Q4 2022 Entergy Corp Earnings Call
Okay.
Thank you for standing by and welcome to Entergy Corporation's fourth quarter 2022 earnings release and teleconference. At this time all participants are in a 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 need to press star one one on your telephone to remove.
Yourself from the queue simply press star one again.
Today's program is being recorded and now I'd like to introduce your host for today's program. Mr. Bill Abler, Vice President of Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining US we will begin today with comments from <unk>, Chairman and CEO drew Marsh and then Kimberly <unk>. Our CFO will review results in an effort to accommodate everyone who has questions. We request that each person ask no more than two questions in.
In today's call management will make certain forward looking statements actual results could differ materially from these forward looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation, and our SEC filings Entergy does not assume any obligation to update these forward looking statements.
Management will also discuss non-GAAP financial information reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website and now I will turn the call over to drew.
Thank you Bill and good morning, everyone.
Today, we are reporting strong results for another successful year, our 2022 adjusted earnings per share was $6 42 and <unk>.
Half of our guidance range. This is the seventh year in a row that our results have come in above our guidance midpoint.
Our steady predictable financial results are underpinned by our strategy to create value for our four key stakeholders, our customers employees communities and owners.
Our strategy starts with learning from our customers what they need from us to be successful and then we build an investment plan to meet those demands.
As a result, we are investing in our power delivery system to improve reliability and resilience and significantly expanding our clean generation to support our rapidly growing industrial load and the de carbonization goals of our customers.
This customer centric approach has delivered benefits for all our key stakeholders.
We're confident this approach will continue to create meaningful value well into the future.
In 2020 to Entergy 12000 employees worked every single day to deliver operational excellence achieve positive regulatory outcomes build the foundation for our long term growth strategy and drive improved affordability for our customers.
Operational excellence begins with safety in 2022, we made important strides recording the fewest injuries in our company's history.
And a total recordable injury rate that ranked in the first quartile among E utilities.
To achieve this result, we reduced total accidents, including employees and contractors by 30% and serious injuries by more than 50%.
This is an improvement that we're proud of our work isn't done because we believe zero harm is possible we.
We will continue our relentless focus on keeping our employees and contractors safe all day every day.
Introduce operational excellence is consistently on this flight when we respond to extraordinary circumstances. We saw this recently with winter storms Elliot and Mara.
Elliot presented unique challenges due to the extremely cold temperatures in fact, we experienced some of the highest winter loads that we have seen including new winter peaks for Entergy, Arkansas and Entergy, Texas.
Teams from across our organization collaborated to ensure that the system capacity and operating resources were maximized.
Power availability was critical in our generation facilities performed extremely well buoyed by contingency planning improvements from Weatherization investments made after winter storm Yuri.
Not only were we able to meet the high demand of our customers. We also export power to nearby systems to help other utilities meet their demand.
Our teams performed extremely well during both events and for that I'm very thankful I'm, especially proud that we had no injuries.
Ensuring that all our employees return home safely.
River Bend station, our nuclear plant near Baton Rouge began its refueling outage after 675 days of being continuously online that's.
That's the longest run in station history.
Riverbend is an important it is important to the areas, where it's providing safe clean energy that our customers can count on and tremendous support for our communities.
During this outage, we will be making multiple equipment improvements to ensure long term reliability of the unit.
Including replacement of condenser tubes, and feedwater heaters.
We also made important progress on our regulatory objectives, starting with taxes, we received approval from the PUC T to build the Orange County advanced power station or Oh cats.
This new highly efficient C. C. G T will provide near term benefits, including lower fuel costs, lower emissions and expanding regional capacity to support growth in our Texas service area.
The plant will be upgradable to enable future reconfiguration for hydrogen capability.
[noise] will increase fuel diversity and provide long duration storage in a carbon constrained environment.
For Entergy, Texas rate case.
Or is it progressed and constructive settlement discussions and reached a tentative agreement on key terms.
The hearing was put on hold to allow time to finalize the agreement.
We will provide an update on the details when available.
In Louisiana, we received approval to recover the balance of hurricane Isaac costs using securitization.
We work collaboratively with our regulators to find a solution that met the needs of all stakeholders. The order determined that all of the costs incurred were reasonable and prudent and entergy, Louisiana will fully recover those costs, which is vital for the credit of the company.
While the commission approved our storm recovery, we want to assure you that we heard your feedback about the discussion at the meeting and the uncertainty in the process.
That and we are continuously evaluating our stakeholder outreach practices. Our ongoing goal is a best in class stakeholder engagement approach that achieves alignment around important customer outcomes.
We believe there is agreement with our regulators around our long term goal to deliver what our customers need to be successful.
Our customers are central to all that we do and we know we can continue to work with our regulators to improve our processes for the future.
Turning to the federal level in December we received an order on system Energy's uncertain tax position and sale leaseback complaint.
