Entergy Corporation (ETR) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Entergy's Third Quarter Earnings Teleconference. At this time, all participants are in a listen-only mode. [Operator Instructions] Later we'll conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I’d now like to introduce your host for today's conference, Mr. David Borde, Vice President, Investor Relations. Sir, please go ahead.

Thank you, Liz. Good morning and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Leo Denault; and then Drew Marsh, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than one question and one follow-up. In today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in the company's SEC filings. Management will also discuss non-GAAP financial information and reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found in the Investor Relations section of our website. And now I will turn the call over to Leo.

Thank you, David and good morning, everyone. Today, we are announcing another solid quarter with operational earnings per share of $2.31. Adjusted earnings of $1.98 for our core utility parent and other business were substantially higher than last year and in line with our growth expectations. We remain on track to meet this year's guidance for utility parent and other adjusted earnings per share. As our results show we continue to execute on our strategy and meet our objectives both at the utility and EWC. At the beginning of year, we set out our to do list as shown on Slide 3 and with three quarters of 2016 now behind us, I am happy to say that we successfully completed most of those tax. Each of these accomplishments supports our objective of steady and predictable growth at the utility while managing risk and reducing our EWC footprint. At the utility we continue to make needed investments, which will modernize our system and enhance its efficiency and reliability for benefit of our customers. We have a number of generation projects in front of us which will meet this purpose. First the St. Charles Power Station is a 980 megawatt CCGT to be constructed and placed into service in Montz Louisiana by June of 2019. The Administrative Law Judge recommended supporting the certification of this project in July and we are waiting a final regulatory decision from the Louisiana Public Service Commission. The commission has faced some scheduling challenges and it's been difficult for the full commission to take up major items for vote. However we anticipate that the commission will be able to make a decision on this project before the end of the year. On October 7, Entergy Texas made its filing with the Public Utility Commission of Texas seeking the certification to construct the Montgomery County Power Station. This 993 megawatt highly efficient combined cycle plant will provide reliable power at significantly reduced energy costs. The plant will produce an expected $1.7 billion in net benefits to our Texas customers. In addition the plant will use state-of-the-art emission control technology to lower air emissions and construction anticipated to begin in 2019 will provide more than 2,800 direct jobs in Texas and nearly $1 billion in economic activity for the local economy. In June, Entergy New Orleans filed an application with the New Orleans City Council seeking approval to construct the New Orleans Power Station. 226 megawatt CET will provide a modern cost-effective local resource to enhance reliability and operational flexibility, mitigate market risks and aid in restoration efforts following major weather events. The construction of this plant will produce hundreds of millions of dollars in economic benefits for the state and local economy. We are currently working with the city council to set a procedural schedule and we expect to make filings with the Louisiana Commission to begin the regulatory approval process for the Lake Charles CCGT later this year. This also will be a highly efficient plant that will support the growing customer base in the Lake Charles area. Additionally we estimate the plant will provide around $1.4 billion in savings to customers over its life time. Our transmission grid is equally vital for the operation of our system and ongoing investments are required for compliance, reliability and efficiency. We continually make upgrades and additions to the grid to enhance our level of service and make room for growth. At the end of June, we completed Phase 2 of our client [indiscernible] voltage support project in Arkansas constructing a new 230 kV substation and transmission line. In July, we also finished the installation of a 230 kV auto transformer and a 230 kV substation to better serve our customers in Texas. And some of our transmission investment decisions are made through the annual MISO transmission and expansion planning process also known as MTEP. We are nearing the end of the MTEP planning process for 2016. Currently we have 48 projects totaling roughly $480 million under consideration. The MISO Board will make its selections and get final approval to projects in December. On September 15, we submitted about $700 million of proposed projects for MTEP '17 and we will work with MISO on the selection process for those proposals over the course of the next year. For the last several years, we've been executing on these and other traditional generation and transmission projects. We've also begun to outline the investments, which will lay the foundation for an integrated energy network. To that end on September 19, Entergy Arkansas was the first of our jurisdictions to make regulatory filings seeking approval from his commission for advanced