.
And those include things like.
Pete more PPD hand, sanitizer masks.
And things like that.
Theres also cleaning costs associated with that and then costs.
Associated with.
Moving people around and things like that those types of dollars at this point are fairly limited.
We expect them to it for the year to be somewhere in the $15 million range right now and we've been curdle less than half of that so far we're anticipating as we get back to work there will be more cleaning costs. For example in more PPD that we have to provide over the course of the year.
The other bucket of costs.
Is related to potential bad debt expense.
And that is we haven't incurred anything.
Of that nature to date, and we probably won't for awhile.
But those are the kind of those costs, we expect to incur as well.
Turns of the.
Magnitude of that.
Historically, we've seen about $25 million of bad debt expense.
And we have.
And past experiences like 2008, 2009 financial crisis or.
Katrina Rita that kind of environment.
We've seen anywhere from $10 million to $20 million of incremental bad debt expense in a year.
Of course, this could be a little bit worse than that.
And we're working hard to make sure that we mitigate that Leo mentioned.
New payment plans.
Working to make sure that our customers have access to likely funds and information on how to access the paycheck protection program.
And and as I also mentioned in my remarks, we're trying to accelerate some future regulatory lie but liability payments to today to try and mitigate some of those impacts on customer bills. So all of that plays into trying to make sure that customer bills are as low as possible.
To mitigate what the bad debt expense might.
As well.
Got it. Thank you and then just you guys.
Question, you guys always have some really good insight into your customer trends right.
How much growth do you see being deferred from 20, the new assumptions call up 21, and beyond this potential economic impact as a headwind.
Quantifying 21 versus just being slightly lower and assuming this backdrop is more protracted versus kind of your own internal planning assumptions do you have these incremental levers like today's cost cuts to mitigate for could could that start to pressuring your growth guide maybe through capex to referrals that made the come secondary in nature.
Got it sounded like from Leos comments, you guys are very confident around the plan. So I just want to.
Under the assumption. This is more protracted do you see any kind of concerns around growth capex, 5% to 7% or you have enough levers at your disposal yes.
Hi, there was there was a lot in that.
[laughter].
I will I'll start with the customer trends piece, and then talk about what eminent finishing capex.
So.
On the on the customer trends fee.
The the expectation in our outlook right now is that our sales will be about 1% below what we were planning in 21 and 22, obviously, there's a lot of uncertainty associated with that so we were also running scenarios.
To think about what it might be if it's something lower than that.
Once we get.
Out a couple of years.
We should have.
Gone through regulatory processes in each jurisdiction and that should help us but at the same time. We're also working on okay. So what other owing in management tools might we have at our disposal to work our way through that the further we get out the more sustainable we really need these cost changes to be.
Unlike this year this year Theres as we mentioned, there's a lot of onetime items.
And and we're trying to.
Look for additional continuous improvement.
And on him category that is more sustainable.
But we'll really need to rely on our skills.
To develop that.
Those opportunities as we go forward to manage that will that more there always be onetime levers within a given year that we have.
We will on long term basis will want to rely on continuous improvement.
And then finally in regards to growth Capex. We currently don't have any plans to change our growth capital or our capital at all for that matter. We think it's important for our communities and our customers for us to continue to make those investments.
We think we have the capacity and liquidity to do that Theres no concerns there.
For some reason it was lower for longer from the sales perspective, it might start to shift around the nature of that capital.
So for example.
If we no longer needed some transmission capital to meet NERC reliability standards. There maybe other capital that we think we'd be very.
Very important for our customers into distribution space.
So theres a lot of levers still to manage things going forward.
But hopefully that answers.
All the nuances of year one question.
You got to gradually yet this this is.
I just want to add from the standpoint of pulling the levers.
The process that we're utilizing right now while it's kind of accelerate a little bit of same process. We are using last year for example to.
To flex up and down.
So the process had actually as you'll notice in the first quarter the process had already begun.
Because we knew we were going to be challenged.
By a traditional headwind, which was weather in the first quarter.
So those those processes year on year going to be the same ones that we have kind of developed as part of the culture and the DNA of the company and just.
Planning process and the continuous improvement that drew mentioned is something that we were.
Working through.
As well and obviously.
Well, even find some continuous improvement I think out of response to the event that will help us going forward.
And then I just wanted to really jump in on the capital plan and.
Obviously, the capital plan is a major.
Reliability improvements to our customers is what it's been about.