For the uncertain taxes. This issue, we believe that the FERC remedy is clear and as a result, no additional refunds are required the.
The remedy is important because the rulings of the IRS are now known and a credit Adi T on a hypothetical basis under fax now known to be incorrect would be wrong.
Brooks remedy also recognizes that customer has benefited from our actions by more than $100 million in value, including a $25 million refund made by Siri in 2021, consistent with the amount of Adi allowed by the IRS.
And a separate $18 million refund in except for excess Adi T also paid in 2021.
Meanwhile, Siri took on the risk of interest and penalties with the IRS to provide that value.
Absent our actions customers would've received nothing and throughout the period that issue customers paid not one penny more than rates and they would have paid had theory not taken the uncertain tax positions.
On the seal on the sale leaseback on the web for not taking them.
Sorry, Siri is active on my iPad as well.
On the sale leaseback item.
We are disappointed in FERC conclusion, and we have sought rehearing of that decision.
The lease renewal was a cost efficient way to ensure customers would continue to receive access to reliable baseload clean energy from a diverse fuel source and overall the sale leaseback save them over $800 million.
Okay.
On January 10th CRE issued $104 million in refunds required by the order.
We have made our compliance refund report detailing that calculation.
Burk will need to review, our compliance filing and issue a further order.
There is no statutory deadline for the order, but we hope to get FERC decision soon.
As a reminder, CRE refunded entergy, Mississippi $235 million in November as part of its global settlement with the Mississippi Public Service Commission, which represents Entergy Mississippi's, 40% interest in 13 different dockets at the FERC.
We still believe that a global settlement with the remaining retail regulators on terms similar to the agreement with the M. P. S. C would be in the best interest of all parties.
It would resolve disruptive litigation uncertainty for Siri, and our stakeholders, including our regulators accelerate meaningful value to customers.
Avoid costly and unnecessary third party litigation fees.
Allow all parties to move forward with fewer distractions as we work together to pursue the important priorities and outcomes that our customers demand.
Yeah.
Moving onto our growth story, our strategy is centered on two key aspects of our business that are critical to helping our customers meet their goals.
First expanding our clean energy footprint to support industrial sales growth and a growing customer electrification focus and second accelerating the resilience and hardening of our system to improve outcomes for existing customers, while giving new customers the confidence to invest in our communities.
Our three year $16 billion capital plan supports this strategy, while improving reliability and our customers experience. This capital plan also provides clear line of sight to our 6% to 8% adjusted EPS growth outlook as well as our credit goals.
We are aggressively investing in cleaner energy to benefit customers and communities.
Of the 16 billion close to 6 billion represents generation investments moving us toward a cleaner future that includes investments in renewables, Oh caps and nuclear.
Today, we have just over 800 megawatts of renewables in service, but we're still in the early stages of our renewals buildout.
Over the next three years, we plan to increase our renewable portfolio by approximately 4500 megawatts more than four times, our renewable capacity today.
And that trend will accelerate beyond 2025 with plans for up to 14 to 17 Gigawatts in service by the end of 'twenty 31.
With this plan, we expect to achieve our 50% carbon intensity reduction goal in advance of our 2030 target as well as our new goal for 50% carbon free capacity by 'twenty three.
Okay.
Our plan for accelerated resilience and hardening notice entergy future ready is also important to reduce store and risks for our customers and other stakeholders.
Last year, we laid out our $15 billion 10 year plan is expected to reduce storm outages reduce future storm restoration costs and provide a foundation for growth for customers, who are dependent on electricity more than ever.
Our three year capital plan includes about $900 million for this work and more investment could be added to this plan once regulatory approvals are obtained.
We filed our initial resilience plans for New Orleans last July and our plan for Louisiana late last year, when you're targeting decisions in those jurisdictions by the end of this year.
For taxes, we are supporting legislation that would allow for an accelerated resilience plan.
We expect to make our initial regulatory filing in the third quarter of this year. After legislative efforts are completed.
We're targeting a decision from the Texas Commission sometime next year.
Yeah.
Of the $16 billion three year capital plan $7 billion represents transmission and distribution investments. In addition to our accelerated resilience program to deliver improved reliability and customer experience through projects focused on asset renewals enhancements and grid stability.
These investments are also designed to prepare the grid for renewables expansion and new customer connections.
We've already seen that focused distribution investments make a meaningful difference in where we've implemented reliability projects. We have seen a significant reduction in the number of outages.
Beyond driving important outcomes for our customers. Our capital plan provides the foundation for our unique economic development and industrial sales growth story.
We continue to see very robust expansion plans from existing and potential new customers and Kimberly will discuss the key drivers.
Two recent clean energy announcements of note are.
In OCI project for a $1 1 million metric ton blue ammonia facility near Beaumont, Texas.
Linda project to build a blue hydrogen facility.
