Q2 2020 Entergy Corp Earnings Call
I will participant lines are in a listen only mode. After the speakers presentation. There will be a question and answer session topped the question. During the session. You want me to press Star one on your telephone. Please be advised that today's conference is being recorded if you're a party further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today David Board.
President Investor Relations. Thank you. Please go ahead Sir.
Thank you good morning, and thank you for joining US we will begin today with comments from Entergys, Chairman and CEO Leo didn't help and then drew Marsh, our CFO will give you little bit your results.
In an effort to accommodate everyone who has questions. We request that each participant person asked 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 Sgc 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.
Now I will turn the call over to Leo.
Thank you David and good morning, everyone. Thank you for joining us.
Today, we are reporting strong second quarter results of the Dollarsthirty seven adjusted earnings per share.
Sales in the quarter were better than we expected.
We're on track to achieve our 100 million dollar over them cost savings target for the year.
And our capital plan is unchanged.
With these results we are affirming our full year guidance, our longer term outlooks and our dividend growth aspirations.
As you all know the cobot 19 pandemic is placed a burden on our customers employees and communities.
We believe it is part of our mission empowering likes to do all that weekend to support our stakeholders as we all work to recover from its effects.
Despite these extraordinary times.
2020 is on pace to be another year of significant accomplishments for entergy.
This quarter, we've made progress on multiple fronts old which will benefit our stakeholders.
We completed phase two of the Western region economic transmission project.
The New Orleans power station came online.
The public utility Commission of Texas finalized its rule, making for a generation writer.
The Mississippi Public Service Commission approved Entergy Mississippi's formula rate plan filing.
Entergy, Arkansas, and Entergy, Louisiana, each filed their annual formula rate plans.
Requested extensions of these mechanisms.
And Entergy, Louisiana issued a request for proposal for up to 300 megawatts of new renewable resources.
More importantly.
We continue to successfully manage the effects of our investment on customer rates.
According to an S&P global market Intelligence study published earlier this month.
In 2019 Entergy.
If I did power to retail customers at the second lowest average price of the major investor owned utilities in the United States.
Something we're very proud of.
The current 19 pandemic continues to affect all the bus across the country.
As we discussed last quarter, we were well prepared from the outset and we continue to effectively manage our response.
We are taking precautions for employees and our customers.
Those who can are working from home.
We have procedures in place to keep our employees in the plants and in the field sex.
We're also creating innovative solutions to help our customers and our communities for example.
Social responsibility and automation employees work together to develop a bought the proactively informs customers and need about the low income home energy assistance program or like.
This project also one second place in a global contest for innovative ways to reduce code at night genes impact on the economy and communities.
Students and faculty at Southern University are using Threed printers in their entergy sponsored lab to make parts for reusable and 95 masks for health care professionals.
With our community partners Entergy has helped to prepare more than 2 million meals provide crisis grants for more than 5000 households.
And deliver personal protection equipment first responders individuals and families it need.
Through the first half of the your Entergy has donated almost $9 million and charitable contributions to support our communities.
Moving almost $3 million uncovered relief efforts and introduced the power to care program, which helps customers who need financial assistance pay their bills.
In parallel to our Cobot 19 relief efforts, we continue to execute on our major projects across her service area to modernize our utility infrastructure and enhance insufficiency and reliability for the benefit of our customers.
We placed New Orleans power station in service in May.
In time for the summer peak period and hurricane season.
Since entering service this highly flexible inefficient, peaking units is being dispatched frequently.
We completed phase two of the Western region to region economic transmission project. This 115 million dollar investment supports economic growth in South East, Texas, and enhances reliability for existing and future customers.
The public utility Commission of Texas also approved our certificate for convenience and necessity for the Timberland transmission line at 57 million dollar project expected to be completed in 2022.
We reached an important energy milestone.
With the 100 customers signing up for the renewable Orleans residential rooftop solar program.
The program offers a cost effective way for low income customers to participate in the benefits of renewable energy without having to make an upfront capital investment.
Entergy, New Orleans installs owns it maintains the rooftop solar systems and customers get a bill credit for their participation.
Renewable Orleans is a good example, the innovative programs, we are implementing to deliver renewable energy solutions to our customers.
We will continue to engage with our regulators and stakeholders to expand the use of renewables under a framework that ensures we build the most economic system balancing reliability cost and sustainability.
In addition to providing meaningful customer benefits, our three year capital plan has significant certainty.
We've talked to you before about the 90 90 framework by which you should view the certainty of our capital plan.
And our capital plan is 90% ready for execution from a regulatory approval standpoint.
And that more than 90% will be recovered through timely mechanisms.
Today, we're adding a third 90 to further emphasize the strength of the plan.
That 90% of the capital plan is based on the need for system modernization and not dependent on customer growth.
These three statistics means that our customer centric capital plan is necessary.
The majority will not require special regulatory review and we expect timely recovery.
We benefit from constructive and progressive regulatory mechanisms that provide clarity to our plan and give us confidence in meeting our financial commitments.
