Q3 2022 Entergy Corp Earnings Call
Okay.
Thank you for standing by and welcome to the third quarter 2020 to Entergy Corporation earnings release at this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will depress our star one one on your telephone.
A reminder, today's program is being recorded and now I'd like to introduce your host for today's program. Mr. Bill Abler, Vice President Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining US we will begin today with comments from Entergy CEO drew Marsh and then Kimberly Fontanne, our CFO will review results in an effort to accommodate everyone who has questions. We request that each person has no more than two questions in there.
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.
But we will also discuss non-GAAP financial information reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website and now I will turn the call over to drew.
Thank you Bill and good morning, everyone.
Yesterday, the planned leadership succession that we announced in August took effect.
Honored to have the opportunity to lead this great company.
I'm not alone.
Leo remains at the executive Chair for the next few months and we will continue to execute at a high level on our strategic path.
We have built a strong bench of talented leaders.
I believe fontanne takes over as Chief Financial Officer, Kimberly Cook Nelson assumes the role of Chief Nuclear Officer.
Meanwhile, Chris Bakken will serve as the executive Vice President of energy infrastructure to provide.
Leadership and Mentorship, it's about Eaton, Georgia, who was recently promoted to Chief operating officer, and Kimberly Cook Nelson as they settle into our top operational roles.
While the new senior leadership with the New Theater senior leadership team in place Entergy has a bright future and we expect to deliver on the commitments that we've made to our key stakeholders.
Today, we are reporting strong quarterly adjusted earnings of $2 84 per share.
This is another solid quarter that keeps us on track for the year.
In fact, with our biggest quarter behind us we are narrowing our 2022 guidance by raising the bottom of the range by 10 cents per share.
And we are affirming our near term outlook for 6% to 8% annual growth through 2025.
Last week, our board of directors raised our quarterly dividend by 6%.
The annualized amount is now $4.28 per share consistent with our target payout ratio of 60% to 65%.
During the quarter we.
We continue to execute on many important fronts.
Steady predictable growth depends on steady predictable regulatory mechanisms.
Four of our operating companies have annual formula rate plans that provide timely recovery of our investments to benefit customers.
ZIP he's FRP filing was approved in July .
Entergy, New Orleans, and Entergy, Louisiana FRP rate changes were effective on September one.
And we expect Entergy Arkansas's annual review to wrap up in December .
Entergy, Texas filed a base rate case this year and it is proceeding on schedule with hearings plant in December .
Absent a settlement we expect a decision in the second quarter of next year.
The New Orleans City Council approved a $206 million securitization financing for storm cost recovery and replenishment of Entergy, New Orleans storm escrow.
While the Prudence review of either cost is ongoing moving forward with the financing will benefit customers by reducing interest rate risk.
Louisiana is review of idle costs is also ongoing.
Staff recently filed supported testimony and recommended full cost recovery.
Hearings are scheduled for December and we expect to receive securitization funds early next year.
These developments are an important step in moving our credit metrics back to targeted levels.
In September we received an ALJ recommendation on our proposed Orange County power station or.
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It was very encouraging that the presiding judges recommended approval of the project.
And they recognize the significant economic and reliability benefits that this facility would bring to our customer in Texas.
The ALJ did not support the hydrogen capability for the plant that we continue to believe that day, one hydrogen co firing capability for <unk> is in the best interest of our customers.
I'll note that the governor of Texas has indicated his support for the plant, including its hydrogen capability.
Oh caps hydrogen capability is less than 5% of the total investments and it provides a critically important option for fuel diversity and ensures the plants continued value as low carbon future.
Also.
And economically viable hydrogen economy is no longer decades away.
The passage of the inflation reduction act promises to improve hydrogen economics, and further accelerate clean hydrogen production.
As we've said introduce region is uniquely positioned to take advantage of this opportunity and we expect the Gulf coast to lead the way, bringing jobs and economic benefits to our communities.
The decision on Orange County, ultimately lies with the commission and it is on the agenda for Tomorrows meeting.
If approved.
Cats will be our first unit capable of burning up to 30% hydrogen on day one.
With plans to eventually be 100% hydrogen capable.
Okay.
The Gulf region remains a prime target for onshore and growth opportunities.
As we laid out at analyst day, our industrial customers have many inherent advantages that make them low cost producers on the global stage.
This is enhanced by recent supply chain and geopolitical conditions.
<unk> spreads important to our customers remain positive.
Continue to support the outlook, we laid out in analyst day.