We'll supply the OCI plant.
The list of industrial projects that we're tracking represents an additional seven terawatt hours of growth above our outlook through 2025.
For our planning, we probability adjust the outcomes because we anticipate that not all of those will achieve operations or that may show up on a slower timeline.
With this backdrop, we remain confident in our longer term, 6% industrial sales growth expectation.
System with what we laid out at analyst day.
Affordability remains a core tenets in our.
In our pursuit of greater sustainability and reliability for customers.
<unk> pursuing commercial industrial growth is also important for affordability as it spreads customer centric investments over a larger customer base.
Beyond sales growth, we are supporting customer affordability by working to improve efficiencies and reduce costs, which will translate into benefits for customers we have.
Historically focused our continuous improvement largely on operating costs, but given the growing capital needs to support customer centric projects, we have expanded our ci efforts to capital investments.
The balance of our customers' needs affordability reliability and sustainability, we must ensure that we invest capital dollars as efficiently as possible.
Higher gas prices and hot weather challenged customer affordability this past summer.
The good news is that natural gas prices have come down in recent months and that will improve affordability for our customers, particularly in entergy, Louisiana and interested in New Orleans, where their fuel clauses adjust monthly.
We continue to work on behalf of our customers to pursue federal funding as a potential means to reduce costs, particularly for investments that accelerate the path towards a more resilient future.
To that end, we're pleased to report all five of our operating companies received encouragement letters to proceed with full applications for the first round of the Oes grid resilience and innovation partnerships program.
All of our proposals are to improve resilience and disadvantaged communities.
This round of program funding is expected to conclude this summer.
Winning submissions will receive funding for half of their project costs.
If we were successful on all five projects the awards would total $190 million.
Finally in 2022 shareholder contributions totaled $25 million. This included $10 million in donations for Bill assistance programs.
We also stepped up our efforts on energy efficiency and weather as agent program to provide long term bill relief.
Our impact for our customers and communities goes well beyond charitable donations, our employees logged more than 110000 hours of volunteer service.
We help to low income customers access of $125 million of Nike funding.
And through our volunteer income tax assistance program, we help place 12000, low income families on a path to economic stability by helping them claimed $22 million and earned income tax credits.
We are very proud of the work of our employees and our corporate social responsibility team as they provide critical help to strengthen the communities we serve.
2022 was another successful year for entergy, yet we still have a lot of work to do we are laser focused on successfully delivering value for our key stakeholders that includes executing the capital plan before us.
Laying the groundwork for the significant long term opportunities in renewable generation clean electrification and resilient acceleration.
It also includes improving operational outcomes building alignment with stakeholders, reducing unnecessary noise and distractions and executing financially to strengthen our balance sheet and maintain credit.
All of this is foundational to achieving our 6% to 8% adjusted EPS growth plan and delivering important benefits to entergy as key stakeholders, which will ensure the sustainability of our business for decades to come.
I'll now turn the call over to Kimberley, who will review our financial results for the year and our outlooks.
Thank you Jerry.
Everyone.
As drew said today, we are reporting strong 2022 results in the top half of our guidance range, we executed on key deliverables throughout the year and once again increased our dividend by 6%. We are confident that we will continue to deliver on our commitments and we are initiating 2023 guidance.
And affirming our longer term outlooks.
I will begin by reviewing results for 2022, and then provide an overview of key drivers for our 2023 guidance.
Starting on slide three entergy adjusted EPS for 2022 was $6 40 to.
<unk> 40 cents higher than 2021.
Turning to slide four our earnings growth was driven by strong retail sales and the significant investments we've made to support our customers.
Weather adjusted retail sales growth was more than 3% for the year as sales rebounded from COVID-19, and Hurricane Ida impacts index.
Industrial sales were strong nearly 5% higher than 2021, driven by continued growth from new and expansion customers as well as higher than expected demand from cogeneration customers.
Overall weather in 2022 increased our retail sales that's enabled us to flex our spending for the benefit of customers.
Higher power delivery expenses included increased spending on reliability safety and training and vegetation maintenance, which was partially due to inflation.
Higher prices for chemicals used in our generation processes contributed to increase in both nuclear and non nuclear generation spending.
We also increased our call center support spending to improve customer service levels.
Higher cost, which result from capital investment specifically depreciation expense taxes other than income taxes and interest expense are also reflected in 2022 results.
Slides five and six show that the fundamentals for our industrial customers remained strong and support our growth outlook commodity spreads operating margins and utilization rates continue to be robust across key industrial segments that we serve.
On a related note natural gas curves have declined this.
This is good news for customer Bill since our E. I update the price curve has dropped approximately $2 for 2023, which will translate into roughly 4% lower bills for customers.
In the longer term lower natural gas prices would also mean higher nuclear production tax credits from the eye array, which would drive additional customer value.
