Good day, ladies and gentlemen, and welcome to the Entergy Corporation Fourth Quarter 2017 Earnings Release and Teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I’d now like to turn the conference over to David Borde, Vice President, Investor Relations. You may begin.

Thank you. 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 efforts, I commentate everyone who has questions, we requested each person ask no more than one question and one follow-up. In today’s call, management will make certain forward-looking statements. 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 our earnings release, our slide presentation and the Company’s SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today’s press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Leo.

Thank you, David, and good morning, everyone. Today, we are reporting strong results for another productive year. Utility Parent & Other our core business exceeded our adjusted EPS guidance and our consolidated operational earnings were in the top half of our guidance range and also higher than expectations – than our expectations. And we executed on our key 2017 deliverables. At the Utility, we had an active regulatory calendar and we continued to gain certainty for major product – projects in our capital plan. We received approval to build two new highly efficient gas-fired generating resources. All of our jurisdictions approved our plans to implement AMI in the respective service areas. For transmission, we completed another [indiscernible] cycle. We made significant progress in the certification of the New Orleans Power Station. We completed three annual formula rate plans in Arkansas, Louisiana and Mississippi. And we implemented two cost recovery factor increases in Texas. We are in discussions to extend Entergy Louisiana’s annual FRP. We continue to longer path to continue clarity on our exit from the merchant business in 2022 and we raised our dividend for the third consecutive year a trend we expect to continue subject as always to board approval. Our accomplishments this year are simply a continuation of the path we set several years ago. A path to become a world-class utility that prospered by creating sustainable value for all the stakeholders. We set out to be a company that delivers strong financial results to its owners, invests in its employees to create a workforce for the future and is an environmentally and socially responsible growth engine for its communities, while maintaining some of the lowest rates in the country for customers. Our key deliverable support this aspiration for our company. As we look ahead to 2018…

Thank you, Leo. Good morning everyone. As Leo mentioned, 2017 was another productive year for us with significant accomplishments. Before we get into the details, for Entergy consolidated, we finish in the top half of our operational guidance range, exceeding our expectations for the year despite the negative effects of weather. This is better than we told you to expect on our third quarter call primarily driven by two factors. First with Utility, we experienced strong sales growth, led by our industrial sector which came in at 7% quarter-over-quarter. Second, we saw benefits from our continued efforts to derisk our EWC business. Our Utility Parent & Other on an adjusted view, we also ended above our expectations and above the top end of our guidance range due to the strong sales growth. Beyond the financial results, we also know the tax reform is on your mind. Leo mentioned that new legislation will provide significant benefits to our customers. Over time will return approximately $1.4 billion for the unprotected portion of the excess ADIT and one form or another, whether through customer refunds, cash investment in new asset accelerated depreciation or other options our regulators may consider. And on an ongoing basis, the lower tax rate will translate into lower bills than our customers would have otherwise. In addition, our 2018 guidance and a longer term outlook we are affirming today, include expectations for the effective tax reform. I will now turn to some of the drivers for our fourth quarter results in more detail, starting with our core business Utility Parent & Other on Slide 6. On an adjusted view, earnings were $0.21 higher than fourth quarter 2016, driven by strong sales growth. For the industrial class, we saw robust sales from existing customers largely from the chlor-alkali and primary…

Thank you. [Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is now open.

Hey, good morning, congratulations.

Good morning, Julien.

Good morning, Julien.

So first quick question. Just on tax reform to kind of nail this down early on. In terms of FFO to debt, where does the $1 billion equity raise get you on a kind of a pro forma and run rate basis? And how is that relative to where you want to be obviously looking at 2017 trailing, kind of what are the rating agency wanting for me today? And how much buffer more importantly are you looking to have against that?

Julien, this is Drew. Right now the $1 billion will give us around 14% range. And so that’s where starting from and we think that will maintain investment grade as we talk about and discussed. And of course, we like to do better that. We’re looking for other ways to do that by driving internal cash flows and working with our retail and regulators, but that’s kind of the place where we see it bottoming out. The amounts we’ll see – will be varying by the exact timing of the return to customers of any excess ADIT, but that’s kind of where we see it bottoming out.

Got it. Excellent. You generally speaking beyond the $1 billion equity. You would think that – you would organically see the growth of the business to support an improvement in the FFO?