And with 90% of this greater than 90% of the capital plan all being about a technological improvement in the reliability in the surface level that we provide our our customers whether it's through am I or even the replacing old generation with new gas fired generation renewables that were at into the footprint.
So all of it is customer enhancing and as drew mentioned.
And as we've talked about before we have a significant amount of opportunity within the distribution and customer solutions space that could step up and take place. If any for example transmission investment that that might get shifted around.
But an important aspect of where we sit today and this has been the extent of the dialogue that we've had with with the states.
Whether it be it the administration level or at the regular regulatory level.
The biggest problem that the United States has at the moment as unemployment.
In addition outside of obviously the virus.
And we already in a position to step forward with the capital plan to make sure that we keep people working just going to give you a couple of statistics that might be.
Useful for you to think about.
During the storms that we had over Easter weekend in.
In Arkansas.
We obviously had to restore power and that was a pretty significant event, but as we restored power we had about 2000 people in Arkansas.
Staying in hotel rooms that otherwise they wouldn't have stayed and eating meals that otherwise wouldn't have any.
So there was an effective.
[music].
14000 nights in hotel rooms.
That occurred only because entergy was there.
There was an effective 40000 meals that were serves only because entergy was there that is the kind of economic impact that we have not just on the people we hire whether it be our employees our contractors.
But.
As we go into the community and there's those.
Ulta player effects that we talk about quite often that are significant usually are put up thereby.
Economist that LS, you or or something like that but these are real people.
Certain real meals to our employees that were probably working.
That week, but not the week before the week after so so.
The capital plan is important for more than just improving right. The reliability of the system in the service level that we provide our customers it's important to those communities as well.
Got it congrats Leo Andrew on its execution.
See you soon.
Thank you make sure you too.
Thank you. Our next question comes on line of Julien Dumoulin Smith from Bank of America. Your question. Please.
Yes.
Hey, how do you guys. Thanks, one time could you just wanted to follow up.
On the last set of questions.
I'll throw in a a quick follow up but starting with less.
[music].
Think about.
Youre fr ease across various states.
Those rate caps against the need to ensure earning path.
Herman.
Hi.
Recognizing the consistency.
To divest capital and that's obviously twin goals seems like you've had a little bit more latitude didnt have historically.
In those annual.
Filing first off and then the second one is just if you can quantify.
Quantified the potential impact of that theory decision.
That's a quick one.
All right.
Fraud, good morning, I'll I'll start on the parties and perhaps drew will will follow up.
In Louisiana.
In Arkansas, Mississippi in New Orleans, we've just mentioned that for about five jurisdictions had airport piece in effect.
Those are piece or working as design and to the extent that the cobot caused.
Right operate beyond the apart piece, we have the accounting orders that were just referenced we're seeking to renew the airport peas in Louisiana in Arkansas of course, we in Mississippi. We don't we don't have a sunset provision, but those are far piece or working as design.
To address many the changes.
In sales as we are as we are forecasting so from a from an f. RP perspective deficient recovery mechanism. We have in each of the state is giving us the road with confidence we have around what we are what we are forecast and its and its incorporating.
The various puts and takes with with OEM and projected sales. So it's working as design.
Certainly part of the case, we're making too to renew them in Arkansas, and and Louisiana. So from that vantage point, we think therefore piece or or working as design.
Now ill just add you asked about the rate path.
Our expectation for the rate path that we would still be.
At or below inflation.
You have to take into account the excess 80 that we have been given back last year. If you. If you we off of 2019.
But.
It's still a very low.
Growth rate for for our rates and our bill path.
And then you asked about.
Our OE.
And.
As Leo we're talking about we have an important role to play in the community right now.
In terms of putting capital to work.
Not only benefit our cups or customers, but also to drive economic activity.
And in order to do that we have to make sure that we maintain.
Adequate credits and liquidity and a retail regulators no that we've been in conversations with them about that.
And so they they are also committed to make sure that we have the credit liquidity, we need to do that things.
That are required to support our customers in our communities.
So I think thats dense.
I think that will help address some of the R&D question as well.
Our next question.
Our next question comes online Jeremy Tonet from JP Morgan Your question. Please.
Good morning, Thanks for taking my question.
Just wanted to start up I guess, what you guys are seeing across your footprint right now in your different jurisdictions you start to see.
Certain areas start to open up and just wondering kind of maybe more real time like what type of trends are you seeing.
Your larger customers ramping up and what kind of line of sight heavy heavy glean from that that kind of informs your guidance here.
Yes, and this is Rob again, I think in the across the customer segments, we alluded to it earlier.