We continue to see announcements for new projects in our service area for example, Entergy, Texas and New fortress energy signed an Mou for collaboration on developing renewable energy and hydrogen infrastructure.
Our partnership will help accelerate the green hydrogen economy, and South East, Texas.
New fortress energy project will leverage industry, leading electrolysis technology from plug power for.
For the production of more than 50 tons per day of Green hydrogen.
Entergy, Texas will supply 120 megawatts of green power to serve that facility.
Which is expected to be one of the largest of its kind in North America.
In Louisiana.
And plug power announced plans to produce green hydrogen from a 15 ton per day plant.
Both of these projects are good examples of how the hydrogen economy is coming to life in our service territory.
CF industries announced the $2 billion carbon capture ammonia complex and Ascension parish, which will create more than 400 jobs.
This is another great example of customer growth tied to decarbonization.
As I said, we've seen a lot of progress in the last few months.
Continue to monitor the significant pipeline of opportunities for signs of impacts from broader economic uncertainty.
We've not seen I noticed a noticeable pause or pull back.
As we Saturday analyst day fundamentals of our region uniquely positioned the Gulf coast for substantial growth even in a challenging economy.
We also continue to make progress on expanding our renewables footprint.
We received approval for the 250 megawatt drivers solar acquisition in Arkansas.
This facility is being constructed near U S Steel's expansion and OCR.
And it is expected to be completed in 2024 and U S. Steel received the facility's clean energy attributes.
This illustrates how we work collaboratively with our customers and our regulators to support growth jobs and sustainability.
In our region.
In September the Louisiana Commission approved for solar projects totaling 475 megawatts.
They also approved.
Our new go Green tariffs, which that's G E a U X go.
Which began taking reservations from large commercial and industrial customers yesterday.
Based on inquiries to date.
We are expecting strong demand and it arrived.
The 365 megawatts allocated the tariffs were fully reserved in just a few minutes.
Indicating strong demand for sustainability products.
We also announced plans for two new renewable rfps.
Entergy, Texas is seeking 2000 megawatts of clean energy and Entergy, Mississippi is seeking 500 megawatts.
We now have eight active rfps totaling 7000 megawatts.
We've made selections in four of those Rfps and are.
Negotiating with Counterparties well announce specific projects once agreements are reached.
In addition to clean energy resilience is important for our customers who depend more than ever on reliable electricity supply.
Execution on our resilience in the bathroom is ongoing and our base plan includes investments that will continue to upgrade our system.
At Analyst day, we laid out our $15 billion 10 year accelerated resilience plan.
We expect our proposed investments to significantly reduce physical and financial storm risk and we are engaging with stakeholders to make our case.
We made our first filing in New Orleans, we plan to file in Louisiana before year end and in Texas by mid next year.
We did our homework and the accelerated resilience plan is heavily informed by our neighbors in Florida.
Knowing that they're hardened assets performed well and hurricane in along with the strong performance of our own hardened infrastructure over the past couple of years.
Gives us confidence that we can substantially reduce our exposure to storms.
And provide meaningful benefits to customers.
Affordability remains a top priority.
And we announced several initiatives last quarter to help our customers when they saw higher bills from both warmer temperatures and higher natural gas prices.
As part of our recent customer affordability initiatives.
We have helped more than 35000 customers with more than $5 million and bill credits.
We've held energy fares in 48 communities to provide helpful information to our customers about how to manage their bills and benefit from energy efficiency.
We've also weatherized. So many low income customers homes installed energy efficient appliances, including new heat pumps and tankless water heaters.
These efforts are only a part of what we're doing to help with affordability.
Many of our past actions are mitigating the impacts of higher natural gas prices for our customers today.
The investments we made over the last eight years and more efficient generation and renewable resources are reducing fuel costs.
Based on 2022 gas prices. These modern assets are reducing fuel costs by an estimated $400 million compared to what it would have otherwise then.
Yeah.
Our nearly decade long participation in MISO has also produced customer savings, which totaled more than $2 billion through 2021.
Support for economic development and growth in our service areas also helps with customer affordability not only does it spread fixed costs over a growing customer base and also provides economic growth and jobs that are critical for our communities.
Another lever for affordability is continuous improvement, which is more important than ever.
Using see eye to find efficiencies that will offset inflationary pressures and create headroom for new investments to help customers.
We have a robust growth story at Entergy, we're seeing significant industrial growth as economic indicators for businesses in the Gulf South continue to be positive.
Besides driving investment and growth for our owners.
That industrial growth is important for our communities, especially in today's economic environment.
