Q3 2020 Entergy Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Entergy third quarter 2020 earnings release teleconference call at.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone.
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I'd like to hand, the conference over to your Speaker today Mr., David Board Vice President of Investor Relations. Thank you. Please go ahead.
Good morning, and thank you for joining US we will begin today with comments from Entergys, Chairman and CEO Leo denotes and then drew Marcia CFO will review results.
In an effort to accommodate everyone who 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 SEC filings.
Entergy does not assume any obligation to update these forward looking statements.
Management will also discuss non-GAAP financial information.
Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website.
And now I will turn the call over to Leo.
Thank you David and good morning, everyone.
Today, we are once again reporting strong quarterly results.
Which keep us firmly on track to meet our financial commitments.
Third quarter adjusted earnings were $2.44 per share.
We're on pace to exceed our $100 million on M. cost savings target for the year.
With three quarters behind us.
And the confidence and clarity we have for the remainder of the year.
We are narrowing our 2020 guidance range, which is now $5.60 to $5.70.
And we are affirming our longer term outlooks.
2020 has presented challenges for all of us around the world.
Weve endured a global pandemic, including its economic impacts we've witnessed social unrest.
We had a record breaking storm season with back to back Hurricanes hitting our service area.
Yeah, no matter, what 2020 threw at US we remain steadfast in delivering on our commitments to our customers our communities our employees and our owners.
That's what our stakeholders expect from us.
For the past several years, we've built a culture processes and resources to successfully deliver on our commitments.
Even in the face of extraordinary times.
Our comprehensive incident at storm response plans ensure we're always ready and prepared to respond to extraordinary events.
Our best in class capital projects management team delivers projects on budget and on schedule even in challenging environments.
Our proven cost management program helps us.
Front financial headwinds, so we can meet our financial commitments and.
And our disciplined continuous improvement program identifies permanent cost savings to deliver incremental sustainable value for all of our stakeholders.
Our strong results today amid these extraordinary times.
Demonstrate the progress we've made over the past seven years to build a simpler stronger and more resilient company.
We are on track to achieve not only our commitments for 2020, but also the long term strategic operational and financial objectives, we laid out at analyst day.
We have a strong five year customer centric capital plan that will elevate our customer experience.
We will create incremental value for our four stakeholders through continuous improvement.
We will continue our legacy of sustainability and environmental leadership for a cleaner world.
And we will maintain our long term vision for steady predictable growth in earnings and dividends and we see a path to continue that growth beyond 2024.
The professionalism and dedication of our employees and our organization will once again on full display when hurricane Delta made landfall in southwest Louisiana under.
Yields of Hurricane Laura.
They also caused 493000 outages at its peak.
With the help of our mutual assistant partners, we were able to deploy 12000 workers and nearly all of our customers were restored within five days.
We showed why we are best in class and storm response, as we successfully managed to back to back major Hurricanes, all amid a global pandemic.
That's what we prepare for and that's what we do.
In fact Zeta is expected to make landfall this evening in southeast Louisiana.
Weve activated our storm response plan and we are fully prepared and ready to respond.
For restoration efforts, we have received broad support from local state and federal officials and is one local official put it past during hurricane Laura.
As soon as the storm passed Entergy was everywhere.
Of course, our thoughts and prayers are with everyone who is impacted by these storms, especially those in southwest, Louisiana in southeast, Texas, who endured the most damage.
Beyond our thoughts and prayers, we provided financial support to affected communities.
Entergy shareholders granted more than $730000 during the third quarter to help families and communities recover.
We are deeply grateful for our employees and partners dedicated themselves to restore the electric service that is so critical to the communities we serve.
The storms also approved the strength and resiliency of our modern infrastructure.
For example in the past two years, we completed the Lake Charles and the Nelson to Neenah transmission projects in the Lake Charles area.
Those projects were designed to withstand 140 mile per hour wins.
Every structure from those projects remain standing after enduring the brunt of Hurricane Laura the strongest storm hit Louisiana in over 150 years.
This is a direct result of our plan to improve the resiliency of our infrastructure and provide a high level of service to our customers.
By contrast, many older structures in the same path, which were built to less resilient standards were destroyed.
We've rebuilt those structures using modern design and technology and they remained intact throughout hurricane Delta.
These improvements to our transmission system will provide benefits to our customers for many years to come.
In the midst of all this we continue to make progress on our key long term deliverables.
Renewables efforts have escalated over the past few years and this quarter, we've achieved several important milestones.
We had a customers began to receive power from the capital region solar.
The largest solar facility in the state.
We have a 20 year power purchase agreement for the output from the 50 megawatt facility.
Entergy, New Orleans completed Louisiana's largest commercial rooftop solar project the.
Approximately 7000 solar panels provide 2.4 megawatts of clean energy to Orleans residence.
We announced three new solar projects from our request for proposals.
Entergy, Arkansas is planning to purchase Walnut band 100 megawatt solar farm.
Entergy, Texas and that's two projects from its renewable RFP.