Recently.
Public utility Commission of Texas.
Finalized the generation rider, which will provide for full and timely recovery of capital costs associated with a new generation facility.
We are grateful for the Commission's leadership in developing this new rule.
More timely recovery help us create value for our stakeholders in Texas and ensure that the communities we serve remain economically competitive.
We plan to make a filing later this year using this mechanism to request recovery Mchenry County power station when it comes online in 2021.
Entergy, Mississippi received approval of its formula rate plan filing rates were implemented in April.
Entergy, Arkansas, and Entergy, Louisiana, each submitted their annual FOP filings.
Summaries of the requests are included in the appendix of our webcast presentation.
Both of these operating companies are in the last year of their F. R. P cycles and both are requesting extensions.
Entergy, Louisiana as request includes a midpoint reset and a new distribution right are similar to the transmission rider that is currently in effect.
In New Orleans, we continue to work with the city Council on the appropriate timing to begin the filing cycle for the recently approved three year formula rate plan.
At Siri, we filed our brief on exceptions to the L. James initial decision issued in April.
As you know we disagree with most of the initial decision because it incorrectly seeks to resolve important policy issues, a first impression that FERC ultimately must decide.
The actions, we've taken seek to create significant benefits for our customers who consistently experienced some of the lowest rates in the country year after year.
Our customers have not been harmed by our actions and in fact.
Stood to benefit greatly from them.
Our tax planning practices have created more than $900 million in direct customer benefits 550 million of which has already been credited to customer bills.
The April initial decision if it is affirmed by the FERC would discourage utilities like ourselves from pursuing such prudent innovative strategies to lower customer bills.
Sale leaseback arrangement also produced significant savings for our customers and the L. James recommendations would similarly discourage utilities from entering into such transactions.
We feel strongly that our positions on the law and the facts are correct to be very clear.
We believe that our actions had been prudent and for the benefit of customers and that there should be no refunds or disallowances, except for the small depreciation correction that we agreed to.
While we will vigorously defend our position at the FERC the timeframe for pursuing series uncertain tax position any further is lengthy and the outcome is uncertain.
This leaves us no choice, but to mitigate risk for owners in the next few weeks, we will give up series uncertain tax position with the IRS.
This will effectively kept the principle of any potential historical refunds.
Eliminate the basis for any reduction in series rate base going forward.
And eliminate the basis for the 147 million dollar excess <unk> chief customer credit raised in the July Ale Jay initial decision.
Drew will provide additional thoughts on this matter and I encourage you to review our brief on exceptions.
At Entergy, we play a vital role in every region, where we operate and our core values are reflected in our efforts on behalf of our stakeholders Entergy has consistently recognized for its corporate citizenship climate leadership and commitment as an employer of choice, which is a tremendous owner.
For a fifth consecutive year Entergy was named a 2020 honoree civic 50 by points of light the world's largest organization dedicated to volunteer service. This award recognizes Entergy is one of the 50, most community minded companies in the United States.
Additionally, Threepl media has named Entergy to its annual 100, best corporate citizens ranking which recognizes outstanding environmental social and governance transparency and performance among the 1000 largest U.S. public companies. This is the eighth year Entergy has been included in this prestigious rank.
Okay.
We were also named the winner of a bronze Stevie Award for 2019 climate report, where we outlined steps, we're taking to deliver cleaner energy solutions and promote and lower carbon future for all of our stakeholders.
Finally, like many of you I've been saddened and upset by recent events that have laid bare yet again, the deep social and the qualities and injustices. So many in our country continue to face.
As our human rights statement outlines entergy respects the human rights of all individuals.
The workforce of close to 14000, we leave no room at entergy for racism discrimination or intolerance, but rather seek to achieve our vision and mission through diversity and inclusion of all people and their unique ideas backgrounds and perspectives.
We will continue to move forward in our mission and you as owners, including our employees, who are a top 10 owner of the company.
Have my and the entire entergy leadership team's commitment that we won't retreat from our obligations personally or professionally.
We know that our actions towards creating real and meaningful change speak much louder than words.
As I said at the outset.
We delivered yet another strong quarter even.
Even through <unk>, even though cobot 19 has had an impact 2020 has already been a year of significant accomplishments.
Keep us on track to meet our strategic operational and financial objectives.
We are committed to those objectives and our resolve to be the premier utility.
The foundation of our business remains strong.
And sustainable.
We have among the lowest retail rates in the country.
Capital plan remains on track and will modernize our system benefit our customers and our local economies.
We have constructive and progressive regulatory mechanisms, we are an industry leader in critical measures of sustainability.
We have one of the cleanest large scale power generation fleets.
And while we have seen some slowdown in industrial activity, our industrial base is among the most economically advantaged in the world and we expect that they will leave the read lead the regions recovery in their respective industries.
We create innovative solutions to help our customers.
And we're prepared to overcome headwind headwinds through a disciplined cost management program as evidenced in our response to both last year's unfavorable weather and this year's cobot 19 impacts.