The results for EWC are summarized on slides seven and reflect the wind down that business, which wrapped up in 2022.
With the successful exit of the merchant nuclear business EWC will no longer be a reportable segment in 2023, and therefore will no longer be a blanket adjustment.
Any remaining activity from that business will be included in parent and other.
On slide eight operating cash flow for the year with nearly $2 6.285 billion higher than last year.
Higher utility revenue was a large driver at the increase.
The receipt of Entergy, New Orleans storm securitization proceeds in December also contributed.
Increased fuel and purchase power payments at the utility and the effects of the EWC nuclear plant shutdowns were partial offsets.
Moving to credit on slide nine we expect to achieve credit metrics that are consistent with rating agency expectations by the end of 2023.
Since our last update we've made significant progress in strengthening our balance sheet.
Deferred fuel balances have declined nearly $450 million in the last quarter.
Given the lower forward gas curves and our efficient fuel recovery mechanisms. We expect these balances to come down significantly in 2023.
Entergy, New Orleans received proceeds from securitization bonds related to Hurricane Ida storm recovery.
This served to establish a storm reserve of $75 million and provided approximately $125 million of storm cost recovery.
Entergy, New Orleans is awaiting the council's final determination on the Prudence of Ida restoration cost we expect their decision in the fourth quarter of this year.
As Jerry discussed the L. P. A C voted to approve the securitization of the Ida storm restoration cost.
We successfully worked with our Louisiana regulators to find a solution that reduced the amount financed by 180 million, which represents the value that customers receive from the deferred taxes associated with the storm.
We expect to receive Louisiana securitization proceeds in the second quarter and the funds will be used to reduce debt.
Drew also mentioned that we received orders from park regarding theory in late December as a result, see repaid $104 million in refunds the majority of which we are appealing.
Based on first December order and analysis of the remaining litigation we determined that it is existing reserve was adequate.
Turning to remaining equity needs on slide 10 in November we settled seven 7 million shares from our equity distribution program with cash proceeds of approximately $850 million.
We use the majority of the proceeds to reduce short term debt.
We have completed nearly all of our projected equity issuances through 2024, with just $130 million run on them.
On slide 11, we are initiating our 2023, adjusted EPS guidance and affirming outlook consistent with our previous disclosures.
Our 2023, adjusted EPS guidance range of $6 55 to $6 85, with a midpoint of $6 70.
As you know our goal is to deliver steady predictable growth for our owners, we continue to expect to achieve 6% to 8% annual adjusted EPS growth.
The key drivers for 2023 are highlighted on slide 12, we expect to see growth from continued customer centric investments, including depreciation expense interest expense and taxes other than income taxes, resulting from these investments a.
A F E. D. C is also expected to increase with longer term projects, such as Orange County advance power station.
We expect retail sales volume to be roughly 1% higher on a weather adjusted basis. This.
This is largely driven by robust industrial sales growth from new and expansion customers, mainly in industrial gases primary metals and petrochemical industries.
Both for new and expansion projects is expected to be partially offset by lower cogent sales, which were higher than planned in 2022.
O&M was elevated in 2022 D to variable operating costs to support higher sales volume and our flex management program.
We plan for O&M to return to normal levels in 2023, and we have also taken into account higher costs for materials contract labor and chemicals as we have seen prices increase for these items.
Our goal is to deliver steady predictable outcomes and we will utilize our flex tools as needed.
We also remain focused on continuous improvement to achieve sustained company wide efficiency gains.
Finally changes in parent and other excluding the effects of interest on the intercompany preferred investments that are offset in utility are expected to contribute to our year over year adjusted EPS growth.
The timing of charitable contributions and residual effects from the shutdown of EWC are key drivers.
Effects from higher interest rates are expected to be offset by lower debt balances.
2023 results will also reflect higher shares outstanding.
The appendix of our webcast presentation contains additional details regarding the specific drivers.
It also outlines quarterly considerations and earning sensitivities.
In closing 2022 was another successful year for Entergy and we're proud of what we have accomplished.
Continue to deliver steady predictable adjusted earnings and dividend growth and adjusted EPS were once again in the top half of our guidance range.
Our plan is to continue this trend supported by robust fundamentals and the strength of our customer base.
Prioritizing the needs of our customers, we will deliver value for all of our key stakeholders.
We have a unique growth opportunity and we look forward to sharing our progress as the year unfolds.
And now the Entergy team is available to answer questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press star one on your telephone to remove yourself from the queue simply press Star one again and we ask that you. Please limit yourselves to two questions. Each our first question comes from the line of sharp Arista from Guggenheim. Your question. Please.
Hi, Good afternoon drew and team, it's actually Constantine here for Shar, Congrats on a great quarter.
Can we start off with a question on the 23 planning assumptions on some of the moving pieces there.
That the load stepped up from the prior first look up two 1% in O&M seems to have a slight tick up.