This opportunity is unique to entergy and it will benefit each of our key stakeholders.
We see our growth continuing for years to come as our customers need to help our help to.
Need our help to achieve their decarbonization goals.
It starts with growing our clean energy capacity, which will reduce our customers' indirect emissions and continues through electrification of industrial processes to reduce their direct emissions.
We're very excited about our near term and long term prospects and we look forward to continuing this conversation with you at the EI financial conference in a few weeks.
Before I wrap up I'd.
Like to say a few words about Leo Denault yesterday retired from his role as Chief Executive Officer, after a long and successful career.
While we won't see him day to day, the impacts of his tireless dedication to our four key stakeholders remain.
Under Lisa's leadership with.
We simplified our business to our core utilities, we turned around our nuclear operations, we redefined our customer focus.
We've progressed and broadened our ESG commitments.
We raised diversity inclusion and belonging as a strategic pillar.
We emerged as a national leader in corporate citizenship.
I'm missing a beat we navigated through the pandemic and storms in the last couple of years.
And we established a clear vision of our future opportunities.
As part of his distinguished career, Leo completed 74 earnings calls over the past 19 years.
And he has been a steady presence for our key stakeholders.
We will work with him as executive Chairman for the next several months as we continue to make progress on the vision and strategy that he established.
As I turn the call over a word about our new Chief Financial Officer, Kimberly Fontana.
Most recently Kimberly served as our Chief Accounting Officer, and she also has senior leadership experience in operations and regulatory roles.
Kimberly brings a broad experience and perspective and she's a great addition to entergy senior leadership team now.
Now I'll turn the call over to our Chief Financial Officer, Kimberly Fontana.
Thank you Jerry for that introduction.
Honored to join the leadership team and I'm pleased to join you all on the call today I'm looking forward to working with all of you and the financial community.
As drew said, we've had another strong quarter with results that keep us on track to meet our financial commitments.
Summarized on slide three our adjusted earnings were $2.84 per share.
Vista with comments on guidance last quarter, we are narrowing our guidance range by raising the bottom end 10 cents.
This result is consistent with our objective of steady predictable earnings grads.
We are also affirming our outlooks through 2025.
On slide four you'll see the adjusted EPS drivers for the quarter.
Higher retail sales was the primary driver as last year was impacted by Hurricane Ida.
Whether this year with I'll say a warmer than normal.
Excluding weather sales growth in the quarter was five 7%.
Industrial sales were up 7%.
We continue to see growth from new and expansion projects in line with our expectations.
The primary contributors to the industrial growth, where chlor alkali and transportation customers.
Sales to small industrial and cogent customers were also higher than last year.
O&M increased for the quarter due to several factors.
Power delivery expenses increased including higher vegetation cost in part driven by inflation.
We also have increased costs for transmission maintenance and nuclear operations.
Bad debt expense rose on the heels of higher Bill this past summer.
Other drivers for the quarter results include higher depreciation and interest expense from investments, we continue to make to serve customers.
You can see on slides five and six that the fundamentals underlying our industrial sales and growth remained strong.
And we have not seen signs of a pullback.
Industrial commodity spreads continued to support positive margins and robust golf coast operational levels.
Refining remains highly profitable with low product inventory supporting high operational rates.
Record commodity spreads continued to drive golf LNG exports to Europe today and expansion of this capacity in the future.
U S. Gulf ammonia producers are running at high rates to help fill the global supply gap.
Beyond supportive commodity spreads the Gulf Coast region continues to offer industrial customers inherent labor infrastructure and global shipping advantages.
And as we discussed at Analyst day. This next wave of our industrial growth is being accelerated due to onshoring trend.
These trends are caused by Brooklyn supply chain globally manufacturers meeting reduce geopolitical investment risk as well as global customers, who need energy security.
The results for EWC are summarized on slide seven.
The shutdown and sale of our merchant nuclear plants continue to be the main drivers for that business.
Operating cash flow as shown on slide eight.
Quarters result is 993 million a decline compared to last year.
Key variances, including the timing of fuel and purchase power payments, the wind down of EWC and increased O&M offset partially by higher utility customer receipts.
Turning to credit and liquidity on slide nine we continue to work towards achieving in range or better credit metrics by the end of 'twenty two 'twenty three.
We continue to monitor our deferred fuel position and in the third quarter, our balance increased approximately $150 million.
We continue to work with our retail regulators to manage the impact of high fuel costs on customer bills.
The forward curve for natural gas continues to decline, which helps with customer bills as well.
As deferred fuel balances are recovered our credit metrics should improve.