It should not surprise you that.
We are affirming our longer term outlooks, given our commitment to create permanent cost savings through continuous improvement efforts.
These efforts strengthen and when possible will improve our delivery of steady predictable earnings growth.
As we demonstrated on this call just last year.
This is what makes entergy a compelling long term investment. This is the foundation on which we will grow innovate and expand our investment profile to continue to deliver on our commitments tomorrow.
Before I turn the call over to drew I want to confirmed that our virtual analyst day will be held on September 24th.
These are exciting times for Entergy and we look forward to continuing the conversation with you then about what we're doing to build the premier utility.
Drew will now review, our second quarter results and our outlooks.
Thank you Leo good morning, everyone.
As we've noted our second quarter results were strong sales were better than we expected on our last call.
We're well on track to achieve our cost savings for the year and our capital plan remains unchanged.
We are affirming our guidance and longer term outlook that we stay focused on becoming the premier utility.
Entergy adjusted earnings for the quarter were $1.37 drivers were straightforward.
Starting with utility on slide six we saw positive effects of regulatory actions associated with our customer centric investments in Arkansas, Louisiana, Mississippi, and Texas, including the Lake Charles Power station, which came online a few months early.
We experienced lower sales volume due to impact from koeppen 19 and unfavorable weather.
Lower own them reflected our cost reduction initiatives as well as the timing and scope of non nuclear generation outages and lower nuclear generation expenses.
Depreciation and interest were higher as a result of our continued growth and earnings on a per share basis also reflected a higher share count.
You see on slide seven as reported earnings were 55 cents higher than a year ago.
The key driver was strong market performance for each WCS nuclear decommissioning trust funds.
The quarter's results also reflected lower revenue and lower own them, primarily due to the shutdown pilgrim and Indian point too.
Slide eight shows operating cash flow increased approximately $240 million.
The main drivers were higher collections for fuel and purchase power costs, and a $45 million reduction in the unprotected excess 80, I T returned to customers.
The second quarter also benefited from lower nuclear refueling outage spending lower severance and retention payments you see.
Lower collections from utility customers, partially offset the increase.
Now turning to slide nine we are affirming our 2020 adjusted EPS guidance range of $5.45 to $5 in 75 cents and our 2021 and 2022 outlooks remain unchanged.
As I mentioned in my introduction, our sales came in higher than we discussed last quarter. When we initially estimated the effects of code 19, and we're well on track to achieve our cost savings for the year.
Sales were better than expected and all classes and our overall 2020 expectation has improved slightly.
For own them the to date, we've achieved nearly 40% of our 100 million dollar spending reduction I remain on track to achieve the remainder by year end.
While our year to date variance is very positive portion of that is due to planned projects that were shifted to the second half of the year in response to cope with 19.
As a result, we expect the third and fourth quarters reflects spending for these delayed projects as well as the balance of our identified cost savings initiatives.
Our credit metrics and liquidity position are outlined on slide 10, our parent debt to total debt was 22% in our epic voted that was 14.6%.
The epic, though metric includes the effects of returning $189 million of unprotected exits 80, I T. The customers over the last 12 months.
Excluding this give back in certain items related to our exit VW C.
Episode that would have been 16%.
As we noted last quarter, we remain committed to achieving episode that at or above 15% by fourth quarter 2021.
Our liquidity position remained strong and you can see that as of June thirtyth, our net liquidity, including storm reserves, three and a half billion dollars.
Following up on we have comments regarding Siri.
We estimate that if the FERC were to agree with the conclusions in the L. Jays initial decision without modification.
The ongoing adjusted EPS impact could be 15 to 20 cents. This includes approximately six cents for the sale leaseback issue and the remainder is from financing refunds to customers.
This also reflects that we will give up the series uncertain tax position with the IRS to mitigate risks to our owners.
And it does not reflect any actions we would take elsewhere in the company to mitigate the impact.
This estimate should not be interpreted as acknowledgement on our part of the merits of the initial decision or our expectation of the potential outcome on this matter as Leo mentioned, we disagree with the initial decision we clearly laid out in our filings in this case and we don't believe there should be any material impact yes.
Before closing our analyst day is scheduled for September 24th.
I'll share with you our longer term growth strategy, including our customer centric.
Investments and continuous improvement efforts.
And we'll provide five year views of our ETF outlooks and credit expectations as well as detailed on the key drivers that support our path to achieve our objectives.
Sided to share plans with you.
We had a strong core a strong second quarter, we achieved a number of significant accomplishments and we remain on track to meet our strategic operational and financial objectives.
We are committed to these objectives as well as our goal to be the premier utility and we look forward to continuing this conversation and analyst day.
And now the entergy teams available to answer questions.
As a reminder, task a question you want me to press Star one owning a telephone to enjoy your question press the pound.
We asked thank you please limit yourself to one question and one follow up question. Please stand by what we compile the Q and a roster.