metering and implementation. These were followed by filings from Entergy New Orleans on October 18. In each filing, we requested that our regulators find the deployment of the advanced metering infrastructure to be in the public interest. Entergy Arkansas expects to recover its investment through its forward-looking FRP. Entergy New Orleans has requested approval to implement a phased-in customer charge. Deployment of this infrastructure including advanced meters is expected to bring total net benefits of approximately $260 million to our customers in Arkansas and New Orleans. In addition to improved outage restoration, enhanced customer service and tools to better manage energy usage. Contingent on approval by the Arkansas Commission in the New Orleans City Council, meter deployment would begin in 2019. Ahead of meter deployment, we're focused on constructing and integrating the back office systems that support this technology and make it smart and meter data management system the new outage management system and distribution management system as well as designing and installing the infrastructure for our communications network. The advanced meters are a big step forward and the advantages they provide to our customers as well as the follow-on technologies and services they enable, represent the future of our company and our industry. I would like take a moment now to extend our sympathy, the family and friends of Clyde Holloway, the Louisiana Public Service Commission Chair who recently passed away. Commissioner Holloway was consistently fair, dedicated to serving the public interest and true to his convictions. We appreciate his many years of public service. Last Friday the Governor of Louisiana appointed Charlie DeWitt, former speaker of the Louisiana House of Representatives to fill the remaining months of Commissioner Holloway's term. We look forward to working with Commissioner DeWitt. As you know we spent the last few years working with our regulators, Commissioner Holloway and others for improvements in our regulatory constructs. These constructs are now facilitating our investments in the utility infrastructure. For example, this quarter Entergy Arkansas reached a settlement in its first FRP filing with the forward test year. We've requested any potential rate adjustments to be in effect on December 30. Entergy Mississippi completed its FRP filing with a stipulated settlement for a $19.4 million rate increase. New rates were effective in July 2016. Entergy Texas filed for a $19 million annual increase to its transmission cost recovery factor rider in September, reflecting $210 million in incremental transmission investment since it's last base rate filing. Entergy Texas also presented its view on alternative ratemaking mechanisms to the Public Utility Commission in Texas through a filing made in August. This filing was in response to the Texas legislature's request for the commission to conduct a study and make recommendations regarding appropriate reforms to the rate making process. In its comments, Entergy Texas asserted that a formula rate plan with a forward test year is an mechanism to reduce regulatory lag. This mechanism will provide utilities with an opportunity to earn their authorized returns and is also beneficial to the utility's credit ratings providing access to capital at lower cost to customers and facilitating the infrastructure investment to support economic development in the creation of jobs in Texas. The Commission will consider the filing along with the recommendations from others and provide its final rate making report to the legislature in January. And our FERC Regulated System Agreement came to an end on September 1 after more than 50 years of existence. This agreement has been a source of litigation between Entergy and various retail regulators for years and it's eliminations moves that risk -- remove that risk and allows us to focus more specifically on the priorities and policies of local regulators. You've also heard us talk about the importance of controlling bills for our customers. Our rates continue to be among the lowest in the country and these low rates are one of the factors that make our region attractive for industrial development. We've said there are a number of levers available to keep overall customer bills reasonable. In one such example last month, $55 million of Mississippi storm restoration bonds for Hurricane Katrina were fully paid off and we were able to remove that charge from our customer's bills. These are the first storm securitization bonds to roll off bills and more will follow for our customers in Louisiana in 2018 and Texas in 2021. Shifting to our Nuclear Operations, we recognize the importance of nuclear power as part of the national energy landscape and the significant benefits our clients bring to our stakeholders. Nuclear power is a source of low-cost steady reliable base load power. It provides fuel diversity to our generation portfolio and reduces fuel price volatility. It minimizes our environmental footprint by creating virtually no emission. Each plan anchors its surrounding community with steady good paying jobs, the significant property tax base and other ancillary economic benefits. And last but not least, we believe the plants are necessary to ensure the continued reliability of our electric grid. We must preserve the benefits our clients provide and ensure that our operations are in line with evolving nuclear industry standards for operational excellence. This requires that we look at what investment is needed to ensure safe and reliable operations in the near-term as well as what it will take to