We continue to make progress on the securitization front.
A credit positive development in the quarter was the city Council's approval for Entergy, New Orleans to issue securitization bonds to establish a new storm reserve and recover either storm cost.
This of course is subject to the city Council his predecessor.
Last quarter, we gave our early take on the impact of the inflation reduction act for our customers and for introduce cash and credit position.
After additional analysis, we continue to be optimistic about the benefits from this legislation.
Slide 10 provides highlights on the cash and credit impacts of the I R. A.
One important note is that we do not expect to be subject to the minimum tax provisions until 2026.
The chart illustrates the relationship between gas and power prices and the resulting nuclear production tax credits at various commodity prices.
We expect to see meaningful value for our customers, though as you can see the value was dependent on volatile commodity prices.
We will work with our retail regulators to flow the value of the production tax credits to customers in a manner that mitigates volatility on their bills.
We see meaningful value from the solar P T sees as well.
The PTC increased competitiveness of utility owned solar the value for customers will increase over time as we grow our renewables portfolio. We remain encouraged about the prospects for the IRA to create value for our key stakeholders.
Slide 11 summarizes the progress against our equity plan.
Today of the $1 2 billion expected mean through 2024.
We have issued nearly $1 1 billion most of which are equity forwards we plan to exercise the equity forwards and receive the cash proceeds by the end of the year.
Moving to slide 12, given the added clarity from three quarters of actuals, we are narrowing our adjusted EPS guidance range and affirming our long term, 6% to 8% growth outlook through 2025.
For the full year, we once again raised our expectation on sales growth. This is largely due to higher than planned sales to cogeneration customers. While a positive for 2022 going forward. We will continue to plan conservatively for this customer group as electric demand from these customers the Aries.
Commercial sales also had been higher than we expected a positive sign for economic health.
The higher than planned revenue from weather and sales gives us the ability to spend in areas that benefit our customers and derisk future periods.
O&M estimate for the year reflects flex spending including initiatives to improve customer call response times and enhanced customer assistance programs that we have discussed.
We are also able to absorb some higher than expected expenses like vegetation management and ammonia used to reduce nox emissions at our power generation plants without having to reduce other costs.
Actions like these help us ensure that we deliver steady predictable adjusted EPS growth year in and year out.
The Entergy management team will be in Florida in less than two weeks and we will provide our preliminary three year capital plan and high level drivers for 2020 Three's earnings expectation. Additionally.
Additionally, we will discuss entergy as long term growth story, including our unique industrial growth opportunity our accelerated resilience program renewables expansion.
<unk> opportunities and our role in the hydrogen economy.
Entergy has great opportunities ahead for our key stakeholders, we have a strong base plan to meet our strategic objectives, and we look forward to talking to you about our plans at EI.
And now the Entergy team is available to answer questions.
Ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone we ask that you. Please limit yourself to two questions. Each one moment for our first question.
And our first question comes from line of Jeremy Tonet from Jpmorgan. Your question. Please.
Hi, good morning.
Good morning, Jeremy.
Thanks, just wanted to start off with the twice 2500 megawatts added in Rfps, just what is your expectation for utility owned opportunities there versus ppas.
Hey, Thanks for the question Jeremy.
Good question, our current expectation is at least 50% or better from an owned perspective.
That's what's assumed in our outlook.
It does.
With where we were sorry, Jeremy this is true it's consistent with where we were at analyst day.
Got it does present the opportunity that this could be a bit higher.
Sure. That's certainly something that we're looking at you know recall that a lot of our investments on renewables or in the back half of the decade. So we certainly expect to see benefits from <unk> in that period.
And then we'll talk more about that at analyst day, but we do think that the IRA provides upside as well as reducing the need for tax equity partnerships on that front.
Got it that's helpful and just if I could ask about U S. Gulf Coast industrial activity expansion just wondering.
What cadence do you see for that growth as far as you know LNG export capacity out of the factors what timeframe do you see that ramping up and how do you think about the secondary impact where you're bringing kind of you know more and better jobs into the area and what that does for your residential customers.
Customers.
Yes, that's a great question, Jeremy It's drew I'll start off and then Kimberly or rod can can add to that to that but it's a you know what we laid out at analyst day with 6% compound annual growth through the five year period, there's a big chunk of that that's coming in around 24.
And that's I think that's probably the the biggest step up in our forecast, but it's still consistent with what we laid out at that point and we're and we see it continue to be robust in terms of jobs.
It will be helpful for jobs.