Yes. Overtime, it will improve. But early on, that’s where we’re seeing.

Excellent. And then on the NDT side, obviously, constructed statements in your prepared remarks. But as you see the wider strategic effort to kind of move that side of the business off your books, where do stand on that front as well, if any developments?

On EWC?

Yes.

So we are working on. I’m sorry.

Julien, you’re asking about the cash generation of that business. Is that what you’re getting at?

No, I was thinking more around the strategic angles, around sort of divesting that business more structurally.

Okay. So Leo in his remarks and yesterday or a couple of days ago, you saw the update on the Vermont Yankee process, so you’re clear on that. Beyond that, we continue to work through our process to try and duplicate that effort at our other plants and those processes continue to be ongoing. We are making progress, but the first thing is going to be Vermont Yankee, and we really focus on making sure that we bring that one home and then the others will follow on behind it.

Got it. So you really want to see the case study of VY that first and foremost before we could closing that?

That’s right.

Got it. All right. Excellent, thank you. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Greg Gordon of Evercore ISI. Your line is now open.

Thanks, good morning.

Good morning, Greg.

Thank you for the guidance around tax and appreciate you deviating from your normal way you talk about your ranges to give us a sense of that. So just to rephrase back to you what you said in your comments, so that I’m sure I got it correctly, given the regulatory outcomes you’ve seen, like your ability now to earn out your authorized ROEs in Arkansas because of the formula rate plan and that types of demand growth you’re seeing, at tax reform not happened you are looking given what you know now at being at the high-end of the range? And then the impact of, A, the loss of – partial loss of tax shield at the parent debt; B, the $1 billion of equity that you need to fund to offset the cash flow impact of tax, and C, the positive impact of rate base going up because of deferred tax. You still no lower than the midpoint of the range as you see it today?

Right. Well, yes, we said we’re not at the bottom of the range. So I think you would be – I will not kind of characterize around the midpoint specifically but we’re now not at the bottom of the range.

Fair enough. I’m not trying to put words in your mouth. But generally speaking as I think about the moving parts, have I missed anything salient?

No, those are the correct thesis, Greg.

Okay, thanks. And what can you tell us on the margin has changed between your last disclosure and your current comments on the cash flow impact of exiting EWC? What on the margin has changed to put you in a position to say you think it will be neutral to positive?

I think the main pieces are strong performance in the trust. And as you’ll see in our K, when it comes out early next week, the decommissioning actually I think it’s in the back of the disclosures in the appendix today. The trust are up over $4 billion at this point. So we see strong performance in the return of the trust. And then, secondly, we continue to work through our expectations on what it would cost to decommission facilities in the Northeast. And as we work through that, we are finding that we may be able to reduce our cost expectations there. So the combination of those two things is giving us the confidence to continue to move our expectations on the overall cash need at EWC.

Great. Last question, how do you not – let me rephrase this. All things equal before the things you’ve done to offset the impact of tax reform on your credit metrics, how much of a negative impact on your FFO to debt metric before – this is obviously before the things that you’ve done to offset it, the tax reform have has an impact in a vacuum? I mean, you say you’re going to be at 14%. Where would you be had you done nothing to offset it?

We will probably been around the 16%, 17% range FFO to debt.

Perfect. Thank you guys.

Thank you, Greg.

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

Thank you so much. Hi, guys.

Good morning.

Hey, good morning.

Good morning. So on the equity just wanted to understand, which piece is more correlated with the timing? Is it from a regulatory perspective if you get decision on the unexpected piece for DTL and the timing of the refund? Is that going to drive the timing to be more 2018 versus a 2019 event? Just wanted to understand how should we think about the timing.

I think that it’s more of a back-end question, Praful. So we will probably start executing second half of this year even though our processes are in complete based upon expectations for having to go into some no matter what, and then the question would be how quickly we get the certainty and we go ahead and how fast we begin to return those cash flows to customers. If it’s very quick, then we will accelerate the back end forward. But if it’s slow, obviously, we would need the cash until later. Did I answer your question?