The first Liberty counters County solar well.
It would be a 100 megawatt owned resource.
Second I'm real solar will be a 150 megawatt facility from which we will purchase the output.
We are requesting approval from our regulators to move forward with these selections where required.
We also continue to make progress on partnering with our customers to offer renewable resource options to help meet their sustainability goals.
61 tax exempt companies subscribed to entergy, Arkansas as solar energy purchase option purchasing power generated by the stood guard solar Energy Center.
By participating in this utility level arrangement these customers will save anywhere from 18% to 28% on their electricity usage.
These renewable projects will bring clean energy to our customers will help us achieve our environmental commitments.
At Analyst day, we laid out or climate strategy and we told you how renewable investments will continue to grow significantly as we move towards achieving our 2030 carbon reduction goal and ultimately our commitment to achieve net zero emissions by 2050.
We already are the largest provider of renewable energy in both Louisiana, and Arkansas and.
Entergy, Mississippi is building the largest utility owned solar facility in that state.
We have a meaningful commitment to grow our renewable portfolio for which we planned significant investment by the end of the decade.
As always subject to the approval and direction of our regulators.
We will continue to engage and work with our regulators and stakeholders to expand the use of renewables under a framework that ensures we balance reliability affordability and sustainability.
In 2002, we established our portfolio transformation strategy to replace aging less efficient assets with modern cleaner highly efficient assets.
Weve de activated approximately 6500 megawatts of older generation with an average heat rate of approximately 13000.
And we've added more than 9000 megawatts of modern generation with an average heat rate of approximately 7300.
These newer resources have on average, 50% lower emissions profile than the assets we'd be reactivated.
And not only are they cleaner. They also provide significant savings to our customers from lower fuel costs.
Looking ahead, we will propose building resources that will help fuel optionality to be powered with hydrogen.
We will also look at retrofitting existing assets to enable the use of hydrogen fuel and carbon capture and sequestration technology.
We are already working to make this a reality.
We recently submitted a proposal in Entergy, Texas is RFP for resource that if selected and approved will be developed with the option to be powered partially or fully with hydrogen and that asset could also utilize carbon capture and sequestration when that technology becomes economical.
Our portfolio transformation strategy has led to measurable undeniable results.
For the past two decades or emissions rate has been well below the sector that sector average are.
Our utility C O two emissions rate has decreased approximately 30%.
And today, we operate one of the cleanest large skilled fleets in the country.
And we will only continue to get cleaner as we maximize the use of new modern technologies to serve our customers at the lowest reasonable cause while meeting our environmental commitments.
We've talked to you about our unique framework, which illustrates the certainty of our capital plan.
90% of our capital plan is based on the need for system modernization and is not dependent on customer growth.
More than 90% will be recovered through timely rate mechanisms.
And approximately 85% of our capital plan is ready for execution from a regulatory approval standpoint.
Our constructive and progressive regulatory mechanisms provide clarity to our plan and give us confidence in meeting our financial commitments.
On October 15th Warling City Council approved the unanimous settlement agreement resolves Entergy, New Orleans rate case and F. R. P filing.
Under the agreement Entergy, New Orleans will submit the first of three annual Formula rate plan filings in mid 2021.
The agreement also sets Entergy, New Orleans equity ratio at 51% for the duration of the F. R. P.
The settlement does not address the 9.35% allowed our OE.
We continue to believe that this our OE does not adequately reflect entergy, New Orleans business risk profile.
Evidenced by the recent downgraded by S&P.
We will continue to explore adjustments to the allowed ROE in our discussions with the city Council and its advisors.
Entergy, Texas also submitted its first filing utilizing the new generation writer recently established established by the Texas Commission.
Finally request the 91 million dollar annual revenue requirement from Montgomery County power station effective when the plant is placed into service.
At Entergy, we play a vital role in every region, where we operate this responsibility is never clear than during our incident response to events like major storms and the current pandemic.
But our commitment to sustainability extends far deeper than just incident response.
We demonstrate our leadership through our daily actions, such as our climate strategy, attracting talent and developing our workforce.
Our commitment to diversity inclusion and belonging and initiatives that strength and well being of our communities.
At our analyst day, we published a comprehensive SG presentation that outlines our leadership in sustainability, which I encourage you to review.
As I said at the outset.
2020, as validate that we are now a simpler stronger and more resilient company.
We are prepared to successfully respond to challenges and that's been important this year more than ever.
Much of 2020 behind US we've delivered strong results. Despite the challenges of a global pandemic in its economic impact social unrest across the country in an active storm season with back to back to back hurricanes hitting or service area.
We are excited about the prospects ahead of us the.
The fundamentals of our company or a strong into value drivers that uniquely position us to be the premier utility remain in place.
We are strategically operationally and financially on track to meet the commitments we've made to our stakeholders.
We have some of the lowest rates in the United States and are committed to maintaining that advantage.
We have a significant investment plans that improves the level of service for our customers through innovative solutions that meet the outcomes. They expect.