prepare plants to operate to the end of their expected operating lines. As a result, going forward the cost to operator plants will be higher. We'll be reinvesting to preserve these valuable resources for our customers, communities, employees and owners, as an important part of our utility strategy. Our financial plan now includes the investments we believe are needed to meet our goals for nuclear operations as well as mitigating actions and rate treatment. Drew will discuss our revised earnings outlook and other outlook information is remarks. Turning briefly to EWC, operational earnings for the quarter were essentially flat for the same quarter of last year. Like many merchant generators, we face market challenges including very low commodity prices. These challenges are apparent and revised EWC EBITDA outlooks we provided today and further validate the progress we continue to make on our strategy to reduce our merchant footprint. On August 9, we announced our agreement to sell the bond. We recent recently received early termination of the HSR waiting period and we continue to work through the required regulatory approvals with the NRC, FERC and the New York Public Service Commission. We are targeting the second quarter of 2017 to close the transaction. We also continue to proceed along two parallel paths, for the plants refueling and potential sale and the possibility of permanent shutdown and decommissioning. Once again, I'd like to thank our FitzPatrick and Foley's who continue to operate the plant safely and reliably throughout this transition. We also entered into agreements this quarter to sell our EWC wind assets in Iowa and Texas and expect to close on that transaction in the fourth quarter of this year. We will continue to be disciplined in our assessment of every remaining asset in our EWC portfolio to execute on our strategy to reduce our emerging footprint. Many of you have heard about the mid August rain storms in South Louisiana and its broad devastation to so many of our customers as well as our employee. These historic rains dropped an estimated seven trillion gallons of water in one week, damaging roughly 60,000 homes and businesses and causing outages to more than 32,000 of our electric customers. Our crews work tirelessly to restore power quickly and safely to customers. After the water receded, hundreds of Entergy employees from four states, friends and family members, all logged over 10,000 hours of volunteer service helping to clean flooded homes. In addition they collected needed tools and supplies and provided meals to those in the area coming together admirably to support each other and the affected community. To that end, Entergy contribute $525,000 to local nonprofit organizations to help them respond to the storm. I would also like to acknowledge those who were recently affected and suffered losses in the wake of Hurricane Matthew. Along with many of our peer utilities, Entergy provided over 400 workers to assist with restoration efforts. We were eager to respond to this call for help as others have done for us many times in the past. In many ways events such as these are an important reminder of who we serve and what we do best. Supporting the communities where our customers employees live has always been a part of who we are at Entergy in one of the many ways we power life. In recognition of efforts such as these as well as our other sustainable business practices, Entergy has been named to the Dow Jones Sustainability Index for a 15th consecutive year. We are top scores in the areas of corporate citizenship and philanthropy, climate strategy, biodiversity and water related risks. The index confirms that we are focused on the right things and successfully providing value to each of our four stakeholders. Site Selection magazine named Entergy as one of the Nation's top 10 utilities in economic development in 2015. This is the night year in a row that we've been named to the list, recognizing our integral role that resulted in nearly $10 billion of capital investment in the creation of over 4,800 jobs in our service territory. We know that economic development is important for our customers across the region and it's also good for business and we'll continue to work with our state agencies and local communities to promote growth across our service territory. In summary this was another solid quarter. Both our consolidated operational earnings and our adjusted earnings for core business were substantially higher than last year and in line with our growth expectations. Our solid results to date demonstrate our ability to continue to execute on our strategy. With that backdrop, I'll also note that our financial outlook now reflect our prudent decision to position the nuclear fleet for sustained operational excellence, along with other nonfuel O&M adjustments such as increased benefit expenses due to the prolonged low interest rate environment and the industry-wide reality of flattening consumption for residential and commercial customers. Despite the near-term effects, the incorporation of these items and our are financial outlooks strengthens our competence and our ability to deliver on our long-term goals as reflected in our unchanged 2019 outlook. As we look down the road to 2019 and beyond, we continue to see the benefits of the progress and accomplishments we've made over the past 24 months to execute on our objective of steady predictable growth on utility parent and other earnings and corporate dividends. We look forward to talking with you some more about our plans and our outlooks at EEI next months and with that, I'll turn the call over to Drew.