Yes, that’s super helpful, thanks. So on the second question on EWC, clearly it was good to see the decommissioning trust performing well and the fact that you walked on those gains. But just obviously, it opens up the question to if it performs now, there is also now the risk that if it doesn’t perform well what happens then given now you’re in a positive position from a cash flow perspective? Just wanted to understand how you protect against that risk of downside on the decommissioning trust now that it’s performed. And secondly, now that you have these assets in a good position, is this a better time to execute sales with people who are experts at decommissioning these assets?

Okay. So on the first question, we have been actively trying to derisk our portfolio particularly for that for Vermont Yankee, for example. As that trust has grown we do know we have expenses that are coming, and so we’ve taken them ahead of schedule out of sort of an investment profile and putting them more into a cash profile to derisk because our trust has grown to a higher level. Similar for Pilgrim as we prepare for the retirement of that asset next year, plus Pilgrims trust by itself is up over $1 billion. So it’s a very well-funded. We’ve been actively derisking in that way. And then the second question was? What was your second question again, Praful?

In terms of executing on sales for these assets…

Yes, of course, it makes much easier to manage that sales process as though stress become higher. That is true.

All right. Thank you, guys.

Thank you.

Thank you. Our next question comes from the line of Shar Pourezza of Guggenheim Partners. Your line is now open.

Hey, good morning guys.

Good morning, Shar.

Let me just follow-up on Greg and Julien’s question for a second on EWC. So it’s nice to see that you’ve got a higher cash flow trajectory upon an exit. But sort of how does the cash flow trajectory look under an assumption that you sell the decommissioning trust? So in light of the performance of the funds, would it be cash flow diluted for you to exit the decommissioning trust funds?

Not necessarily because we wouldn’t necessarily have access to those decommissioning trust funds except to do decommissioning until well down the road. So the fact that it is performing better I guess maybe to Praful’s question helps us to move towards a transaction but it does not necessarily move more cash into the business.

Got it. Okay, that’s helpful. And then just on the Louisiana FRP extension, it sounds like, Leo, obviously from your prepared remarks that you’re confident in the second quarter settlement. So has tax reform sort of improved the conversations you’re having in the settlement talks? And then can you just remind us how much capital an O&M is on the nuclear side is embedded in this current filing?

I will address that first part. This is Rod.

Hey, Rod.

Yes, the conversation around taxes has slowed down our negotiations. But to the point that you just raised, we still feel good about our ability to settle the FRP. And our regulators, they issued the accounting orders as sort of a flag post to account and track the – how the tax reform would flow through that FRP before we close out the settlement discussion. Just keep in mind that our objective is still to resolve the issue to have rate effect changes happening in September. As it relates to the nuclear cost embedded in the FRP, I’ll have to get back to you on the actual numbers. I’m not sure whether we’ve disclosed a specific nuclear number in the FRP filing. But I’ll make sure that David gives a specific number if it’s public.

Okay. And then just let me just rephrase it. Has the Arkansas order improved sort of what you’re looking to do in Louisiana?

Well, remember we talked about that in prior discussions. The nuclear issue is less of a – had been less of a conversation in Louisiana. Our focus because of the size of our capital plan has been around transmission conversation. So nuclear is a much smaller component of Louisiana’s capital plan and as a result hasn’t been a line item, if you will, in the negotiation. So it’s been less of a I’ll just say less of an issue.

Got it. Thanks so much guys.

Thank you.

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

Hey guys. A couple of questions. I just want to make sure I understand a few things. First of all, Drew, what is the O&M growth rate year-over-year you are assuming in 2018 versus 2017 at the Utility?

I’m trying to think about the percentage. It’s probably 1% to 2%, Michael.

Okay, so inflationary. And then do you see significant opportunity for O&M cost saves post 2017 at the utilities? Or do you think that’s kind of a normal run rate you go from there? I’m just asking because of the heightened nuclear spend that you had in 2017?

Right. And we are still actually ramping up some of those nuclear costs. And I think a big piece of a driver for us is the pension expense and where that will go. But beyond that, operationally, we have several programs internally to try and drive operational efficiency within our organization. And as we begin to roll out our automated metering efforts in the next year, and we start to install meters and then we start to put all the other parts together with that, new operational and management distribution systems and asset management systems and linking all those things together, we would expect to begin to realize some operational savings going forward for our customers. And as we realize that, I think that will create headroom for incremental investment but it would not at least maybe on a temporary basis it might drop to the bottom line, but we would expect that it would be recaptured in rates fairly quickly.