We have one of the cleanest large scale generation fleets in the country and we are a leader in sustainability with a commitment to achieve net zero carbon emissions by 2050.
We have a clear line of sight to 5% to 7% growth in earnings.
By the end of next year, we'll start to grow the dividend commensurate with those earnings.
And as we mature in our continuous improvement efforts, we aspire to lower our costs and do even better for the benefit of our stakeholders.
We look forward to continuing the conversation with you at the financial conference.
And drew will now review the quarter's results.
Thank you Leo good morning, everyone.
As we have noted our strong results this quarter demonstrate the progress we've made to build a strong resilient company prepared to deliver on our commitments through extraordinary times.
We are on pace to exceed $100 million cost savings target for the year and with the confidence and clarity we have for the remainder of the year.
And narrowing our 2020 adjusted EPS guidance range, which is now $5.60 to $5.70.
We're also affirming our longer term outlooks as we remain focused on building the premier utility.
Entergy adjusted earnings for the quarter were $2.44.
Per share drivers were straightforward starting with utility on slide six we saw a positive effects of regulatory actions associated with our customer centric investments in Arkansas, Louisiana, Mississippi and Texas.
We experienced lower sales volume due to the impact from Hurricane Laura Cobot, 19, and less favorable weather.
Oh Nm was once again lower in the quarter as we successfully managed through a challenging environment for the benefit of our stakeholders.
And depreciation and interest expenses were higher as a result of our continued customer centric investments.
At either of you see on slide seven as reported earnings were 15 cents.
85 cents higher than a year ago.
The key driver was lower asset write offs and impairment charges due to the sale pilgrim in the third quarter of 2019.
In addition, strong market performance for either of you seize nuclear decommissioning trust funds positively contributed.
The quarter's results also reflected lower revenue and lower owing them, primarily due to the shutdown of Indian point too.
Slide eight shows operating cash flow decreased approximately $145 million.
Main drivers were lower collections from customers due to the impacts from COVID-19, and higher pension funding.
70 million dollar reduction in the unprotected access Avi I T returned to customers, partially offset the decrease.
Before we turn to outlooks I'd like to quickly cover Hurricane Delta.
As you can see on slide nine we estimate the total cost to be between 250 and $300 million.
We plan to consolidate these costs with those from Hurricane Laura in our regulatory recovery filings.
Of course, we are also monitoring Hurricane data, we'll act on those costs appropriately based on the need and working closely with our retail regulators.
Now turning to slide 10, we have a good line of sight on the remainder of the year and we are narrowing our tweet 20, adjusted EPS guidance, which is now $5.60 to $5.70.
We're also affirming our longer term outlooks.
For 2020, we're successfully managing or revenues from weather cope at 19, and major storms and to date. We are on track to exceed 100 million dollar cost reduction target, which allows us to deliver on our commitments to our customers employees communities and you our investors.
Our credit metrics and liquidity position are outlined on slide 11.
Our liquidity remains strong and you can see that knows as of September thirtyth, our net liquidity.
Putting storm reserves was $4.3 billion.
Our parent debt the total debt was 22.4% and our epic voted that was 11.8%.
The AFFO metric included the effects of returning $119 million of unprotected experts say VIP to customers over the last 12 months.
Excluding this give back and certain items related to our exit the VW C. F. A coated that would have been 12.5%.
Clearly our FFO to debt ratio this quarter is unusually low.
As you would expect this is largely due to the effects of COVID-19, and hurricane Laura and the acceleration of cash being returned to customers as a result of COVID-19, such as deferred fuel.
Debt has also increased as a result of financing of storm costs near term.
We expect these to cycle through over time.
We remain firmly committed to achieving an FFO to debt target at or above 15%. We are confident we will reach that level, but the timing will be affected by the recovery of our storm costs.
We expect to achieve our targeted metric when storm Securitizations are received.
This is consistent with what we have communicated to the rating agencies.
In both S&P and Moody's have written constructively about our credit post storms.
In fact, Moody's expects us to meet our FFO to debt target in 2022.
Which aligns with a non expedited securitization plan.
And S&P raised entergys business risk profile to excellent S&P best business risk profile.
This is an important outcome as it recognizes the work we have done over the past year to de risk our asset portfolio and build a strong resilient business.
While we have made great progress as we have mentioned we are nonetheless disappointed by the recent downgrade of Entergy New Orleans.
S&P. These actions demonstrate the importance of supportive regulatory constructs are always the capital structures to maintaining the financial strength of our utility operating companies.
Preserving credit quality is essential to keep costs low and fun needed investment for customers.
This past summer we had another successful quarter.
Despite the impact from storms and COVID-19, we delivered on our customer employee community and investor objectives.
We are meeting key goals as reflected in our 2020 deliverables.
And as we demonstrated at analyst day, the fundamentals of our business are strong and we remain uniquely position to be their premier utility.
We look forward to continuing the conversation with all of you at EEI.