Can you talk about what drove those changes and what other changes are now embedded versus the early outlook on on O&M. Specifically is that these attributed to flex the O&M or more recurring costs.
Sure. Thanks for that this is kimberly.
As you pointed out our 23 sales are up a little bit and our O&M is up a little bit from E. As you know that our early outlooks are preliminary estimates and we've continued to refine our guidance and our outlooks and as we as we did that we found additional tailwind both in conservative planning principles.
In additional opportunities in sales there was some modest opportunities and interest rates expense and that enabled us to add additional O&M for customer centric spending like vegetation as well as call center support and things like that but will note that we continue to sit squarely in the middle of our guidance range and we do plan.
And to use flex spending our flex levers that we have to continue to manage 2023, both from a weather potential effects as well as any other facts that come along.
Great.
That's very helpful and shifting to Surrey, there's still a few proceedings outstanding just to clarify some of the new developments from the December order how.
How much additional refund their retail regulators lettering and more broadly on the process given kind of the individual complaints are receiving orders and the settlement that would Mississippi.
That provide some visibility to an ultimate resolution timeframe.
Is there any kind of a more constructive settlement discussion positions at this point.
So this is rod hour I'll try and unpack.
The procedural aspects of a series of updates and I think I'll, let Kimberly address anything as it relates to any new financial claims, but two primary.
Matters to update around the uncertain tax position in the sale leaseback, one is the compliance filing and the other being the.
Our opposing parties requests for rehearing on.
On the compliance filing actually today.
We're filing our response to the regulators opposition to our filing and there's no specific timeline on.
That FERC has to act on the on that so so that's that's one update.
The second a week from now there's the request outstanding.
By the opposition of.
For for.
A rehearing on the decisions at the FERC made at the end of the year. There is a deadline there that FERC has imposed on itself.
February 23rd so it's actually a week.
From today, that's the request for rehearing filed by the parties. There. So so two updates there will have to review.
The orders to determine what if any next steps.
In that regard, but those are the two primary updates for our for the CRB proceedings are around the uncertain tax position in sale leaseback.
And just to add as far as from a financial perspective as you know we reflected the complete effect of the theory, Mississippi settlement for all companies in June about $235 million of that AR $550 million roughly I charge that was taken last June and went to Mississippi and the remainder is.
Reserved I think Jerry mentioned as I did that there was about $104 million of refunds out of a decision that came in December and those were paid by CRE to the operating companies in early January .
And just a follow up.
Does the.
Information does this set you up for a better position for any kind of settlement discussions just given the fact that some of these issues are starting to get off the table.
Well I'll I'll. This is rod again, I can respond there to the extent that we are progressing with with FERC being clear about its intentions.
Does set up a clearer path to settlement.
What's what's upcoming in outstanding of that being a FERC, having an opportunity to clarify its a its prior decision in December as well as addressing any of the issues upon which their the rehearing is being requested again it further clarifies those outstanding issues that that may be.
Standing in the way of settlement our position as settlements in the best interest of our customers and other stakeholders and we will remain aggressive in pursuing that but.
But it's in FERC corner right now due to clarify there their end of 'twenty two decision that I think will guide our next steps on settlement.
I'll just add that the this drew the whenever we were back in December and we did have conversations going whenever the FERC did decide that they were going to put an order out.
It halted those conversations to see what those orders were.
So pending that information and clarity around that as Rod said, yeah, we would hope to be able to get back to the table with them.
That's that's very helpful. Thank you for taking the questions I'll jump back in the queue.
Alright, great. Thank you one moment for our next question.
And our next question comes from the line of Paul Zimbardo from Bank of America. Your question. Please.
Hi, good morning, Thank you all.
Good morning.
Just a couple of smaller ones just on the <unk>.
Put on your slide that pension is a less of an O&M drag year over year. In 2023, just if you could quantify that and also how much was the pension contribution that you made last year.
2022.
Paul This is Kimberly I may need to get back with you on the specific numbers, but in general our pension expense is down as you noted as the funded status has increased about $500 million to about 85%. We did increase the contribution at the end of the year, but I'll have bill follow up with the specific number on that.
Our our pension liability came down due to the increase in interest rates, which are friends reflected in the discount rate for that liability, but that was offset by.
Lower than expected returns on the asset side of our investments, but on a net basis. We are in a better funded status position at the end of the year.
No. The liability was helped by a number of retirements start along with interest rates I think the number for the contribution was around $400 million in that ballpark, Paul but bill can give you the exact number and its going to be in the K.
Okay.
Great and then also I noticed there was a $33 million depreciation adjustment for CRE.
Your earnings release, if you could just give us some information on what that related to.
Sure.
Rod said that the decision that came out in December had a number of components and on the sale leaseback side. It had a component around recovery of the cost of the portion that's owned by a third party and how that sale leaseback was so when they play that back through the net rate base that was charged over time had been.