Got it. And then Arkansas and Rod, I want to make sure I understand the puts and takes that are happening here. Can you walk us through how tax reform helps get you closer to earnings authorized? Is it simply because the 4% cap is no longer as big of a deal because you’re reducing rates this year? Or is there some other driver there?

Michael, I think the straightforward answer is the revenue requirements because of the lower tax expenses is less and as a result you’re closer to your allowed rate of return that you’re not having to worry about the carryover year-over-year for true up. So you’re actually earning allowed ROE in the year because of tax expense is presumed to be lower.

So I want to just kind of think about the Arkansas income statement. This is actually a pretty big deal for you guys. So tax rate goes down but revenue goes down to adjust for the tax rate. But that’s earning – that would be earnings neutral by itself. But because you didn’t get the full increase that you could have been authorized due to the 4% cap, now you can actually get that full increase in 2018?

No, tax rate goes down. The revenue requirements, that is the amount of revenues that are embedded in our rates don’t go down. Remember, we are over. And so all I’m saying is the overage that we wouldn’t be earning on that would be subject to a true up is actually less in 2018. And so we’re actually earning closer to our allowed rate of return because of the taxes that we’re not paying that the over reach is not as great as it would otherwise have been.

So, Michael, maybe think about it this way. Our original revenue requirement request was about $130 million. The cap limited us to think $70-ish million. And so we were short by $60 million. We are under earning by that amount. What, I think, Rod is saying is under the lower tax regime, the revenue requirement get something closer to the $70 million. So if you think of it as our revenue requirements kind of our revenue line, if you thinking about it 2018 income statement, our revenue line is about the same, our tax expense will be lower and all of it will kind of balance out to where we get close to our allowed return in Arkansas. Of course, next year we will be moving through the FRP and we’ll have an expectation for a lower tax expense next year as well and we’ll just continue to roll forward in the FRP process in that way.

But thinking about the post 2018 growth in Arkansas because of the legislation and the change in ratemaking, are you thinking that 2019 and beyond barring any unforeseen things, you should be very close to annually to earnings authorized there now?

We should get much closer, yes.

Got it. Okay. Thank you guys. Much appreciate it.

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

Yes. Good morning guys.

Good morning.

Yes. I just noticed the comments about 100 megawatts of renewables potentially over three years. And if I heard you rightly it’s about 180 is PPA but then you said that they remainder I guess 600 or so would be about half of that would be ownership opportunities. Did I hear that right?

Yes, yes. And over the next three years, we would anticipate entering into contracts for those – the projects themselves would be kind of more towards the back end of the period or beyond.

I guess, how do you have confidence that in that split at this point? And which jurisdictions OEM are we talking about?

Well, we’re in the process right now in some of those jurisdictions with some discussions around those. I really don’t want to get into any detail about it at the moment because those discussions are going on. But we’ve been looking at them for a while. It’s obviously the price point of renewables and everything that come down it begins to make sense in certain instances around the system so we’re pursuing that.

Okay. Thank you for that. And then just on the comments about FFO metrics, and I think you said a couple of times you obviously intending to remain investment grade. But with the Baa2 Moody’s rating, are you – are we to understand that you might be willing to not to downgrade or are you also pushing to try and defend the current rating as opposed to just staying investment grade?

Right. So we’re committed to investment grade but we still wouldn’t prefer to keep our current credit rating and so certainly we’re not giving up on that. And so we’re going to be continuing to look for ways to manage to our current credit rating while we maintain our earnings outlooks that we’ve committed to you all to achieve. So I wouldn’t say that our current credit rating is going to necessarily fall down a notch but our commitment is to maintain investment grade.

So if I’m not wrong that the – downgrade threshold is around 15%, so would you consider more equity to stay where you are or in that instance, do we – I guess I’m just pushing for how hard you defend the current number – current grade.

Right. I mean, we will also endeavor to maintain our earnings outlooks and so that’s going to be the balancing mechanism.

Okay, perfect. Thank you, guys.

Our next question comes from the line of Paul Fremont of Mizuho. Your line is now open.