With the conference. So soon after analyst day, we will not provide additional materials. Nevertheless, we did include in the appendix of today's webcast presentation, our preliminary 2021 drivers and our three year capital plan through 2023 by operating company.
Two disclosures, we typically provide to you at EEI.
And now the Entergy team is available to answer questions.
Thank you as a reminder to ask that question, you'll need to press star one on your Touchtone telephone to withdraw your question from the queue. Please press the pound key.
Please limit yourself to one question and one follow up question before rejoining the queue.
Let them buy will be compiled the culinary roster.
Our first question comes from Janet Jeremy Tonet with JP Morgan Your line is now.
Hi, good morning.
Good morning, Jeremy.
Good morning, just wanted to start off with the Oh, one m. savings that you have a.
You really kind of a succeeded with achieving this year and just wondering where that stands I guess year to date, so far what's driving your ability to kind of you know get to that target and you know.
Go above that target and how much of that can be kind of recurring into next year, just trying to get a feeling on on those items.
Yeah. Jeremy This is drew that's a good question you know I think it relates to the the operation the operating leaders in the company really following the plan that we laid out.
Early in the year and we talked about this really actually on our on our first quarter call about how we plan to go get the $100 million and that it's done and then it was identified.
And we have actually pretty much run the exact game plan that we talked about back then it had to do with.
Operational planning deferring some maintenance items during outages and things like that those are the probably the primary drivers and we had to do that with reliability and safety in mind of course at all times and then.
There were a number of things that are that we identified.
That were related to cope in 19, a lot of employee expense related items travel cost for gathering and things of that nature now that we were working in a more decentralized fashion.
So those those make up the bulk of the the opportunities and I'll say that yeah. Typically yeah. We in any given year, we have what we call flex spending opportunities and those largely include the things that I just talked about but not all of them are necessarily repeatable.
Yeah, they may be different types of options in any given year, but our goal is to have a managed to an objective where we.
Meet our steady predictable earnings and dividend growth because that provides us the financial flexibility and the credit quality that we need to continue to grow.
At the same time, we do always look for continuous improvement opportunities in some of the things that I talked about cook.
Could contribute to that.
Namely.
Namely some of the things that are that allow us to work differently today that we've that we've discovered the some of the more decentralized.
Learning some of the employee expenses like travel we may not have to travel as much. So.
So we're examining those things closely to see if they will fit into our continuous improvement programs and ultimately get reflect is continuous improvement and that effort is where we would see opportunity on an ongoing basis to create more headroom for our customers and for incremental customer investment.
Got it that's very helpful. Thanks for that and just one more if I could could you provide kind of color on local sales trends and what assumptions went into kind of underpinning your expected 3% growth in 2021.
How have your thoughts kind of evolved since analyst day.
Well I'll take that one as well they had really evolve much [laughter].
Analysts say, they're pretty much exactly where they were at that point, but.
But you know we do expect some continued rebound in the economy year over year, and so that's where where the growth is mostly coming from I will say like I said at analyst day.
You know our experience to date has been.
The so called V shaped recovery, but at analyst day, We said that you know given the economic forecast that we had seen.
We were not forecasting a continuation of that be necessarily we were smoothing that out and making it a little bit of a longer term recovery and so that's what's reflected in our forecast than that is sort of that 3%. So we're not seeing as much as of a rebound as we might have if we saw you know.
More of the of the V shaped recovery that opportunity still potentially out there because like I said, our experience has been more of a V shaped thus far I'm. So perhaps we have a little bit of conservatism built in it.
If the economy does in.
In fact slowed down we should be well positioned.
Got it that's helpful details there. Thank you very much.
Thanks, Jeremy.
Thank you and our next question comes from James Stahlecker with BMO capital markets. Your line is now open.
Oh, great. Thank you good morning, guys.
Hi, Andrew.
Just two real quick questions I guess first just following back drew you answered the question on the FFO.
Quarter over quarter, but I also noticed that in your your slides that you're talking about an average share count for 2021 is now 204 million shares versus 201 in 20. So we can infer that you've kind of made a decision on the form of equity that you will.
Undertaken 2021, and any considerations on timing, we should be thinking about.
No new considerations on timing, yeah, we are going to have to access equity capital by the end of next year, which is consistent what we've we've been talking about so you can see that in the in the numbers, but we havent made definitive decisions on exactly how were planning to go source that at this point.
But we have some placeholders and to reflect different opportunities.
Okay. So you are still looking also at I guess at the preferred option to as one of the things you've talked about Joel yes, her home and yes, we.
We do we still have that on the table and we will still be seeking I'm a shareholder approval of that end up with our proxy in the spring.
Got it thank you and.
Last last question here on Slide 15, I'm, just looking at your Entergy, Arkansas.
There was a date here I guess today, where you were expecting potentially a stipulation or settlement deadline do you think that will hear anything on that today.
I, it's rod I can answer that today was the deadline for settlement on the part D filing so not the extension and we are actually working with both the commission and the stakeholders to extend that deadline, another day or so to give the parties an opportunity to continue to work through.
The issues the nuance there.