In our area and continue to allow our customer our residential and commercial customer bases to grow it's not as big as it was 30 years ago honestly because of the amount of automation and other things that are inherent in modern industrial facilities.
But that also gives us the opportunity to be much more competitive on the global stage and so I think that as you know there are tradeoffs in those pieces, but that's one of the things that makes our region are very attractive I don't know rod. If you have anything to add to that no I think that that makes the point the message we sent an analyst day around the back half of the.
Decade, representing the lion's share of the growth in and even at analyst day, we showed what sectors, we thought would populate that growth as well.
Tying in our industrial expansion with the electrification and ESG concerns of our customers. So we ought to leave it at that.
Uh huh.
Got it that's helpful I'll leave it there thanks.
Thanks, Jeremy.
Thank you one moment for our next question.
Our next question comes from the line of sharp razor from Guggenheim. Your question. Please.
Hey, guys good morning.
Good morning Shar.
Yeah.
Maybe just starting off.
Around your earnings guidance, just I guess looking at your O&M run rate increase and interest rate headwinds for 'twenty three.
How are you sort of thinking about the contingency plan levers on offsets et cetera, I guess, how does sort of this inflationary environment kind of changed your planning parameters versus the analyst expectations, especially as we're looking to bridge into next year with a sort of a 30 cents bad at the top and bottom end.
Thanks, Joe for that question I'll start with your O&M question, you know the drivers for 'twenty, two we're really around our flex levers, which includes both pull forwards and onetime items like the enhanced customer assistance program that we talked about earlier this year.
The pull forwards give us room to pull forward things from future years, and Derisk future periods. The other impact from 'twenty. Two was inflation as you noted and we were able to cover that in 'twenty two through the increase whether in volume that we had.
And in the first three quarters of the year that said, we have included a level of inflation in our forecast for 2023.
We expect to meet our outlook that said and we'd cover that with continuous improvement opportunities that we've been working on.
As it relates to your interest rate question I think at analyst day, the outlook was about 5%.
We are five in a quarter, we have increased the interest rate expense to about.
A little less than 6% on a long term debt at about five and a quarter on the shorter term debt and that's included in our outlook that said our treasury team has done a lot of work over the last few years to help mitigate exposure to potential rising interest rates by refinancing long term debt in the periods of lower interest rates.
To help us offset in future periods.
Got it and John I'll, just add one thing on that last piece, we have a lot of cash expected to come in can't really mention that we are intending to exercise the equity forwards and then we have the securitizations, which we should be finishing up over the next several months are those two things should alleviate some borrowing needs.
And the next.
Uh huh.
Near term I should say, okay, perfect and then just two last maybe just shifting to financing I mean, obviously your capital growth opportunities are increasing with resiliency hardening green tariffs et cetera, I guess, how are you sort of thinking about more accretive ways to finance this growth in this current really challenging.
Capital markets environment, I mean, there's been some press sort of highlighting that you know you could be looking to raise about $2 billion through a minority sale of your utilities combined into a holding company, excluding Texas I guess any sort of general comments here any sense on timing is there a process that started I mean, you're certainly.
Certainly won't be the first utility that's looking to optimize an asset and a little of a traditional financing.
Yeah, So I'll I'll I'll hand, this over to Kimberly to address it first yeah. Thanks, Shar you know there's no new news on this front I know, we had talked to you about the value difference between private capital and public capital markets and to the extent that we can capitalize on that and there's a difference there we'd be compelled to do that.
But there's no new news on that front at this point.
Okay.
Got it figured out this is a Jewish first CEO calls going to try to put him on the spot. Thanks guys.
And I hand, it is very definitely.
Definitely.
Deflected it perfectly thanks Scott.
[laughter].
Thank you one moment for our next question.
And our next question comes in line of David <unk> from Morgan Stanley . Your question. Please.
Oh, Hey, good morning, Thanks, so much for taking my question.
Good morning on the on the a M T I just wanted to check that.
How much of an impact are you expecting once we reached 2026 I think you had one of the slides in terms of when the corporate a M T.
Would start impacting the business and I was wondering in the interim over the next couple of years just given.
That same slide slide 10, where currently seen Henry hub forward prices kind of in the $4 50 range or above over the next few years.
Is there an E M T impact at all in inline.
'twenty four 'twenty five that's offset by by the nuclear PTC level wondering if you could just.
Compare those two those two impacts thanks.
Sure Good question.
Slide indicates we don't expect the corporate minimum tax until 2026, that's not being offset in 'twenty four 'twenty five if you think about how that's been calculated it's a three year historical average and then we can replace book depreciation with tax depreciation so that enables us to not expect to have that minimum tax until 2026.