Thank you. Can you quantify the tax reform impact on your rate base?

Sure. This is Drew. It’s going to depend mostly upon the amount of cash that’s ultimately returned to customers because that will represent sort of incremental rate base. If there is some of the excess ADIT that turns into accelerated depreciation of existing assets or is put into sort of pay for assets that we were already planning to put into rate base and then that would be kind of neutral. Right now, we would expect that we would grow the rate base by a little over $1 billion after the three years. And then also what we already have.

Right. So in essence, I mean, you’re issuing equity but you’re issuing equity to build rate base over and above what you had an original plan?

That’s correct.

Okay. And then can you also – on the unfunded pension for 2017, can you give us an idea of where you ended 2017?

Yes. So we ended 2017 with about finishing trust assets around $6.1 billion and pension liability around $8 billion. So we’re at about 1.9 differences in that.

Okay, so you actually improve their relative to where you were last year so that should also help in terms of the FFO to debt metrics, right?

It will. But it’s not improved all that much. I want to say it’s improved by $50 million to $60 million. The rates have been going up but the pension discount rate at the end of the year versus the end of the prior year was still lower because as you know corporate spreads have tightened, curves have flattened and most of our liabilities are longer dated. So the liability went up more than we were anticipating despite the fact that we had strong returns and $400 million of contributions into our pension last year. And by the way, we would expect to put about $400 million in this year as well.

And then beyond that, I mean, should we assume that $400 million number continues as a run rate? Or should we look at those more as just one-offs?

Well, that was – this year will be the end of a five-year effort to put $2 billion of incremental assets into the pension trusts. I don’t know that it would necessarily we could continue but that is something that we’re investigating.

Thank you very much.

Thank you. And our final question comes from the line of David Paz of Wolfe Research. Your line is open.

Good morning. I believe you said the $1 billion of external equity will depend on the timing of out of the rate case or rate filings. Do you have an at the money or turbo program?

David, we don’t have one currently established. We would need to go get authorization with our board but also with the SEC to make that happen. We would anticipate that probably occurred in the second quarter or so.

Got it. Okay, and what’s the capacity of your internal equity programs like DRIP?

We don’t have one currently established, right now.

Okay, got it. And I believe you may have just address this, I apologized if I missed this, but can you explain why your pension discount rate assumption is falling again given the rate environment that we’re seeing?

Yes, well, it’s said at the end of the year and so it’s a once-a-year snapshot and so you compare it to 12/31/2016 and – versus 12/31/2017. And if you look at that time frame sort of a 10-year treasury, it actually come down a little bit even though the front end and shorter term treasury would come up. Meanwhile, so you had to flattening of the curve and then you also had corporate spreads, which had tightened to that. So using a longer dated curve, corporate rates were a little bit lower than what they had been previously. So that’s those are the two comparison points.

Got it, great. And actually sneaking one more on your sales forecast, I know you said that there’s some volatility within the year. I know you see forecast the sales growth beyond this year rising. I mean, just can you characterize whether these are using conservative assumptions about industrial growth? Or are you kind of fairly comfortable with your assumption now? Just any room for further improvement and further upside?

Yes. So this is Drew again. On the industrial side, I would say that we have – we’re kind of middle of the road on our expectations for industrial growth. It’s for our large customers, it’s based upon our expectation for projects that we can see under construction right now through 2020. And what our expectation for them is in the marketplace. So I’d say that fairly middle-of-the-road expectation on industrial. For residential and commercial, there may be a little bit of near-term opportunity in 2018. But beyond that, we expect that the effects of automated meters and getting our customers better information about how to manage their energy usage would allow them to be more efficient and conservative on the way that they actually use their electricity. So we have actually built in an expectation that over the longer term, we would expect to see a decline in residential and commercial sales.

Great. Thank you so much.

Thank you. And that is all the time we have for questions. I’d like to hand the call back for David Borde for any closing remarks.

Great. Thank you, Nicole, and thanks to everyone for participating this morning. Before we close, we are reminding you to refer to our release and website for Safe Harbor and regulation G compliance statements. Our Annual Report on Form 10-5 is due to the SEC on March 1 and provides more details and disclosures about our financial statements. Events 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. And this concludes our call. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may disconnect. Everyone, have a great day.