Thank you, Leo and good morning, everyone. In addition to reviewing the quarterly results, I'll take some time today to talk about our longer term outlook. We know that you're all anticipating an update on our nuclear investments and it's financial effects, it's time to give you key information in advance of EEI to help you better prepare for those meetings I'll start with the key takeaways from our third quarter results on Slide 4, beginning with the consolidated results in the top left corner. As reported earnings included special items related to EWC nuclear plant that we've identified to close or sell. Last year results included significant impairment for the FitzPatrick and Pilgrim plants. On an operational view, our consolidated earnings for $2.31 per share in the current period that compares to $1.90 a share year ago. The increase was due to growth in our core utility parent and other business shown in the top right corner. Utility parent and other adjusted earnings increased more than 25% above last year, which I'll discuss shortly. Just a reminder our adjusted view normalizes for special items, the estimated effects of weather and income taxes. Looking at the bottom left corner, EWC operational results were essentially flat. Operational earnings per share for utility parent and other increased $0.40 quarter over quarter shown on Slide 5. Looking at the Orange bars on an adjusted view, utility parent and other results increased $0.42. This growth reflects rate actions to recover productive investments to benefit customers and improves returns. Specific drivers include Entergy Arkansas' rate case, the Union Power Station acquisition, Entergy Mississippi's recent formula rate plan and Entergy Texas new transmission cost recovery writer. Build retail sales for the quarter were lower than a year ago. We continue to see weakness in both residential and commercial sales. Industrial sales were also lower even considering the continued growth for new and expansion customers. This is consistent with our comments last quarter. Despite the lower sales volume, industrial revenue was up, excluding right effects because of the demand for the bill and the new customers. For the full year, we anticipate industrial growth to be in line with our original guidance assumption of approximately 2.9% and we expect industrial growth to continue into next year at around the same level. Also contributing to the UPO, earnings increase was nonfuel O&M, which declined. Lower pension and other postretirement benefit expenses were the largest driver. Turning to EWC's third quarter results, summarized on Slide 6, operational earnings were 19% in the current quarter, compared to $0.18 a year ago. Effects from 2015 impairments were partly offset by lower energy prices. Decommissioning expense was also higher due to the establishment of decommissioning liabilities for Indian Point 3 and FitzPatrick as a result of our agreement with NYPA to transfer the decommissioning trust and liabilities to Entergy. Slide 7 shows operating cash flow was once again around $1 billion, consistent with the same quarter last year. Our 2016 earnings guidance is summarized on Slide 8. As you can see, we are affirming our 2016 guidance, the consolidated operational EPS and utility parent and other adjusted EPS. For the consolidated operational view, positive weather in the third quarter is being more than offset by lower EWC revenue and higher decommissioning expense for the NYPA trust transfer transaction. We also expect a slightly higher effective tax rate. Overall we currently expect consolidated operational results will be within the bottom half of the range. For utility parent and other, we still expect adjusted earnings for the year at around the midpoint of our guidance range. That said, there are a few things that we're keeping an eye on. As you know, we have the Waterford 3 Steam Generator Replacement project before the Louisiana Commission and that issue is not yet fully resolved. Grande Golf is also in an extended outage and we will continue to monitor this potential implication. On the positive side, we recognize that our nonfuel O&M is favorable to our plan through the third quarter and we'll continue to monitor our spending for opportunities in the fourth quarter and just under two weeks at EEI we will discuss our strategy and longer-term view. However I would like to take a minute to talk about our financial outlook starting with the utility parent and other adjusted EPS on Slide nine. At Analyst Day, we knew that we would have significant incremental spending to ensure the longer-term sustainability of our nuclear plants. Since then, we have spent the last few months going through the process that Chris Bakken outlined to help us understand the magnitude of the investment needed to position our fleet for sustained operational excellence. The low interest rate environment and its effect on our pension and postretirement benefit expenses was also discussed at Analyst Day. More recently, residential and commercial sales have been lower than our expectations and we now expect a lower growth rate. Our goal was to fully mitigate these effects by identifying opportunities to operate our business more efficiently, reprioritizing projects among the business function and utilizing regulatory mechanisms available to us as needed. Considering all of this, we now expect our utility parent and other adjusted earnings to be lower in 2017 and 2018. However we are still on track for greater than 5% three-year growth based on the midpoint of our adjusted 2019 outlook versus our 2016 guidance. Slide 10 illustrates the major changes from our original utility parent and other outlook to our current expectation. The primary drivers for our changes are the aforementioned higher nuclear cost, lower pension discount rate and lower retail sales that are expected to be about $0.75in 2017. Partially offset by mitigations, we've identified over the past several months, which total about $0.25 in 2017 and increased net revenue from rate actions and other items, which will help about $0.20 next year. Regarding mitigations, we've worked hard over the past several months to identify opportunities. For example on the last call, we talked about interest expense reductions from economic re-financings. We've also issued new debt rate at rates lower than we planned. In addition, we've identified O&M savings from various employee led initiative throughout the company, driving improvement in sourcing, benefits, insurance, outage operational and other costs over the next few years. Our outlook now reflects recovery of our prudent spending, net of mitigations through our normal rate making mechanisms. On Slide 11, EWC operational adjusted EBITDA outlook also reflects lower expectations. The summary of what's changed is provided on Slide 12. Like utility parent and other, net revenue and nonfuel O&M are the two key drivers for the changes at EWC. Revenue estimates declined due to lower forward prices and reduced volume from revised assumptions on outages, including at any point more conservatively plan additional time for potential replacement of affable. As noted on Slide 13, we'll have additional details at the EEI Financial Conference when we'll continue the discussion of our business strategy, including our nuclear investments, longer term outlook and 2017 drivers. As have been our practice, we anticipate that we will provide earnings guidance for 2017 and our detailed three-year capital plan on our fourth quarter earnings call. We realized that we covered a lot of new information today. We've also included some information on our nuclear investments and our preliminary three-year capital plan in the appendix of our webcast presentation. We'll be listening to your question today and over the next week and will provide information that you need to understand and analyze these changes at EEI. We look forward to moving ahead with the strategies to create value for our owners, our customers, our employees and the communities we serve. And now, the Entergy team is available to answer your question.