Certainly in the residential segment the the stay at home orders of.
Certainly driven the expected experienced some higher usage per customer in that segment.
A lot of variability across the commercial customer segments as drew alluded to where we saw.
In schools, and restaurants movie theaters and churches experiencing the brunt of the near term.
And erosion.
In the industrial sector, we've been in constant communication aside from the EMI data.
That we're tracking on a day to day basis, we've been in constant communication with those larger.
Industrial customers around their respective outlooks, we're paying as much attention.
To the various components of their value chain.
As perhaps.
Perhaps they might and they've given us.
Relative comfort.
At the data were receiving from a am I.
As is supportive of our point of view that about approximately 10%.
Demand erosion that we're experiencing in the last several weeks.
Is likely to be stable until such time as the economy recovers.
Certainly in the refining in primary metals segment, we expect that those those segments to be.
Harder hit and driving some of the downturn and Thats played out in a way that we we expected and that I'd say that with all of the uncertainty that's still remains.
Around the timing of of the economic recovery relative to our ability to to get testing and tracing.
And things of that nature, and so the the engagement.
Addition to the PMI.
Okay that engagement with customers has really reinforced what we're seeing and certainly it plays out differently from from state to state, but the significant presence of our industrial base in.
As in Louisiana, and Texas, and that's where we've seen the lions share of.
A volatility within that 10% within a 10% range.
That makes sense and then maybe just picking up on that last point for the longer term for the industrial pet Chem load. It seems like the Brent Henry hub spread kind of being a proxy for NAFTA ethane spread has been a key determinant of the U.S. Gulf coast competitive advantage across the global cost curve given the favorable feedstock there.
Do you worry that the dynamic of a tighter crude oil to Nat gas spread narrowed this competitive advantage and kind of adversely impact future low growth versus prior expectations.
Yeah. This is drew so we are closely monitoring that spread thats one of the ones that we pay close attention to as well for the very reason that you mentioned.
And obviously near term that spread is not.
As healthy as it has been historically, but we do expect it to return to where it was.
And continue to provide economic advantage for.
For our Gulf Coast industrial customers.
Yeah.
Going forward and we do see those spreads and others like them being healthy if you look out on a long term basis, but we recognize that near term there little bit more challenged.
Does not change some of the other advantages that we do have.
That is that I listed off in my remarks, but.
But that is one that we are paying close attention to.
Got it that's helpful. Thank you.
Thank you.
Thank you. Our next question comes the line of Stephen Byrd from Morgan Stanley. Your question. Please.
Hey, Good morning Hope you all are doing well.
Turning worries and thank you too.
Most of my questions have been addressed so just wanted to go into attacks and a little more more detail.
I think the change in guidance in terms of attacks is about a net improvement of around 18 cents a share and I'm wondering if you could just give a little color around what the changes where I guess I see a an IRS settlement and stock based comp could you sort of big explain what the changes were in a little more detail.
Sure Steven domain. The main one is the IRS settlement.
Which.
We completed in the quarter.
That settlement had to do with Isaac securitization costs from several years ago.
And while there is a tax benefit on the tax line much of that is offset in the revenue through customer give backs.
And that is net about five cents only.
The other stuff is like the stock based compensation, that's just annual true ups.
That occur.
Each year.
Whenever whenever it.
Stock vests, and we threw up from a tax perspective, there is no true up from a GAAP perspective, that's why there's a there's a difference there.
Understood and understand the expectation is now for an 18% effective income tax rate this year longer term.
Proximately, where do you do you see your effective income tax rate being just so we're trying to think through your longer term earnings power properly.
It's similar to where we had it previously and around the 22% range.
Great. That's all have thank you.
Thanks.
Thank you. Our next question comes on line that Jonathan Arnold from vertical Research partners. Your question. Please.
Good morning, guys.
Thanks.
A quick question on.
Previously you said you thought that equity.
From 2021 would be.
On the order of 5% to 10% of utility investment.
Yeah, but with some of that.
If you're going to accelerate some of these regulatory liabilities and then maybe have a.
Cash impact if that's still a good number or should we be thinking about.
Recalibrating not that that scale once we get up to 2020.
That's a I think thats still a good number we're very careful about the way that we are moving Reg liabilities forward.
They are either increasing rate base, because they are coming out or we are discounting them to make sure that we are economically neutral.
Such that we have more cash flow in the future.