Depreciated when you when you apply the effects of the sale leaseback changes that the FERC order judge determined or the FERC determined that depreciation is a turnaround of that effect.
On that rate base that was depreciate it over that time. So it's kind of it you have to take that piece as well as I think youll see another sort of net liability there and all of those are adjusted out just related to that those items are all related to how you unwind the sale leaseback component that came out of that order.
Okay, great. Thank you for that I appreciate it.
Thanks, Paul.
Thank you and as a reminder, if you have a question at this time. Please press star one on your telephone one moment for our next question.
And our next question comes from the line of David <unk> from Morgan Stanley . Your question. Please.
Oh, hi, thanks, so much for taking my question.
Let's see.
I was curious about that.
The Louisiana Commission at least some of the commissioner seemed to be focused on reliability and even outside of major storms.
So I'm wondering if there's a path to address that aspect of things kind of areas that seem to maybe fall out of that specific 10 year resiliency plan, just maybe normal day to day outside major storm reliability.
Yeah, and reliability is actually a part and parcel of our resilience conversation are there they are very much connected and coming out of the.
Of the back end of 2020 to where our customers were experiencing.
Hardship because of rising commodity prices are high usage and the like.
The regulators were looking for for relief in any disruption to our customers.
Was was viewed as a cause.
The challenge for the regulators, but it didn't stop our stakeholder engagement strategy around reinforcing the need for continued investment in customer centric investments in and reliability and it will continue to be part of our resilience filing.
And it's part of the case that we've made and the case, we will continue to make to our to the Louisiana Commission. They are aligned with us on those customer centric investments and we expect to see improvements in reliability.
Across the board so they've been interested it's been aligned with our engagement with them. Thus far we expect to continue to have their support, especially around our efforts to accelerate the investments.
I'll add to Ron's comments that we had or we have a resilience and reliability program that we've been operating for the last few years that has shown improvements and in our stats.
What I was mentioning kind of continuous improvement moving over into the capital space in my remarks, one of the areas, where we are focusing that is in this energy delivery space.
Because we have our reliability program we are.
Yeah.
<unk> our resilience program, we also have customer efforts going on integrating those three things.
Making it much more optimized as a space, where we think we can.
Achieve all of the outcomes that we're looking for and do it more efficiently. So that's that is a place where all of these things are starting to come together and not NR to actually separate efforts going on internally in the business.
Got it thanks that's helpful.
And you alluded to it in the prepared remarks, obviously the last securitization process was a challenging one.
I was just wondering if you could elaborate as Ed is there a way to lower the risk around storm cost securitization processes going forward in Louisiana just.
What kind of initiatives can you pursue.
Specifically to kind of align parties more smoothly going forward.
I'll start out and I'll, let Ron jump in but I think the main thing that we can do is embark on a resilience program together and that is a big opportunity we have filings in and in Louisiana, and New Orleans, and as I said, we were planning to do that in Texas later this year.
That's the biggest opportunity and that that will move all of our stakeholders forward in terms of preparing.
For storms and responding more effectively two storms around all that yet and I think that's the that's the point our customers are agnostic as to whether the investment is a reliability investment our resiliency investments and when there is a storm and the customers are interrupted there experiencing the hardships that interruption that's.
What was part of the driver for the heightened attention both in our from our regulators as well as our investment plans and pursuing accelerated investments and resiliency because of our customers.
The recency of the experience with with storms and so drew his point is right on point that if we can get alignment around accelerated resiliency investments our customers will actually experience better reliability.
Experiences as well they're quite connector.
Yes that makes sense, okay, great. Thanks, so much.
Thank you.
Thank you one moment for our next question.
And our next question comes from the line of <unk>.
<unk> Chopra from Evercore ISI your question. Please.
Hey team. Thank you for giving me time.
Good morning drew just I just clarification, what do you expect on February 2020 February 22nd So is the FERC actually going to put out an order where there they will kind of you'll have the.
The compliance refund will they affirm the compliance refund report I'm, just I'm, just trying to kind of.
Figure out what to look for there.
West.
We expect them by February 23rd if I'm hearing your question correctly, we are expecting the FERC to respond to the party's request for rehearing.
Any any substantive aspects of that.
As an unknown to us, but our expectation is that FERC will respond to the party's request to have certain of those issues reheard not not necessarily a <unk>.
Substantive ruling.
One way or the other.
I see so if they if they basically say no to the.
The rehearing, then I guess does that clear way the pad do you kind of blowing through other settlements and putting that Tibet is that the is that the right framework, but then I'm thinking about.
Well the parties will have the opportunity to appeal, if they're not satisfied with the outcome.
From our vantage point, there are certain advantages to give FERC opportunity.
To reaffirm the initial position it took and we had some challenges with the sale leaseback part of the order and so what we're looking for out of this water candidly is clarity and.