That said to your point on the graph on the right. We do think that we have significant opportunity on the nuclear PTC is but it is dependent on the gas and the power prices.
And where those are at the time, but those do start coming in in 'twenty, three and 'twenty four and so we'd expect those to come in earlier than that corporate minimum tax and we'll work with our regulators to provide benefits to our customers, but also offset the effects of that corporate minimum tax on when we do have exposure to that.
Okay, great. Thanks, that's helpful and then on the.
The upcoming Louisiana resilience filing I was just wondering if there's any.
Any feedback or initial conversations from from relevant stakeholders in the state around the importance the priority.
Kicking off this work and what the appetite might be.
It's rod.
The short answer is the the stakeholders in the state of Louisiana, All have expressed an interest in and resiliency and they certainly understand the nuance.
After several stakeholder engagements between the reliability and resiliency.
The commission ended up itself, obviously, there's always going to be interested in how we pace it and certainly given the sensitivities around the current economic environment. How does this ultimately impact.
Customer our customer bills, but I think the as was stated in drews opening opening comments.
It's very clear that.
The lessons that we learned from from next era is also highlighting.
The work that we've been doing to get alignment around the need for accelerated resiliency spending obviously decision is going to ultimately play out.
Through there was after the resiliency filing when the L. P. S C sats.
Sets, a procedural schedule, but the homework that we have done to date.
All the way up to and including the most recent lessons learned from our friends in Florida, all informing our bullish point of view around the need to do this we're not in a position to tell you in advance or to get ahead of our regulators, but we do believe we are making good progress on getting a lot amongst our stakeholder group.
Okay, great. Thanks, so much.
Thanks.
Thank you one moment for our next question.
And our next question comes from the line of <unk> Chopra from Evercore ISI. Your question. Please.
A team a good morning, and congrats to your first call and Kimberly to you as well.
No.
Yes of course.
All my other questions have been answered I was just wondering if you could update if there's an update to share on this sorry settlement.
I know you had this settlement with Mississippi, but anything there that we should focus on as we get into the year end or next steps there.
It's rod its rod again.
No new news that I can communicate publicly I could I can share affirmatively.
That we are actively engage with relevant stakeholders in and trying to contract a settlement and find common ground and I can only report that that work is ongoing but nothing nothing public.
Okay. That's helpful guys. Thank you.
Thank you.
The Q1 moment for our next question.
And our next question comes from the line of Pulse Zimbardo from Bank of America. Your question. Please.
Hi, good morning, Thank you.
Good morning, Paul.
If I could just follow up on Charles' question, a little bit and thanks for the details on the O&M. If you could just break down that I believe it's 60 cents higher than the original guidance it was great.
How much is that acceleration versus more of the inflation that the organic pieces of that.
Yeah. Good question.
There's a number of both pull forwards as well as inflationary items, it's hard to get to the specific number but you know from an inflation perspective, we're seeing that more and you see it and feel you see it in chemical type costs and then we see it on the capital side and less so in the <unk>.
Labor market side, but we have included an ongoing level of inflation and then if you think about the.
Flex side, you know, we have long talked about flexing up when there are opportunities from volume or other things that happened in the business and that's really what you're seeing on the other side opportunities too.
Spend where we can support our customers and our and our stakeholders.
Yeah, and Paul is through all I'll add that the.
The inflation effects. They are they are.
Touching us we're not immune to that like the rest of the industry. The places where we're seeing it start to creep in on the labor side or what you know Kimberly mentioned.
The commodity type effects.
So we are also seeing what I would say in commodity services areas. So vegetation is a big area, where we have seen inflation and so we have been ramping up as you mentioned, our continuous improvement efforts to offset that because the inflation piece doesn't go away easily and so there are continuous improvement efforts.
Or are ramping up to offset that over the next hour long, we need it and where we're finding actually good success and the offsets.
We're very comfortable that we're going to be able to manage through the inflation effects that we've seen so far.
Okay, Great I understand theyre staying on the hot topic of inflation just as you think about the next Arkansas FRP filing do you think that this is probably another one that's going to be at the rate change cap or do you think you can manage a little bit below that level.
Yeah the <unk>.
We have been working in the Arkansas area that continuous improvement will help us in that space to reduce cost yeah. We certainly look at and watch to see try to try to stay under those caps. So they were both.