Our first question comes from the liner Jane Salazar from BMO capital markets. Your line is now.
Good morning, and thank you for taking my call can you guys hear me Yeah. We can good morning, Williams, Hey, how are you.
Right.
Just one or two real quick questions I think your previous guidance had assumed a 2% decline for 2020 or 20 to I'm, sorry, 2.5% decline for for the full year now you're a 2% can you kind of give us a breakdown of how youre thinking about that for the balance of the year and do you think there are some maybe some concern.
It doesn't bother baked in there on the industrial side as you kind of looking at the recovery through the end of 2020.
Yeah, James It's true, yes, we haven't changed our outlook for sales actually for the third and fourth quarter from what we described in May.
Even though we did see a little bit better.
Outcome in the second quarter than what we were anticipating.
It is possible that we could do better but given the spike in cases, you know around the country in our service territory.
We should just keep it about where it is for right now we do continue to see the phase reopening even though its paused in certain municipalities right. Now so there is opportunity perhaps over the balance of the year, but for the time, we've elected to keep our outlook for sales, where we had it for the second half.
Perfect. So basically the improved sort of outlook really comes from just the the the second quarter and the whether you've kind of and the sales you've seen sort of quarter to date.
Correct correct.
Correct, Okay and then the other question I guess just comes back to sort of credit is you are you still comfortable with the equity guidance that you had for a given before where you're looking I think for the high end of the 5% to 10% of the planned capex.
Is that still sort of how you're looking at things and I do you still feel like you are on target for the ended the year to get to 15% FFO to debt, which I think is where you guys were sort of targeting last time, we spoke.
That's that's right. We are still we are still targeting that we still expect to make that by fourth quarter next year.
And our equity outlook is and that same range that we've we've talked about previously.
We have.
Continued to think about timing and we think is probably the later half of next year when when the need will actually arise and we've continued to think about the method in which we would deliver.
That ends in the past we've talked about block trade. That's what we did a few years ago. So that's still on the table, but we've also added other options to the table I'm, including an ATM possibility and even perhaps a preferred equity.
Right now we don't have authorization for preferred equity within our charter. So we would need a a proxy vote to ensure that that would be shareholder friendly, but we're considering that as well.
And just a follow up on the under preferred equity I'm, assuming that would be like a mandatory convert.
Yes.
Is that from from a rating agencies standpoint, I know that you'll get anywhere from.
25% to 50% credit for something like that does that kind of limit I guess, how much of the funding you can do through the convert just.
Considering it's a little bit farther out and you don't get as much equity credit as you would versus say a block sale or through an ATM.
Yeah. So that's why the deferred equity gets you actually I think up to the 100% there are options around preferred debt. Other other versions of convertibles that will give you various credit depending on the rating agency.
And we have authorization for all of those what we don't have authorization for is the preferred equity that would allow you to get the 100% credit.
Got it okay I understand great. Thank you so much for all the time.
Thank you James.
Thank you Sir our next question comes from a line of sharp corners them from Guggenheim Partners. Your line is now open.
Hey, good morning, guys good morning sharp.
So good to see that a 100 million cost savings program is on target is there any plans to hold recurring savings into 21, and you sort of rough numbers to think about I mean, what could be recurring.
With the 20 or 2020 savings anything perpetual.
Okay.
Sure. This is true so obviously at this point in the year. We are also thinking about 2021, and what that might mean and we have started to think about.
Opportunities for savings in 2021, so that is actually well underway.
Yeah. It currently we're monitoring everything that's going on the world and making sure that there isn't any other risks that may be out there that we would need to apply those two.
That that work that you're referring to is well underway, but we're not prepared to talk about specific numbers at this point.
Got it and obviously you've highlighted it's been relatively strong start to the year can you just maybe points as to kind of where you're tracking within your 2020 earnings band seems to be just with rough modeling, you're getting a little bit close to the top end, especially if that's three Q, whether transpires, just maybe a little bit of from it.
And perspective, with where youre going into that.
Yes so.
We're still tracking towards the middle of the band.
There are opportunities potentially out there for us but.
We continue to track towards the middle at this point.
Got it okay. Thanks, guys. Congrats thank you make sure.
Thank you Sir our next question comes on the line of Jonathan Arnold from vertical Research. Your line is now open.
Good morning, guys.
Good morning, Jonathan.
I would just could I just come back to sales and just ask you where they are most.
Okay to to the positive.
Yeah, who otherwise in the second quarter, because the way you showed that slide and on the Q1 DAC I believe that was sort of us is guidance rather than a year over year comp. So just curious whether the sort of down I think it was down 1% in industrial for example in Q2.
Was that whether the favorability was it more on the residential side.
Hi, This is Rob good morning, I think the story line remains consistent with what we expected back in May where the growth was driven by residential because so much of the shelter in place, we're showing up excuse me, we're showing up in our residential sector and you had some volatility in the.