[Operator Instructions] Our first question comes from the line of Greg Gordon with Evercore ISI. Your line is now open.

Thank you. Good morning.

Good morning, Greg.

I'm just wondering as we look at the magnitude of the rate actions that you think you're going to be able to recover over the next several years associated with the increase in nuclear spending, how we think about the prudence of those -- that spend and the recovery? Can you explain us what your benchmarking looks like in terms of your current spending on those plants and what the increase in spend then with efforts you relative to other nuclear operations across the country and how you are going to show that those recoveries are necessary and prudent for customers as opposed to being a function of some level of mismanagement historically that should be borne by the shareholder?

Greg, that's a good question because as you know customer bills, customer rates is an extremely important factor in our business and something that we spent a lot of time to maintain. As you know we already have some of the lowest rates in the country, 20% to 25% and below the national average and as far as the expenditures go, if they weren’t prudence expenditures to make we would make them. Between our mitigation actions as well as the other items that are well announced like [indiscernible] securitizations that I mentioned in Mississippi $55 million in 2018, we have roughly $1 billion of securitization bonds rolling out of the Louisiana jurisdictions and that in utilizing our normal regulatory processes. We do believe that all the prudently incurred expenditures will be recovered and also keep in mind here that when we look at the jurisdictions that are most impacted by the nuclear spend namely honestly Arkansas and Louisiana where the plants reside. You put everything together not just the spend that we got the tradition here, but everything and over the period that we're talking about, we wouldn't expect the customer rates to increase by much more than 1% including everything so far less than the rate of inflation annually. And so the impact here we're trying to manage as much as we can all the expenditures will be prudently incurred. We're putting all of our operations in line with what the industry is. As you know, every plant in the country is different, but that's certainly something that we've kept in my. We've outlined this plan in terms of amount, in terms of timing, in terms of what we need to do to balance the equation, not only for the operational side of things but for our customers. And again we would envision we come out the backside of this by the time we get to 2019 with still having some of the most competitive rates in the country.

Okay. Thanks. One follow-up as I've looked at the numbers and just rough math at this point for EWC, net of the reduction in EBITDA as a function of the increased operating costs, but also the increase CapEx, am I right that it looks like you're actually cash flow negative over the next several years at EWC or are there some -- is there some mitigation happening here that will allow you to maintain at least the neutral value proposition there as you unwind that business.

Greg, this is Drew and we haven't ever discussed specifically but you can do the math like we can and so we as Leo mentioned in his remarks, we continue to remain vigilant and disciplined on our approach to reducing the footprint in that business and so I think that you could count us to continue to maintain that posture.

But to the extent that the business is cash flow negative, how would you fund that?

To the extent that it is at any given period it's going to be mostly from the parent and you look at this overall forecast. including the changes at EWC, the incremental investment at the utility, we have a parent debt level that could go up about 150 basis points from where we were originally targeting it, which was slightly above our target range and our target range is 18% to 20% and we were talking about a forecast the got us around the neighborhood of 21% that we were working on. Obviously this and as I said maybe another 150 basis points to that and so that's not going in the right direction and that if we financed everything with parent debt and so we're thinking about other options around how do we manage it starting with the business itself and can we continue to find ways to be more efficient.

Okay. Thank you, guys.

Thank you.

Our next question comes from the line of Jonathan Arnold with Deutsche Bank. Your line is now open.

Good morning, guys.

Good morning, Jonathan.

This sounds again on the mitigating rate actions that Greg was asking about, can you give us a little bit of a sense of where the trajectory there is coming from, which jurisdictions, which formula, which will be actual rate cases just so we can get a sense of what we should be tracking just to see that offset come in.

Well I'll start and then Theo can follow-up Greg, Jonathan sorry about that. We're not planning on using any special regulatory mechanisms at this point in time, everything would just float through the normal mechanisms. So for example Arkansas will flow today FRP, Louisiana will flow the FRP in the near-term but we do have some reset capability by the time we get out to 2019. Those are the major implications in terms of where the plants reside and again from -- yes asked about the trajectory and if you look at the plan as we've laid out now and not just that spend but everything together, in those jurisdictions we're talking about a trajectory of about that we wouldn't expect to be more than 1% a year from a rate standpoint and remember it's not only our mitigating actions that Drew outlined that are on the slides in your deck, things like the securitizations rolling off the low growth that we have, the continuation of the investments that we're making. As I outlined, all those investments related to the new power plants etcetera, we envision that those are going to provide production cost benefits as they're more efficient etcetera. So all that works together to keep that trajectory still in line with one of the best in the industry. I don't know Theo if you want to add to that.

Jonathan, this is Theo. Just a couple of other points, the other plant clearly over making investment is Grande Golf which is owned by Siri and like your PPA back to for the operating companies. That plan is subject to FERC formula rate cost of service base rate. Also in Louisiana just additional clarification, we've got an opportunity for FRP reset and '18 timeframe and we would expect that reset to occur just that rate changes would happen within the 2018 calendar year. So you see the full impact of that in 2019. Also in Arkansas, the forward-looking test year FRP with forward-looking features also has a true-up mechanisms associated with it. So if in fact our forecasted test year is different than actual, we have the opportunity to come back and implement rate changes to true that up to the actual costs within the context of that particular test year

Great. Thank you. That's it. And on the management task on the mitigation to the expense line where you have it at $0.25 already in '17 and they are holding more or less at that level through the period, how much of that have you have already identified and/or implemented?

Hi, this is Drew, and pretty much all of it we've already identified and implemented. So a lot of the $0.10 of the attendance of the $0.25 this year are in '17 would be associated with interest expense and so that's all the financings that we've done this year would contribute to that engine. After that the other $0.15 are various elements from the laundry list of things that I read off that have already been put into place.