Managing the affordability for our customers as well as obviously, creating value for all of our stakeholders well, but we believe that will continue to work through the inflation and manage that with continuous improvement you know the specific number that we would file in Arkansas next year would still is still being developed but it will certainly take into consideration.
Inflation.
And we're a little over the cat for what's coming for the Formula rate plan. This year.
So we are we are above the cap already there.
Yes, yes, okay.
Understood. Thank you both in season.
Alright, Thanks, Paul.
Thank you one moment for our next question.
And our next question comes from the line of Michael <unk> from Goldman Sachs. Your question. Please.
Hey, guys. Thank you for taking my question and again, congrats not cause to drew and Kimberly, but obviously the Leo it's been a long time coming over from Indiana.
Yeah.
I have.
A couple of easy questions. One is your demand growth, especially on the C&I side, it's been really really healthy.
This year, but last couple of years and this quarter, we saw a turn in residential demand growth.
Proposed Orange County in Texas, but just curious, even though you're adding a lot of renewable in lots of the jurisdictions whats your thoughts are around some of the other jurisdiction for any need for any more conventional generation.
Yeah.
Yeah. That's a good question you know, we do a plan out over a long term and we're looking for growth. We we watch the growth that's occurring.
Our plans include a significant amount of renewable investments as you suggested I think we have 14 to.
17, gigawatt hours and out over the longer period and investments either we will add baseload generation smaller units to the extent that they are needed.
To support reliability and ensure that we continue to meet the needs of our customers, but near term you know Orange County is the is the project that's on the plan.
And certainly I think Orange County is an example of how we would approach it with hydrogen capability behind.
Because of the long term need to.
Make a potential transitions are a targeted transition I should say to clean energy, where our customers are taking us so that would be part of it I think Michael in the in the near term, we don't have any need for incremental.
Capacity that can offset that but certainly if if the demand.
The energy demand accelerates then we would certainly need to look at that.
And right now I think we were looking at sort of the back end of this decade is where we start to see the need for additional capacity.
From storage in some form or perhaps you know natural gas converting to hydrogen over the long term.
Got it and then one unrelated follow up can you lots of really positive things happening in Louisiana, the securitization looks like it's going pretty smoothly.
A step or two there it'll.
It'll be interesting to watch the grid resiliency docket, just curious though.
Can you remind us what Europe revenue request was for the Formula rate plan versus what's been authorized in the formula rate plan, there and just in general how you're thinking about getting Louisiana now closer to earning authorized rates of return.
Yeah, so you're referring to the fact that we've sort of been at the bottom of our band.
And the Formula rate plan.
Is that what youre either at the.
Michael.
Either the bottom or in some periods not at the bottom.
It depends how long you look.
Right right well I think we continue to work with the retail regulators around.
Options to be to get more efficient recovery, particularly as we'd be into ramp up things like resilience and our resilience filing youll see that we have request for more contemporaneous cost recovery.
We have put in place.
More efficient riders for transmission and distribution investment.
In Louisiana, we will need to get those extended but those are the kinds of tools that we have been using to help manage the lag that we seen in Louisiana in particular.
So if I look at your EPS guidance over the next couple of years.
It's assumed that Louisiana at some point in that timeframe and if so what kind of help are out gets closer to the midpoint of the range.
Yes. So it is certainly it seems I think the last year of the FRP is next year's filing and so we'd have to go through a new either rate case or renewable or that FRP and we'd work with the commission to get outcomes that support that.
The needs of the business and so that that's what we would be planning for in our outlook.
Meaning your outlook assumes you're not at the low end of the band you're back towards the middle or does it assume kind of what you've delivered over the last couple of years.
You know I think I'd have to look specifically what are the same but it certainly assumes that we work constructively with our regulator in order to move us further up in that band.
And I don't think I was assuming any new mechanisms that suddenly pop up in the forecast. We have we are assuming that we have the existing mechanisms in place, but we will need to get better mechanism sort of hit all of the financial.
Financial targets that we need to have particularly the credit metrics that we are targeting going forward.
Understood. Thank you lots of things improving in Louisiana over the last five years to seven years in terms of regulation and look forward to seeing this on a go forward basis.
Thanks Jordan.
Thank you Michael.
Thank you one moment for our next question.
And our next question comes from the line of Ross Fowler from UBS. Your question. Please.
Good morning, Good morning, Kimberly how are you.
Good morning.
Congratulations on the on the official do wells I guess I didn't hear.
Yesterday.
Most of my questions have been asked but just a couple for me so going back to Rob's comments on the Louisiana resiliency filing and lessons learned from Hurricanes, Ian I guess, one of the lessons learned was the system did very well.