In the commercial sector, because you had so many different levels of uncertainty with schools and churches in restaurants in like and I think the clarity we had in the industrial sector sort of played out although it was a little bit better than expected. So the fundamentals have not changed dramatically. When you think about sort of this cross sector our country.
Fusion to grow so residentials really.
Showing up for us in offsetting a large part a lot of the volatility we're seeing elsewhere.
And I'll just add to that it pretty much was across all three clients, where we were a little bit ahead of expectations. It wasn't one or the other that completely dominated.
Thank you.
And just my follow up on.
So the balance sheet it looks like you on collectibles.
From 700 million to.
So.
Can you talk a little bit about what you're seeing or whether it's sort of on a has it kind of.
Spiked and is it pricing now or is it sort of on a accelerating trend and then just how to think about.
Some of those variables going forward.
Yeah, John and that's a good question. So we are seeing more uncollectibles right now we actually as you noted we booked about $30 million of bad debt expense. This quarter that was offset by regulatory assets given the.
Raceway orders that we have in our retail jurisdictions.
So there's not really any.
Bottom line impact associated with that because we would expect to be able to recover those costs.
Historically, we've experienced about.
Bad debt expenses about a third of our typical arrears. So typically we have.
Arrears and in any given point of about $75 million and we experience.
About $25 million a bad debt expense, we are about $100 million higher on our arrears right now and that's why we booked the $30 million sort of consistent with that ratio.
We expect that there are some people that are able to pay but are just taking advantage of the current situation but.
And we do expect that to grow a little bit more we haven't turned on our dining programs.
And Ah and we would expect that that balance would continue to grow through the summer. Although we expected to continue to be manageable and it is that growth is reflected in our liquidity expectations, which continue to be strong.
So that is something we're closely monitoring and it's important for us to continue to work with our customers.
In order to help them through this.
Perfect. Thanks, Thanks for that and you cool thank you.
Thanks, Jonathan.
Thank you. Our next question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is now from.
Hi, good morning. Thanks.
Hmm.
First off once.
<unk>.
Sure.
Julien we are having trouble hearing yeah.
Oh.
I apologize.
Hey, guys not policies on the merits of your argument with theory.
I understand it sounds like case and through.
That that there were some mitigating factor.
Quantify.
They were can you help walk what they might be viewed from a reduction in finding financing needs or otherwise.
And what you might have already taken indoor mitigating circumstances.
Julien I'll start with the quote unquote mitigating circumstances, no let drew.
Kinda finish up but.
First and foremost.
My expectation would be that we would that whatever impact ultimately happened that we would.
Overcome that and still meet our expectations.
So that's that's our going in position from just an organizationally that whatever the impact is that we would we would continue to meet the objectives that we've laid out for you.
There are also some some within that within the Siri case I think you know there are some things that we've talked about in the past that can be used to mitigate such as.
The interest costs that we've been paying the IRS and some other things like that.
So so and obviously there'll be some financing or whatever that would fit into whatever financing plan drew has but.
I guess the overall the overarching mitigation is that whatever it is that would be our expectation to overcome it.
Right.
I would say that the opportunity within our businesses embedded within our continuous improvement program and and so as you know we've been working hard to continue to develop that we feel like it's continued to grow immature and that is where the that opportunity would come from so not all of.
It clearly has been identified at this point, but as Leo So clearly just articulated is an expectation about how we would be expected to operate within the company and just like we have in the past I I, 100% confidence that the company is going to figure out to make that work.
And of course jewel in our.
Perspective is that there won't be an impact because with our position in the case, so I just want to make that clear too.
Absolutely I I appreciate the merits of your argument, there as well and sometimes but.
And I found on them.
You, obviously have 100 million cost that you were well talk to you for this year.
But you will find ways that that that include leveraging are offsetting it with.
New age that's 100 million in cost cuts.
And maybe even more broadly absolutely.
I know last quarter and at the outset of coveted we've been talking about feasibility these cost reductions.
How do you think about that now given the play into the back half year, and how that might impact 21.
Sure and also considering potential timing pretty one resolution to the sale date.
When you say Oh.
So all impact a little bit of that Julian and I'll ask my colleagues to.
Tell me if I forget some of the points.
I get that in there.
Appreciate the question because it really there's a couple of things at play here, the 100 million as by and large our flex program, what we're doing within the year to manage.
The the impacts of coking and whether we obviously we've had that negative weather. So far this year plus the impacts coded last year, we had negative weather and those inter and intra year dollars.
Our primarily what we talked about at the beginning the year. When we we started to flex associated with weather and then continue to ramp up the flex because of the impact on sales of cobot.
In parallel to that we do have continuous improvement program, which is more akin to what we did last year on this call.
Where we felt permanent cost reductions that as you recall allowed us to.
You invest more capital into the system to improve the reliability of the system and the impact in the experience on our customer base plus grow the business.
I'll, just add actually had money to our charitable foundation into our employee benefits.
Through those the headroom there was provided through those and continuous improvement. So when we start to talk about next year they'll be a combination of the too as well.
I will say that.