Great. Thank you. You made some comments about dividend growth and talked about giving us more of an update at EEI and last year I think you had the dividend increase right at the end of October. You're coming up to the -- can you give us some thoughts about how we -- how does this dampening of the trajectory in the short term feed into your thinking around dividend and this obviously it seems to be the timing of the airway you illustrated.

That's another good question Jonathan, obviously the dividend is a Board of Directors decision that they’ll make in due course. You're right on timing. Traditionally the fall is when we make that determination. As far as, what this has done to our trajectory again, the earnings trajectory here through 2019 is pretty similar to where we were before, it's the same number by 2019. We still see growth in '17 and '18. So while obviously it's a consideration through our mitigation actions, the rate levels that we have, the regulatory constructs that we have and the work of a lot of really talented people here at Entergy, we still see the growth outlook that we've been on for that utility parent and other earnings that supports the dividend growth. So our objective to continue to grow dividend is still out there, it's still something that we take very seriously and predictable growth in earnings in the dividend that's our objective.

Okay. Thank you, Leo.

Thank you.

Our next question comes from the line of Stephen Byrd - Morgan Stanley. Your line is now open.

Hi. Good morning.

Good morning, Stephen.

Wanted to focus on Slide 10 in the revised retail sales growth, could you just lay out what's your revised growth rate is and what the sensitivity is, you have a appendix slide that shows the sensitivity in near-term to 1% changes. I just wanted to confirm sensitivity, the changes in low growth assumptions in the out years.

Yeah, this is Drew. So you're referencing the slide in the back. Was there in anything particular Stephen that you wanted to discuss that's 35 I think that's slide 42.

Sure yes I guess so on Slide 10 what's the revised retail sales growth percentage for residential and commercial and what was the 1% movement in that assumption? I think the appendix should imply $0.11 for commercial and residential commodity. I just wanted to confirm that.

Yeah I think that's still fairly correct Stephen. So we saw two or three quarters of this year were down about six tenths of a percent versus the 1% or so just below 1% expectation for this year. And so we have a different starting point going into next year than what we are anticipating that's the first thing. And then the second thing is the growth rate going forward and we've brought that down as I mentioned in my remarks, but I think it will be probably closer to about 0.5% rather than almost 1%.

Okay. Understood and just shifting gears to the sale of nuclear assets to Exelon. I know there are several conditions that were listed in the release in terms of approval by federal and state agencies. There was recently a lawsuit filed in court opposing the credits provided in New York in the event that in course the credits were overturned, what would be the impact to the sale of those assets.

Stephen it really on the timing of the court action. So our point of view is that is unique in that it places a value on carbon free attribute of the units. So we feel pretty strongly that we will survive that legal challenge, but it really would depend at what point in the transaction that occurred. So right now we're anticipating approval by the PSC on November 17, approval of the contracts November 23 and then NRC approvals to follow and closing of the transaction in the second quarter of next year.

Okay. And if the Zacks were overturned before second quarter of next year would that trigger cancellation of the transaction.

Well certainly it could be a consideration there and than it really depends on who's taking responsibility for that and so the contract had some commercial terms which deal with that specific issue, so it really becomes more of an issue of can you close and who has liability for the investments in the refueling etcetera.

Okay. Thank you.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.

Hey guys, couple of easy ones. First does your utility parent and another guidance incorporate any external equity or equity like security issuances over the next few years.

This is Drew. It does not incorporate anything like that.

Got it. Second on the EWC side, when you look at Palisades and in Indian point and kind of the guidance of increased costs how do these plants look from a cost structure relative to what you would consider their benchmark peers.

This is Chris Bakken. The Indian point of cost structure is reflective of the market it operates in which is the high labor costs but spending we believe is appropriate for the remaining life of the plant. In terms of Palisades, I would say it's consistent with the industry and again we're making prudent investment in the plants given the remaining lifecycle of the plant.

Got it. Last thing back to the regulated type, can you put John some numbers around the size and scale of the AMI program filings in Arkansas and New Orleans and how should we think about what size and scale through 2019 or 2020 or so you anticipate in some of the other jurisdictions?

Michael this is Theo. I don't have the specific numbers in front of me in terms of Arkansas versus New Orleans. I know when we talked about this, initially we talked about on a system basis the investment being $900 million or so. When you think about it as it related to the again the entire system in terms of timing as you can see as you go through the filings you will see that there were some costs we're asking to differ that will get fully incurred prior to the full functionality of the meters themselves. And we believe that's consistent with the matching of that cost with the benefit that you'll see that will get implemented as a result of the implementation of the meters themselves. There is also I think as you recognized as Drew mentioned some asset investments that's made in advance of meter deployment basically to develop the backbone to support the meter deployment. And our view is that asset investment is consistent with what we've seen from kind of a timing perspective and the necessity to get the employees in order to allow the efficient use of the meters themselves once they are fully deployed and to recognized benefits of it. We also believe that infrastructure is useful for other systems as well. So I think our perspective is the cost is consistent with what we've seen in implementations across the country and will be supported and supportive of the benefits that Leo mentioned as we think about the implementation overall. We have to get the specificity for you in terms of years, but we don't view that investment to be significant investment at risk in advance of the meter deployment.