And we'll wait to see what how FERC responds the next week to order our next steps.
Understood. Thank you guys. That's all I had all my other questions have been answered thanks again.
Excellent. Thank you. Thank you.
Thank you one moment for our next question.
Yeah.
And our next question comes from the line of Angie <unk> from Seaport. Your question. Please.
Thank you. So first the first I'm sorry, if in theory, so dark scheduled hearings and the last challenge that talks about the prudence of the upright outbound calls.
I mean on its own and frankly, it's just hard to believe that.
This challenge was in it.
Rejected.
So.
I mean is there any read through or are you hearing anything from from FERC why those hearings were even schedules.
Hey, Andrew it's rod.
I'm, assuming you're talking about the the orders.
Rehearing order that the FERC released today where were they.
Declined.
Our our motion to two.
Yeah. So the order is it is procedural only as we read it and doesn't order any refunds or require any further actions and they went so far as to explain that and setting the prudence complaint for hearing.
And settlement it imposes no obligation on us doesn't deny or any of our rights fixes no legal relationships, but but it's simply initiate further proceedings and.
They are withholding their right and our ability to address anything substantive.
Along the lines, it's not unexpected for us, but it's again, it's a procedural and not a substantive order so there's not anything to read from it.
From a substance standpoint, and Angie to be sure. We appreciate your sentiment.
And the next the next step is the settlement.
Settlement offer March a series settlement offer to the parties on March 1st, but but again as you're taking it as this is a procedural matter not a not a substantive one.
Okay, and then completely changing topics completely here so.
I was just wondering if there was this discussion in the industry overall about switching from.
Hello, ATC to solar PVC is obviously from a regulated utility perspective, that's helpful. Given given though issue with ITC normalization, but is there I mean.
If you look at it especially is that your solar resource.
Would it be superior above average I mean is this just a shift would that be actually and anyway EPS accretive I mean, I'm just thinking about the earnings recognition under the on their stellar stellar pdc's versus that the ITC.
Yeah. Good question Angie you know the way, we think about the PTC as they provide and MDI array in general is it provides opportunity for incremental investment you will need to work with our regulators as we have over a number of years.
<unk> successfully to provide back the tax credits to customers in a way that provides them the value that continues to support our credit and our balance sheet and so you know we we've begun those conversations early but how those play out will be a matter of discussion with our regulators.
We've talked about using those as credits against rate base as compared to direct credit for example, too.
Two customers as it gives us an opportunity to manage our balance sheet as well as ensure the opportunity to customers and it also helps with the volatility associated with customer sales on ptc's, particularly as it relates to the nuclear PTC and.
Yeah, and Angie. This is drew I would I would add to kimberly's comments that we have a 50% planning assumption to the extent that this does help make us more competitive.
There might be an opportunity for incremental investment over and above what we're planning, but we still have to go achieve that so we're continuing to work to get more competitive.
And this is certainly helping level the playing field for us as you said versus the ITC framework, but that's.
That's an opportunity for us that we will have to go achieve out there in the future.
Okay, and then lastly, you did make comments about changes in the solar power curves.
And in the participation of the nuclear PTC benefit the deal that would accrue to your customers but.
We haven't yet received any guidelines from the IRS and it sounds like it's not expected until until the early summer, but is there have you been in discussions with the IRS about you know.
They will potentially quantify the current energy stream.
No clear plans are getting.
Yes, we're certainly working through EI with with with our partners.
And with the other utilities on getting clarification on this nuclear Ptc's will obviously have to wait with the rest of the industry on what that actually comes out as but we do believe that that's an opportunity for us and we'd be eligible for those and it provides as drew said an opportunity for customers both to manage bills as well as an opportunity for incremental investment depending on how those.
Come out, but we have definitely been in discussions with them through yeah.
And we did anticipate that they would be probably a little slower on this because they have more time it doesn't kick in until 'twenty four and so we anticipated that theyre going to cover a lot of other things like the corporate minimum tax and other important elements first before they got to that.
Awesome. Thank you. Thank you both.
Thank you.
Yeah.
Thank you one moment for our next question.
And our next question comes from the line of Anthony Coldwell from Mizuho. Your question. Please.
Hey, good morning, hopefully just two quick ones you may have addressed them, but just curious.
I guess, there's two issues going on with CRE, what is a reasonable expectation. When you think all of the challenges and it will play out as far as like what's a reasonable assumption when all of that is over because that within six months or you think it could carry longer.
We can't say because FERC has on the issues. We just alluded to doesn't have a specific timeline. There. They are in control of the schedule there the updates that I've given.
She was the filing we're making today.
That where the FERC has no scheduled deadline that's.
That's in regard to our compliance filing and the other was a week from today.
The timing that FERC imposed on itself to reply to the request for rehearing from all the other parties, but.