That I'm sure. This is not unique to us that.
We are finding there are some areas of of.
Of impact on our cost associated with our reaction to coated.
That will likely fall into that bucket of continuous improvement and could be permanent.
We how we're in the process of of of trying to marry wet.
What goes from an annual.
Moving to a permanent thing, but I'm sure even within all of your firms you found things that.
That.
You used to do one way that you're doing a different way today, that's much more efficient that you'll probably continue to do so so I hope that helps there's really two parallel things that that there were work that we work on one is just the normal.
Flex within the annual budget that that every department has the other is the permanent continuous improvement that everybody has also focused on and you saw that second quarter last year, when we changed our outlooks because of the continuous improvement this year, we're holding onto their outlooks because of flex does that make sense.
Right and that's the effect attempts to the impact next year.
Yes, so, yes, but I would say impact next year.
Depending on what it is whether as weather or whatever it'd be a flex sort of thing.
We were just talking about Siri that'd be more of a continuous improvement sort of thing.
Hi Tech for paying 30.
Thank you.
Thank you. Our next question comes on the line of Jeremy Tonet from JP Morgan. Your line is now open.
Good morning, Werent Im just wondering if you could speak a little bit more on the 90% of capex not dependent on customer growth and is this kind of like a shift in planning and strategy or is it kind of just more reflective of current system investment levels that are needed.
That's a great question, Jeremy it's it's consistent with the capital plan that we've had for the last 10 years.
Oh.
And I felt like it was necessary to.
To add a metric that keeps that top of mind with everybody.
Because I believe that's that's that's important about our plan if you think about.
What we're doing in the generation space and what we've been doing for over a decade.
We're replacing 50 year old generation with brand new generation the heat rate is lower than.
It creates a significant production cost improvement a pace for the plant emissions are 40% lower than the you know they use less water all those things that are good about new plants and so what we've been doing over the years is adding new generation and then subsequently retiring old generation. So it's it's.
Meeting the needs of the system with news new stuff rather than old stuff. The same things goes with.
The investments that we've had in the distribution system. So if you think about am I, we're replacing old meters with new meters. It's not.
New customers, although there are new customers that getting your meter the majority of that program is driven by the technological improvement our distribution.
Automation strategy area asset management strategy all of those are really based on.
Improving the level of service that our customers achieve by deploying capital if it lowers costs or or or provides a service that was not available in the past so.
90% of it has been and continues to be based on the fact that we need to modernize the system.
Where the fact that we have customer growth has has assisted US is that it has provided a lower rate path for everybody as we expand the sales that we have on those assets that would use and to modernize the system, which contributes to the fact that we have historically have either.
The lowest or second lowest rates in the United States. So I just felt like it was.
Necessary given the the impact to covert has had on the economy in sales that we point out that.
The capital plan is still there.
To modernize the system and cobot hasn't change the need for us to modernize and system. If anything it's actually enhance the need for us to modernize the system, particularly at the distribution level and so while 90% of what's in there today.
Is based on.
On technological improvement.
If.
There's a lot in the wings for more technological improvement that we can do.
The extent, we find headroom to do it I hope that helps answer your question.
That was a those very helpful. Thank you for that one more if I could.
Just wondering if you could talk a bit and how you're positioned MISO.
In impacts Entergys renewable planning in DC opportunities here changing over the next five years from MISO level planning and changes.
Well, we do a resource planning obviously in conjunction with the resource adequacy that we need for my so but our resource planning is done at state level.
You know so so the resource plans that we have in the type generation, we need incorporates sorry, our our participation in MISO, but it's not MISO is not driving what resources we pay.
Got it thanks for that.
Thank you. Our next question comes on the line as Steve Fleishman from Wolfe Research. Your line is now open.
Yeah, Hey, good morning, Andrew Thank you weren't even Tom.
One very brief clarification on the Siri.
Because of this change you're going to make to the uncertain tax position does that cause the earnings impact.
To occur kind of temporarily until you get the final decision.
No no there shouldn't be any.
Real earnings impact associated with that other than the fact that we did have an expectation that we would be successful which would have reduced future.
Rate base and and subsequent earnings but.
That's not what we're referring to when we're talking about maintaining our expectations.
No. It would it would have to come through other means.
Okay.
Just the the F. rpcs the extensions or I think Louisiana, you filed and then are you doing.
Arkansas.
Yes, both I spoke jurisdictions.
Yeah just.
How much do we need to kind of worry about these is more like normal rate cases as opposed to these like annual reviews like can you just explain.
The issues into the multiyear extensions versus the annual.
I think the the primary question on the renewal is has the F. RP accomplish the objective that we set out a five years ago in Arkansas.
In three years ago and.
In Louisiana, and when you think about how we have shaped the capital plan, we've disclosed to our regulators what are what our plans where of into question becomes can we achieved the objectives and you've heard it before Steve around our reliability sustainability.
Portable low cost competitive rates can we achieve that given the capital plan for customers and if the answer that question is yes, and as we laid out in our and our.