Got it. Thank you, guys. Much appreciated.

And if I just add I think in the forecast period in the $900 that Theo was discussing, it's a couple hundred million in the forecast period. Most of its beyond '19 when the significant portion of the meter deployment really kicks in.

Got it. Thank you, Drew. Much appreciated.

Our next question comes from the line of Praful Mehta with Citigroup. Your line is now open.

Thanks so much. Hey guys.

Good morning.

So the first question was more strategic which is there seems to be a lot of defense right now, which is both in EWC where the focus is just the reduce the strength and size and even on the utility side, things like retail sales growth isn’t coming out where you guys expected. So I am trying to figure out from a offense perspective or future growth how are you looking at what are the dimensions that you can push and grow going forward coming out from the defensive kind of view right now.

We don't view ourselves in a defensive view at all Praful. So we are on offense here. We had a significant amount of investment that I outlined that goes into the generation and transmission footprint of our regulated utility. That has not changed and we continue to make those modernizing investments that will lower production cost, provide significant benefits to our customers, improve the reliability, reduce our environmental footprint. And that which is a continuing to grow service territory, particularly as it relates to what we see on the industrial side, all while we maintain some of the lowest rates in the country. In addition to that what we just in response to the question from Michael around AMI, AMI is the first step and we've just now started to make regulatory filings but first we'll get the back office and the backbone of the system to make it smart, we don't want to deploy the meters until mill actually have something to do for us. So we're putting all of that in place in advance of actually beginning to deploy the meters in 2019. There are other technologies that we will deploy on the system then that we're looking at today in terms of asset management technologies and other things that will go from that point and forward that will provide even greater benefit savings helping us to manage the load for our customers and provide that needed investment that will provide us an earnings opportunity but at the same point in time it will help us help customers manage their bills through the ability to manage how much they use, when they use it etcetera. So that for us is again total offense and extremely, extremely exciting for us as we look to the future. When we look at EWC, our objective has not changed. I1t's always been to separate that business from the utility and we continue to execute on that. We sold wind assets or in the process of selling those. We sold the Rise plant last year. We made decisions and unfortunate as they are to shut down Pilgrim shutdown of Vermont Yankee and we're going to continue on that path albeit with a different price deck that we see continues to erode, but we're still working as diligently as we can and I think a proof of that is in our discipline around first making the decision at Fitzpatrick to cease operations there, but at the same time never giving up and never wavering from the idea that we might come up with something better that resulted in the creation of actually working with Exelon in the state to come up with the sale of that plant, the continuation of its economic benefit and reliability benefit to the State of New York and certainly to employees and the communities. That plus is a defense at all. It's all offense. Like everyone else we're in merchant market and gas prices have been low particularly in the Northeast and we've got to manage around that, but it doesn't change what we're doing or how hard we're working and what we think we can accomplish there and we've accomplished a lot and we would anticipate over the course of the next couple years we'll continue to accomplish a lot. So all that said, we are pretty excited about what we have the opportunity to accomplish here and again just going through all that we've just talked about with the sustainability of the nuclear fleet, the investment in AMI, the investment in generation business, the investment in transmission going through the normal regulatory constructs that we have today and still maintaining our 2019 outlook, sounds like offense to me. But strategically that's where we're headed, the same place we were headed before and we just updated some of the information for you that's all.

Got you. Fair enough Leo. Thank you. And on Slide 16 just a more detailed question, the increased CapEx around EWC you also made the point about the remaining useful life of considering the remaining useful life of assets. Just wanted to understand how you're thinking remaining useful life for both Indian point and Palisades? Is there any change in view of we understand the relicensing, but apart from that, is there any change in view around that, given the CapEx spend?

There is not a change in view around that Praful other than what we always do as we continue to evaluate those facilities, but right now there is no change in point of view around those plants. Palisades nearly we got the contract through 2022 and then we got the ability to see what we think the MISO market goes at that point in time. And Indian point, continues to be very, very valuable asset. I think the ISO just came out with their study showing that it was required for reliability in the region. So it continues to be needed in that region. So there's really no change in outlook for those assets at this point. That said, we continue to be disciplined in how we look at these on a regular basis and will look at them, we're always refining our point of view about them, that's all.

Fair enough. Thanks Leo.

Thank you, Praful. Operator Our next question comes from the line of Brian Chin with Bank of America. Your line is now open.

Hi. Good morning.

Good morning, Brian.