So thats the either way, we should have the financing headroom to move some of those liabilities for its going to those kinds of choices will impact the current years FFO to debt ratio, but there should be a little bit better headroom.
That ratio going forward as a result.
Okay.
Great and then you mentioned case wanting to keep.
No rate the rate pop below inflation.
Views of inflation do make in the plan changed and can you shaft that as.
Well you a number if you're using for long term inflation.
That's an excellent question, Jonathan I wish I knew what inflation was going to be we used 2% as a rule of thumb.
For that.
Kind of the benchmark that we look at.
Now, adding three trillion dollars of fiscal stimulus, we don't really know what that will do for inflation fair enough. Okay. That's good to know what youre well your number it and then.
I think that was Oh and that's just one thing I was trying to reconcile.
The.
Slide 15 on retail sales.
We should I think that should that shows what you think industrial to be down 7% for the year.
And then slide 41.
Well in the office a number on industrial is that.
Just a typo with a different basins.
Telling us that yeah. The yes, there are two different bases.
The one on slide 15 is versus our original guidance and as you will recall, we were planning to be up about 6% or.
6% examples that I can't really that number but.
And you subtract out the 7% you get into the.
Okay.
Through the guidance had big uptick.
Thats it thank you.
Thank you John.
Thank you. Our next question comes from the line that Steve placements from Wolfe Your question. Please.
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Hi, Good morning, hope, everyone is well and Christie.
Good morning Leah.
Just wanted to do up.
To re asked a question that was asked earlier about the series.
Decision on Algeria, and if that were.
Finalized even though you don't think it will be what the impact would be.
So.
That's true and thank Steve for picking that up we didn't quite get to it on Juliens question. So we appreciate you re asking the.
The impact is laid out in the Q.
As a as Leo mentioned, there's there are a lot of details there's two components to the to the ruling that came through associated with lease payments and uncertain tax positions and the amounts are in there.
The the the lease payments is a little bit unclear because the calculation from Neil Jay was it provided.
Specifically.
So so we don't but the bottom line is we don't think there'll be a very large impact there. The larger one is the uncertain tax positions and as the ale J.
Laid it out if you include the refund and the interest.
Looks like it's close to about $600 million.
As Leo mentioned, we believe that we have.
The right policy perspective, and that the L. Jays ruling as interim into the FERC is the one that would.
Dr. policy decisions and we would also note that in that calculation.
Even though the Lj wrote about it.
Ill Jay did not include offsets that are included that you might include in that like interest that we've been paying to the IRS for the position over time.
And that would reduce the that 600 million dollarss million down to a little less than probably a little bit more than half.
What okay.
What that does it what what the Lj put out.
And of course, the overall impact of that would basically be the financing costs of whatever that number will ultimately be.
Okay, and just so that would be obviously, a onetime refund just is there any aside from financing that as a risk would there be any other ongoing earnings impact or just a onetime.
Well the lease payments.
Indicated that.
They indicated that they will.
The lease payment would not be able to continue that's what the Lj wrote which is about $17 million year.
And.
And then of course, the onetime would be a change in our rate base.
On an ongoing basis for the for tax position.
So there would have that flow.
Okay.
One other question just the.
Just to.
You probably said this but I'm, maybe I'm sold just not clear on it just terms of the.
The base assumptions, you're using for your kind of sales forecast now.
How would we track kind of progress or reopening soon and then slow recovery.
And that's kind of.
Got it how to think about kind of the base economic.
Yes. This is brought all housing starts.
The base assumption is that sometime in the early summer that is later in this month into June will begin to see a a change in the stay at home order orders and that that dynamic will begin.
The upswing in India economy, the outlook through 2020, particularly from an industrial growth perspective.
Essentially that 10%.
Reduction in industrial demand, that's that's driving the overall growth for for the utility within began to slow to see a slower up uptick and then as drew laid out in 21 and 22, we expect the drivers of our of our growth to still be driven.
Driven by industrials as as the commercial and residential sort of normalize this too to our pre covert point of view.
And Steve I'll, just add that the timing of all that matters a lot. So if the current economic environment lingers through the summer.
And there people are more at home than what we're planning because they're not working.
That that could be.
Sales improvement for us because of the higher.
Residential.
Load that we typically experience in the summertime.
So if that if it were to linger all went through the end of the year of course, the summer would end and it would fall back into what kind of expecting on the second quarter.
Which would not be is positive, but the timing of it kind of this does matter.
Okay. Thank you.
Q Steve.
Thank you. Our next question comes from the line Michael Happenings from Goldman Sachs. Your question. Please.