Is that there are a number of issues around the fr Pete.
That might implicate that might implicate the actual extension and we're trying to narrow that list down. So today you might hear of of an extension, but just know that that that's an intentional effort on our part to provide some clarity to a to the commission.
On the issue that we are.
Weve addressed between the actual effort and the actual extension, which has a longer or another month or so timeline from assortment perspective.
They are connected so that's what's going on there.
Understood. So you're basically just trying to narrow the scope.
Exactly right.
I guess just dive into that last point, the Arkansas staff appeared to come out rather forcefully I guess on the F. RP extension should.
Should we now expect a timeframe for the clarity on that getting extended beyond the I believe it's a december 4th a settlement deadline and this can pivot to a fully litigated process or are you still.
Optimistic that you can get a settlement on that side of it all.
Our point of view and our optimism around getting getting that business done has not changed it what's your what you're seeing with the recent filings both the staff and other stakeholders is a normal part of the process that essentially such that the conversations that we have we are actually in negotiations as we.
Right now so between now and the of the actual extension.
From a timeline or the beginning of December I believe.
We'll be going to work to close out the bigger issues that I alluded to before so no I don't expect there to be any.
Any any difference because of what what was filed all of which we had been expecting.
Okay, great. Thank you guys very much for the time.
Thanks.
Thank you and our next question comes from Jonathan Arnold with vertical research. Your line is now open.
Yeah.
Hi, Good morning, guys. Thank you and John.
Hi, I suspect that it may be so the storm et cetera, but I'm just curious on the balance sheet that was a really big move in accounts payable and seem to go up you have a backup billion three.
Over the second quarter, and you know just a lot bigger than usual any anything you can provide there.
Uh huh.
Yes, that's the that's exactly what that is Jonathan and there is a corresponding regulatory asset in there that that offsets that and ironically that is part of the F. AFFO.
Challenged a lot of that cash hasn't actually flowed out the door yet.
But.
It's reflected in our FFO because we've we've taken out the working capital piece of the the the payables are taken out of the asset still in there. So it looks like the cash flow in the AFFO metric.
Thanks for that and then could I just thought about for an update on Ria and bad debts and I thought that on the balance sheet went up another 30 million versus June.
If it gets on the rule of thumb you shared with US last quarter, you tend to book, 30% of your Ria as bad debt. So does that imply an incremental 100 million over the sort of hundred increase you had in the second quarter or their <unk>.
Another way of thinking about that that's about right Jonathan.
We have booked a little bit of over 50 million Bucks in terms of bad debt expense and you're right. It's about a third typically of our overall customer rears in so that math would lead to about a 150 million overall in that ballpark.
Okay, and then you had said that he felt like last quarter due to people who could pay that things were paying a is that once you kind of feel like.
Yeah, we've been we've been since.
Since the beginning of the.
The code that you know we had a point of view around what the experience would likely be like for customers, who didn't pay and that align with our what we call. The gunning process, where we were not.
Disconnecting customers for nonpayment, and we're seeing our expectations materialize and there was some conservatism built in as you recall we saw.
Regulatory accounting orders from our commissions.
As a as a backstop to the potential and and likely outcomes.
On bad debt and customer customer Arrearages and so we're actually seeing it play out the way that we expected and we expect to be you know at some point.
In the near term, we haven't defined to date, yet when we return back to more.
Business as usual whenever that might be.
Well will actually begin the filings to two.
To to connect a recovery from from customers, including through the regulatory mechanism on the bad debt and other expenses associated with Coke.
Okay. Thanks, Ron who do you guys think that you haven't just whats the trajectory from here, though and as you think talk about your expectations do you see it rising further or are we sort of we reached that level here.
It's too early to say candidly because there there's a.
There's the unknown as to what are the what are going to be the continuing impact of cobot as we round out the fourth quarter into the new year.
What will likely be different is the stance of the regulated towards relative to other relief, we provided to customers or rather to that bad debt and so.
That's going to be a to b can to be continued own are in we're gonna be prudent in the way that we continue to provide service to customers, but but take advantage of the opportunities given to us by the regulators to at least present to them what what if any trends we're seeing.
On Arrearages beyond sort of the path that we are.
We're currently on thanks.
Thanks, very much Rob.
Thanks, Jonathan.
Thank you and our next question comes from property regarding with Guggenheim Partners. Your line is now open.
Hey, good morning, guys.
Morning sure.
Good morning, So let me just two quick questions here and appreciate the transparency on issuing the 23 guidance can we just talk a little bit about the cadence of the earnings growth year over year, because it seems that you know.
At the midpoint of those ranges, you're expecting more tail end growth rather than sort of front years of the plan I eat 5% of the five year or 7% through a closer to the 23 timeframe. So just wanted to maybe get a sense on what's driving that is it is it the equity in the front end of the plants. It just kind of curious how we should think about the cadence.
Yeah, I think yeah from our perspectives Char, it's fairly ratable I'm pretty close to that 6% of you know when we.