It is in FERC domain to decide when they make these decisions so I could not.
Do you have any.
Given the expected time frames to resolve all of these that's another one of the reasons why we're so aggressive.
Engaging with the regulators to pursue settlement to remove the uncertainty inherent in and <unk> operations no disrespect to FERC commissioners.
Great and just lastly.
Slide nine you go through some credit and liquidity.
<unk> you talk about maybe about a year and you hope to be at the range or better.
That's already that especially with Moody's at trying to be at 14% I guess do you have a targeted.
Credit cushion or a targeted level you hope to be maybe by 24 that you could share.
Sure as you pointed out we are targeting to be above 14% by the end of 'twenty three and closing out the securitization for Louisiana that was approved in January is a significant help to enable that as far as longer term, we are targeting 15%.
We're talking that over the outlook period, so you'll see us continue to focus on strengthening our balance sheet over the outlook period to get to that target of around 15%.
Great. Thanks for taking my questions.
Thank you.
Thank you one moment for our next question.
And our next question is a follow up from <unk> <unk> from Guggenheim. Your question. Please.
Hi, Thanks, Thanks for taking my follow up.
Maybe just to elaborate on the O&M targets on conditions that Youre seeing you kind of mentioned some of the costs escalating, but just trying to get a sense of what percentage of O&M.
Subject to some of these external factors and how do those elevated costs play into regulatory relief just given the FRP revenues increased caps.
Sure. Thanks for thanks for the follow up as far as inflation, we do have some inflation costs in our 'twenty three guidance, we've talked about cost like commodity costs and chemicals that have increased we have seen some labor cost increase in our vegetation contracts for example, but as I said, we have seen.
<unk> some relief on that particularly on the commodity side as it relates to the resources that go into our capital plan things like copper and nickel.
Nickel steel all those are down year over year.
So you know there there's some it's a blend if you will but we do think we have some flex levers in 'twenty three to help us manage both our O&M in our overall.
Where we are in our in the guidance range.
So no kind of impact of the regulatory relief.
Given some of that flex that you have.
I think the early outlook had like a 9% utility book Roe.
And any change in thinking around there.
Yeah, so as far as Louisiana, and Arkansas, where Arkansas certainly has an FRP. We continue to work to manage within that cap increase sales, which U S. Steel will come in over the outlook period will certainly help us in that regard from the Louisiana perspective, as you know in in June as the last filing of our FRP and occur.
Current cycle, and we would expect to have either a rate case or a new FRP filing those modifications out of those outcomes.
Would help us move up that you'd see there or at least move up hopefully depending on the outcomes associated with those rate mechanisms.
Great and a quick quick follow up on the question around credit metrics.
Our capital market conditions, changing your thoughts around the process or kind of capital allocation or dividend decisions.
And kind of more broadly how are you thinking about optimizing those financing needs, especially with capex ramps up in the second half of the decade.
Yes, we certainly as I as we noted from our equity perspective, we've met our needs through 2024, largely we have about $130 million last we've talked about a total knee between 25 and 26, we haven't broken that out, but as we accelerate capital investments and we see additional renewable growth in the back half will definitely have to look at how.
We are financing that most effectively.
We continue to watch interest rates as well as other mechanisms to finance them, but we don't have anything as far as you know alternate financing or anything like that that that where we have that's executable at this point.
And it's not changing our capital mix really either at this time, we are using the internal tools of continuous improvement and and and trying to flex around those internal options rather than try to adjust what we're doing on an external basis at this point.
Excellent that's very helpful. Thanks, so much.
Great quarter.
Gossiping.
Thank you one moment for our final question.
And our final question for today.
Comes from the line of.
Nicholas Campanella from credit Suisse. Your question. Please.
Hey, everyone. Thanks for getting me in here just just one for me today.
And in Louisiana, I know Youre kind of in the last year of the FRP cadence and I guess, you'll either file for an extension in the third quarter or a rate case can you just give us a sense of where youre leaning there and any additional thoughts around that thank you.
Well, we are prepared for both tracks in the filing of a rate case doesn't prevent us from continuing to work with the commission.
In a related stakeholders on an extension or renewal of the FRP. So there are parallel paths not in consistent with the prior as I recall in my my tenure two iterations of review so the process will likely be the same.
Given the fact that we have.
The accelerated resilience filing and any anticipated tweaks along along those lines, we'd be looking to figure out with our stakeholders, what's the most efficient path for us to incorporate.
The resilience components aside from the rest of the components of our capital plan and rate design, so more to come but parallel parallel paths.
Thanks for that and have a great day.
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 annual report on Form 10-K is due to the SEC on March one and provides more details and disclosures about our financial statements.
That occur prior to the date of our 10-K 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.
So 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.
Yeah.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yeah.
Okay.
The conference will begin shortly.
Reason lower Johan during Q&A, you can dial star one one.
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