I wanted to go back to an earlier question about the court challenge to the zero omissions credits proposal. If that challenge is successful and the court overturns I think you made reference to it's possible under certain conditions that it might impact the sale. You mean to say that those conditions are spelled out and there is one party who might be at fault at that, can you just give a little bit more clarity on what exactly you meant?

It's difficult to predict what the impact of it could be without understanding what the specific ruling is, but we have put terms in the commercial agreement that tried to separate those risk. I really can't tell you what the eventual outcome of that would be. Typically we don't discuss litigation especially for future litigation, but we have tried to address and mitigate those risk in our sale agreement with Exelon.

Got it. Okay.

Brian one thing that I'll add too is the way we're working through this process we're going down the parallel paths. We're confident that we'll close the transaction that we in the end game but certainly the way it's structured worst case for us we get back to the position we we're in beforehand and that is we have to make the decision to shut down the plant around the same time we are planning on it.

Got it. Appreciate it. Thanks a lot. That's all I got.

All right. Thanks.

And our last question comes from the line of Steven Fleishman with Wolfe. Your line is now open.

Hi. Good morning. Just had a simple question could you just be clear what is not working right in the Merck nuclear program right now that you're spending so much money?

First and foremost the plants are safe Steve, what we wouldn't run them. I would say that the challenges that we face stem from a desire to run a lean operation and that lien operation meant to benefit our customers, we're getting the right balance between operational excellence and the cost structure. What we found obviously we had a couple of situations with clients going to call for what we found is that we potentially didn't get the balance as right as we want. And so to get ourselves up to the standards that we hold ourselves to and to the standards of the industry, we've got to change our strategy around how we operate the plants. As you know, we made organizational changes last year. It was six months ago we brought Chris and Chris's been responsible for developing with that strategy is. We've changed not only who it is but where reports where is it used reported to the COO, it now reports directly to me and so Chris and his team along with his discussions with people in the industry and with our regulators etcetera have devised this change in strategy to get ourselves up to where we need to be to meet our own standards and operational excellence standards of the of the industry.

And would there be some filing at the NRC that goes through the full plan or is it going to be like plant by plant?

There is no filing, we're just -- the only really filings will be when we include these in a retail regulatory these costs just like the cost of the new CCGT's and CT and AMI, these plans are vital to the reliability of the system. They provide over 30% of the energy used on our system. They are large base load zero emitting resource that's very valuable. They are anchors to the community in terms of tax base and jobs and community support. So these are very vital asset. They limit fuel volatility when you look at what could and has happened in the natural gas markets and reliance on natural gas of us and others. So they're very, very vital. They fit right in with the strategy that we've got everywhere else whether it's investing in CCGT's that reduce production costs and improve their emissions or whether it's looking at something in the gas and ground investment that would limit fuel volatility. So these assets fit right into our strategy, right into the need for our communities or customers and we just again have to change the strategy from that lien operations into one more focused a little bit more on operational excellence side of it and then we'll get right back on track. And again as I mentioned earlier we're going to use any special regulatory mechanisms and no special filings with the NRC. It's just us working through this process and getting right.

And as their spending, part of that it sounds like higher ongoing stamping, part of this next three years is the way to split out between spending to fix the program where you want it to be versus spending that's just ongoing higher levels or ongoing higher levels.

The way to look at it and obviously you got to remember too Steve, capital dollars are lumpy in these big plants and things like that, but the way we're looking at it is what's the take to run these plant and Chris's task has been to put together a plan what does it take to run the plant on an all in basis. And so we're doing that certainly getting ourselves out of column four and things like that are going to be important and those are costs that will go away but for the most part all that we've asked them to do was come up with capital plan required to put us in the operational excellence category that we want to be in this is it and we've included it all it. The plan we're going to use the regular regulatory mechanisms to recover it and as we mentioned earlier between our mitigating actions, between other things that are happening in the company like securitization roll-off through loan growth that we have in investments that we're making that lower cost, the impact on our customers going to be minimized as much of it can.

And just one last thing Grande Golf can you just talk about what the outage is related to?

This is Chris again. First and foremost the Grande Golf is safe to operate, however reflecting on some of our equipment in human performance over the last several months that didn't meet our standards of excellence. So we've taken a decision to take the end of service. Systematically understand the performance shortfalls to excellence. We've training programs and some maintenance plans to correct that. It's well understood and we're in the process now of working through those issues and expect to have the unit back in service early part of next year.

Okay. Thank you.

Thank you.

And that concludes today's question-and-answer session. I would like to turn the call back to Mr. Borde for closing remarks.

Thank you, Liz and thank you all for participating this morning. Before we close we remind you to refer to our release and website for safe harbor and Regulation G compliance statements, our quarterly report on Form 10-Q is due to the SEC on November 9 and provides more detail and disclosures about financial statements. Please note that 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. The call was recorded and can be accessed on our website or by dialing 855-859-2056 confirmation ID 85417477 and the telephone replay will be available until November 1. And this concludes our call. Thank you all very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.