Renewal filings.
The answer is yes in our view then they'll we expect the deal value as well as the other stakeholders will agree that it makes sense to keep it.
Good going it's not a it hasn't been viewed as we've discussed with the stakeholders as a full blown rate case, where we're reviewing.
We spend a year.
Going through a traditional backwards looking base rate case, so that's that's not the expectation.
But of course, there the regulator has the ability to.
To weigh in on whatever component.
I wish, but we believe the interests are aligned we think the way that the up our piece of work historically have been consistent with what we represented five years ago in Arkansas.
As you know this is.
This is a series of three year renewals in Louisiana and.
Again, given the shape of the capital plan, we gone beyond just the renewal of air for ARPU in Louisiana for instance, recognizing as Leo laid out.
We have reshaping the capital plan with more distribution investment for instance, as part of that asset renewal, that's going to show up in what we're asking the of the jurisdiction in Louisiana to consider with a a distribution rider in so it's those type of policy considerations that that we're we're going through with.
With our stakeholders and not not as much a b rate case review that's helpful. Steve Rod mentioned that we.
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In just slipped to look at how it works in Louisiana, and just look back to the.
To the last renewal in the renewal before that and renewal before that and renewal before that this is obviously the first time that we've done it in Arkansas, but.
It's been pretty clear that Arkansas Formula rate plan has worked.
Exactly the way it was intended to work with the combination of all you have to do is look at something like a year like 2018, where.
Where we ended up.
With with a year that worked out.
Differently, because the tax reform than we thought it was going to show and we ended up earning our allowed rate of return and we were trying to dollars to customers in the next formula rate, telling filing that went through so that's that's worked really really well for for customers.
As well so we.
Louisiana, Obviously, we have long history of renewals this would be the first one in Arkansas, but it appears to be work in exactly the way. It was intended by all parties.
Okay, great. Thank you very much.
Q.
Thank you. Our next question comes on the line of Angie Storozynski from Seaport Global Your line is now open.
Thank you so why do people back in theory, so I appreciate.
Oh, no classification of the downside piece here that you're 20 cents on your ability to offset.
That potential earnings deck, but.
It seems like that's just and essentially half of the impact right because there is separate proceeding regarding our lead.
And company equity ratio for the assets and I see that the L. James recommendation is expected on May in February of next year, but.
If you could just explain.
And so that's.
Let me give us some negotiations that from we had the that makes our OE decision from card we had some adjustments that these proposed adjustments to the.
Calculation mechanism for the are we in how how that could impact the are there any style fab.
Thank you.
So so this is a drew we've had angie the the.
An expectation for ROI and capital structure baked in for three years or so at this point and our expectations and those are in our outlooks based on the outcome of this proceeding and at this point, we don't see any reason to change those based on how the proceedings have have moved today.
Right.
And Ah and even if you know those outlooks weren't met from the Norwegian capital structure perspective, we don't think that the whatever that delta would be is something that we couldn't managed within our current expectations.
Okay, even though there, whereas the overlapping impact sites at the production nothing baked base and reduction of the are we in action at the equity.
That's that's correct anyway, St was we already reserved on the we've already we've already.
We have an expectation for that Bates and our outlook. We don't want we don't usually talk about that because we're still in the proceeding but.
We're comfortable with where that is in our outlooks right now.
Great and just one follow up so.
What what should we expect then going into the analyst day, I mean, you plan on.
Looking at any announcements.
Regarding more renewable power spending or is that just additional cost cutting initiatives again, I mean, just the big picture expectations going into the analyst day, Yeah, I mean, I think big picture Angie, what what will be talking about as good being able to give a little bit more.
More color on on how we operate and what we're doing and whats in the capital plan and how we're thinking about it.
The capital plans pretty certain where it is as you know there's a large mix of renewables in our and our future as it is as we've stated before between 22 and 30, we anticipate a lot of renewables. We got the RFP is that we've been involved in the construction projects that are up and running the ones.
Is that are under construction so.
So I think the capital plan is and is in pretty good shape would make us more details about that and talk about what's in our future, particularly as we as we spend time on on the customer solutions side of things, but.
Really a little more.
A little more depth on things like.
What's in the capital plan, what's in our.
Our path to lower emissions whats in our customer solution space, which into distribution space how are we.
How are we.
Operationalizing continuous improvement things like that.
Okay. Thank you.
Thank you.
Thank you Sir our next question comes from a line of Sophie Karp from Keybanc. Your line is now open.
Hi, Good morning, Thank you find warning sign Bacon My question.
So I want to go back to maybe little bit to the volume a picture and just looking at the breakdown by class right. It seems like the industrial is doing pretty well you're right, it's fairly down year over year in the weather adjusted basis.
In commercial understandably suffering a little more and there is eventually was up and I think we'll get that.
Question, I guess could you help us a little more than it's been what's going on on the ground right. Now is this the trend which is just back to continue the same way and if the given this shift in the mix you the sensitivity to changes that we had pretty.