I have done a little bit better last year, and we're on track to do a little bit better. This year, yeah, we're not necessarily projecting that out into the future years, just yet so were so it looks like you know when we go from a little bit higher from where.
Where we started 420 to out in the future it slows down a little bit I think but I think if you look at our original guidance mid point you'd see that fairly predictable, 6% growth is what you'd say.
Got it since it don't look at the year over year midpoint growth and assume that it is going to be more back end loaded.
No not not from the revised spot if you start from the original spot I think you'll get to that same that same play.
Got it perfect and just one quick follow up Julian just the equity question. So just there's been a lot of moving pieces right, you've got storm recoveries and clearly there's another pending one coming little bit lower volumes, the credit metrics somewhat more lower than I guess not expectations, but but as we think about it from a comp.
Parable standpoint, how do we know how do we need to be just can you frame the cadence and how we should think about equity I mean, obviously, there's a little bit in plan now in 21 should we just assume that equity should be more front end loaded versus back end loaded or or or something that's more annual.
Given some of the moving pieces that was that you've highlighted and obviously all highlighted in the prepared remarks.
Yeah, I don't we're not planning any change in our cadence to our equity at this point as a result of covert or the storms. So we we do still expect to as we've been talking about have some equity by next year.
To maintain our path, although we probably won't be hitting our FFO to debt target exactly the same as as we were but we've committed that to the rating agencies.
That we will have some equity out there and we'll continue with that process on through the through the next five years, but no no real changes as a result of the storm or or co bid at this point.
Got it terrific. Thanks, guys.
Thank you sure.
Thank you and our next question comes from Julien Dumoulin with Bank of America. Your line is now open.
Hi, good morning.
Julie.
They are Julien, Hey, sorry about that I apologize I wasn't quite sure. It will go but well. Thank you to the whole team I really appreciate it.
Make it easy or quick any do you have like.
Curious as to how you would characterize the totality of the storm and the bill impacts incurred this year I appreciate it doesn't necessarily fit into the traditional framework should we call. It of the F. R. P. But really just curious how you think about that and to the extent to which may you timing of capex or otherwise as you think about bill impact in future.
For years, the securitization that otherwise still do the way in the rate.
Hey, trod I'll I'll take a.
Stab at it how we think about it as you rightly stated the storms operate outside of the or the traditional fr piece and as a result, it but nevertheless, still has an impact on the overall customer bill and.
My answer to that is are the way that we think about that is not any different what are the ways in which we can mitigate the bill impact.
All what are the tools, we have available to US yes, we are starting from an advantage and staff advantageous standpoint of having amongst the lowest customer rates in the in the U.S., but but knowing the storms will ultimately impact our customers well.
We're exploring with the feds as we shared with you all at analyst day.
Opportunities to offset some aspects of the customer bills as they relate to the to the storms I'm. There is the opportunity that that we've had in prior storms and that we've already begun to take advantage of around securitization to lower their cost of the near term cost.
Of of storm recovery for customers aside from the self help.
Opportunities, we have to lower our overall cost of service to customers. So between the opportunities with the federal government.
And deal, we and others <unk> regulatory mechanisms, we have the financial structures, we have used in the past and our own self help we're going to continue to do we've done before and that has worked to mitigate the impact on customers. The storm is from our vantage point is no.
Different than any other.
Cost to provide those outcomes for customers so that will be a work in progress, but our objective to keep our going back to Leo's point, our objective around the reliability part of realized I mean affordability part of reliability sustainability and affordability.
That's our normal normal course of business and so there's nothing there's nothing is going to be different about that and then Julien I'll just I'll just add this Leo the you know we talked about at analyst day.
Given what are our current.
Rate.
Rate level is and what the Trojan current trajectory is without the storm costs are manageable and we still believe that they are manageable within the capital budget that we've got.
And.
As Rod mentioned, that's totally consistent with the way that we've that we've operated over the years is totally consistent with the way we've gotten recovery of storm costs over the years.
And it is our objective to attempt to continue to try and do better.
For all of our stakeholders. So so through continuous improvement in everything we do we anticipate that we could even make that makes that a little bit better for our customers. So we think it's.
It's all manageable in the context of the size of the balance sheet the size of the.
Of our asset base and everything.
To to be able to to to make all this work.
Great. Thanks, guys.
Thank you.
Thank you and our next question comes and Sophie Karp with Keybanc. Your line is now open.
Hi, Good morning, guys and thank you for taking my question.
Oh, yes.
Yeah, Hi, so first maybe on the order them.
So you clearly have overachieved on that one m. cuts so far this year.
I will now open the slot the guidance slide it seems that there.
Full year goal remains the same would that should we expect in reverse so far and then project Q4, then or.
Should we expect you to try and sustain the of course got trajectory into they have to be here.
Hey, Tobey. This is this is drew we're going to get a little bit above that hundred so I am I get to the 120 range or so by the end of the year, that's baked into the the new narrowed range that that we talked about this morning.