Hey, guys. Thank you for taking my question.
Real quickly the aluminum savings to $100 million, you expect that to be kind of a permanent savings level or do you expect to all of that's come back and we should embedded in 21 or 22 forecasts.
Yes. This is true Michael we're currently considering that to be onetime.
Onetime savings.
So so OEM that will go away but.
Actively of would come back in Q2 years, maybe not all in 2021, but but over time, so not not leading to a permanent kind of owning them or adoption.
Yes, it's not permanent the timing of it at some of it depends you know we're already working to Austin because some of it is deferrals to 2021, so we're working to even offset those in 2021 in our forecast.
But.
I would say that Theyre, just one time and they don't really relate to future periods at this point.
Okay and can you remind us in your multi year EPS forecast what is assumed for kind of annuity growth rate off of 2019.
We were saying that we were going to come in at about 2.65 billion.
For utility parent over them and they were going to keep that flat.
Got it okay, great and then last thing on on WPC can you remind me do you expect you see two skin catch up to the parent or need cash margins from the parent over the next couple of years.
We have said that we expected to be net cash positive to the parent not by a lot, but my little and as we get closer to the end.
Yes, it's that number that it's getting its trending to zero because we were very much close to the end of MWC.
But right now it's still net cash positive to the parent.
Got it and then I'll keep one last one RFP for new gas generation in Texas, just curious does that change and the outlook for demand change the need for the size and scale of that you're right.
At this point in time no.
The as you recall.
Michael.
The new generation is typically replacing older.
Duration.
With a much more efficient lower cost more environmentally sound unit. So this is all part of that portfolio transformation strategy that we've had.
Where.
The net adds to our capacity are relatively small.
Compared to the amount of generation that were at.
I think actually.
Within the next year, we may.
Tear down three new three old plants.
And.
We are de activating units as well and the up till.
This past year, when we put a couple of new units in service, we were pretty well.
As many megawatts as we added Thats, what we were.
We were deactivate.
So it's not.
As I mentioned earlier when you look at the capital plan over 90% of the capital plan is driven by this.
Improvement in the level of service through a technological overhaul across all.
For functions that we invest and whether its generation transmission distribution or customer solutions.
And that is going to continue and as drew mentioned to the extent some of our reliability.
Investment in transmission is kind of like Lake Charles project was a couple of years ago.
After the fact beefing up the system to serve loaded it already been there to the extent that that might change, where we've got a whole host of distribution and customer solutions opportunities that could take its place lot of which actually drive down the cost while the prove the level of service for customers. So they are a good good option for us to make.
So I know that's all.
It's a bit of a long answer to your question, Michael that but keep in mind.
90, plus percent of the capital plan.
Is driven by that reliability improvement technological improvement across the system.
And and benefiting customers and then obviously in the near term overlaying on that the fact that theres lot of jobs created by the work we do.
And if there's one thing everybody can agree on more people need to be we're anticipating rather than fewer.
Got it thank you Leo into much appreciate it guys.
Thank you Michael.
Thank you our final question for today comes from the line of Sophie Karp from Keybanc. Your question. Please.
Hi, Good morning does most of my questions have been answered.
You bet could just.
Follow up on Indian point, I'm, just checking if or any.
Disruptions in the process, so that you're burning through from.
This wide shutdowns in New York State. Thank you.
Hey, Thanks for Indian point, no change Indian point to shutdown as Leo mentioned in April Thirtyth.
Currently the fueled.
As far as the processes around the sale of Indian point.
Those were initially slightly delayed, but we still have plenty of time.
I don't expect to close on that transaction until about this time next year.
So we have plenty of time to continue to work through the processes in New York and at the NRC.
And we still believe that the interest in New York are aligned with ours looking for way too.
Expeditiously decommission Indian point is the goal and working with whole tech to make that happen. We believe this continues to be the best option.
So no real changes at any point at this time.
Got it thank you.
Thank you.
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This does conclude the question and answer session of today's program I'd like to hand, the program back to David Board for any further remarks.
Thank you Jonathan and thanks to everyone for participating this morning, our annual report on form 10-Q is due to the FCC today and provides a more detailed disclosures about our financial statements.
Also as a reminder, we maintain a web page as part of Entergys Investor Relations website called regulatory and other information, which provides key updates and regulatory proceedings and important milestones on our strategic execution of 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.
Thank you, ladies and gentlemen for your participation that face conference. This does conclude the program.
Everyone have a great day.
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