All that they will hold.
Environment.
Yeah. So.
Sophie though the industrial piece in particular that you noted we were expecting pretty solid growth. This year at the outset in the 5% to 6% range for industrial so the fact that it's 1% down is a pretty big drop relative <unk>, even though it year over year, it's 1% down here.
Back to be five 6% up and on the balance of the year.
Yeah, I would say that yeah, we expect the residential too to trend start to trend down as people return to work.
In different places in their home.
And we'd expect the commercial and governmental to slowly begin to trend up and industrial to hopefully begin to improve.
And that's all I think consistent with where we lined out.
Expectations in May.
And so I think that.
We are we are continuing to expect to the phase reopening to support.
Slow, but steady improvement in these numbers.
Hi, Thank you and then lastly, maybe if you could give us a little bit of feeds into your I noticed they nothing seems to go and on track for the most part for me.
For your company, what what what's stopping or what areas do you plan. Thank you as an.
Based on.
As far as topics for the analyst day, we'll probably just a little more depth and color around what's in the capital plan.
Youre trend to lower emissions.
And as well as continuous improvement structure and things like that will be a will be subjects that we'll we'll talk about we don't want to.
Talked too much about it today.
We want you to tune in.
Right. Thank you.
In Q.
Thank you Sir our next question comes on the line of Ryan Levine from Citi. Your line is now open.
Morning.
What what projects are in your capital plan that are most sensitive to load outlook that was incorporated within that 10%.
That was I waited in prepared remarks.
Probably a smattering across obviously, there's new customer hookups are the [laughter] the big piece of it in the distribution of the transmission space. So for example, if you had a major concern major industrial customer that was locating underserved.
Territory sub stations for them can be pretty significant so you'd have to build them substation and then we just have general line extensions to our distribution business you know everyday when a new houses built or something like that so.
Some of the transmission infrastructure could be put in that bucket as well to the extent that that we need to put.
Bill transmission infrastructure into an area because of either prior load growth or new load growth, but.
It's really more in the.
Getting to that last.
That last mile.
Thanks, and then in terms of the industrial load assumption in your guidance what are your conversations with customers, suggesting for that outlook and are there any big lumpy customers.
You have color as to their plans or timing of when some of that industrial can return.
Throughout the remaining portion there.
Iran. It's a it's rod I know, we will talk more in detail about the nuances of our industrial engagement or perhaps at the.
At analyst day, but but part of our confidence comes from and in our growth observations comes from factor, we're actually talking to real customers and and we can quantify and identified.
The existing projects and so what we're paying attention to at the moment, our and not just sort of the macroeconomic commodities spreads and other indicators were talking to those companies who've made a.
Final investment decisions and whether the bugs delayed projects are ramping back up we can point to specific companies and tied into specific.
Projects that are in our outlook and as we shared before we problem we probability weight.
Not just the projects in the plan, but there are other projects that make up our economic development type of pipeline.
That better that were also monitoring to determine whether or not we need to include those or exclude those as the case maybe in the plan we've not seen much movement.
This existing playing with regard to projects that we've identified but for instance that were cancelled and there might have been one or two here there, but they were on the lower end of the spectrum.
In terms of impact, but our confidence comes from the fact that we're tying them to to actual project that are still in play.
Okay. Thank you.
Thank you. Our last question comes from the line or do guess Chopra from Evercore ISI. Your line is now open.
Okay close to good afternoon, guys. Thanks for sneaking me here I just want to quickly clarify drew the the 15 to 20 cents I'm trying to reconcile that to the slide 26, when you show the rate this exposure.
My right in thinking about the 15 20 cents essentially you sort of.
No no worse case scenario, losing the return on that 400 North of 400 million weight is is that the right way to think about it or my comparing apples and oranges.
Yeah, So the 400 million plus the 100 million of Ah.
Of interest that is part of the refund because they are saying that that we owe them the money and it's not actually really rate base. Its refunds. So the rate base doesn't really change in that regard it would only change if we were successful in our outcome with the IRS, because then that would be it.
Tax and the rate base would go down the net rate base or go down so.
Really what we're talking about is the 510 million that you see there.
That total amount is or the requested refund and so we'd have to finance that.
And and then the lease payments that are above the $17 million here.
On an ongoing basis.
Understood. Thank you thanks a lot.
Thank you.
Thank you at this time showing no further questions I would like to turn the call back over to David Board for closing remarks.
Thank you Gigi and Ah. Thank you to everyone for participating this morning, our annual report on form 10-Q is due to the FCC on August 10th and provides more details and disclosures about our financial statements events that occurred prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet.
Would it be reflected in our financial statements in accordance with generally accepted accounting principles also as a reminder, we maintain a web page as part of Entergys Investor Relations website called regulatory and other information, which provides key updates of regulatory proceedings and important milestones on our strategic execution or something.
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.
And I'm going this concludes today's conference call. Thanks for participating you may now disconnect.
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