Got it. Thank you and then on the equity and sort of balance sheet. Again. This is a real possibility as we sit here today that we will see some former better versus kind of birth, so well.
After tax cuts from 2016 right under the Biden administration, which is presumably would be about one should positive for you to it it would would that influence your thinking about equity needs would you wait to get more clarity on that type of development.
Yeah. This is true so absolutely we would be we would be thinking about that yeah and since our equity plan goes out for five years I expect that in the course of that.
We would get.
Some clarity around how the new tax rate would play out and how it would get ultimately into rates and assuming those all those turn into deferred taxes. The extra cash flow that we would get out of.
We could use to offset any potential equity I don't know that its going to set off that all of our equity and is of course, you know there are other proposals out there like alternative minimum taxes that are less clear at this point about what those might actually be.
But we'll have to monitor those closely as well but.
Yes, you are correct. It should if you assume it went from 21% to 28% on the federal tax rate and those were deferred taxes that should improve our AFFO, which should reduce our equity needs.
Good. Thank you so much.
Thanks Sophie.
Thank you. Our next question comes from Stephen Byrd with Morgan Stanley. Your line is now.
Hi, good morning good.
Morning.
I wanted to check in on a regulated nuclear operations I know you've made a lot of investments and in that regard I was just curious.
Yeah, I had those investments been paying off or there are the metrics you point to just in terms of how that operations are going on that side.
Thanks, Steve and they are they are paying off we've seen you have.
The benefit of put.
Putting those those investments into the plants.
Yeah in the operations of the plants.
Improving and so.
Everything is on track for those as we mentioned, we just came out of the.
The last big outage as it relates to the to the program that we had under as we went from 2016 to this point throughout the regulated fleet as we were preparing most of those for their new extended lives.
So so we are seeing the benefit of those those investments we.
We continue to have investments to make although they are not the kind of the size of the what we've been doing over the course of the last couple of years.
Got it that's that's really helpful. And then just going back to what the storm damage and thinking through that I. Appreciate you have a lot of tools at your disposal to think about the customer bill impacts one tool I was just curious about just as duration of recovery whether that over.
I might be adjusted I guess, one thing I've been thinking through is just if we if we annualize some of the damages weve been seen of late it does start to show a more material impact on the bill, but if you have the ability to kind of spread that out over longer period of time that could help alleviate the impact a bit how do you think about that that element of the in the toolbox.
Yeah, Steve this true so all of our retail regulators are going to expect us to utilize securitization in order to minimize the cost of capital associated with that.
Right now a 10 year securitization. This you know probably around 1%.
Cost of capital HM.
If we were to stretch that out to 15 years, you might be able to get it would be a little bit higher but you would stretch the overall bill impact a little bit so somewhere in there is probably what we are thinking about someplace to optimize the impact on that on the customer bill or I should say, probably minimize the impact on the customer.
Well not optimize is probably the wrong word.
But but that's that's yeah, plus you know as you know we're always thinking about structural ideas I'm sure you are.
You remember our affiliate preferred and things that we've done in the past to try and minimize the customer bill impact as well. So we're looking at structural alternatives that we may try to come up with to help mitigate that as well.
I got you that's it's a good point that if you extend the duration a bit the the cost of that debt financing probably doesn't doesn't go up a whole lot. So that's a tool for sure okay.
Thank you very much that's all I had.
Thanks Steven.
Thank you. Our next question comes from Durgesh Chopra with Evercore ISI. Your line is now open.
Hey, good morning team just one quick one non morning on as I put a debt going back to that just curious on so it looks like you moved to target six months.
From Q4 21 to May 2022, just any color on sort of what gives you confidence that you can get there by May 2022, which is it is it the regulatory approvals all storm cost recovery you know or is this something that you sort of put together and discussing with the credit agency just any color around the timing.
Of those of those target credit metrics would be helpful.
Sure. That's a that's a good question because yes, we we were pretty specific with mid 2022, but really we're tying it to the timing of our securitization more or less [noise] once we get the securitizations in place.
That should help us move to FFO to debt ratios that are much closer to our target. So.
The yeah.
Yeah, when Moody's wrote about it they said 2022, and if you think about our secure.
Securitization typical securitization timeline, it's 18 to 24 months. So we sort of said, okay, well 24 months from basically whenever Lora came along of course now we are you know looking at the data. This afternoon, but so 24 months for that might be a little bit longer but.
We're gonna be seeking expedited treatment for some of this and hopefully we'll be able to to move that timeline forward a bit.
Got it so essentially the lever is securitization of those costs and if you were able to get it early probably be earlier than mid 2022.
What we would be thinking about yes, okay.
Okay. Thanks, a lot guys appreciate the time thank.
Thank you. Thank you.
Thank you. Our next question comes from Paul Fremont with Mizuho. Your line is now open.
Hi, Thank you.
Couple of questions on either you see one would be.
Can you help us understand what the objections are for New York and transferring the Indian point licensing.
Do you think.
That Ah that's going to hold up a potential transfer of license the whole tax and.