But they were parts of it obviously that that didn't perform as well and there's been some discussions I guess in Florida around on.
Theyre grounding in those portions of the system that are high risk is that entered sort of the conversation in Louisiana, yet or can you provide some color or context around that.
It's Ross the short answer is yes, all of the above as part of the analysis.
And you wouldn't be surprised to hear us say the conversation we expect the conversation to go towards a cost benefit.
And in risk reward as you think about.
The location of where the risks of high winds versus a high water shows up its different depending upon what what portion of the of the region you are talking about but in Louisiana.
They are definitely taking a taking into account the benefits of of underground, which historically.
Has the benefit has been that the frequency.
Of outages with underground facilities is lower.
But when there is some type of disruption the duration is longer that is after you tend to to overcome the the.
Initial upfront cost.
Underground, which in our service territory.
As has historically been cost prohibitive.
What's different now given some of the I'll call it the positive recency bias.
With storm experience.
Certainly some of the cost potential cost improvements and benefits of underground and it is part of the conversation.
That's fantastic Alright. Thank you and then maybe one just on LNG expansion.
We've seen some softening in LNG prices I think that probably has more to do with weather in Europe than anything else, but.
I know what your days or are you are you still seeing a lot of interest. There. Obviously you touched on this a little bit but what interest specifically are you seeing around maybe use of electric drives for future projects and putting renewable energy.
Those electric drives to the extent possible.
Yes.
Future projects Green.
It's at the core.
Most of the conversations we are actually having with.
With our LNG customers. We we noted the recent earnings call for.
For energy transfer.
On the on the Lake Charles LNG.
Our project work.
There spans the gamut and <unk>.
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Electric drives or gas compression.
As well as our carbon capture but across the across the landscape we're seeing.
We're seeing the expected acceleration of development of the LNG projects in the service territory and we remain.
We remain bullish as are our customers notwithstanding the current economic Oh economic environment I think drew.
Alluded to some of the structural benefits or advantages that those customers have and that's continuing to show up not just in the expansion but also.
And the ESG components of how the.
The LNG expansion as well and Ross I'll, just add that that theme around the LNG with electric drives and having a cleaner product is not unique to LNG and we're seeing that in other industrial processes.
Where folks it, particularly if you're putting in there putting in new facilities there.
They're trying to electrify as much as possible some of the existing facilities will electrify overtime, but if anybody is putting anything new.
Whether it's in metals or LNG or Petro chem or whatever they are looking to see if they can electrify those industrial processes that normally probably would've been.
Handled through fossil fuels. So that's an ongoing thing that were seeing across a broad spectrum of industrial processes.
Okay. That's fantastic, Thank you and see.
A couple of weeks.
Thanks Ross.
Thank you.
Thank you and one moment for our next question.
And our final question for today comes from the line of Sophie Karp from Keybanc. Your question. Please.
Hi.
And thank you for taking my question.
So it may go back to a series of little bit here, maybe it from a different angle.
It's now up to three or four slides in your presentation.
Have you ever given any thought to maybe a some sort of strategic more strategic solution to this.
You know situation around these assets rather than mitigating or trying to settle these dockets one by one.
Maybe you know its a strategic solution or some overarching regulatory solution as a global settlement of all of it.
Is there any.
Any idea if you could share with you maybe head.
Sure Sophie this is drew I I'll tackle that certainly the settlement rod referenced the settlement that we have a Mississippi and we're in conversations with others to see if we can find a global settlement.
Prior to the work that we're doing right now FERC and all the different proceedings that we have we went.
No.
A couple of decades without significant litigation around CRE and I would expect that once we are through this it will kind of go back to that natural state.
We'll have to see but certainly a strategic alternative around with it it was something that we consider but we would not have an option around that until we get through the litigated settlement and.
So if we are able to get through the litigation then we could consider something like that but.
If we go back to a normal run rate I don't think that would be the best option for us. So we'll have to we'll have to wait and see how this develops but certainly until we get through the current conversations.
Conversations up at the FERC, we wouldn't be able to go forward it anyway on the upfront.
Alright, thanks for the color so for me.
Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Bill a blue for any further remarks.
Thank you Jonathan and thanks to everyone for participating this morning, our quarterly report on Form 10-Q is due to the SEC on November nine and provides more details and disclosures about our financial statements events that occur 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 <unk> Investor Relations website called regulatory and other information, which provides key updates of regulatory proceedings and important milestones on 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.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
[music].
Okay.
Yes.