Can we also get maybe a little bit of an update on the cash flows that you are now expecting between now and when you see winds down.
Okay, Hey, Paul Good morning, this true on the on the regulatory front. Yeah. We are in discussions with various agencies in New York as well as the NRC.
And the NRC is.
Getting closer to the end of its process and of course, they are evaluating the operational capability and the financial capability of whole tech to do the decommissioning and we have full confidence that they will path.
Pat the screens for the NRC from the states perspective, they're asking the same questions really and so it's just a matter of working through the process in New York, It's not a defined process as well as it is at the NRC.
But but we are working through we are having conversations and we still believe that a at this point we are on track to close.
Sometime around the middle of next year.
In terms of the cash flows.
I believe they are still positive from kind of 2020 through 2022 cashback to parent that's kind of the metric that we've used if you just used EBITDA of course, you know you might not be looking at that we don't have much capital left in the in these plants before they are retired.
But our overall cash back to parent it's still slightly positive.
Oh, great any any order of magnitude there.
Oh less than a $100 million.
Great.
Thank you.
Thank you.
Thank you and our last question comes from Andrew Weisel with Scotiabank. Your line is now open.
Hey, good morning, I'm, sorry, I was on mute there.
Just a very quick follow up on Oh in EMS, you said, you're on track to exceed 100 million I think I heard 120 million, but I see you're continuing to call for $2.7 billion for 2021.
Yes. My question is as you go through the year are you still thinking those savings won't be repeated or recurring or is your reiteration of 2.7 billion conservative.
Well that's true that that's a good question. It's a it's a question that Leo ask me every day.
About why we're still a 2.7 billion. We do have a lot of costs that came out of this year that did move into next year and so yes. So a lot of these things that I mentioned at the outset were a part of operational changes that we made during outages maintenance decisions that we made.
And things like that that we do have to make in order to maintain the safety and reliability of our of our assets. So that that's probably the main thing, but yeah. As I said, Oh, we have learned some things and we have some continuous improvement opportunities that are coming out of that some are pretty.
Immediate like travel expenses.
Others may take a little bit of time like trying to realize real estate savings from a smaller footprint or something of that nature.
So they're all going to be some opportunities that result from.
What we've done this year that become continuous improvement and those will be baked into our expectations over time.
Yes, Andrew this this Leo you know.
[noise] Drews me a little bit funny, you about what asking there every day trying to be a comedian today on the call I guess, but but the the fact the matter is.
We think we're in a pretty good position in terms of the business model the investment opportunities, we have the ability to create value for our customers.
I went through in my prepared remarks.
You know just consider the value of the new transmission infrastructure versus the old transmission infrastructure.
On a day in day out basis, but certainly in times like what we've seen the anomaly that has been 2020, all the way around we've learned a lot about the way we operate the business.
Both from our flex levers our continuous improvement into things that drew was talking about what we're capable of when we put her mind to it.
Obviously, when we talk about how we're teeing up sales growth and how we're teeing up owing them.
Certainly for next year and the years beyond there's a lot of uncertainty out there that we just need to make sure that we're prepared for and so we've set ourselves up to be prepared for that uncertainty is the biggest one being obviously.
The pandemic, how long does it go winters our vaccine we can control what we can control we can't control.
Public health crisis.
So we're going to control what we can control.
You know for example.
The posture that we're in today as it relates to.
Our travel schedules and our remote work schedules and our meeting schedules and and all that.
We've announced to our employees that we're going to continue in that process until the middle of 2021 at a minimum.
So obviously, there could potentially be some opportunities in there there could be some opportunities as drew mentioned in sales forecast, but but those are dependent in some respects on things that we don't control.
So I guess the point being is we're going to control everything that is under our control and they were going to prepare ourselves to be able to handle the stuff that we can't control whether it's.
Continuation of pandemic in a in a sales forecast it shows up different than our sales experience has been.
But also give ourselves some capability to manage on the cost side too if that happens. So so we feel like we're in a pretty good place teed up for 2021.
Certainly by the time, we get to the end of 2021, we would anticipate that we get.
Back to a much more normal trajectory.
And.
We are prepared for a continuation of of 2020, if we have to.
We're really excited about how we can perform under normal circumstances.
So I don't know if that directly answers your question or not but.
Yeah, No. That's very helpful. Certainly, hoping for a return to normal sometime soon but Uh huh.
To be imminent.
And and Leo I think we all know that you'd give you a hard time day in day out in a very good way to keep [laughter]. Thanks, Andrew.
Yes.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to David Board for any closing remarks.
Thank you Jamie and thanks to everyone for participating. This morning are annual report on form 10-Q is due to the FCC on November nine 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 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 Web site called regulatory and other information.
Provides key updates.
Regulatory proceedings and important milestones in our strategic execution, while some of this information may be considered material information you should not rely exclusively on this page for all relevant company information and this concludes our call. Thank you very much.
Ladies and gentlemen, thank you ever based on today's conference that does conclude your program and you may now disconnect.
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